Ashworth Inc. announced consolidated net revenue for the third quarter ended July 31, 2003 increased 5.0% to $38.0 million as compared to $36.2 million for the third quarter of 2002. Consolidated third quarter net income was $2.1 million or $0.16 per diluted share compared to a consolidated net loss of $573,000 or $0.04 per diluted share in the same quarter of the prior year.
During the third quarter of fiscal 2002 the company established a $4.25 million increase in the reserve for bad debts related to a single major retail account. Without the increase in reserve, the company would have reported consolidated net income of $2.0 million or $0.15 per basic share for the third quarter of fiscal 2002.
Consolidated net revenue for the company's domestic business segment increased 1.6% to $31.7 million from $31.2 million in the same period of the prior year. Consolidated net revenue for the company's international business segment increased 26.0% to $6.3 million from $5.0 million in the like period of the last year. Third quarter revenue from Ashworth(R) branded merchandise increased 5.5% to $30.3 million and revenue from Callaway Golf apparel, which was introduced in April 2002, increased 1.9% to $7.7 million for the quarter.
For the nine-month period ended July 31, 2003 consolidated net revenue increased 17.2% to $117.1 million compared to $99.9 million for the same period in fiscal 2002. Consolidated net income for the first nine-months of fiscal 2003 was $6.5 million or $0.49 per diluted share, compared to consolidated net income of $2.0 million, or $0.14 per diluted share, for the same period of fiscal 2002. Without the effect of the reserve increase, the company would have reported consolidated net income of $4.5 million or $0.33 per diluted share for the nine-month period of fiscal 2002. Consolidated net revenue in the company's domestic business segment increased 14.4% to $98.6 million from $86.2 million in fiscal 2002. Consolidated net revenue for the company's international business segment increased 35.0% to $18.5 from $13.7 million for the same period of the prior year. Nine-month fiscal 2003 revenue from Ashworth branded merchandise increased 5.3% to $93.3 million and revenue from Callaway Golf apparel, which was introduced in April 2002, increased 110% to $23.8 million for the nine-month period.
Randall L. Herrel, Sr., chairman and chief executive officer, stated, “We are pleased with the improvement in the third quarter and the first nine-months results for fiscal 2003. This performance is notable in light of the unrest in the Middle East, a continuing weak industry and challenging economic environment during the period. We believe these favorable results are due to our new multi-brand, multi-channel global business and strategy, which is being fully implemented in fiscal 2003. The increase in our domestic business segment during the current quarter resulted from the 68.2% growth in the retail channel and the 1.2% increase in the corporate channel. This was partially offset by the 3.8% decline in the golf and off-course specialty channel, which we believe was due to the challenging economic and industry environment, as well as poor weather on the east coast.”
In reviewing the company's financial position, Terence Tsang, chief operating officer and chief financial officer, stated, “Our gross margins increased 30 basis points to 41.3% for the third quarter of fiscal 2003 from 41.0% for the same period last year, due primarily to our continued initiative to improve sourcing. This initiative enables the company to stay competitive without affecting our gross margin in the golf apparel market which is experiencing price compression.”
Tsang continued, “Our balance sheet continues to get stronger as we manage our working capital and seek to optimize our financial leverage. Net accounts receivable decreased 13.0% over the prior year while net revenues increased 5.0% for the third quarter. Our total inventory increased 8.7% to $42.3 million as of July 31, 2003 as compared to $38.9 million as of July 31, 2002. While the Ashworth brand inventory decreased approximately 8.5% over the prior year, the Callaway Golf apparel brand inventory increased to approximately $11.1 million as of July 31, 2003 as compared to $4.8 million as of July 31, 2002. As we are still in a developing stage for the Callaway Golf apparel brand, we are expecting to carry a higher level of inventory as we continue to penetrate new accounts. Finally, our total debt decreased $5.0 million to $9.0 million as of July 31, 2003 as compared to $14.0 million as of July 31, 2002 due to management initiatives to improve cash flow.”
The company confirmed and updated its revenue and earnings guidance for the balance of fiscal 2003. Based on current information, the company expects consolidated net revenues for fiscal 2003 of $147.6 million to $149.6 million, an increase in the range of approximately 14% to 16% compared to fiscal 2002, and earnings of $0.54 to $0.57 per diluted share, an increase in the range of 184% to 200% compared to fiscal 2002. Excluding the $2.55 million after tax effect of the additional bad debt reserve booked in fiscal 2002, or $0.19 per diluted share, the increase in earnings per diluted share for fiscal 2003 as compared to fiscal 2002 is expected to be in the range of 42% to 50%. The company believes that excluding the effect of the bad debt charge booked in the third quarter of fiscal 2002 resulting from a significant national retail customer filing for protection under U.S. bankruptcy laws provides a more accurate projected rate of growth in earnings per diluted share for fiscal 2003 as compared to fiscal 2002 and, therefore, the projection is useful to investors.
