Cutter & Buck Inc. second quarter sales increased 10.7% to $37.3 million. Corporate business unit sales were $14.8 million, a 5.9% increase. Golf sales were $7.7 million during the second quarter, a 4.6% increase. Specialty retail sales of $9.9 million increased approximately $1.0 million, or 11.3%. consumer direct sales were $2.5 million and increased approximately $1.3 million during the quarter. Net income was $2.5 million, compared to $891,000 last year.
For the quarter ended October 31, Cutter & Buck had the following results:
2006 2005
(in millions, except percentage and
per share data)
Net sales $37.3 $33.7
Gross profit $17.5 $15.0
Gross margin 47.0% 44.6%
Net income $2.5 $0.9
Diluted earnings per share $0.23 $0.08
For the six months ended October 31, we had the following results:
2006 2005
(in millions, except percentage and
per share data)
Net sales $72.3 $63.4
Gross profit $33.6 $29.1
Gross margin 46.5% 45.8%
Net income $4.5 $3.0
Diluted earnings per share $0.42 $0.26
Balance Sheet Summary:
October 31, April 30, October 31,
2006 2006 2005
(in millions)
Cash and short-term investments $25.2 $20.1 $40.3
Accounts receivable $19.6 $23.0 $19.5
Inventories $29.5 $25.7 $25.0
Working capital $64.9 $61.9 $65.4
Shareholders' equity $70.5 $67.0 $70.7
“We are pleased to report our fourth consecutive quarter of sales increases. During the second quarter, net sales were $37.3 million, representing an increase of 10.7% over the same period in the prior year,” said Ernie Johnson, Chief Executive Officer. “As was the case in the first quarter, we experienced a sales increase in each of our individual business units,” continued Johnson. In addition to the sales increase, net income increased 177% from $0.9 million last year to $2.5 million this year. Our net income benefited from two nonrecurring items. Excluding those items, net income would have been approximately $2.1 million or $0.19 cents per share.
Second quarter sales in our corporate business unit were $14.8 million, a 5.9% increase over the same period in the prior year. “We introduced our upgraded Classics line about one year ago, and have had strong sales since that time. The response to the technical pieces in our CB ProTec line and our women's companion pieces has also been very strong,” said Kaia Akre, President. During the first two quarters of the fiscal year, corporate sales were up 8.3%.
Golf sales were $7.7 million during the second quarter, a 4.6% increase over the same period in the prior year. “The response to our technical offerings continues to be strong in the golf sales channel as well,” said Johnson. “While the number of golf rounds played remains relatively flat this year, we continue to show year-over-year sales increases in our golf business unit. We believe this shows the strength of our product.” Golf sales were up 2.8% for the six month period ending October 31, 2006.
Specialty retail sales of $9.9 million increased approximately $1.0 million, or 11.3%, during the second quarter compared to the same period in the prior year. This is attributable to growth in sales to select department stores that have expanded their assortment of Cutter & Buck products to include golf styles in addition to products specifically designed for the specialty retail channel. Sales also continued to grow with collegiate and pro sports teams and shops. However, the sales increases in these channels were partially offset by a decrease in our sales to big and tall retailers. For the first two quarters of the fiscal year, sales in our specialty retail business unit increased $2.5 million or 17.1% over the same period in the previous year.
Sales in our consumer direct business unit of $2.5 million increased approximately $1.3 million during the quarter compared to the same period in the prior year, primarily related to the consumer catalog that we launched in September 2005. This second quarter represents the last quarter in which the prior year numbers do not include a full quarter of catalog-related sales. Fiscal year-to-date sales in the consumer direct business unit were $4.4 million, a $2.8 million increase over the same period in the previous year.
Second quarter sales were up 10.0% in our international & licensing business unit and up 1.3% in our other business unit compared to the same period in the prior year.
Gross margin during the quarter was 47.0%, a 240 basis-point increase from the previous year. “While we continued our use of air freight to meet higher than originally anticipated demand for our new Classics line, the impact was not as great during the second quarter as it was in the previous two quarters,” noted Michael Gats, Chief Financial Officer. In the previous year, we were in the process of selling relatively large quantities of discontinued Classics product at a discount due to the significant upgrade to that line. For the six month period ended October 31, 2006, gross margin was 46.5%, a 70 basis point improvement over the same period in the previous fiscal year. We continue to expect our gross margin to remain in the 44%-48% range.
