Cutter & Buck Inc. first quarter Net sales of $35.0 million represented an increase of 17.6% over the same period in the prior year. Net income for the first quarter was $2.0 million or 19 cents per diluted share, compared to $2.1 million, or 18 cents per diluted share, in the same period last year.
In the prior year, the company realized a one-time benefit of $0.5 million due to the conclusion of the lawsuit against a previous insurance carrier. Excluding this benefit, prior year operating income would be $2.5 million. This year’s first quarter operating income of $2.8 million represents a 14.9% increase over that amount.
Excluding the one-time benefit, net income would have been $1.8 million, or $0.16 per diluted share in the prior year, resulting in an increase in net income of 14.1%, or $0.03 per diluted share, for the first quarter of the current fiscal year compared to the same period in the prior year.
2006 2005
(in millions, except percentage and
per share data)
Net sales $35.0 $29.7
Gross profit $16.1 $14.0
Gross margin 46.0% 47.2%
Net income $2.0 $2.1
Diluted earnings per share $0.19 $0.18
Balance Sheet Summary:
July 31, April 30, July 31,
2006 2006 2005
(in millions)
Cash and short-term investments $25.0 $20.1 $43.1
Accounts receivable $18.5 $23.0 $18.2
Inventories $29.6 $25.7 $28.7
Working capital $63.6 $61.9 $83.2
Shareholders equity $68.6 $67.0 $88.5
“This is our third consecutive quarter with a sales increase and we are particularly pleased with this quarter’s performance because each of our business units reported a year-over- year increase. This is the first time since the third quarter of fiscal year 2000 that every one of our business units reported a sales increase during the quarter,” said Ernie Johnson, Chief Executive Officer. “Our customers are responding to our renewed focus on product. In fact the response has been so strong, we have continued to need to expedite the receipt of our product to continue to meet demand.”
First quarter sales in the corporate sales business unit, the largest business unit in terms of sales, were $15.2 million, a 10.8% increase over the same period in the prior year.
“Our upgraded Classics line has been well received, especially the technical pieces in our CB ProTec line and our women’s companion pieces,” said Kaia Akre, President. “Demand continues to exceed our initial expectations for the line.”
Golf sales were $8.0 million during the first quarter, a 1.1% increase over the same period in the prior year.
“As mentioned last quarter, we saw a shift in sales from the fourth quarter of last fiscal year to the first quarter of this fiscal year. However, the first quarter increase was offset primarily by one large order in the prior year which did not reoccur this year. Compared to the prior year, we did see a significant shift in our golf sales to our CB ProTec product line, similar to what we saw with our Classics in the corporate business unit,” said Johnson.
Specialty Retail sales of $6.9 million increased approximately $1.5 million, or 26.5%, during the first quarter compared to the same period in the prior year. This is attributable to growth in sales to specialty retailers including select department stores, big and tall retailers, and collegiate and pro sports teams and shops (CPS). In addition to increased demand, the sales growth with specialty retailers was due to strong reorders of the Spring fashion line with existing customers as well as earlier deliveries of the Fall 2006 fashion line. The company continues to see growth in the big and tall market. The brand and styling have been well-received by these customers. CPS sales increased due to strong acceptance of CB ProTec line and reorders related to earlier deliveries of Spring product.
Sales in the company’s consumer direct business unit increased approximately $1.5 million during the quarter compared to the same period in the prior year, primarily related to the consumer catalog launched in September 2005. First quarter sales in the international and licensing business unit, which includes sales to international distributors as well as royalties from international and domestic licensees, increased 7.9% over the same period last year. Sales in the “other” business unit increased approximately $0.7 million during the quarter compared to the same period in the prior year, primarily due to increased liquidation sales brought on by an opportunity to liquidate older fashion inventory that would normally be liquidated in the second quarter.
