Ashworth, Inc. announced financial results for the second quarter ended April 30, 2005; a quarter in which the company experienced growth in revenues from its International golf channel, Retail distribution channel, Corporate distribution channel, its Gekko brands headwear lines, and its company-owned outlet stores.
Consolidated net revenue for the quarter rose 18% to $64.7 million compared to $54.7 million in the same quarter last year. Revenues from the company's acquisition of Gekko's brands provided 14% of the overall increase while net revenues from the company's Ashworth® and Callaway Golf apparel brands were collectively up 4% over the previous year.
Net income for the second quarter was $4.8 million or 34 cents per diluted share, a 15.8% decrease compared to $5.7 million or 41 cents per diluted share for the same quarter last year. 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 consolidated net income of $4.7 million or 34 cents per diluted share for its second quarter fiscal 2004. The company believes that excluding the effect of the gain on sale of fixed assets in the second quarter of fiscal 2004 provides useful information to investors in analyzing the impact the non-operational transaction had relative to the company's performance in fiscal 2005 as compared to fiscal 2004; and, the adjusted consolidated net income measure more closely reflects consolidated net income based on the company's operations.
Net income in the second quarter was primarily impacted by sluggish golf sales and higher than anticipated operating expenses associated with the new embroidery and distribution center.
Driving the overall 4% increase in net revenues from Ashworth and Callaway Golf branded goods were increases in revenues from the company's International business, up 25% from the same quarter last year, the company's Retail distribution channel, up 15% compared to the second quarter last year, its Corporate distribution channel, up 6% from last year, and revenues from company-owned outlet stores, up 11%. These increases were offset by a 6% decrease in net revenues from the domestic Golf distribution channel, the company's largest distribution channel. The company attributed the decrease in domestic golf-related net revenues to poor weather and the resulting decline in rounds played.
The strength of the company's brands limited the effect of the weakness in U.S. rounds played. Revenues from Ashworth-branded goods overall increased by 3% for the quarter to $42.6 million from $41.4 million in the same quarter in 2004, and revenues from Callaway Golf apparel branded goods increased by 6% to $14.1 million from $13.3 million in the second quarter last year.
Randall L. Herrel, Sr., chairman and chief executive officer, stated, “We are pleased to have maintained the forward momentum in our revenues despite sluggish 'on course' sales due to the weather. Net revenues are up in all our distribution channels other than 'on-course' golf, where weather had the largest impact. The fact that we could still grow revenues 18% year over year highlights the considerable benefits of our multi-brand, multi-channel business model, which is becoming increasingly diversified across product, channel and geography.”
Mr. Herrel continued, “Our cross channel sales initiatives are showing early signs of success. In our first three months of effort, cross channel bookings of Ashworth apparel into collegiate and event channels are over $1 million.”
Excluding the 2004 gain on sale of fixed assets, the company's net income for the second quarter fiscal 2005 increased 2% to $4.8 million compared to the pro-forma net income of $4.7 million in the same quarter of the prior year, even with the decline in net revenues from its Golf distribution channel. Other factors affecting the company's net income were higher than anticipated expenses from its new U.S. embroidery and distribution center, which have pushed back the expected cost savings from that facility, and the impact of recent clarifications on lease accounting requirements for newly opened and planned openings of outlet stores, offset in part by cost-cutting initiatives on discretionary expenses instituted by the company during the quarter.
Terence Tsang, executive cice president and chief financial officer, commented on the company's financial position at the end of the quarter: “DSOs were 72 days compared to 79 days at the end of the second quarter last year. Inventory has increased to $53.9 million compared to $43.5 million at the end of the second quarter last year. This increase is partly due to the addition of Gekko, and partly due to the planned earlier receipt of basics inventory to mitigate the expected logistics bottleneck resulting from lifting of some quotas on Chinese goods by the U.S. We believe our financial condition continues to be strong. As of April 30, 2005, our debt, net of cash, is $42.5 million and shareholder equity is $107.8 million.”
The company also revised its guidance for the full fiscal year ended October 31, 2005. Revenues are expected to be between $207 and $212 million compared to its previous guidance of $207 to $215 million, and earnings per share are expected to be in the range of 72 cents to 76 cents compared to previous guidance range to 76 cents to 82 cents.
Summing up, Mr. Herrel continued, “The first half of this fiscal year proved more challenging than we expected, mainly due to the weather and the start up of our new U.S. embroidery and distribution center, but we remain optimistic about the remainder of the year and the prospects for 2006. Overall, we expect to meet the challenges set for us this year and emerge stronger. We are encouraged with the success of our diversified business model as five of our six distribution channels continued to grow and we continue to be excited about the cross-selling potential of our various distribution channels.”
ASHWORTH, INC.
Consolidated Statements of Income
Second Quarter ended April 30, 2005 and 2004
(Unaudited)
Summary of Results
of Operations
2005 2004
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SECOND QUARTER
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Net Revenue $64,668,000 $54,672,000
Cost of Sales 36,585,000 31,363,000
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Gross Profit 28,083,000 23,309,000
Selling, General and Administrative
Expenses 19,303,000 13,555,000
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Income from Operations 8,780,000 9,754,000
Other Income (Expense):
Interest Income 14,000 11,000
Interest Expense (576,000) (227,000)
Other Expense, net (200,000) (98,000)
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Total Other Income (Expense), net (762,000) (314,000)
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Income Before Provision for Income Taxes 8,018,000 9,440,000
Provision for Income Taxes (3,207,000) (3,777,000)
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Net Income $4,811,000 $5,663,000
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Income Per Share - BASIC $0.35 $0.42
Weighted Average Common Shares Outstanding 13,813,000 13,373,000
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Income Per Share - DILUTED $0.34 $0.41
Adjusted Weighted Average Shares and
Assumed Conversions 14,271,000 13,737,000
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