Cutter & Buck Inc. swung to a $1.1 million net income in the quarter year ended July 31, 2003 which includes $3.2 million pretax profit from our remaining wholesale business. It also includes $1.7 million pretax restatement expenses, including expenses to settle the shareholder lawsuits and the SEC investigation.
The $3.2 million pretax profit from the remaining wholesale business for the first quarter of FY 2003 compares favorably to the $1.3 million pretax profit in the same period of FY 2002.
Sales were essentially flat to last year, when you consider that last year's numbers for the quarter included $750,000 of direct sales in Europe, where we now have a licensee and receive royalty income. See Table C attached. Gross profit for the quarter was $14.7 million, up from $13.9 million in the prior year. The gross margin percent was 45.0% for the quarter compared to 41.9% a year ago. Management is pleased with the results of its efforts to improve margins; however, we expect our margins to continue to show some fluctuation.
“Cutter & Buck's restructuring is now substantially complete,” said Fran Conley, Chief Executive Officer. “Sales are stable, margins are good, and costs are controlled. We have a strong brand with loyal customers and a full, skilled management team. We can now build on this foundation.”
“Our balance sheet remains healthy,” said Ernie Johnson, Chief Financial Officer. “Accounts receivable for the quarter declined $4.8 million, or 20%, over the prior year, and we continued to generate positive free cash flow. Our overall inventory balance decreased $3.4 million as planned during the quarter. Although inventory of our seasonal products increased during the quarter as we received our Fall 2003 lines, this was more than offset by a decrease in the inventory of our classic products as we intensively managed our buys in this area. In addition, we are now seeing the cost-saving benefits of our restructuring, although these savings are offset somewhat by our increased costs to comply with the Sarbanes-Oxley Act and increased legal and insurance expenses.”
Restatement Update:
The company has entered into an agreement with the SEC resolving the SEC's investigation of the events leading to its 2002 restatement of financial results. We have an agreement with the plaintiffs to settle the securities lawsuits that grew from the restatement. Although the Department of Justice and the SEC are continuing their inquiries, we have no reason to believe that the company, or any current director, officer, or manager will be targeted. We are continuing our lawsuit against Genesis, the insurance company that is attempting to rescind its 2002 directors and officers insurance policy. We anticipate some ongoing restatement costs related to the investigations and the Genesis lawsuit.
Cutter & Buck
Table A
Condensed Consolidated Statements of Operations
(unaudited)
Quarter Ending
July 31,
2003 2002
In thousands, except per share data
Net sales $32,737 $33,307
Cost of sales 17,999 19,359
Gross profit 14,738 13,948
Operating expenses:
Depreciation 1,062 1,276
Selling, general and administrative 10,482 10,608
Restructuring and asset impairment -- 3,814
Restatement expenses 1,672 --
Total operating expenses 13,216 15,698
Operating income (loss) 1,522 (1,750)
Net interest expense (15) (136)
Net income (loss) from
continuing operations before tax 1,507 (1,886)
Income tax expense (benefit) 555 (641)
Net income (loss) from continuing operations 952 (1,245)
Income (loss) from discontinued retail
operations, net of tax 146 (342)
Net income (loss) $1,098 $(1,587)
Basic and diluted earnings per share:
Net earnings/(loss) from continuing operations $0.09 $(0.12)
Net earnings/(loss) from discontinued
retail operations $0.01 $(0.03)
Net earnings/(loss) $0.10 $(0.15)
