Cutter & Buck posted sales of $36.6 million in the fourth quarter, an increase of 5.0% over the same period in the prior year. Net income was $2.9 million, a 1.5% increase over the fourth quarter last year.

“The sales increases in the last two quarters of the fiscal year resulted in the company reporting a 3.7% sales increase for the year, our first annual year-over-year increase in sales in five years,” said Ernie Johnson, Chief Executive Officer. “We continue to see positive results from our new products that began shipping in the third quarter and our continued focus on our strategic objectives.”

“Our enhanced CB Classics line and our Spring 2006 fashion line began shipping last November,” said Kaia Akre, President. “The updated Classics line includes a significant number of new styles and women’s companion pieces and our Spring line focused on technical fabrications, quality, and styling. During the first six months that these products were in the market, every sales channel, other than international licensing, experienced a year-over- year sales increase. Overall, for the six months ended April 30, 2006, company-wide sales increased 14.8% compared to the same six month period last year,” continued Akre.

Fourth quarter sales in the corporate business unit were $15.9 million, a 9.2% increase over the prior year. “We are very pleased with our customers response to our upgraded classics line, which accounts for the majority of our corporate sales,” said Akre. “Demand exceeded our initial expectations for the line.”

Golf sales during the fourth quarter were down 2.6% compared to the prior year. “As we described last quarter, we extended our shipping window for fashion product through June, rather than April as we have done in the past. This has allowed us to better meet the needs of many of our customers in terms of the timing of their orders, but has also resulted in some of our sales, that might otherwise have shipped in the fourth quarter, shifting to the first quarter of fiscal 2007,” said Johnson. Golf sales increased 2.1% for the last six months of the fiscal year compared to the last six months of the prior year.

Sales in the company’s specialty retail business unit decreased 11.0% during the fourth quarter. As noted last quarter, the company began shipping product earlier to specialty department stores which contributed to a 43.3% increase in sales for this business unit during the third quarter but impacted our fourth quarter sales. Combined, third and fourth quarter sales increased 11.7% over the same period last year in the specialty retail business unit.

Sales in the consumer direct business unit increased approximately $1.0 million during the quarter, primarily related to the consumer catalog that the company launched in September 2005. Fourth 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 11.2% on increased licensing revenue. Sales in the other business unit also increased during the quarter primarily due to increased liquidation sales as the company liquidated most of the remaining discontinued classics inventory that was on hand at the end of the third quarter.

Gross margin during the quarter was 45.9%, a 210 basis-point decrease from the previous year, as higher than expected demand for new classics product necessitated an increase in the use of air freight in order to meet the company’s customers requirements. In addition to increased freight costs, the company increased its inventory reserves, primarily with respect to specialty retail inventory that was on-hand at the end of the fiscal year. As noted in previous quarters, the company expects gross margin to continue to be in the 44%-48% range.

Fourth quarter operating expenses of $12.6 million declined $0.9 million, or 6.6%, from the previous year. “While we remain focused on our expenses, we incurred some nonrecurring charges related to state taxes and CEO transition costs during the fourth quarter of the prior year. Excluding those prior year one-time charges, operating expenses were almost flat to last year,” explained Michael Gats, Chief Financial Officer. “However, excluding the incremental costs associated with the consumer catalog in the fourth quarter of the current year, operating expenses were approximately 14% lower.”

In the fourth quarter, pre-tax income was $4.4 million, an increase of 25.8% over the same period in the prior year. “The increase in pretax income was in large part due to the nonrecurring charges in the fourth quarter of last year,” said Gats. “Last year we also recorded an adjustment to our income tax expense related to state tax liabilities. That reduced our effective income tax rate for the quarter to 19.8% compared to this year’s effective rate of 35.3%,” said Gats. Net income was $2.9 million for the quarter, a 1.5% increase over the prior year.

Inventories were $25.7 million at the end of the quarter compared to $25.4 million at April 30, 2005. While total inventory was up slightly as compared to the prior year, the year-over-year sales increase resulted in a decrease in days inventory from 137 days average during the fourth quarter last year to 123 days average during the fourth quarter this year.

Dividend and Stock Repurchase Programs

Cutter & Buck’s board of directors approved a 7 cents per share quarterly dividend payable on July 28, 2006 to shareholders of record on July 13, 2006.

During the fourth quarter, the company repurchased 234,544 shares of its common stock at an average price of $11.90, for a total cost of $2,790,760. Subsequent to the end of the fiscal year, the company repurchased an additional 12,585 shares at an average price of $12.14, for a total cost of $152,830. These subsequent repurchases completed the repurchase of $14.2 million of company stock as authorized by the Board of Directors. In total, the company repurchased 1,170,052 shares at an average price of $12.14.

Final Comments

“We are pleased to report an annual sales increase that was driven by our sales in the last six months of the year. Our customers response to our new and updated product line remains positive,” said Johnson. “Our ‘signature Collection of refined knit shirts and our enhanced CB ProTec line of performance wear that were introduced as a part of our spring 2007 collection are doing well. While we are beginning to see some positive results and are encouraged by golf’s 2.1% sales increase during the last six months of the fiscal year, we recognize that the turnaround in golf will take time. We are also encouraged by this quarter’s growth in corporate sales and the response to our updated classics line. Our specialty retail business unit performed well during our spring season of November through April and we continue to see improved performance from our consumer catalog, which is still in its first year. Overall, we expect to continue to see moderate sales growth during fiscal year 2007 along with improved earnings,” concluded Johnson.

                            Cutter & Buck
                                   Table A
                   Condensed Consolidated Income Statements
                     (unaudited, unless otherwise stated)

                            Three Months Ended            Year Ended
                           April 30,   April 30,    April 30,    April 30,
                             2006        2005         2006         2005
    (In thousands, except
     per share amounts)
      Net sales            $36,641      $34,903     $131,298     $126,560
      Cost of sales         19,813       18,136       71,632       65,954
      Gross profit          16,828       16,767       59,666       60,606
      Operating expenses
      Selling, general &
       administrative       11,956       12,767       48,874       45,397
      Depreciation             632          631        2,821        2,767
      Restatement expenses      --           78         (648)         368
      Total operating
       expenses             12,588       13,476       51,047       48,532
      Operating income       4,240        3,291        8,619       12,074

      Net interest income      205          242        1,161          678
      Income from
       continuing operations
       before taxes          4,445        3,533        9,780       12,752
      Income tax expense     1,570          700        3,431        4,138
      Net income            $2,875       $2,833       $6,349       $8,614

      Basic earnings
       per share             $0.27        $0.25        $0.58        $0.79
      Shares used in
       computation of basic
       earnings per share   10,563       11,167       10,909       10,923

      Diluted earnings
       per share             $0.27        $0.25        $0.57        $0.75
      Shares used in
       computation of
       diluted earnings
       per share            10,846       11,561       11,172       11,436