Ashworth Inc. announced that consolidated net revenue for the fiscal second quarter ended April 30th increased 20.6% to a record $52.6 million as compared to $43.6 million for the second quarter of 2002. Consolidated second quarter net income increased 22.9% to $4.3 million or $0.33 per diluted share compared to consolidated net income of $3.5 million or $0.26 per diluted share in the same quarter of the prior year.
Consolidated net revenue for the domestic segment increased 16.7% to $43.4 million from $37.2 million in the same period of the prior year. Consolidated net revenue for the international segment increased 43.8% to $9.2 million from $6.4 million in the same period of the prior year. Second quarter revenue from Ashworth(R) branded merchandise increased 6.6% to $42.4 million and revenue from Callaway Golf apparel, which was introduced in April 2002, totaled $10.2 million for the quarter.
For the six-month period ended April 30, 2003, consolidated net revenue increased 24.3% to $79.2 million compared to $63.7 million last fiscal year. Consolidated net income for the first half of fiscal 2003 increased 76.0% to $4.4 million or $0.34 per diluted share compared to consolidated net income of $2.5 million or $0.19 per diluted share during the same period last year. Net revenue for the domestic segment increased 21.8% to $67.0 million for the first half of fiscal 2003 from $55.0 million during the same period of the prior year. Net revenue from the international segment increased 40.2% to $12.2 million for the first half of fiscal 2003 from $8.7 million during the same period last year. First half fiscal 2003 revenue from Ashworth branded merchandise increased 5.3% to $63.0 million and revenue from Callaway Golf apparel totaled $16.2 million for the six-month period.
Randall L. Herrel, Sr., chairman and chief executive officer, stated, “We are very pleased with the significant improvement in second quarter and first half financial results, exceeding both top and bottom line analysts estimates. This performance is notable in light of the recent war in Iraq and 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. During the second quarter of fiscal 2003, the company’s revenues grew significantly in all of our primary domestic distribution channels and in our international segment as compared to the second quarter of fiscal 2002. Our core golf and off-course specialty channel was up 17.5%, the corporate channel was up 4.0% and the retail channel was up 46.8%, each as compared to the second quarter of fiscal 2002.”
Herrel continued, “The response to our Fall/Holiday 2003 Ashworth and Callaway Golf apparel lines has been positive in light of the environment our industry is currently facing. The Ashworth brand bookings increased 4.0%, with domestic bookings increasing 3.8% and international bookings increasing 5.1% as compared to the same period in the prior year. The domestic bookings were primarily affected by the soft domestic golf market, down 4.8%, as the bookings in our domestic retail distribution channel were up 36.6%. The Callaway Golf apparel bookings increased 0.6%, with domestic bookings down 1.0% and international bookings up 8.9%. Again it was the soft domestic golf market that affected the domestic bookings, down 4.7%, as the bookings in our domestic retail distribution channel were up 15.5%. While we believe that these booking trends reflect the challenging industry and economic conditions as well as the effect of the war during the last few months, we believe the Callaway Golf apparel brand can achieve a projected growth rate of approximately 60% to 78% for fiscal 2003 and we are pleased with the progress so far.”
In reviewing the company’s financial position, Terence Tsang, chief operating officer and chief financial officer, stated, “Our gross margins decreased slightly to 41.8% for the second quarter of fiscal 2003 from 42.0% for the same period last year, due primarily to price reductions on certain styles offset by cost savings resulting from improved sourcing. The decrease in our selling prices allowed the company to stay competitive in the golf apparel market which presented significant downward price pressures.”
Tsang continued, “Net accounts receivable increased 8.2% over the prior year while net revenues increased 20.6% for the second quarter. The Ashworth brand inventory increased approximately 14.0% over the prior year. The Callaway Golf apparel brand inventory is approximately $9.9 million as of April 30, 2003 as compared to $4.5 million as of April 30, 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. Our total inventory increased 28.4% to $43.4 million as of April 30, 2003 as compared to $33.8 million as of April 30, 2002.”
The company reiterated and maintained 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 $151.7 million, an increase in the range of approximately 14% to 17% compared to fiscal 2002, and earnings of $0.54 to $0.59 per diluted share, an increase in the range of 184% to 211% compared to fiscal 2002. Excluding the $2.55 million after tax effect of the additional bad debt reserve booked in fiscal 2002, or $0.18 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 55%. 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 third quarter net revenues of $38 million to $40 million, an increase in the range of approximately 5% to 11% compared to the same quarter of fiscal 2002, and earnings of $0.15 to $0.18 per diluted share, compared to a loss of $0.04 in the same quarter of fiscal 2002 (which includes the bad debt charge described above). The company currently plans to report third quarter 2003 results on Thursday, August 28th 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 and second quarters 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
Second Quarter ended April 30, 2003 and 2002
(Unaudited)
Summary of Results of
Operations
2003 2002
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Second Quarter
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Net Revenue $52,595,000 $43,579,000
Cost of Sales 30,635,000 25,266,000
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Gross Profit 21,960,000 18,313,000
Selling, General and
Administrative Expenses 14,712,000 12,255,000
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Income from Operations 7,248,000 6,058,000
Other Income (Expense):
Interest Income 5,000 25,000
Interest Expense (259,000) (245,000)
Other Income, net 143,000 (8,000)
------------ ------------
Total Other Expense, net (111,000) (228,000)
Income Before Provision for
Income Tax Expense 7,137,000 5,830,000
Provision for Income Tax Expense (2,855,000) (2,332,000)
------------ ------------
Net Income $4,282,000 $3,498,000
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Six Months
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Net Revenue $79,158,000 $63,683,000
Cost of Sales 47,231,000 38,059,000
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Gross Profit 31,927,000 25,624,000
Selling, General and
Administrative Expenses 24,394,000 21,045,000
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Income from Operations 7,533,000 4,579,000
Other Income (Expense):
Interest Income 15,000 32,000
Interest Expense (451,000) (396,000)
Other Income, net 216,000 5,000
------------ ------------
Total Other Expense, net (220,000) (359,000)
Income Before Provision for
Income Tax Expense 7,313,000 4,220,000
Provision for Income Tax Expense (2,925,000) (1,688,000)
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Net Income $4,388,000 $2,532,000
