Ashworth's consolidated net revenue for the third quarter ended July 31, 2004
increased 12.8% to a record $42.8 million as compared to $38.0 million
for the third quarter of 2003. Consolidated third quarter net income
was $0.5 million or $0.04 per diluted share compared to net income of
$2.1 million or $0.16 per diluted share in the same quarter of the
prior year. During the third quarter of fiscal 2004, the Company
incurred a $3.0 million pre-tax charge related to a tentative
settlement to conclude a 1999 securities class action lawsuit against
the Company and certain current and former directors and officers.
Excluding this charge, the Company would have reported consolidated
net income and earnings per diluted share of $2.3 million and $0.17,
respectively. The Company believes that excluding the effect of the
charge related to the settlement provides useful information to
investors in analyzing the Company's operations in fiscal 2004 as
compared to fiscal 2003.
The Company attributed the record consolidated third quarter
revenue to increases in its domestic and international segments and a
$3.4 million contribution from Gekko Brands, LLC, which was acquired
July 6, 2004. Third quarter domestic revenue increased 13.0% to $35.8
million compared to $31.7 million for the third quarter of 2003. Third
quarter revenue from international sales increased 11.9% to $7.0
million for the third quarter of fiscal 2004 from $6.3 million for the
third quarter of 2003.
For the nine-month period ended July 31, 2004, consolidated net
revenue increased 6.6% to a record $124.8 million compared to $117.1
million for the same period in fiscal 2003. Consolidated net income
for the same period was $6.3 million or $0.46 per diluted share
compared to consolidated net income of $6.5 million or $0.49 per
diluted share for the same period of fiscal 2003. For the nine-month
period ended July 31, 2004, net income was impacted by the
aforementioned pre-tax charge related to the settlement of a class
action lawsuit and the one-time gain on sale of fixed assets recorded
in the second quarter of fiscal 2004. Excluding these two items, the
Company would have reported consolidated net income of $7.2 million or
$0.52 per diluted share for the nine-month period ended July 31, 2004.
The Company believes that excluding the effects of the charge related
to the settlement and the gain on sale of fixed assets provides useful
information to investors in analyzing the impact the non-operational
transactions had on the Company's performance in fiscal 2004 as
compared to fiscal 2003. Net revenue for the domestic segment
increased 4.7% to $103.3 million for the first nine months of fiscal
2004 from $98.7 million for the same period of fiscal 2003. Net
revenue from the international segment increased 16.6% to $21.5
million for the first nine months of fiscal 2004 from $18.5 million
for the same period of fiscal 2003.
Randall L. Herrel, Sr., Chairman and Chief Executive Officer,
stated, “We are pleased to report solid third quarter results. The
benefits of our multi-channel, multi-brand distribution strategies
were apparent during the quarter. We achieved record third quarter
revenue due to growth in most channels offsetting soft sales in
others. Revenue in our core golf, retail, and international channels
increased 3.8%, 6.3% and 11.9%, respectively, offsetting a 1.5%
decline in our corporate channel. Currency exchange fluctuations
accounted for $0.5 million of the $0.7 million total increase in net
revenues from our international segment. Strong growth in sales of
Callaway Golf branded apparel and a $3.4 million contribution from the
recently acquired Gekko Brands, LLC also contributed to our record
revenue. I believe our third quarter accomplishments are particularly
notable in light of continuing global uncertainties and a slow
recovery in the golf industry.
“We are very excited about our strategic acquisition of Gekko
Brands,” continued Mr. Herrel. “The Gekko acquisition was immediately
accretive and contributed $0.2 million or $0.01 per share to our third
quarter results. This acquisition expands our multi-channel,
multi-brand distribution strategy as it provides us with new
distribution channels for the Ashworth® and Callaway Golf apparel
brands. We also expect sales growth from Gekko's The Game® brand
when we begin delivering this brand to our existing distribution
channels.”
In reviewing the Company's financial position, Terence Tsang,
Chief Operating Officer and Chief Financial Officer, stated, “We are
pleased with the continuing improvements in our operations and
profitability. Third quarter gross margin expanded 80 basis points to
42.1% primarily due to our continual efforts to improve sourcing and
reduce product costs while controlling other expenses. This marks the
fifth consecutive year-over-year quarterly gross margin improvement.
