Ashworth, Inc. saw net revenues for the company's fiscal first quarter ended January 31, 2007 decrease 5.8% to $38.3 million from $40.6 million. In addition, the company posted a net loss of $2.4 million, or 17 cents per diluted share, for the quarter compared to a net loss of $50,000, or 0 cents per diluted share, for the same quarter of the prior year.
Peter M. Weil, Chief Executive Officer of Ashworth, said, “The first quarter remained challenging and we continue to execute on the strategic initiatives our Board and management team identified during the second half of 2006. As we have said, we are implementing these initiatives in order to better position the Company for sustainable and profitable growth. We expect to begin realizing the benefits of our efforts beginning in the second half of 2007.
“As part of our overall effort to further extend Ashworth's category and brand leadership globally, we were pleased during the quarter to announce John Ashworth's return to the Company. John reinforces our commitment to the core golf channel and the PGA Golf Professionals who have represented Ashworth for the last twenty years. We look forward to benefiting from his expertise and his unique vision that was instrumental in originally developing the Ashworth® brand.”
Summary of First Quarter Results:
Consolidated net revenue for the first quarter ended January 31, 2007 decreased 5.8% to $38.3 million as compared to $40.6 million for the first quarter of 2006. The company reported a consolidated first quarter net loss of $2.4 million, or 17 cents per diluted share, compared to a net loss of $50,000, or 0 cents per diluted share, for the same quarter of the prior year. Net revenue for the domestic segment (including Gekko Brands, LLC) decreased 7.9% to $32.0 million from $34.8 million for the same period of the prior year. Net revenue from the international segment (including Ashworth, U.K., LTD.) increased 7.1% to $6.3 million from $5.8 million for the same period of the prior year.
In the first quarter of fiscal 2007, the company's consolidated gross margin decreased 350 basis points to 40.8% as compared to 44.3% in the first quarter of fiscal 2006. The decrease in margins was primarily due to the costs associated with the underutilization of the Embroidery and Distribution Center's embroidery capacity, the cost of which is recorded in cost of sales during the period and is primarily due to lower sales associated with the Company's domestic golf channel.
Consolidated selling, general and administrative expenses increased 7.9% to $19.1 million for the first quarter of fiscal 2007 as compared to $17.7 million for the first quarter of fiscal 2006. The increase in SG&A expenses was primarily due to an increase in advertising and tradeshow expenses related to the PGA show and other sales initiatives focused on improving the company's golf distribution channel as well as the full-year effect of the addition of four new outlet stores during the second half of fiscal 2006. These increases were partially offset with reductions in legal and consulting fees associated with the Company's 2006 annual meeting of shareholders and strategic alternatives process, as well as a reduction in costs related to the company's compliance with Sarbanes Oxley and its annual audit.
Revenues by Channel/Segment:
Golf
Total revenues in the domestic golf channel in the first quarter declined 22.0% to $9.0 million as compared to the same period last year. Sales in the golf distribution channel for the first quarter continued to be affected by increased competitive pressure, an overall continued softness in the golf market, and the company's strategic initiative to improve the quality of distribution. The Company believes that future product direction, Green Grass specific sales management, an improved sales force, as well as strong brand development initiatives including the return of John Ashworth will result in future growth in the core golf channel.
Corporate
Revenues for the corporate distribution channel were $5.7 million, an increase of 2.3% as compared to the same period last year. The positive results were driven by the company's ability to offer two premier brands that include a comprehensive offering of on-course golf apparel as well as golf-inspired lifestyle sportswear for men and women.
Retail
Revenues for the retail distribution channel were $4.1 million, a decrease of 21.4% from first quarter 2006. The retail channel experienced a decline in the first quarter primarily due to the overall slowness of retail sell-through during the holiday season, account consolidation in the channel as well as a reduction of underperforming doors. The company will continue to improve its brand positioning by focusing on premium retail accounts and doors within the channel.
Collegiate/Racing (The Game®/Kudzu®)
First quarter revenues for Gekko Brands, LLC were $10.4 million, an increase of 3.5% over the first quarter 2006. The increase was primarily due to higher revenues in the collegiate bookstore channel and to Game Select Dealers, partially offset by lower revenues from sales into the NASCAR/racing channel as compared to the first quarter of fiscal 2006.
Company-owned Outlet Stores
Revenues from the company-owned stores were $2.7 million, an increase of 19.0% over first quarter 2006. Since the first quarter of 2006, the company added a net of four new outlet stores bringing the company's total number of outlet stores to 18. The new outlet stores contributed $0.6 million in sales in the first quarter of fiscal 2007 while sales on a comparative store basis were down 7.9%. Much of the decline was due to reduced holiday traffic in our outlet stores.
International
Revenues from the international segment increased 7.1% to $6.3 million, an increase of $0.5 million over the same period last year. Revenues were primarily driven by growth from Europe and Canada.
Balance Sheet:
Net accounts receivable decreased 5.6% from the prior year, commensurate with the 5.8% decrease in revenues for the first quarter. Net inventory decreased 8.7% to $56.4 million as of January 31, 2007 as compared to $61.7 million as of January 31, 2006 and is in line with expected sales growth.
The company was not in compliance with certain financial covenants contained in its bank credit facility as of January 31, 2007 but has obtained a waiver of such compliance.
Domestic Inventory:
As a result of the company's implementation of multiple inventory and supply chain initiatives, domestic gross inventory decreased 8.4% over the comparable quarter last year, while sales decreased 7.9%.
Embroidery and Distribution Center (EDC):
The company believes that lower than expected throughput will continue to impact its ability to realize the full benefits of this state-of-the-art facility. The company is continuing to evaluate various options including, among others: developing a joint venture to better utilize available embroidery capacity; and selling the EDC and utilizing external distribution providers and contract embroiderers. The company is evaluating all available options and noted that there is no guarantee that any agreement will be reached as a result of this process.
ASHWORTH, INC.
Consolidated Statements of Operations
First Quarter ended January 31, 2007 and 2006
(Unaudited) Summary of Results of
Operations
2007 2006
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First Quarter
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Net Revenue $38,272,000 $40,612,000
Cost of Sales 22,655,000 22,636,000
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Gross Profit 15,617,000 17,976,000
Selling, General and Administrative Expenses 19,117,000 17,698,000
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Income (Loss) from Operations (3,500,000) 278,000
Other Income (Expense):
Interest Income 37,000 10,000
Interest Expense (601,000) (679,000)
Other Income (Expense), net (16,000) 308,000
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Total Other Expense, net (580,000) (361,000)
Loss Before Provision for Income Taxes (4,080,000) (83,000)
Benefit for Income Taxes 1,632,000 33,000
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Net Loss $(2,448,000) $(50,000)
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Loss Per Share - BASIC ($0.17) ($0.00)
Weighted Average Common Shares Outstanding 14,520,000 14,182,000
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Loss Per Share - DILUTED ($0.17) ($0.00)
Adjusted Weighted Average Shares and Assumed
Conversions 14,520,000 14,182,000
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