Ashworth, Inc. reported consolidated net revenue for the fiscal fourth quarter ended October 31, 2007 increased 8.9% to $54.6 million compared to $50.2 million in the same quarter last year. Net domestic revenue increased 9.1% to $44.7 million for the fourth quarter of fiscal 2007 from $41.0 million for the same period of fiscal 2006. Net international revenue increased 7.4% to $9.9 million for the fourth quarter of fiscal 2007 from $9.2 million for the same period of fiscal 2006.
For the fiscal year, consolidated net revenue decreased 3.5% to $202.2 million compared to $209.6 million for fiscal 2006. Net domestic revenue decreased 3.7% to $164.8 million for the full year fiscal 2007 from $171.1 million for fiscal 2006. Net international revenue decreased 3.0% to $37.4 million for the full year fiscal 2007 from $38.5 million for fiscal 2006. A more detailed analysis of revenue for the fourth quarter and fiscal 2007 is provided below.
Consolidated net loss for the fourth quarter of fiscal 2007 was ($3.5) million or (24 cents) per basic and diluted share compared to a net loss of ($4.4) million or (30 cents) per basic and diluted share for the same quarter last year. Consolidated net loss for the full year fiscal 2007 was ($14.1) million or (97 cents) per basic and diluted share compared to a consolidated net income of $1.0 million or 7 cents per basic and diluted share for fiscal 2006. As a result of the quarterly assessments of its net deferred tax assets in accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes during the last three quarters of fiscal 2007, the company recorded a tax charge of $7.3 million or 50 cents per basic and diluted share to establish a valuation allowance against deferred tax assets during fiscal 2007.
The companys gross profit improved to $20.0 million, or 36.7% of sales, in the fourth quarter of fiscal 2007 as compared to $16.3 million, or 32.6% of sales, in the same period last year. The improvement in gross margins was primarily due to improved fixed cost leverage from higher sales and efficiencies realized through process improvements in the companys Embroidery and Distribution Center (“EDC”) in Oceanside, CA. The companys SG&A expenses increased approximately $0.6 million primarily due to additional royalties and commissions on increased sales as well as increased tour event expenses, but fell as a percentage of sales to 42.2% from 44.7% in the comparable prior year period due to improved sales leverage.
The companys gross profit declined to $77.8 million, or 38.5% of sales, for the full fiscal year 2007 as compared to $85.8 million, or 40.9% of sales, for fiscal year 2006. The year-over-year gross margin decline primarily resulted from higher discounting to clear excess inventory as well as the underutilization of the EDC due to lower sales volume in the companys domestic distribution channels (excluding Gekko Brands, LLC). The companys SG&A expenses for fiscal 2007 increased approximately $4.3 million and as a percentage of sales were 42.4% as compared to 38.9% in the prior year. The increase in SG&A expenses was primarily due to an approximate $1.9 million increase in trade shows, sales meetings and license fees, a net increase in employee severance of approximately $0.8 million, approximately $0.7 million due to the full-year effect of the four new outlet stores added in the second half of fiscal 2006 as well as recognition of approximately $0.7 million of additional compensation expense related to five officers of Gekko. This additional compensation resulted from a change in the nature of certain contingent acquisition obligations which previously were accounted for as additional purchase price of the acquisition.
Analysis of Fourth Quarter and Fiscal Year 2007 Revenues by Channel
The companys fourth quarter fiscal 2007 revenues increased in every distribution channel except for the Retail channel. For fiscal year 2007, revenues decreased in all distribution channels except for the companys outlet stores and its Collegiate distribution channel.
Golf
For the fourth quarter of fiscal 2007, revenues from the domestic Golf distribution channel increased 40.6% to $19.0 million from $13.5 million for the same period of fiscal 2006. The improvement in the fourth quarter resulted from an increased number of on-course accounts with slightly higher average order size, and fewer off-course specialty retail accounts but with a 35.3% higher average order size. For fiscal year 2007, revenues in the Golf distribution channel were down 4.5% to $67.1 million from $70.3 million for fiscal 2006. For the year, revenues in the Golf distribution channel were adversely affected by customer consolidation within the off-course channel of distribution and continuing competitive pressure.
Retail
Revenues from the Retail distribution channel decreased 45.5% to $4.1 million for the fourth quarter of fiscal 2007 as compared to $7.6 million for the same period of the prior year. For fiscal year 2007, revenues in the Retail distribution channel declined 28.4% to $16.3 million as compared to $22.7 million for the prior fiscal year. These decreases were the result of the previous managements decision to reduce the presence of its Ashworth brand in this distribution channel.
Corporate
Revenues for the Corporate distribution channel increased 13.3% to $6.1 million in the fourth quarter of fiscal 2007 as compared $5.4 million for the same period of the prior fiscal year. The increase was primarily due to increased promotional activity during the fourth quarter of fiscal 2007. For fiscal year 2007, revenues in the Corporate distribution channel were down 4.6% to $24.6 million as compared to $25.8 million for the prior fiscal year.
Company-Owned Outlet Stores
Revenues from the outlet stores increased 9.8% to $3.1 million in the fourth quarter of fiscal 2007 as compared to $2.8 million for the same period last year, primarily due to increased promotional activity. For fiscal year 2007, revenues from the company-owned outlet stores were up 10.8% to $11.7 million as compared to $10.5 million for the prior fiscal year. Comparative store sales were up 9.8% for the fourth quarter of fiscal 2007 and down 1.6% for fiscal year 2007 as compared to the same periods of the prior year. New outlet stores added during the second half of fiscal 2006 contributed $2.7 million in revenues for the full fiscal year 2007.
