Cutter & Buck Inc. fiscal third quarter ended January 31, 2006 sales increased 29.0% year-over-year, driven by increases in all channels except the International sales channel while third quarter net income was $500,000 compared to a net loss of $400,000 in the prior year's quarter.
For the quarter ended January 31, Cutter & Buck had the following results:
2006 2005
(in millions, except percentage and
per share data)
Net Sales $31.2 $24.2
Gross Profit $13.8 $10.9
Gross Margin 44.1% 45.2%
Net Income (Loss) $0.5 ($0.4)
Earnings (Loss) Per Share $0.04 ($0.04)
For the nine months ended January 31, teh company had the following results:
2006 2005
(in millions, except percentage and
per share data)
Net Sales $94.7 $91.7
Gross Profit $42.8 $43.8
Gross Margin 45.3% 47.8%
Net Income $3.5 $5.8
Earnings Per Share $0.31 $0.51
Balance Sheet Summary:
January 31, April 30, January 31,
2006 2005 2005
(in millions)
Cash and Short-Term
Investments * $21.6 $40.6 $43.8
Accounts Receivable $18.6 $21.8 $12.7
Inventories $27.8 $25.4 $28.9
Working Capital * $62.4 $82.6 $80.1
Shareholders' Equity * $67.4 $87.9 $85.4
* Balances reflect the $14.7 million special cash dividend paid
November 16, 2006 and the repurchase of $7.9 million of common stock
since April 30, 2005.
“We are very pleased with our results for the quarter,” said Doug Southern, Chairman of the Board. “We are beginning to see the results from our new product offerings and the entire organization's implementation of our strategic plan.”
“The revenue growth in the third quarter reflects both sales of discontinued styles and the positive trends in our year-over-year Spring product placements,” said Ernie Johnson, Chief Executive Officer. “In the first two months of the quarter, sales increases in our two largest channels, golf and corporate, were driven primarily by the continued selling of our discontinued styles at discounted prices. This not only increased sales, albeit at a lower margin, but also reduced the amount of inventory we ultimately liquidated in January and February. Beginning in January, sales increases in these channels were attributable to our new Classics and Spring fashion product,” continued Johnson.
“We anticipate our sales in future quarters returning to predominately regular-priced shipments. Therefore, we believe our sales increases will normalize at a much more moderate growth rate,” said Johnson.
Third quarter sales in the corporate channel increased 15.7% over the previous year. As noted above, this increase was due largely to the sales of discontinued Classics styles and the introduction of the new Classics line. The new line includes a larger assortment of technical fabrications and women's companion styles as compared to our previous lines.
Golf sales were up 14.5% for the quarter as compared to the prior year. “In January, we began to see the impact of our customers' favorable response to our Spring fashion line. Sales of our 'CB ProTec' line of technical fabrications and our 'Signature Classics' line of refined knits exceeded our expectations,” said Johnson. “Based on customer feedback, we extended our shipping window for our fashion product in the golf channel from the end of April to the end of June. We believe this will result in a greater sales increase for Spring, but it will be realized through the first quarter of next fiscal year rather than primarily the fourth quarter of this year,” continued Johnson.
Sales increased 43.3% in the specialty retail channel driven by an increase in the specialty department store business and our Big & Tall customer base. The specialty department store sales reflected planned earlier deliveries of Spring product and an increase in our women's Fashion sales. Sales in the international channel decreased 12.1% as we continue to shift that business from distributors to licensees. In the consumer direct channel, sales increased $1.7 million due to the consumer catalog that we launched in September 2005.
During the quarter, the gross margin was 44.1%, a 110 basis point decrease from the third quarter last year. Our sales of discontinued styles during the quarter were the primary reason for the decrease in gross margin. We expect to finish liquidating the remaining discontinued styles in the fourth quarter.
Operating expenses increased to $13.4 million in the third quarter compared to $11.7 million in the previous year's quarter due to consumer catalog costs we did not incur last year. Excluding catalog costs, selling, general and administrative expenses were flat year-over-year.
