Cutter & Buck Inc. reported that fiscal second quarter sales fell 5.0 % from $36.5 million in Q2 2002 to $34.7 million in Q2 2003. Net income soared up 600% from $300,000 last year to $2.1 million, and bringing EPS up 533% to 19¢ per share from 3¢ last year. Gross Margins improved as well, up 630 bps from 40.4% to 46.7%.
For the quarter ended October 31, Cutter & Buck had the following results:
2003 2002
In millions, except percentage
and per share data
Net Sales $34.7 $36.5
Gross Profit $16.2 $14.8
Gross Profit % 46.7% 40.4%
Net Income $2.1 $0.3
Earnings Per Share $0.19 $0.03
For the six months ended October 31,
we had the following results:
2003 2002
In millions, except percentage
and per share data
Net Sales $67.5 $69.8
Gross Profit $31.0 $28.7
Gross Profit % 45.9% 41.1%
Net Income (Loss) $3.2 $(1.3)
Earnings (Loss) Per Share $0.29 $(0.12)
Balance Sheet Summary
October 31, April 30, October 31,
2003 2003 2002
In millions
Accounts Receivable $18.5 $24.3 $21.4
Inventories $21.8 $34.5 $33.4
Working Capital $70.4 $65.6 $73.5
Shareholders' Equity $75.4 $72.0 $82.6
Management Viewpoint:
We have made good progress on our strategic goals of returning to our core
wholesale* business; improving that business to generate good profitability;
disposing of the residual issues that come from last year's restatement of
earnings; and investing in key areas to enable growth in the future.
“We have a strong brand and a strong balance sheet, and plan to continue
to improve all aspects of our company in order to enable the brand to grow to
its full potential”, said Fran Conley, Chief Executive Officer. “As we
continue to improve our products, our operations, and our selling and
marketing, and as the economic recovery takes hold, we believe that the brand
has solid growth prospects in its current distribution channels; but we do not
expect sales for the next six months to be significantly higher than they were
last year.”
QUARTER
— The $2.1 million net income for the quarter ended October 31, 2003
includes $4.7 million pretax profit from our on-going wholesale* business. It
also includes $1.7 million of pretax expenses related to the 2002 restatement
of prior years' earnings. A full reconciliation of these numbers to the
Generally Accepted Accounting Principles presentation is shown in Table B
attached.
— The $4.7 million pretax profit from the ongoing wholesale business for
the second quarter of FY 2004 compares favorably to the $2.5 million pretax
profit in the same period of FY 2003.
— For the second quarter of FY 2004, gross profits were up by $1.5
million even though sales were down $1.8 million compared to the second
quarter of FY 2003. We have been emphasizing profitable sales, reducing costs
and improving our sourcing and product pricing.
— For the second quarter of FY 2004, we achieved a gross profit of 46.7%.
This includes a one-time benefit of approximately $700,000, as we adjusted our
reserve estimates because our performance on returns and allowances has shown
sustained improvement. We expect gross profit to be impacted for the
remainder of FY 2004 due to our seasonality and sales mix factors.
Year to Date
— The $3.2 million net income for the six months ended October 31, 2003
includes $7.9 million pretax profit from our on-going wholesale* business. It
also includes $3.4 million pretax restatement expenses, including expenses to
settle the shareholder lawsuits and the SEC investigation. A full
reconciliation of these numbers to the Generally Accepted Accounting
Principles presentation is shown in Table B attached.
— The $7.9 million pretax profit from the on-going wholesale business for
the first six months of FY 2004 compares favorably to the $3.8 million pretax
profit in the same period of FY 2003.
— For the first half of FY 2004, gross profits were up by $2.2 million
even though sales were down $2.3 million compared to the first half of FY
2003.
BALANCE SHEET
Compared to our October 31, 2002 balance sheet, at October 31, 2003 our:
— Accounts receivable were down $2.9 million.
— Inventory was down $11.5 million.
— Accounts payable and accrued liabilities were down $4.6 million ($6.9
million excluding restructuring and restatement accruals).
-- Cash was up $13.6 million.
In addition, our free cash flow was $16.2 million for the first six months
of FY 2004. We define free cash flow as cash provided by operating activities
less capital expenditures.
RESTATEMENT UPDATE:
We have received final court approval of the settlement of the shareholder
class action and derivative lawsuits. In our lawsuit against Genesis, the
insurance company that is trying to rescind our Directors' and Officers'
liability insurance, we have filed for summary judgment seeking reinstatement
of our insurance and we are awaiting a ruling. We continue to co-operate with
the government investigation of former officers, and we have incurred expenses
in connection with indemnifying former officers.
Cutter & Buck
Table A
Condensed Consolidated Statements of Operations (unaudited)Three Months Ended Six Months Ended
October 31, October 31, October 31, October 31,
2003 2002 2003 2002
In thousands, except
share & per share
amounts
Net sales $34,747 $36,505 $67,484 $69,812
Cost of sales 18,527 21,740 36,525 41,099
Gross profit 16,220 14,765 30,959 28,713
Operating expenses
Depreciation 1,051 1,275 2,113 2,551
Selling, general
& administrative 10,532 11,031 21,015 21,640
Restructuring and
asset impairment -- 76 -- 3,890
Restatement expenses 1,678 1,254 3,350 1,254
Total operating
expenses 13,261 13,636 26,478 29,335
Operating income (loss) 2,959 1,129 4,481 (622)
Interest income (expense)
Interest expense (44) (175) (102) (371)
Interest income 42 85 85 145
Net interest expense (2) (90) (17) (226)
Income (loss) from
continuing operations
before taxes 2,957 1,039 4,464 (848)
Income tax expense
(benefit) 866 354 1,420 (288)
Net income (loss) from
continuing operations 2,091 685 3,044 (560)
Income (loss) from
discontinued retail
operations, net of tax -- (403) 146 (746)
Net income (loss) $2,091 $282 $3,190 $(1,306)Diluted earnings (loss)
per share:
Net Income/(Loss) from
continuing operations $0.19 $0.06 $0.28 $0.05
Net Income/(Loss) from
discontinued retail
operations -- (0.03) 0.01 (0.07)
Net Income/(Loss) 0.19 0.03 0.29 (0.12)
Shares used in
computation of:
Diluted earnings (loss)
per share 10,993 10,629 10,910 10,599