Second quarter selling, general and administrative expenses of $13.8 million were 37.1% of sales compared to the prior year of $13.6 million or 40.4% of sales. The $0.2 million increase in expenses during the quarter was primarily attributable to our consumer catalog and e-commerce operations as well as commissions and other incentive-based compensation resulting from our increased sales and profitability during the quarter.
During the second quarter, we recognized two nonrecurring credits on a pretax basis: $0.2 million included in selling, general and administrative expenses related to an insurance recovery, and $0.4 million included in restructuring expense related to our sublease of warehouse space. There were no significant nonrecurring items during the first quarter of fiscal 2007. During the second quarter of the previous year, we recognized a credit of $0.2 million from restatement expenses and a credit of $0.2 million from restructuring expenses. In the first two quarters combined last year, restatement and restructure credits totaled $0.8 million.
Net income for the second quarter was $2.5 million or $0.23 per diluted share, compared to $0.9 million, or $0.08 per diluted share, in the same period last year. Excluding the nonrecurring items in the current and prior years, net income would have been $2.1 million, or $0.19 per diluted share in the second quarter this year compared to $0.7 million or $0.06 per diluted share in the previous year. For the six month period ended October 31, 2006, net income excluding the nonrecurring items this year would have been $4.1 million or $0.38 per diluted share. In the previous year, excluding the restatement and restructuring credits, net income would have been $2.4 million or $0.22 per diluted share for the six months ending October 31, 2005.
Our balance sheet remains strong with cash and short-term investments of $25.2 million as of the end of the quarter and no debt. During the first six months of the fiscal year, we generated $6.2 million of free cash flow (defined as net cash provided by operating activities less purchases of furniture and equipment). Accounts receivable were up slightly compared to the same quarter last year. However, our sales increased at a rate greater than the increase in accounts receivable, resulting in our days sales decreasing from 51 days last year to 47 days this year. Our inventory balance increased over the second quarter balance last year as we continued to increase our Classics inventory. Days sales in inventory increased from 131 days during the second quarter last year to 137 days this year.
Cutter & Buck announced that its board of directors approved a $0.07 per share quarterly dividend payable on January 5, 2007, to shareholders of record on December 21, 2006.
CEO Ernie Johnson concluded, “We are very pleased with our results for the first half of this fiscal year. Net sales are up almost 14% on the strength of our new and innovative products and our expanded presence in the specialty retail and direct to consumer channels. Our latest results are a continuation of what we experienced during the second half of last year when we began shipping our new products and launched our consumer catalog.
“Looking forward to the second half of this fiscal year, we continue to anticipate year-over-year sales growth, however, not at the same pace as the first half of the year. Starting in the third quarter, the comparable period will include the positive impact from sales of our upgraded product offering and a full quarter of catalog sales.
“We remain focused on providing high quality, innovative products to our customers that we believe will continue to provide profitable growth to the company.”
Three Months Ended Six Months Ended
October 31, October 31,
2006 2005 2006 2005
(in thousands, except
share and per share
amounts)
Net sales $37,281 $33,669 $72,253 $63,410
Cost of sales 19,745 18,651 38,640 34,347
Gross profit 17,536 15,018 33,613 29,063
Operating expenses:
Selling, general and
administrative 13,846 13,596 26,451 24,512
Depreciation 678 750 1,320 1,416
Restructuring expenses (401) (195) (401) (195)
Restatement expenses -- (165) -- (648)
Total operating expenses 14,123 13,986 27,370 25,085
Operating income 3,413 1,032 6,243 3,978
Interest income (expense)
Interest income 323 345 635 653
Interest expense -- (1) -- (9)
Net interest income
(expense) 323 344 635 644
Pre-tax income 3,736 1,376 6,878 4,622
Income tax expense 1,267 485 2,367 1,629
Net income $2,469 $891 $4,511 $2,993
Basic earnings per share: $0.23 $0.08 $0.43 $0.27
Diluted earnings per
share: $0.23 $0.08 $0.42 $0.26
Shares used in computation
of:
Basic earnings per share 10,519,680 11,044,913 10,501,470 11,104,655
Diluted earnings per
share 10,705,896 11,286,158 10,700,790 11,362,172
Cash dividends declared
per share of common stock
outstanding $0.07 $0.07 $0.14 $1.48
