At first glance the Ashworth bottom line numbers for their fiscal third quarter ended July 31 would have you concerned about the health of the business. However, a $3.0 million pre-tax charge related to a tentative settlement of a five-year-old securities class action lawsuit against the company erased otherwise good news that saw the company increase sales, improve margins, and integrate an acquisition quickly enough to make it immediately accretive the latest quarters results. The charge is part of a $15.25 million settlement, 82% of which will be paid for by their insurance carrier.
Excluding the charge for the suit, Ashworth would have reported consolidated net income of $2.3 million, or 17 cents per diluted share, for the period. The acquisition of Gekko Brands, LLC also added approximately $200k, or a penny a share, to the period. An apples-to-apples comparison would have seen earnings flat for Q3.
Gekko also added $3.4 million to the top line for the company, while the domestic Golf channel rose 3.8% to $21.6 million from $20.8 million in the year-ago period.
Growth in the Retail/department Store channel slowed, generating a 6.3% increase for the period to $3.2 million from $3.0 million in fiscal Q3 last year. The year-ago period saw a 68.2% increase for the Retail channel. The Corporate channel and Owned-Retail both had declines for the quarter, with Corporate sales dipping 1.5%, or roughly $100k, to $6.3 million in the period and Owned-Retail decreasing 12.5%, or roughly $191k, to approximately $1.3 million on one less store versus the year-ago quarter. Comps were flat for the period.
On the International side, sales in the U.K. increased 16.5% to $4.7 million and Canada rose 9.3% to $1.6 million. Currency exchange rate benefits accounted for $500,000 of the total increase in net revenues in the International segment. Currency-neutral growth would have been 3.2% in the quarter.
Total debt increased to $34.5 million at quarter-end compared to $9.0 million last year, $21.0 million of which was used for the Gekko acquisition and $11.6 million to help finance a new DC in Oceanside, CA.
Ashworth is also increasing its guidance for the fourth quarter fiscal 2004 due to the acquisition of Gekko Brands, now projecting a 35% to 45% increase in fiscal Q4 2004 net revenues to approximately $43.7 million to $46.9 million. Gekko should add two to three cents a share to Q4 earnings, resulting in an EPS estimate in the range of 10 cents to 14 cents per diluted share, compared to 7 cents in the year-ago period.
Full year EPS is now seen in the range of 56 cents to 60 cents per diluted share on sales of approximately $168.6 million to $171.8 million, an increase of 13% to 15% versus last year. Fiscal 2005 EPS is expected to be in the 76 cents to 82 cents per diluted share range on sales of approximately $207 million to $215 million.