Based on current business trends the company expects fiscal 2003 fourth quarter net revenues of $30.5 million to $32.5 million, an increase in the range of approximately 4% to 11% compared to the same quarter of fiscal 2002, and earnings of $0.05 to $0.08 per diluted share, compared to earnings of $0.04 in the same quarter of fiscal 2002. The company currently plans to report fourth quarter and year-end results on Thursday, December 18th at market close.
Herrel concluded, “We continue to be optimistic about the future of Ashworth. We have two strong brands to grow our business. As evidenced by our positive operating results starting in the fourth quarter of fiscal 2002 and continuing during the first nine-months of fiscal 2003, our new business model, which includes multi-brand and multi-channel strategies, is a key driver of this success.”
ASHWORTH INC.
Consolidated Statements of Income
Third Quarter ended July 31, 2003 and 2002
(Unaudited)
Summary of Results of
Operations
2003 2002
-------------------------
Third Quarter
---------------------------------------------
Net Revenue $37,960,000 $36,236,000
Cost of Sales 22,284,000 21,385,000
-------------------------
Gross Profit 15,676,000 14,851,000
Selling, General and Administrative Expenses 12,051,000 15,609,000
-------------------------
Income from Operations 3,625,000 (758,000)
Other Income (Expense):
Interest Income 9,000 7,000
Interest Expense (232,000) (258,000)
Other Income, net 37,000 54,000
-------------------------
Total Other Expense, net (186,000) (197,000)
Income Before Provision for Income Tax
Expense 3,439,000 (955,000)
Provision for Income Tax Expense (1,376,000) 382,000
-------------------------
Net Income $2,063,000 $(573,000)
=========================
Income Per Share - BASIC $0.16 $(0.04)
Weighted Average Common Shares Outstanding 13,006,000 13,289,000
=========================
Income Per Share - DILUTED $0.16 ($0.04)
Adjusted Weighted Average Shares and Assumed
Conversions 13,211,000 13,289,000
=========================
Nine Months
---------------------------------------------
Net Revenue $117,118,000 $99,920,000
Cost of Sales 69,515,000 59,444,000
-------------------------
Gross Profit 47,603,000 40,476,000
Selling, General and Administrative Expenses 36,445,000 36,654,000
-------------------------
Income from Operations 11,158,000 3,822,000
Other Income (Expense):
Interest Income 24,000 39,000
Interest Expense (683,000) (655,000)
Other Income, net 253,000 59,000
-------------------------
Total Other Expense, net (406,000) (557,000)
Income Before Provision for Income Tax
Expense 10,752,000 3,265,000
Provision for Income Tax Expense (4,301,000) (1,306,000)
-------------------------
Net Income $6,451,000 $1,959,000
=========================
Income Per Share - BASIC $0.50 $0.15
Income Per Share - DILUTED $0.49 $0.14
This earnings release includes information presented on a pro
forma basis. These pro-forma financial measures are considered
"non-GAAP" financial measures within the meaning of SEC Regulation G.
The company believes that this presentation of pro forma results
provides useful information to both management and investors to better
understand the impact of the additional bad debt charge booked in the
third quarter of fiscal 2002. The presentation of this additional
information should not be considered in isolation or as a substitute
for results prepared in accordance with generally accepted accounting
principles. The reconciliation set forth below is provided in
accordance with Regulation G and reconciles the pro forma financial
measure with the most directly comparable GAAP-based financial
measure.
ASHWORTH INC.
Pro Forma Consolidated Statements of Income
Third Quarter ended July 31, 2003 and 2002
(Unaudited)
Quarter
Ended Quarter Ended
7/31/03 7/31/02
----------------------------------------------
Additional
As As Bad Debt Pro Forma
Reported Reported Reserve Results
----------------------------------------------
Net Revenue $37,960,000 $36,236,000 - 36,236,000
Cost of Sales 22,284,000 21,385,000 - 21,385,000
----------------------------------------------
Gross Profit 15,676,000 14,851,000 - 14,851,000
Selling, General and
Administrative
Expenses 12,051,000 15,609,000 (4,250,000)11,359,000
----------------------------------------------
Income from Operations 3,625,000 (758,000) 4,250,000 3,492,000
Other Income (Expense):
Interest Income 9,000 7,000 - 7,000
Interest Expense (232,000) (258,000) - (258,000)
Other Income, net 37,000 54,000 - 54,000
----------------------------------------------
Total Other Expense,
net (186,000) (197,000) - (197,000)
Income Before Provision
for Income Tax Expense 3,439,000 (955,000) 4,250,000 3,295,000
Provision for Income Tax
Expense (1,376,000) 382,000 (1,700,000)(1,318,000)
----------------------------------------------
Net Income $2,063,000 ($573,000)$2,550,000 $1,977,000
==============================================
Income Per Share - BASIC $0.16 ($0.04) $0.19 $0.15
Weighted Average Common
Shares Outstanding 13,006,000 13,289,000 13,289,000 13,289,000
==============================================
Income Per Share -
DILUTED $0.16 ($0.04) $0.18 $0.14
