Ashworth, Inc. shrugged off weakness in the green grass Golf channel of distribution to post modest gains in its Ashworth and Callaway brand apparel lines in the fiscal second quarter ended April 30.
A sharp decline in rounds played led to declines in the companys largest channel of distribution, but solid double-digit increases in the International, Retail, and Outlet channels, coupled with additional volume from the acquisition of Gekko brands and the Corporate distribution channels, led to an 18.3% increase in sales for the period to $64.7 million, compared to $54.7 million in the year-ago period.
Excluding the Gekko business, sales would have increased 4% for the period.
The Ashworth and Callaway brand apparel businesses experienced a 6% sales decline in the Golf channel in the fiscal second quarter, a decline that was more than offset by a 15% increase in the Retail channel, a 6% gain in the Corporate channel, and an 11% increase in the company-owned Outlet business. International sales jumped 25% for the period.
Ashworth brand product sales increased 2.9% to $42.6 million in Q2 from $41.4 million in the year-ago period. Callaway Golf apparel brand sales increased 6.0% to $14.1 million from $13.3 million in Q2 last year.
ASHW is touting its multi-brand, multi-channel strategy as a hedge against movement in channels throughout the year. They are also pointing to the cross-channel selling that is now available to them through the Gekko deal, particularly in the college bookstore business. Cross channel bookings of Ashworth apparel into collegiate and event channels were reportedly over $1 million in the quarter.
Gross margins improved 80 basis points to 43.4% of sales, compared to 42.6% of sales in Q2 last year, but SG&A jumped 500 basis points to 29.8% of sales, or 27.7% on a pro forma basis.
Net income declined 15.0% to $4.8 million, or 34 cents per diluted share, in the second quarter, compared to $5.7 million, or 41 cents per diluted share, for the same quarter last year. Excluding a gain on the sale of its DC in Carlsbad last year, pro forma earnings would have been up 2% for quarter. Earnings were further impacted this year by “sluggish golf sales” and “higher than anticipated operating expenses associated with the new embroidery and distribution center.”
Inventory at quarter-end increased 23.9% to $53.9 million compared to $43.5 million at the same time last year, due in part 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.”
Ashworth pulled back on its guidance for the year, now looking for EPS in the range of 72 cents to 76 cents per share on sales between $207 and $212 million, compared to previous guidance of earnings per share in the 76 cents to 82 cents range on sales on sales of $207 to $215 million.
