Cutter & Buck Inc. announced that net sales increased 7.6% to $24.2 million in its third fiscal quarter ended January 31, compared to $22.5 million in the year-ago quarter. Gross margin for the period rose 70 basis points to 45.2% of sales. CBUK narrowed its net loss for the quarter to $384,000, or a loss of 4 cents per diluted share, from a net loss of $857,000, or 8 cents per diluted share, in Q3 last year.

“Our results for the third quarter were in line with our expectations. While we reported a loss during the quarter, we are pleased with the 7.5% sales increase and the 70 basis point increase in our gross margin,” said Tom Wyatt, Chief Executive Officer. Wyatt also noted that the third quarter historically produces the company's lowest sales of its fiscal year.

The pre-tax loss of our wholesale business was $0.5 million in the third quarter, down $0.6 million from the third quarter of last year, due to investments in computer systems upgrades and costs of compliance with Section 404 of the Sarbanes-Oxley Act of 2002. For the nine months ended January 31, 2005, we had pre-tax income from our ongoing business of $9.5 million, up $1.6 million over the first nine months of last year (see Table B in this press release for a reconciliation to GAAP figures). Our gross margin continues to be strong and is the primary contributor to the year-to-date increase.

In our Corporate strategic business unit (SBU), our largest, sales rose 14.2% for the quarter. According to Brian Thompson, Vice President, “We have a strong partnership with our distributors and they have given us very positive feedback on our new 2005 product line.” Sales also rose during the quarter in all of our other SBUs with the exception of Golf (see Table C).

According to Wyatt, “In my first three months with the company, I have spent a lot of time with our customers discussing our golf heritage and the direction of the company, and believe we are headed in the right direction. Our Fall 2005 line incorporates a number of positive changes and we are planning even more significant improvements to our Spring 2006 line. But there are long lead times in this industry. So it will take time before these changes ultimately show up in our sales.”

Our gross margin continued to show year-over-year increases during the quarter, rising to 45.2% compared to 44.5% during the third quarter last year. While we expect our gross margin to remain strong, it will fluctuate as part of our normal business cycle. We continue to expect that our fiscal 2005 margin will be between 45% and 48%.

Operating expenses, excluding restatement and restructure related expenses for the quarter, increased $1.6 million year-over-year. Year to date, those expenses have also increased by $1.6 million over the prior year and as previously disclosed, we do not expect fiscal 2005 operating expenses to increase more than $4 million over the previous year. As noted last quarter, we are incurring additional expenses for our marketing initiatives, information system upgrades and replacements, and compliance with the Sarbanes-Oxley Act. These increased expenses will continue through the remainder of fiscal 2005 and, at reduced levels, through fiscal 2006.

“Overall, our balance sheet remains solid with cash and investments totaling $43.8 million and $80.2 million of working capital at the end of the third quarter,” said Ernie Johnson, Chief Financial Officer. “Our inventory was slightly higher than anticipated. We have updated our Classics line and increased the number of classic styles for 2005. Many of these new styles were brought in during the third quarter while we were still phasing-out some discontinued styles. We expect our inventory balance to decline from current levels by the end of the fourth quarter.”

During the first nine months of this fiscal year, we generated $7.6 million in free cash flow (defined as cash provided by operating activities less purchases of fixed assets). Accounts receivable averaged 60 days' sales outstanding during the quarter, an improvement of four days as compared to the prior year.

As our new CEO works with the board on setting the company's strategic direction, we will continue to maintain our operating flexibility, cash balances and capital structure.

The board of directors has approved a dividend of $0.07 a share, payable on April 8, 2005 to shareholders of record on March 24, 2005.

During the third quarter, we repurchased 63,800 shares of our common stock at an average price of $14.59. Since the inception of our stock repurchase program, we have repurchased a total of 219,026 shares of our common stock at an average price of $11.93. We still have $3.4 million available in the program for share repurchases at times and prices that we believe are advantageous for our shareholders.

CEO Tom Wyatt concluded, “I am absolutely delighted to be at Cutter & Buck and greatly appreciate the warm welcome I've received from our employees, customers and shareholders. This is an exceptional company with a very strong brand. I am working with the Board and the rest of the management team to develop an ambitious yet realistic strategic plan to profitably grow Cutter & Buck's business. While it will no doubt take some time to fully tap our potential, I and the rest of the Cutter & Buck team are fully committed to that task.”

                              Cutter & Buck
         Table A: Condensed Consolidated Statements of Operations
                               (unaudited)

                                 Three Months Ended     Nine Months Ended
                                 Jan. 31,   Jan. 31,   Jan. 31,   Jan. 31,
                                  2005        2004       2005        2004
  (in thousands, except
   per share amounts)
  Net sales                     $24,220     $22,540   $91,657    $90,024
  Cost of sales                  13,272      12,507    47,818     49,033
  Gross profit                   10,948      10,033    43,839     40,991
  Operating expenses:
    Depreciation                    679       1,040     2,136      3,152
    Selling, general &
     administrative              11,007       8,960    32,630     29,974
    Restatement expenses              9       1,172       290      4,522
  Total operating expenses       11,695      11,172    35,056     37,648
  Operating income (loss)         (747)     (1,139)     8,783      3,343
  Interest income (expense):
    Interest expense                (9)        (31)      (39)      (134)
    Interest income                 222         108       475        193
    Net interest income             213          77       436         59
  Income (loss) from continuing
   operations before
   income taxes                   (534)     (1,062)     9,219      3,402
  Income tax expense (benefit)    (150)       (205)     3,438      1,215
  Income (loss) from continuing
   operations                     (384)       (857)     5,781      2,187
  Income from discontinued
   retail operations,
   net of tax                        --          --        --        146
  Net income (loss)              $(384)      $(857)    $5,781     $2,333

  Diluted earnings (loss)
   per share:
  Earnings (loss) from
   continuing operations        ($0.04)     ($0.08)     $0.51      $0.20
  Earnings from discontinued
   retail operations                 --          --        --      $0.01
  Net earnings (loss)           ($0.04)     ($0.08)     $0.51      $0.21