Cutter Buck announced Q3 sales were down 12.1% to $22.5 million from $25.6 million in the corresponding period last year. Third quarter net loss dropped 90.1% from $9.7 million last year to $0.9 million for 2004. Gross margin jumped 55 basis points from 39.0% to 44.5%, and diluted loss per share dropped 91.2% from (91 cents) to (8 cents).
For the quarter ended January 31, C&B had the following results:
2004 2003
In millions, except percentage and per share data
Net Sales $22.5 $25.6
Gross Profit $10.0 $10.0
Gross Profit % 44.5% 39.0%
Net Income (Loss) ($0.9) ($9.7)
Earnings (Loss) Per Share ($0.08) ($0.91)
For the nine months ended January 31, we had the following results:
2004 2003
In millions, except percentage and per share data
Net Sales $90.0 $95.4
Gross Profit $41.0 $38.7
Gross Profit % 45.5% 40.6%
Net Income (Loss) $2.3 $(11.0)
Earnings (Loss) Per Share $0.21 $(1.04)
Balance Sheet Summary
January 31, 2004 April 30, 2003 January 31, 2003
In millions
Cash and Investments $42.0 $18.9 $15.8
Accounts Receivable $13.2 $24.3 $15.9
Inventories $24.5 $34.5 $37.8
Working Capital $70.1 $65.6 $67.5
Shareholders' Equity $74.6 $72.0 $73.0
Management Viewpoint:
This quarter continues the recent pattern of profitable results from our
ongoing wholesale business*, driven by improvements in gross profit dollars
and reductions in expenses. These are the results of the company's
priorities: to improve our core business to generate good profitability, to
dispose of the residual issues associated with the 2002 restatement of
earnings, and to invest in key areas to enable growth in the future.
The Cutter & Buck brand is well received by our target upscale consumers.
We position the Cutter & Buck brand as a prestigious sportswear line, with
fine products and selective distribution. We have made a decision not to
reach for sales which are inconsistent with that positioning. We have
invested in design talent, and have introduced updated product lines at recent
trade shows. Our “Annika by Cutter & Buck” line, designed in collaboration
with the great golfer Annika Sorenstam, will be available in selected golf and
specialty retail stores in late June.
We are continuing to improve all processes in the company in order to
provide superior customer service and shareholder profits. These improvements
show up in both the improved gross profits and the control of operating costs.
Because some of our markets are still soft, and the lead times for our new
products are long, we remain relatively cautious about sales for the next six
months in relation to last year. We expect pressure on margins in the fourth
quarter because of routine, seasonal liquidations. We currently anticipate
that operating expenses before restatement costs will be in line with recent
history.
Third Quarter
* The $0.9 million net loss for the quarter ended January 31, 2004
includes $40 thousand pretax profit from our ongoing wholesale
business. The net loss also includes $1.2 million of pretax expenses
related to the 2002 restatement of prior years' earnings. A full
reconciliation of these numbers to the Generally Accepted Accounting
Principles presentation is shown in Table B attached.
* The $40 thousand pretax profit from the ongoing wholesale business for
the third quarter of FY 2004 compares favorably to the $1.6 million
pretax loss in the same period of FY 2003.
* For the third quarter of FY 2004, gross profit dollars were up by
$0.1 million even though sales were down $3 million compared to the
third quarter of FY 2003. We have been emphasizing profitable sales,
intensively managing our product allowances and returns, and improving
our sourcing and product pricing.
* For the third quarter of FY 2004, we achieved a gross profit of 44.5%,
which compares favorably to the 39.0% gross profit in the same period
of FY 2003.
Year to Date
* The $2.3 million net income for the nine months ended January 31, 2004
includes $7.9 million pretax profit from our ongoing wholesale
business. The net income also includes $4.5 million pretax restatement
expenses, including expenses to settle the shareholder lawsuits and the
SEC investigation. A full reconciliation of these numbers to the
Generally Accepted Accounting Principles presentation is shown in Table
B attached.
* The $7.9 million pretax profit from the ongoing wholesale business for
the first nine months of FY 2004 compares favorably to the $2.2 million
pretax profit in the same period of FY 2003.
* For the first nine months of FY 2004, gross profit dollars were up by
$2.3 million even though sales were down $5.4 million compared to the
first nine months of FY 2003.
Balance Sheet
Compared to our January 31, 2003 balance sheet, at January 31, 2004 our:
* Accounts receivable were down $2.7 million.
* Inventory was down $13.3 million.
* Accounts payable and accrued liabilities were down $3.6 million.
* Cash (including restricted cash) and short-term investments were up
$26.2 million.
In addition, our free cash flow was $24.5 million for the first nine
months of FY 2004. We define free cash flow as cash provided by
operating activities less capital expenditures.
Update on residuals of the 2002 restatement
As we announced on February 12, 2004, the federal court issued an order
rejecting the company's claims against Genesis Insurance Company. We
disagree with the court's ruling, and have asked the court to alter that
decision. We have also filed an appeal with the Ninth Circuit Court of
Appeals.
In our claim against Genesis, we had sought reinstatement of our
directors' and officers' liability insurance policy, which we claimed had been
improperly rescinded by them in 2002. Despite the court's ruling, we continue
to believe that an insurance company which issues a policy with knowledge of
the underlying facts, does not have the right to rescind the policy later
because of those facts.
The accruals for retention expense will cease at the end of March. We will
continue to incur expenses for indemnifying former officers dealing with the
SEC and Department of Justice. We are unable to forecast these expenditures.
This week, 176,500 stock options will vest. These were granted to
employees eighteen months ago as an incentive for them to stay and work
through the turnaround and restatement-related issues. Because of the
company's recent success and the improvement in its stock price, it is the
first time in some years that employees have significant numbers of options in
the money, and we expect some employee stock sales. Directors and executive
officers will not be in the market during the time the company is active in
the stock repurchase program announced today.
Cutter & Buck
Table A
Condensed Consolidated Statements of Operations (unaudited)Three Months Ended Nine Months Ended
January 31, January 31, January 31, January 31,
2004 2003 2004 2003
In thousands,
except share &
per share amounts)Net sales $22,540 $25,582 $90,024 $95,394
Cost of sales 12,507 15,608 49,033 56,707Gross profit 10,033 9,974 40,991 38,687
Operating expenses
Depreciation 1,040 1,383 3,152 3,934
Selling, general &
administrative 9,025 10,143 30,029 31,783
Restructuring and asset
impairment (65) (45) (55) 3,845
Restatement expenses 1,172 1,275 4,522 2,529
Total operating
expenses 11,172 12,756 37,648 42,091
Operating income (loss) (1,139) (2,782) 3,343 (3,404)
Interest income (expense)
Interest expense (31) (157) (134) (528)
Interest income 108 62 193 207
Net interest expense 77 (95) 59 (321)
Income (loss) from
continuing operations
before taxes (1,062) (2,877) 3,402 (3,725)
Income tax expense
(benefit) (205) (508) 1,215 (795)
Net income (loss) from
continuing operations (857) (2,369) 2,187 (2,930)
Income (loss) from
discontinued retail
operations, net of tax -- (7,331) 146 (8,076)
Net income (loss) $(857) $(9,700) $2,333 $(11,006)Diluted earnings (loss)
per share:
Net Income/(Loss) from
continuing operations $(0.08) $(0.22) $0.20 $(0.28)
Net Income/(Loss) from
discontinued retail
operations -- (0.69) 0.01 (0.76)
Net Income/(Loss) $(0.08) $(0.91) $0.21 $(1.04)
Shares used in
computation of:
Diluted earnings (loss)
per share 10,706 10,626 11,068 10,608
