Cutter and Buck Sees Light, But It’s Six Months Out…

The fiscal second quarter offered more of the same for Cutter & Buck as a sales decline and weaker margins drove bottom line profits down farther than the already weak projections from Wall Street. Company CEO Tom Wyatt placed the blame squarely on the product side, citing design and quality for declining sales. He reiterated his stance that a turnaround is not expected until the second half of the current fiscal year, which would appear to signal improvement in the Spring ’06 and Classics product lines. Continued weakness in the Golf business, which was hurt by the year-ago lift from the Ryder Cup in the U.S., more than offset any growth in other channels. Excluding the Ryder Cup effect, Golf sales would have still been down 21% for the quarter.

Wyatt pointed to a new consumer catalog and a re-designed Web site for strong growth in the Consumer Direct channel, growth that offset the declines in the Corporate business. Wyatt blamed a weak Classics line for the decline in the company’s largest sales segment, but he said that response to the new Spring ’06 line, which they released early in October, was “very positive”. Growth in the Specialty Retail channel was attributed to strength in the Big & Tall business.

The sharp decline in gross margin for the period was due in large part to the liquidation of the discontinued Classics inventory and a $0.2 million increase in the inventory reserve, which was necessary due to the “weakness of the Fall Fashion merchandise.” SG&A expense growth as a percentage of sales compounded the effect of the margin issue, as the company invested roughly $1.1 million in the start-up and shipping of the new direct-to-consumer catalog.

>>> Its often prudent to spend money to make money, but a one-to-one return on the direct business has to hurt…