Sports Authority Strikes Again, Causes Escalade Price Target Cut

Wunderlich’s Rommel Dionisio mentioned Escalade, Inc. ESCA faces near-term challenges due to the recent bankruptcies of major sporting goods retailers, including Sports Authority and Sport Chalet.

Dionisio maintained a Buy rating on Escalade, while lowering the price target from $18 to $16.

Some Challenges

“While bad debt expense has likely already been discounted, the second derivative impact that appears to now be playing out is that remaining major retailers are re-ordering product less aggressively given ongoing liquidation sales. That being said, such a trend is likely only temporary in nature,” the analyst mentioned.

Following a meeting with the company’s new CEO, Dionisio expressed confidence in Escalade’s initiative to integrate and combine its recent acquisitions into one management operating system has almost reached completion, which should lead to improvements in the supply chain efficiency and management.

More Positives

The integration initiative is expected to be completed next quarter and the unified platform is expected to be scalable, helping the company to quickly integrate future acquisitions.

“Confirming the positive feedback we had received from channel checks earlier this year, Escalade’s entry into the fast growing crossbow category has already exceeded initial expectations,” Diosinio stated.

Management now intends to expand the crossbow product lineup, which would leverage the renowned archery brand, Bear, with new hunting and target models that are likely to be shipped in 4Q.

The EPS estimates for 2016 and 2017 have been lowered from $1.00 to $0.89 and from $1.13 to $1.03, respectively.