Escalade’s financial performance in 2019 was very disappointing.
Adjusted Earnings per Share declined 29.2%
Operating Margin was 5.1%
Return on Assets was 4.9%
Return on Equity was 5.7%
These results are unacceptable for any healthy business, even more so for a company like Escalade that has strong brands and leading market positions in stable categories.
While some of the low level of profitability can be attributed to investments in new businesses that should pay off in the future, the fact remains that our company did not perform anywhere close to its potential or to the level that you should expect from us.
The good news is that we own high quality brands whose reputations have been built over decades; a talented, dedicated, and passionate team of employees who are driven to win; and a strong balance sheet that protects us and give us the ability to take advantage of opportunities to improve our returns.
However, there is much work to be done. It will not be easy, it will not be fast, and there will be bumps in the road. But your board and management team are taking decisive action and making the changes necessary to achieve our goals to provide strong returns to shareholders and to create an environment where our employees can prosper and contribute to their communities.
Our products bring families and friends together to create happy memories. Unfortunately, our financial performance and the resultant share price may have done the opposite for our shareholders. We are taking the steps to change that.
Here are just a few of the great assets we will use to turn things around.
USW – A Little Gem
You may not even know that we own US Weight, a relatively small manufacturer of niche products that are produced in Olney, IL. Larry Mitchell and his team have quietly built a highly successful specialty producer of blow molded and injection molded products that range from tractor weights to crowd control stanchions and plastic chain to fitness products like The Step®.
Through a relentless process of product improvement, cost control, and embracing change, the USW team is the model of entrepreneurial spirit within a larger organization. Our plans include taking advantage of opportunities to gain distribution and expand into adjacent categories.
Victory Tailgate – On Demand Customization sold Direct to the Consumer
Acquired in late 2018, Victory Tailgate is a classic American success story. Scott Sims started making Cornhole games in his garage in 2008. The fixed assets of his business consisted of a 16 ounce hammer and a circular saw. While hundreds, if not thousands, of other people did the same thing, Scott had a vision for something greater. On a shoestring, he built a higher volume manufacturing process, created the category leading web store, and negotiated license deals with over 600 colleges and major professional sports leagues including the NFL, NBA, Major League Baseball, the NHL, Nascar, and many more.
Today, Victory can receive an order one day, produce it the next, and ship it the third day. Anyone visiting www.VictoryTailgate.com can custom build their order by choosing from a variety of current and vintage logos, mixing teams if they live in a “house divided”, or create their own design to celebrate a wedding, graduation, or milestone birthday. Victory can help with virtually any event or passion that is meaningful to the shopper.
Combining Victory’s experience, ecommerce expertise, proprietary manufacturing techniques, and licenses with Escalade’s broad range of products, sourcing capabilities, and retail partnerships truly does create an opportunity to make 1 plus 1 equal 3. During 2019, our first full year of ownership, we incurred a substantial loss due to poor execution on our part. That has been corrected with a new organization structure that places full authority, responsibility, and accountability with Scott and his team in Orlando, FL. For 2020 we plan to eliminate the losses and set the foundation for future growth and profitability. The early signs are encouraging.
Fred Bear – The Iconic Archer
The archery industry has gone through a cycle of boom and bust over the last 10 years. Possibly driven by the popularity of the Hunger Games, the entire archery industry enjoyed an unprecedented run of extraordinary growth until 2014 and has been nursing a hangover ever since. Several companies in the industry have shut their doors and the rest are suffering as they fight over the smaller sales base and try to get their cost structures in line with the reality of current industry conditions.
While our brand, Bear Archery, has not been immune, we have one of the best-known, most trusted names in the industry. Fred Bear’s legacy is strong and resonates with the core customer for bowhunting equipment and supplies. Neil Byce III, whose father was Fred Bear’s personal bowyer, recently celebrated 40 years of service to the company and leads the team manufacturing modern compound and beautiful traditional recurve bows in our Gainesville Florida factory. Bear bows are not the cheapest, nor the most expensive bows you can buy—our goal is to simply to offer the most performance and value for each price point.
As the archery industry consolidates, Escalade is in a good position to gain market share and take advantage of opportunities to expand our product offering. Beyond industry consolidation, we have opportunities to grow in the popular crossbow category, continue our expansion in bowfishing, and further enhance our leading Trophy Ridge® accessories business.
