Ashworth, Inc. saw consolidated net revenue for the first quarter increase 11.2% to $40.6 million from $36.5 million for the first quarter of 2005. The company reported a consolidated first quarter net loss of $50,000, or 0 cents per diluted share, compared to net income of $83,000, or a penny per diluted share, for the same quarter of the prior year. Net revenue for the domestic segment increased 10.0% to $34.8 million from $31.6 million for the same period of the prior year. Net revenue from the international segment increased 19.3% to $5.8 million from $4.9 million for the same period of the prior year.

In the first quarter, the company's gross margin was 44.3%, which is in line with historical levels, as compared to 40.1% in the first quarter of 2005. This gross margin increase was driven primarily by an increase in sales of full margin products and improved direct labor efficiencies at the company's domestic EDC.

Included in the SG&A expenses for the first quarter of fiscal 2006 are pre-tax charges of approximately $0.8 million, or 3 cents per diluted share, primarily related to higher legal, audit, Sarbanes-Oxley 404 compliance, and stock option expenses, which impacted the income statement for the first time, as well as certain additional expenses incurred in connection with the company's upcoming 2006 Annual Meeting of Shareholders. Excluding these special SG&A expenses not incurred last year, the company would have recorded consolidated first quarter net income of $0.4 million, or 3 cents per diluted share, compared to net income of 1 cents per diluted share in the same period of fiscal 2005.

Revenues by Channel/Segment

Domestic Golf Channel:

Total revenues in the domestic golf channel in the first quarter declined to $11.6 million, or 12.8%, from the same period last year. Total revenues in the domestic Golf channel declined primarily due to the reduction in discounted sales to off-course customers. Both the Ashworth and Callaway Golf brands saw a combined decrease in off-course sales. The Company made a strategic decision to reduce discounts as a result of the company's more balanced inventory position.

Total revenues for the company's core on-course golf channel were up modestly over the same period last year. Growth in the on-course golf channel can be attributed primarily to a focus on best-in-class accounts and the launch of the Ashworth Weather Systems (AWS) line. In addition, the company unveiled a new advertising campaign in January 2006 that reinforces the core authentic values and heritage of the Ashworth brand and establishes its dedication to the technical product trend.

International Channel:

Revenues from the international segment increased 19.3% to $5.8 million, an increase of $0.9 million over the same period last year. Revenues were primarily driven by significant growth from Ashworth Europe. Both the Ashworth and Callaway Golf apparel brands showed strong growth in Europe. Headwear, Women's sweaters and Men's fashion collections showed strong increase versus last year.

Corporate Channel:

Revenues for the corporate distribution channel were $5.6 million, an increase of 29.3%, as compared to the same period last year. Based on new strategies and realigned sales management, the corporate channel's first quarter results represent the third consecutive quarter of strong double digit growth. These results were especially notable as overall industry sales in the channel were flat. With this significant growth rate, management believes that the company is gaining market share in the channel. The positive results were driven primarily by the company's enhanced focus on its outerwear category and the expansion of the Callaway Golf apparel line to include the new women's line. Management believes that outerwear represents a significant incremental growth opportunity.

Retail Channel:

Revenues for the retail distribution channel were $5.2 million, an increase of 40.9% over first quarter 2005. The retail channel experienced significant growth in the first quarter driven primarily by new initiatives, including a new merchandising strategy and improved product mix. The company's shift in its merchandising to focus more on classic key items and less on fashion merchandise has resulted in improved sell-through, significantly lower markdowns, and a strong order backlog for the balance of the Spring 2006 season.

Ashworth East (Gekko):

First quarter revenues for Ashworth East were $10.1 million, an increase of 16.8% over the first quarter 2005. Revenues for The Game, the company's brand in the collegiate bookstore channel, and Kudzu, the company's brand in the NASCAR/racing channel, increased 15.5% and 3.7%, respectively, over first quarter 2005 results. The sales increases were primarily attributable to the addition of the Kentucky Derby (this is the first year The Game will be the exclusive event merchandiser) and the increase in green grass sales, which benefited from cross selling initiatives. Additionally, college and corporate sales were up over 9%.