Our balance sheet remains strong, with cash and investments totaling $21.6 million at the end of the quarter, with no debt. The cash balance reflects payment of the $14.7 million special dividend paid in November and $3.1 million of stock repurchases made during the quarter. During the quarter, free cash flow (defined as cash provided by operating activities less purchases of fixed assets) was a negative $0.2 million. Accounts receivable averaged 56 days' sales outstanding during the quarter compared to 60 days for the same period last year.
Inventories were $27.8 million at the end of the quarter compared to $28.9 million at January 31, 2005. During the quarter ended January 31, 2006, inventories increased $2.8 million or 11%. As we noted last quarter, this seasonal increase was expected as we brought in our new expanded Classics line that is available on an “at once” basis throughout the year and our Spring Fashion line that primarily ships during the third and fourth quarters.
Cutter & Buck announced that its board of directors approved a $0.07 per share quarterly dividend. The quarterly dividend will be payable on April 7, 2006, to shareholders of record on March 23, 2006. In November, we paid a special cash dividend of $1.34 per share totaling $14.7 million.
During the third quarter, we repurchased 270,000 shares of our common stock at an average price of $11.58, for a total cost of $3.1 million. From the inception of our stock repurchase program through the end of January 2006, we have repurchased a total of approximately 923,000 shares of our common stock at an average price of $12.21 for a total of $11.3 million. At the end of the quarter, there was approximately $2.9 million remaining of the $14.2 million share repurchase authorization.
On March 7, 2006, the company announced the appointment of Ernie Johnson to the position of chief executive officer and to the Company's board of directors and the appointments of Kaia Akre as president, Michael Gats as vice president and chief financial officer and Jon Runkel as vice president of global sourcing and distribution. These announcements were part of a reorganization resulting from the resignation of Tom Wyatt, and were designed to allow the company to continue to drive its consumer, products and marketing initiatives.
“Thanks to Tom Wyatt's leadership, the company is well positioned for growth. The current management team is aligned with the strategic direction of the company and well positioned to execute that strategy. This is a strong and focused group that I am confident will continue to move the company forward,” concluded Southern.
Table A: Condensed Consolidated Statements of Operations (unaudited)
Three Months Nine Months
Ended Ended
January 31, January 31,
2006 2005 2006 2005
(in thousands)
Net sales $31,247 $24,220 $94,657 $91,657
Cost of sales 17,472 13,272 51,819 47,818
Gross profit 13,775 10,948 42,838 43,839
Operating expenses:
Selling, general and administrative 12,601 11,007 36,918 32,630
Depreciation 773 679 2,189 2,136
Restatement expenses -- 9 (648) 290
Total operating expenses 13,374 11,695 38,459 35,056
Operating income (loss) 401 (747) 4,379 8,783
Interest income (expense)
Interest income 312 222 965 475
Interest expense -- (9) (9) (39)
Net interest income (expense) 312 213 956 436
Pre-tax income (loss) 713 (534) 5,335 9,219
Income tax expense (benefit) 232 (150) 1,861 3,438
Net income (loss) $481 $(384) $3,474 $5,781
Table B: Summary of Net Sales by Sales Channel
(in thousands, Three Months Ended
except percent January 31, Percent
change) 2006 2005 Decrease Change
Corporate $14,548 $12,578 $1,970 15.7%
Golf 5,008 4,375 633 14.5
Specialty Retail 5,859 4,090 1,769 43.3
Consumer Direct 2,405 753 1,652 219.4
International 754 858 (104) (12.1)
Other 2,673 1,566 1,107 70.7
Total $31,247 $24,220 $7,027 29.0%
(in thousands, Nine Months Ended
except percent January 31, Percent
change) 2006 2005 Decrease Change
Corporate $42,285 $42,279 $6 0.0%
Golf 20,221 23,224 (3,003) (12.9)
Specialty Retail 20,222 17,762 2,460 13.8
Consumer Direct 4,043 1,464 2,579 176.2
International 2,308 2,273 35 1.5
Other 5,578 4,655 923 19.8
Total 94,657 91,657 3,000 3.3%
