Ashworth, Inc. reported revenues for the third quarter ended July 31, decreased 6.4% to
$49.5 million from $52.8 million. The company reported a loss of $5.7
million, or 39 cents a share, compared to net income of $0.7 million, or 5 cents per share, a year ago.
In the third quarter of fiscal 2007, Ashworth recorded a tax charge of
$1.4 million or $0.10 per diluted share to establish a valuation
allowance against deferred tax assets.
In the third quarter, gross margin decreased 270 basis points to 38.2%
as compared to 40.9%. The decrease in consolidated gross margin was
driven significantly by a decrease in revenue without a commensurate
decrease in overhead expenses being applied to cost of sales.
Consolidated selling, general and administrative (“SG&A”) expenses
increased 10.1% to $21.8 million from $19.8 million. The increase in
SG&A expenses was largely due to increased compensation costs
related to retention bonuses, severance, and compensation expense
related to the employment and non-compete agreements entered into with
the principals of Gekko Brands, LLC on June 4, 2007.
Total revenues in the domestic golf channel in the third quarter
remained flat at $17.2 million as compared to the same period last
year. Revenues from the company's on-course golf retailers, increased
10.1%, or $1.2 million. Aswhorth continues to experience significant
competitive pressure and market consolidation within the off-course
channel of distribution.
Revenues for the corporate distribution channel were $6.3 million, a
decrease of 17.1%. The decrease in the corporate channel resulted from
continued missed sales opportunities due to out-of-stock positions in
selected styles.
Revenues for the retail distribution channel were $1.7 million, a
decrease of 43.7% from third quarter 2006. Consolidation in the retail
market accounted for approximately $0.9 million of the decrease and
approximately $0.5 million of the decrease resulted from the company's
decision to discontinue selling to selected accounts.
Third quarter revenues for Gekko Brands, LLC were $12.6 million, an
increase of 5.2% over the third quarter 2006. The increase was
primarily driven by the continued sales growth of Ashworth apparel
through the collegiate/bookstore channel.
Revenues from thecompany-owned stores were $3.2 million, an increase of
11.8% over third quarter 2006. The company opened three new outlet
stores in the second half of 2006 bringing the company's total number
of outlet stores to 18. The new outlet stores accounted for $0.2
million of the sales increase over the third quarter of fiscal 2006
while sales on a comparable store basis increased 7.4%. Much of the
increase was due to the promotional initiatives implemented by the
company.
Revenues from the international segment decreased 16.9% to $8.5
million, a decrease of $1.7 million over the same period last year.
Revenues were significantly lower in Europe largely due a decrease in
market penetration consisting primarily of a reduction in the number of
doors shipped.
Net accounts receivable decreased 20.3% from the prior year, while
revenues decreased 6.4% for the third quarter. The $8.0 million
decrease in net accounts receivable was primarily due to a decrease in
sales of $5.3 million in the Company's domestic golf, retail and
corporate distribution channels during the nine months ended July 31,
2007 and $2.7 million was due to the timing of shipments. Net inventory
increased 1.2% to $53.6 million as of July 31, 2007 as compared with
the same period last year.
The company was in compliance with the financial covenants provisions
of its line of credit agreement with its lenders as of July 31, 2007.
After analyzing various strategic alternatives, the company has elected
to retain the EDC at the present time and focus instead on reducing the
EDC's operating costs and increasing its operating efficiency.
ASHWORTH, INC.
Consolidated Statements of Income
Third Quarter and Nine months ended July 31, 2007 and 2006
(Unaudited)
Summary of Results of
Operations
2007 2006
-------------- -------------
THIRD QUARTER
-----------------------------------------
Net Revenue $ 49,461,000 $ 52,816,000
Cost of Sales 30,578,000 31,190,000
-------------- -------------
Gross Profit 18,883,000 21,626,000
Selling, General and Administrative
Expenses 21,841,000 19,836,000
-------------- -------------
Income (Loss) from Operations (2,958,000) 1,790,000
Other Income (Expense):
Interest Income 24,000 21,000
Interest Expense (837,000) (828,000)
Other Income (Expense), net (54,000) 151,000
-------------- -------------
Total Other Expense, net (867,000) (656,000)
-------------- -------------
Income (Loss) Before Provision for Income
Taxes (3,825,000) 1,134,000
Provision for Income Taxes (1,824,000) (453,000)
-------------- -------------
Net Income (Loss) ($5,649,000) $ 681,000
============== =============
Income (Loss) Per Share - BASIC ($0.39) $ 0.05
Weighted Average Common Shares
Outstanding 14,602,000 14,495,000
============== =============
Income (Loss) Per Share - DILUTED ($0.39) $ 0.05
Adjusted Weighted Average Shares and
Assumed Conversions 14,602,000 14,624,000
============== =============
NINE MONTHS
-----------------------------------------
Net Revenue $ 147,597,000 $159,448,000
Cost of Sales 89,856,000 89,963,000
-------------- -------------
Gross Profit 57,741,000 69,485,000
Selling, General and Administrative
Expenses 62,799,000 59,044,000
-------------- -------------
Income (Loss) from Operations (5,058,000) 10,441,000
Other Income (Expense):
Interest Income 82,000 40,000
Interest Expense (2,209,000) (2,229,000)
Other Income (Expense), net (114,000) 590,000
-------------- -------------
Total Other Expense, net (2,241,000) (1,599,000)
-------------- -------------
Income (Loss) Before Provision for Income
Taxes (7,299,000) 8,842,000
Provision for Income Taxes (3,331,000) (3,536,000)
-------------- -------------
Net Income (Loss) ($10,630,000) $ 5,306,000
============== =============
Income (Loss) Per Share - BASIC ($0.73) $ 0.37
Weighted Average Common Shares
Outstanding 14,548,000 14,359,000
============== =============
Income (Loss) Per Share - DILUTED ($0.73) $ 0.37
Adjusted Weighted Average Shares and
Assumed Conversions 14,548,000 14,513,000
============== =============