Company-owned Outlet Stores:

Revenues from the company-owned stores were $2.3 million, an increase of 36.2% over first quarter 2005. Since the first quarter of 2005, the company added a net of 3 new outlet stores (6 outlet openings, 3 outlet closings) bringing the company's total number of outlet stores to 12. The new outlet stores net of closings contributed $0.6 million in sales in the first quarter of fiscal 2006 while sales on a comparative store basis were flat.

Balance Sheet:

Net accounts receivable decreased 4.2% over the prior year, while revenues increased 11.2% for the first quarter, resulting in an improvement in the DSOs to 66 days from 77 days in last year's first quarter. Net inventory increased 4.2% to $61.7 million as of January 31, 2006 as compared to $59.2 million as of January 31, 2005 and is in line with expected sales growth.


As a result of the company's implementation of multiple inventory and supply chain initiatives, domestic gross inventory increased only 3% over the comparable quarter last year, while sales grew 10.0%. The increase in domestic net inventory levels was primarily attributable to support of the cross-selling initiatives.

Embroidery and Distribution Center (EDC):

The company's EDC business has now met operating direct labor efficiency targets for six consecutive months. Positive results for the EDC were driven by efficiency measures that focused on direct labor utilization. As a result of the improved efficiency, the company is able to better serve customers, provide quicker turnaround to the company's corporate and golf customers for their at-once needs, improve the quality of the company's embroidery operations, provide additional capacity for improved economies of scale, and support the company's multi-brand, multi-channel growth strategy.

FY 2006 Guidance:

The company affirmed its previously stated (December 2005) consolidated revenue guidance for fiscal 2006 of approximately $210 to $220 million. Based on current trends, the company expects consolidated net earnings of 48 cents to 56 cents per diluted share for fiscal 2006. Management noted that the expenses to be incurred in connection with the company's upcoming 2006 Annual Meeting of Shareholders could be higher than last year and thus could negatively impact this guidance.

Completed Strengthening of Finance Department:

On February 27, 2006, the company announced that Winston E. Hickman was appointed executive vice president and chief financial officer. In this role, Mr. Hickman is a key member of Ashworth's executive management team and has responsibility for all finance, administrative and IT related functions. In addition, the company has recently promoted an internal candidate to the position of corporate controller.

Evaluation of Strategic Alternatives:

On November 29, 2005, Ashworth's Board of Directors retained Houlihan Lokey Howard & Zukin to assist the company in identifying and evaluating a range of strategic alternatives to enhance shareholder value. The Board is committed to enhancing value for all Ashworth shareholders and, together with its independent financial advisor, is aggressively exploring all alternatives, including a possible sale or merger of the company. The company noted that there can be no assurance that any transaction or other corporate action will result from this effort.

Consolidated Statements of Operations
First Quarter ended January 31, 2006 and 2005
(Unaudited)                                     Summary of Results of
                                                 2006         2005
                                             ------------ ------------
First Quarter
Net Revenue                                  $40,612,000  $36,513,000
Cost of Sales                                 22,636,000   21,878,000
                                             ------------ ------------
  Gross Profit                                17,976,000   14,635,000
Selling, General and Administrative Expenses  17,698,000   14,091,000
                                             ------------ ------------
Income from Operations                           278,000      544,000
Other Income (Expense):
  Interest Income                                 10,000       20,000
  Interest Expense                              (679,000)    (533,000)
  Other Income, net                              308,000      107,000
                                             ------------ ------------
  Total Other Expense, net                      (361,000)    (406,000)

Income (Loss) Before Provision for Income
 Taxes                                           (83,000)     138,000
Benefit (Provision) for Income Taxes              33,000      (55,000)
                                             ------------ ------------
  Net Income (Loss)                             $(50,000)     $83,000
                                             ============ ============

Income (Loss) Per Share - BASIC                   ($0.00)       $0.01
Weighted Average Common Shares Outstanding    14,182,000   13,726,000
                                             ============ ============

Income (Loss) Per Share - DILUTED                 ($0.00)       $0.01
Adjusted Weighted Average Shares and Assumed
 Conversions                                  14,182,000   14,110,000
                                             ============ ============