Ashworth, Inc. has retained Kurt Salmon Associates Capital Advisors as its financial advisor to explore strategic alternatives to enhance shareholder value. These include but are not limited to, a sale or merger of the company. The golf apparel company, which also owns The Game headwear line, also reported a third-quarter loss of $9.6 million, or 65 cents a share, compared to a net loss of $5.7 million, or 39 cents, a year ago.



Included in the latest quarter is a non-cash tax charge of $1.3 million or 9 cents per share, as compared to a non-cash tax charge of $1.4 million, or 10 cents, a year ago to increase the valuation allowance against the company’s deferred tax assets. The quarterly loss for the 2008 period also reflects an increase in inventory write-down taken in the United Kingdom of $0.6 million.

 

Consolidated net revenue for the third quarter ended July 31, decreased 8.7% to $45.2 million from $49.5 million a year ago.

 

In the third quarter, the company’s consolidated gross margin decreased 330 basis points to 34.9% as compared to 38.2% in the third quarter of fiscal 2007. The decrease in consolidated gross margin was driven by increased discounting, higher product costs as a result of fixed overhead allocated to lower sales volumes, higher material and transportation costs, a higher volume of off-price sales, and increased inventory reserves. The company’s off-price sales were at significantly higher discounts during the third quarter of 2008 as compared to the same quarter of the prior year. In addition, the European channel experienced larger discounts within its resort, golf and retail customers.

Consolidated selling, general and administrative expenses increased 4.4% to $22.8 million for the third quarter of fiscal 2008 as compared to $21.8 million for the third quarter of fiscal 2007. The increase is largely due to increased consulting fees, primarily associated with a review of the company’s operations, cost structures and strategic plans. Also contributing to higher SG&A expenses were increases in tradeshow/tournaments/sales meeting expenses and an increase in royalties as a result of a higher concentration of revenues from licensed products, partially offset by lower commissions.


Total revenues in the domestic golf channel in the third quarter increased 5.5% to $18.2 million from $17.2 million for same period last year. This is the fourth consecutive quarter in which revenues in the golf channel have increased. In the third quarter of fiscal 2008, net revenues increased from both on-course and off-course golf retailers over the comparable prior year quarter. This growth is the result of the implementation of new sales management processes, in both the on-course and off-course channels of distribution, and a strengthening of the sales team in both quantity and quality. However, as a result of the difficult economy, retail sell-through during the third quarter of 2008 has been below expectations and we expect revenues from this channel to decrease for the remainder of the fiscal year as compared to prior year periods.


Revenues for the corporate distribution channel were $4.3 million, a decrease of 31.5% as compared to the same period last year. This distribution channel has been adversely affected by reduced corporate spending and unusually high levels of discounted merchandise in the marketplace due to the economy.


Revenues for the retail distribution channel were $1.1 million, a decrease of 30.9% from $1.7 million in the third quarter 2007. This decrease was driven by a consolidation of retail accounts and their associated location closures, a challenging retail environment as well as a decision by the Company’s management team to strategically exit a number of large accounts.


Third quarter revenues for Gekko Brands, LLC (The Game/Kudzu) were $11.7 million, a decrease of 7.2% over the third quarter 2007. The decrease was primarily due to softness in the collegiate/bookstore channel as well as continued deterioration from the Outdoor Direct catalog sales and the timing of certain events in the golf and NASCAR/racing channels.


Revenues from the Company-owned stores were $2.6 million, a decrease of 19.8% over third quarter 2007. The decrease in revenues from the Company-owned outlet stores was primarily due to the difficult economic environment combined with product assortment and merchandizing issues.


Revenues from the international segment decreased 14.4% to $7.3 million, a decrease of $1.2 million over the same period last year. Revenues were significantly lower in Europe largely due to reduced in-season replenishment orders from the Company’s resort, golf and retail customers as well as lower corporate revenues, due in part to the slowing economy in Europe.

Net accounts receivable increased 3.7% from the prior year, while revenues decreased 8.7% for the third quarter. The $1.2 million increase in net accounts receivable was primarily due to a reduction in reserves for markdown allowances of $0.8 million and an increase in trade receivables of $0.4 million due to the timing of shipments during the three months ended July 31, 2008 as compared to the same period of the prior year. Net inventory increased 3.3% to $55.4 million as of July 31, 2008 as compared with the same period last year primarily due to the addition of the Sun Ice® brand.


The effective tax rate for the income tax provision for the three months ended July 31, 2008 and 2007 was a negative 22% and a negative 48%, respectively. The increase in the effective rate for the current period as compared to the same period of the prior fiscal year is due to discrete one-time charges in the third quarter of the current fiscal year of $4.3 million to increase the valuation allowance against the Company’s net deferred tax assets, primarily consisting of estimated net operating losses.