Third quarter operating margin increased 80 basis points to 10.4%
reflecting the gross margin improvement and seasonally high sales of
Gekko products and the associated operating leverage.”
Mr. Tsang continued, “Our balance sheet remains strong as we
continue managing our working capital and seek to optimize our
financial leverage. As compared to a year ago, net accounts receivable
and inventory increased 25.1% and 9.7%, respectively, primarily as a
result of the Gekko acquisition. Total debt increased to $34.5 million
as of July 31, 2004 compared to $9.0 million last year, $21.0 million
of which was used for the Gekko acquisition and $11.6 million to
finance a portion of our new distribution center in Oceanside,
California.”
The Company is increasing its guidance for the fourth quarter
fiscal 2004 due to the acquisition of Gekko Brands, LLC. Based on
current business trends, the Company expects a 35% to 45% increase in
fiscal 2004 fourth quarter net revenues to approximately $43.7 million
to $46.9 million, as compared to the same quarter of fiscal 2003, and
earnings of $0.10 to $0.14 per diluted share, compared to $0.07 in the
same quarter of fiscal 2003. Included in the Company's expected fiscal
2004 fourth quarter earnings is a $0.02 to $0.03 per diluted share
contribution from the acquisition of Gekko Brands, LLC. The Company
currently plans to report fourth quarter 2004 results on Thursday,
December 16, 2004.
As a result of the increased guidance for the fourth quarter, the
Company updated its guidance for the full year fiscal 2004. Based on
current information, the Company expects a 13% to 15% increase in
consolidated net revenues for fiscal 2004 to approximately $168.6
million to $171.8 million. The Company expects to report fiscal 2004
earnings of $0.56 to $0.60 per diluted share including the after-tax
charge of $1.8 million or $0.13 per diluted share related to the
settlement of a class action lawsuit and a $1.0 million or $0.07 per
diluted share after-tax gain on sale of its distribution center
buildings in Carlsbad, California. Included in the Company's expected
fiscal 2004 earnings is a $0.03 to $0.04 per diluted share
contribution from the acquisition of Gekko Brands, LLC.
The Company also announced its initial revenue and earnings
guidance for fiscal 2005, which includes the operations of Gekko
Brands, LLC. Based on current information, the Company expects an
increase in consolidated net revenues for fiscal 2005 to approximately
$207 million to $215 million. The Company expects an earnings increase
to approximately $0.76 to $0.82 per diluted share for fiscal 2005.
Mr. Herrel concluded, “Though we remain prudently conservative in
our guidance due to the uncertainty and challenges in the golf
industry, we are very optimistic about the future of Ashworth and the
opportunities provided from the strategic acquisition of Gekko Brands,
LLC. The acquisition enhances Ashworth, Inc.'s multi-brand,
multi-channel, global business model in several ways. The transaction
increases the Company's channels of distribution from three to six and
increases the number of brands that can be sold into each distribution
channel while leveraging existing channel relationships, sales forces
and expertise.”
ASHWORTH, INC.
Consolidated Statements of Income
Third Quarter ended July 31, 2004 and 2003Summary of Results of
(Unaudited) Operations
2004 2003
------------- -------------
THIRD QUARTER
------------------------------------------
Net Revenue $42,825,000 $37,960,000
Cost of Sales 24,798,000 22,284,000
------------- -------------
Gross Profit 18,027,000 15,676,000
Selling, General and Administrative
Expenses 13,560,000 12,051,000
------------- -------------
Income from Operations 4,467,000 3,625,000
Other Income (Expense):
Interest Income 14,000 9,000
Interest Expense (452,000) (232,000)
Other Income (Expense), net (3,183,000) 37,000
------------- -------------
Total Other Expense, net (3,621,000) (186,000)Income Before Provision for Income Taxes 846,000 3,439,000
Provision for Income Taxes (338,000) (1,376,000)
------------- -------------
Net Income $508,000 $2,063,000
============= =============Net Income Per Share - BASIC $0.04 $0.16
Weighted Average Common Shares Outstanding 13,444,000 13,006,000
============= =============Net Income Per Share - DILUTED $0.04 $0.16
Adjusted Weighted Average Shares and
Assumed Conversions 13,757,000 13,211,000
============= =============
