Ashworth consolidated net revenue for the second quarter of 2004 increased 4.0% to a record $54.7 million as compared to $52.6 million for the second quarter of 2003. Consolidated second quarter net income increased 32.6% to $5.7 million or 41 cents per diluted share compared to consolidated net income of $4.3 million or 33 cents per diluted share for the second quarter of 2003. In February 2004, the Company sold its existing distribution center facility located in Carlsbad, California and recorded an after tax gain on disposal of fixed assets of $1.0 million. Without the gain on sale of fixed assets, the Company would have reported record consolidated net income of $4.7 million or $0.34 per diluted share. The Company believes that excluding the effect of the gain on sale of fixed assets provides useful information to investors in analyzing the impact the non-operational transaction had relative to the Company's performance in fiscal 2004 as compared to fiscal 2003; and, the adjusted consolidated net income measure more closely reflects consolidated net income based on the Company's operations. Consolidated net revenue for the domestic segment increased 2.5% to $44.5 million for the second quarter of fiscal 2004 from $43.4 million for the second quarter of 2003. Consolidated net revenue for the international segment increased 10.9% to $10.2 million for the second quarter of fiscal 2004 from $9.2 million for the second quarter of 2003.
For the six-month period ended April 30, 2004, consolidated net revenue increased 3.5% to $82.0 million compared to $79.2 million for the same period in fiscal 2003. Consolidated net income for the first half of fiscal 2004 increased 31.8% to $5.8 million or $0.42 per diluted share compared to consolidated net income of $4.4 million or $0.34 per diluted share for the same period of fiscal 2003. Without the above-mentioned one-time gain on sale of fixed assets, the Company would have reported consolidated net income of $4.8 million or $0.35 per diluted share for the six-month period ended April 30, 2004. The Company believes that excluding the effect of the gain on sale of fixed assets provides useful information to investors in analyzing the impact the non-operational transaction had on the Company's performance in fiscal 2004 as compared to fiscal 2003; and, the adjusted consolidated net income measure more closely reflects consolidated net income based on the Company's operations. Net revenue for the domestic segment increased 0.8% to $67.5 million for the first half of fiscal 2004 from $67.0 million for the same period of fiscal 2003. Net revenue from the international segment increased 18.9% to $14.5 million for the first half of fiscal 2004 from $12.2 million for the same period of fiscal 2003.
Randall L. Herrel, Sr., Chairman and Chief Executive Officer, stated, “We are pleased to report record fiscal 2004 second quarter revenues and net income which met management's expectations. Our performance is notable in light of the global uncertainties and a sluggish golf industry. Net revenues for the second quarter of fiscal 2004 compared to the second quarter of fiscal 2003 were up 24.3% for our retail channel, up 5.1% for our corporate channel and up 10.9% for our international segment, but slightly down for our core golf and off-course specialty channel. The increase in net revenues from our international segment was primarily due to the effect of currency exchange fluctuations.”
Mr. Herrel continued, “The response to our Fall/Holiday 2004 Ashworth and Callaway Golf apparel lines has been positive despite the current environment in our industry. Ashworth, Inc.'s consolidated global bookings increased 19.2% versus last year. The Ashworth brand bookings increased 14.3%, with domestic bookings increasing 19.0% and international bookings decreasing 15.4% as compared to the same period in the prior year. The Callaway Golf apparel bookings increased 31.6%, with domestic bookings up 30.8% and international bookings up 35.5% as compared to the same period in the prior year.”
In reviewing the Company's financial position, Terence Tsang, Chief Operating Officer and Chief Financial Officer, stated, “We are pleased with our operational improvements with our operating margin increasing 120 basis points to 15.0% for the second quarter of fiscal 2004 from 13.8% for the same period last year. Our gross margins increased 80 basis points to 42.6% for the second quarter of fiscal 2004 from 41.8% for the same period last year, due primarily to cost savings resulting from improved sourcing.”
Mr. Tsang continued, “Our balance sheet remains strong as we manage our working capital and seek to optimize our financial leverage. Net accounts receivable decreased 0.7% over the prior year while net revenues increased 4.0% for the second quarter. Our inventory remained essentially flat as compared to the prior year with total inventory increasing 0.2% to $43.5 million as of April 30, 2004 as compared to $43.4 million as of April 30, 2003. Our total borrowing on the line of credit decreased to $7.0 million at April 30, 2004 from $18.7 million at April 30, 2003. In April of 2004 we purchased our new distribution center in Oceanside, California for $13.7 million and financed part of the purchase price with $11.7 million in long term debt.”
The Company also reiterated and maintained its revenue guidance for fiscal 2004. Based on current information, the Company expects consolidated net revenues for fiscal 2004 of $155.0 million to $162.0 million. The Company expects earnings of $0.66 to $0.72 per diluted share including the after tax gain on sale of its distribution center buildings in Carlsbad, California, booked in the second quarter of fiscal 2004, of $1.0 million or $0.07 per diluted share. The tax deferred gain of $1.6 million will create a lower cost basis, for tax purposes, in our new Oceanside, California building instead of a lower tax rate during the second quarter of fiscal 2004.
Based on current business trends the Company expects fiscal 2004 third quarter net revenues of $39 million to $41 million, an increase in the range of approximately 3% to 8% compared to the same quarter of fiscal 2003, and earnings of $0.16 to $0.19 per diluted share, compared to $0.16 in the same quarter of fiscal 2003. The Company currently plans to report third quarter 2004 results on Thursday, September 9, 2004 at market close.
Mr. Herrel concluded, “Though we remain prudently conservative in our guidance due to the uncertainty and challenges in the golf industry, we continue to be optimistic about the future of Ashworth. In 2004, we have two strong brands and multiple channels to grow our business and we are encouraged by recent strong results in the department store channel. As evidenced by our positive operating results starting in the fourth quarter of fiscal 2002 and continuing into fiscal 2004, our business model, which includes multi-brand and multi-channel strategies, is a key driver of this success.”
ASHWORTH, INC.
Consolidated Statements of Income
Second Quarter ended April 30, 2004 and 2003Summary of Results of
(Unaudited) Operations
2004 2003
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SECOND QUARTER
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Net Revenue $54,672,000 $52,595,000
Cost of Sales 31,363,000 30,635,000
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Gross Profit 23,309,000 21,960,000
Selling, General and Administrative Expenses 15,087,000 14,712,000
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Income from Operations 8,222,000 7,248,000
Other Income (Expense):
Interest Income 11,000 5,000
Interest Expense (227,000) (259,000)
Other Income, net 1,434,000 143,000
------------ ------------
Total Other Income (Expense), net 1,218,000 (111,000)Income Before Provision for Income Taxes 9,440,000 7,137,000
Provision for Income Taxes (3,777,000) (2,855,000)
------------ ------------
Net Income $5,663,000 $4,282,000
============ ============Income Per Share - BASIC $0.42 $0.33
Weighted Average Common Shares Outstanding 13,373,000 12,958,000
============ ============Income Per Share - DILUTED $0.41 $0.33
Adjusted Weighted Average Shares and Assumed
Conversions 13,737,000 13,082,000
============ ============
