4 Takeaways From Performance Sports Group Ltd.’s Record First-Quarter Earnings Report

Performance Sports Group Ltd.’s (TSX:PSG)(NYSE:PSG) strong first-quarter earnings show why it’s a titan in its industry. Is this a buying opportunity?

The Motley Fool

Performance Sports Group Ltd. (TSX: PSG)(NYSE: PSG), the global retailer of sporting apparel, equipment, and accessories, has just announced record-setting first-quarter earnings results, but its stock has reacted by making a slight move to the downside. However, the stock is still up more than 25% year to date, which has far outperformed the TSX Composite Index’s 5.6% return. Let’s take a look at the four most important takeaways from the report to decide if the stock could turn it around and head higher from here.

1. The results were mixed compared to expectations

Here is a chart of the results reported by PSG in the first quarter of fiscal 2015 versus what analysts had expected and what the company reported in the same quarter a year ago:

Metric Reported Expected Year Ago
Earnings Per Share $0.51 $0.53 $0.63
Revenue $197.14 million $188.74 million $153.99 million

Source: Financial Times.

2. Declining net income and EPS were due to its public offering

Adjusted net income decreased 2.2% to $22.6 million and earnings per share decreased 19% to $0.51 in the first quarter. At first glance, this may seem bad, but these declines are almost entirely attributable to PSG’s underwritten public offering back in June. The company closed a $125.6 million public offering by selling 7.1 million shares at the price of $15.50 per share on June 25, which brought in gross proceeds of about $110 million in total. This is one of the only situations where investors should accept a dip in both net income and earnings per share.

3. Revenue growth was achieved in every segment

PSG’s 28% revenue growth achieved during the quarter was a result of increased sales in each of its three segments. Here is a chart of the total revenue and percentage growth accomplished in each segment during the first quarter versus the year-ago period:

Segment Q1 2015 Revenue Q1 2014 Revenue Change
Hockey $160.4 million $148.0 million 8.4%
Baseball/Softball $32.3 million $1.7 million 1,800%
Other Sports $4.4 million $4.3 million 2.3%
Total $197.1 million $154.0 million 28%

Source: Performance Sports Group.

4. The gross margin took a significant hit

Adjusted gross profit rose 19.3% to $73.4 million during the first quarter, but the gross margin contracted 270 basis points to 37.2%. PSG noted that this contraction was driven by an unfavorable shift in the product mix to lower margin items, like hockey sticks and equipment, along with unfavorable foreign exchange headwinds, which more than offset lower apparel production costs and the addition of the EASTON brand.

Is Performance Sports Group worthy of a long-term investment?

Performance Sports Group is a titan in the sporting goods and apparel industry and its strong 28% revenue growth in the first quarter displayed this power perfectly. The company’s stock has responded to the release by falling about 0.5% in the trading session, and I think this is a great opportunity to initiate a long-term position, so Foolish investors should definitely take a closer look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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