Collegiate/Racing (The Game®/Kudzu®)
Gekkos revenues increased 6.1% to $12.4 million in the fourth quarter of fiscal 2007 as compared to $11.7 million for the same period of fiscal 2006. The increase was driven by higher sales of apparel and headwear into the Collegiate channel, a change in the timing of the Tour Championship (played in September 2007 versus November 2006), and increased sales of Kudzu products into the NASCAR/Racing distribution channel, partially offset by decreased sales in the Outdoor distribution channel. For fiscal year 2007, revenues in the Collegiate/Racing distribution channel were up 8.2% to $45.2 million as compared to $41.8 million for the prior fiscal year, primarily due to higher sales of apparel and headwear into an increased number of accounts in the Collegiate/Bookstore distribution channel and higher event sales due to the Tour Championship being played twice during fiscal year 2007, partially offset by lower sales of products into the NASCAR/Racing distribution channel during the first nine months of fiscal 2007.
International
Revenues from Ashworth UK, Ltd. increased 5.7% to $7.8 million for the fourth quarter of fiscal 2007 as compared to $7.4 million for the same period of the prior year. For fiscal year 2007, revenues from Ashworth UK, Ltd. were down 2.7% to $27.3 million as compared to $28.0 million for the prior fiscal year. The increase for the fourth quarter was primarily due to the favorable effect of exchange rate fluctuations, partially offset by the lack of Ryder Cup sales in fiscal 2007. The decrease for the full fiscal year 2007 is primarily due to Ashworths participation as the lead vendor at the 2006 Ryder Cup which benefited 2006 results but not 2007 as there was no such event during the year, partially offset by the favorable effect of exchange rate fluctuations. Other international revenues increased approximately 14.8% to $2.1 million for the fourth quarter as compared to $1.8 million for the same period of the prior year and decreased 3.8% to $10.1 million for fiscal year 2007 as compared to $10.5 million for the prior fiscal year. The increase for the fourth quarter of fiscal year 2007 was primarily due to the addition of new distributors in Guam and Saipan while the decrease for the full fiscal year 2007 was primarily due to lower sales in Canada as compared to the prior year.
Fiscal 2007 Year-End Balance Sheet
The companys net accounts receivable increased 1.7% from a year ago primarily due to the higher revenues in the fourth quarter of fiscal 2007. Consolidated net inventories increased 12.4% from a year ago primarily due to higher than planned inventory levels in the companys U.K. and Canada operations due to lower sell-through of certain styles as well as accelerated receipts of inventory at Gekko to facilitate apparel sales into the Collegiate market.
New Management Team and Strategic Plan
Allan H. Fletcher, the companys CEO, commented, “As many of you know, weve had a substantial turnover in executive management in the second half of fiscal 2007. Eddie Fadel was appointed President on May 23, 2007, Paul Bourgeois joined the Company as SVP of Sales on October 1, 2007 and on October 24, 2007 I was appointed CEO and Greg W. Slack was appointed CFO of Ashworth. This is an experienced team with an excellent understanding of the golf industry. We have been working together to develop a plan to build on the Companys strong apparel and headwear brands and return Ashworth to profitable growth. Our goal is to reinvigorate the Ashworth brand, by focusing on its quality, strength, authenticity and innovation. We are currently evaluating and implementing plans to improve or add product lines, reorganize and strengthen the sales force team and cut supply chain and operating costs. We are looking at all opportunities to improve profitability and foster a stronger alignment of the interests of management, employees and sales representatives with those of shareholders and strategic partners. This Company faced many challenges in the past few years and a complete turnaround will take hard work and time and may result in short-term peaks and valleys, but I believe the plans weve started to implement will, in time, return the Company to sustainable profitability.”
ASHWORTH, INC. | ||||||||
| Consolidated Statements of Operations | ||||||||
| Fourth Quarter and Twelve Months ended October 31, 2007 and 2006 | ||||||||
| Summary of Results of Operations | ||||||||
| 2007 | 2006 | |||||||
| FOURTH QUARTER | (Unaudited) | |||||||
| Net Revenue | $ | 54,591,000 | $ | 50,152,000 | ||||
| Cost of Sales | 34,566,000 | 33,824,000 | ||||||
| Gross Profit | 20,025,000 | 16,328,000 | ||||||
| Selling, General and Administrative Expenses | 23,014,000 | 22,431,000 | ||||||
| Loss from Operations | (2,989,000 | ) | (6,103,000 | ) | ||||
| Other Income (Expense): | ||||||||
| Interest Income | 52,000 | 15,000 | ||||||
| Interest Expense | (712,000 | ) | (668,000 | ) | ||||
| Other Expense, net | (101,000 | ) | (333,000 | ) | ||||
| Total Other Expense, net | (761,000 | ) | (986,000 | ) | ||||
| Loss Before Provision for Income Taxes | (3,750,000 | ) | (7,089,000 | ) | ||||
| Provision for Income Taxes | 264,000 | 2,734,000 | ||||||
| Net Loss | ($3,486,000 | ) | ($4,355,000 | ) | ||||
| Loss Per Share BASIC | ($0.24 | ) | ($0.30 | ) | ||||
| Weighted-Average Common Shares Outstanding | 14,660,000 | 14,520,000 | ||||||
| Loss Per Share DILUTED | ($0.24 | ) | ($0.30 | ) | ||||
| Adjusted-Weighted Average Shares and Assumed Conversions | 14,660,000 | 14,520,000 | ||||||
| TWELVE MONTHS | ||||||||
| Net Revenue | $ | 202,189,000 | $ | 209,600,000 | ||||
| Cost of Sales | 124,422,000 | 123,787,000 | ||||||
| Gross Profit | 77,767,000 | 85,813,000 | ||||||
| Selling, General and Administrative Expenses | 85,814,000 | 81,475,000 | ||||||
| Income (Loss) from Operations | ||||||||
