Cutter & Buck Inc. reported net sales for the fiscal fourth quarter ended April 30, 2003 fell 31.1% to $36.6 million versus $52.7 million in the year-ago period. The net loss for the quarter was flat at ($900,000) versus ($1.0 million)in Q4 2002.
Net sales for the fiscal year were down 18.2% to $131.7 million, while the net loss widened to ($12.0 million) versus ($10.4 million).
Management viewpoint: The $12 million net loss for the year ended April 30, 2003 includes $6.5 million pretax profit from our wholesale* business. It also includes $8.2 million pretax restatement expenses, which in turn includes the recently announced $4 million charge for the settlement of shareholder lawsuits. The $12 million net loss also includes previously-announced restructuring expenses and the costs of our discontinued retail stores. A full reconciliation of these numbers to the Generally Accepted Accounting Principles presentation is shown in Table B attached.
The $6.5 million pretax profit from the remaining wholesale business for FY 2003 compares favorably to a $1.9 million pretax loss in FY 2002, primarily as a result of a $10 million reduction in our selling, general and administrative costs. During FY 2003, the company realized the positive impact on operating expenses of restructuring actions taken in late FY 2002 and early FY 2003. In addition, selling costs were lower as a result of lower sales.
Management viewpoint: The decrease of $29.4 million in net sales is accompanied by an increase in gross margin percent, so that gross margin dollars remained flat from FY 2002 to FY 2003. This reflects management’s emphasis on profitability. Of the decrease in sales, approximately $9.5 million is due to the discontinuance of some of our business lines; the remaining decrease occurred in our wholesale businesses, as shown in Table C. This decrease in sales reflects fewer liquidation sales, weak golf industry conditions, general retail softness, and some customer uncertainty about Cutter & Buck during this period.
“We are proud of the work of all our employees, and of our success in producing profits in our wholesale business,” said Fran Conley, Chief Executive Officer. “Throughout the company, people have worked to improve margins, control costs, and become more efficient, and the results are showing.”
In addition to improving operating results, the company has met some significant challenges:
- Cutter & Buck has successfully discontinued its retail stores
operations at a net pretax cost of $8.2 million, which includes
$9.2 million of store closure costs partially offset by $1 million
of income from product liquidation sales. The net cost is less than
the previously estimated range of $12 to $15 million.
- We also subleased some excess warehouse space, taking a one-time charge
of $3.3 million for that event.
- We have entered into a memorandum of understanding to settle two
shareholder lawsuits which were instituted following on the restatement
of our historical financials. A $4 million charge was taken in fourth
- After communications with SEC staff, we anticipate resolution of the
SEC’s investigation of the company.
“We worked very hard to get to this point”, said Conley. “We now look forward to realizing the full potential of our strong brand.”
“Our accounts receivable have declined by $17.6 million from last year, and we are pleased with the quality of the portfolio. Inventory is up by $8.3 million from last year,” said Ernie Johnson, CFO. “We believe our fashion inventory is clearly in line, and the classics, which we sell year round, are somewhat higher than we want. Our financial ratios remain strong, and we have working capital of $65.6 million. We continue to have a strong balance sheet.”
The company believes that its restructuring is now substantially complete. We will continue to incur costs related to the restatement, including the costs of pursuing the lawsuit against Genesis Insurance Company, which carried our D&O insurance during the time of the restatement and has attempted to rescind coverage. These continuing costs of restatement, as well as those already incurred, could be reduced or eliminated if Cutter & Buck is successful in its lawsuit against Genesis.
Our current wholesale operations are profitable on an annual basis, before restatement and restructuring charges. The company plans to continue its emphasis on efficient, profitable operations at every level.
Cutter & Buck Table A Condensed Consolidated Statements of Operations (unaudited, unless otherwise stated) Quarter Ending Year Ended April 30 April 30 2003 2002 2003 2002 In thousands, except per share data (audited) Net sales $36,304 $52,701 $131,699 $161,113 Cost of sales 20,205 37,245 76,912 106,189 Gross profit 16,099 15,456 54,787 54,924 Operating expenses Depreciation 1,175 1,529 5,109 5,423 Selling, general & administrative 10,615 13,260 42,400 52,350 Restructuring and asset impairment (39) 645 3,806 5,524 Restatement expenses 5,640 0 8,169 0 Total operating expenses 17,391 15,434 59,484 63,297 Operating income (loss) (1,293) 22 (4,697) (8,373) Net interest expense (64) (318) (386) (1,599) Net loss from continuing operations before tax (1,356) (296) (5,083) (9,972) Income tax expense (benefit) 730 73 (65) (2,945) Net loss from continuing operations (2,086) (369) (5,018) (7,027) Income (loss) from discontinued retail operations, net of tax 1,096 (669) (6,980) (3,346) Net income (loss) $(990) $(1,038) $(11,998) $(10,373)