Cue & Case – Billiard Dealer’s Best Friend
If you are not a billiard dealer, you’ve likely never heard of Cue & Case®. If you are, you probably keep the 240 page Cue & Case catalog close at hand. Everything from Chalk to Billiard Room Furniture; and, of course, hundreds of Cues and Cases. Jamie and Wes Bond along with their team of experienced billiard accessory experts can help any dealer maximize their store’s assortment and profitability.
The billiard industry has ebbed and flowed over the decades. Current industry sales have stabilized at a fraction of the level before the housing crisis. We cannot predict when the interest in billiards will return to prior levels. But, our team at Cue & Case can now offer the full range of Escalade indoor games to satisfy the needs of families to create enjoyable recreational activities in their home. Whether it is traditional billiards, Stiga® Table Tennis, Atomic® Foosball, Air Hockey or Shuffleboards tables, indoor basketball shootout games, or custom Victory canvas wall art for the game room, we can provide a wide range of fun activities for the home.
Leading Brands in Outdoor Sports and Indoor Games
Escalade owns some of the leading brands in several well-established categories.
Basketball – Goalrilla™, Goalsetter®, Goaliath®, and Silverback® dominate each price point in premium inground residential goals. If you want a basketball goal that will give great performance, increase the value of your home, and stand the test of time-- look no further. The first Goalrilla or Goalsetter in a neighborhood sells the second, and the third, and so on.
Pickleball – Onix® is the leading performance paddle and Dura® is ball of choice for tournaments. Pickleball has been called the fastest growing sport in America and Escalade has high quality products for everyone from the recreational player to the leading professionals.
Table Tennis – Stiga is one of the most recognized brands in the table tennis industry. Escalade has a deep and long-standing relationship with Stiga Sports AB which is based in Sweden. While we sold our 50% ownership interest in 2018, we have retained distribution rights for table tennis in the recreation market in North America and have opportunities to further enhance our relationship which would provide mutual benefits to Stiga and Escalade.
Darting – Escalade owns and distributes the top brands in darting. Unicorn®, Accudart®, Arachnid®, Nodor®, and Winmau® Boards, darts, and accessories for steel tip and soft tip enthusiasts. Our new Prodigy Smart Bristle Board combines the traditional performance of authentic steel tip play along with patent pending automatic scoring technology, a mobile app, and WiFi connectivity.
Ben Tremont, General Manager of Sports and Nick Martin, General Manager of Games have a lot on their plate to manage such a wide range of brands in a variety of categories. Their success is a testament to their deep knowledge and passion, along with that of their teammates.
As this goes to press, our nation, and the world, face a tough battle with the coronavirus. By the time you read these words, hopefully we will have developed some ability to prevent the spread and treat those affected. Over its 93-year history Escalade and its predecessors have survived the great depression, world war, terrorist attacks, stock market crashes, and more. Today we are taking the precautions to protect our workforce while continuing to serve our customers and respond to the changing landscape.
Looking ahead, the Escalade board, in concert with the management team, is committed to working together to improve the financial performance of our company and produce an appropriate return on your investment.
Specifically, we are focused on further deepening our knowledge of and connection with consumers to drive innovation that motivates them to engage in healthy, fun activities with their family and friends. Our categories are mature and stable. That does not mean they cannot grow. As leaders in our categories, it is up to us increase the size of the pie. As leaders, we can and should increase our market share.
We will also continue our journey of serving our consumers where and how they want to shop. Local independent stores, big box chains, buy online and pick up at a store, or buy online and ship to the home; we can and will continue to make our trusted brands available however you want to buy.
Our associates are passionate about our sports and activities, they are devoted to efficiently manufacturing these products, and they know how to provide the right items to the right channels to reach the right consumers. We will give them the authority and make sure they have the resources they need to succeed. And we will hold each and every one of us accountable for reaching our individual objectives that support the overall corporate goals.
We know that we must, and we are all working together to improve our key profitability metricsoperating margin, return on assets, earnings per share. When we do that, we believe the share price will follow.
On behalf of the 468 associates at Escalade, we thank you for your patience and support and look forward to repaying the favor with improved performance. I am confident we will succeed.
Walter P. Glazer, Jr.
Chairman of the Board