Gross margin during the quarter was 46.0%, a 120 basis-point decrease from the previous year and in line with gross margin in the fourth quarter of last year. As noted last quarter, higher than expected demand for new Classics product necessitated an increase in use of air freight in order to meet customers requirements. This demand continued through the first quarter requiring additional air freight. Also during the quarter, C&B liquidated more product than in the same period last year. While the company anticipates gross margins will continue to be impacted by additional air freight through the third quarter, it continues to expect gross margin to be in the 44%-48% range.
First quarter selling, general and administrative expenses of $12.6 million were 36.0% of sales compared to the prior year of $10.9 million or 36.7% of sales.
“Of the $1.7 million increase in our selling, general and administrative expenses, $1.1 million was attributable to our consumer catalog and e-commerce operations and approximately $0.6 million was due to commissions and other incentive-based compensation related to our increased sales and profitability during the quarter,” explained Michael Gats, Chief Financial Officer.
The balance sheet remains strong with cash and short-term investments of $25.0 million as of the end of the quarter and no debt. Accounts receivable were up slightly compared to the same quarter last year. Our sales increased at a rate greater than the increase in accounts receivable resulting in our days sales decreasing from 61 days last year to 54 days this year. Our inventory balance increased 3.1% over the first quarter balance last year. This was due to our expedited receiving of products to meet increased customer demand. Days inventory decreased from 157 days during the first quarter last year to 133 days this year.
Cutter & Buck announced that its board of directors approved a $0.07 per share quarterly dividend payable on October 12, 2006, to shareholders of record on September 28, 2006.
CEO Ernie Johnson concluded, “Last year we said we were investing in the future growth of the company by focusing on our product. We are now beginning to see the impact of those investments. While the turnaround will continue to take time, particularly in the golf channel, we believe our customers recognize and appreciate the significant improvement in both our fashion and classics lines. We recently introduced our spring 2007 line with new and innovative fabrics and designs that are receiving a very favorable response from our customers.
“While we continue to grow, we do not anticipate maintaining sales increases at the same high level we experienced during the first quarter. During the second and third quarters of last year, we had discounted a significant amount of discontinued Classics inventory as we began upgrading the Classics line. This helped increase our sales volume during that period, albeit at lower margins. This year, we will have a limited amount of discounted classics while we drive our sales with our updated products. In addition, during the second quarter last year, we launched our consumer catalog. Beginning in the second quarter this year, while we will continue to experience growth in our direct to consumer business unit, we will not experience the same level of year-over-year increases as we have experienced over the last three quarters because the prior year comparisons will begin to include catalog sales.
“I remain confident that as we continue to bring innovation and updated products to our customers, we will continue to grow Cutter & Buck and increase shareholder value over time.”
Table A: Condensed Consolidated Statements of Income (unaudited)
Three Months Ended
July 31, July 31,
2006 2005
(in thousands, except share and per
share amounts)
Net sales $34,972 $29,741
Cost of sales 18,895 15,696
Gross profit 16,077 14,045
Operating expenses:
Selling, general and administrative 12,605 10,916
Depreciation 642 666
Restatement expenses - (483)
Total operating expenses 13,247 11,099
Operating income 2,830 2,946
Interest income (expense)
Interest income 312 308
Interest expense - (8)
Net interest income (expense) 312 300
Pre-tax income 3,142 3,246
Income tax expense 1,100 1,144
Net income $2,042 $2,102
Basic earnings per share: $0.19 $0.19
Diluted earnings per share: $0.19 $0.18
Shares used in computation of:
Basic earnings per share 10,483,261 11,164,397
Diluted earnings per share 10,695,685 11,438,186
Cash dividends declared per share of
common stock outstanding $0.07 $1.41
Table B: Summary of Net Sales by Business Unit
Three Months Ended
July 31, Percent
2006 2005 Increase Change
(in thousands, except percent change)
Corporate $15,226 $13,742 $1,484 10.8%
Golf 7,977 7,891 86 1.1
Specialty Retail 6,932 5,478 1,454 26.5
Direct to Consumer 1,941 489 1,452 296.9
International 807 748 59 7.9
Other 2,089 1,393 696 50.0
Total $34,972 $29,741 $5,231 17.6%
