Cutter & Buck still sees the current fiscal year as a transitional one as they work to reverse a downward trend in the business through investments in marketing, product, IT, and “improving the price-value relationship” of its products. But the biggest issue appears to be on the product side, with company CEO Tom Wyatt describing the current product lines as “somewhat stale” in an “increasingly competitive market environment.”
Wyatt said that a lack of new styles or technical fabrications hurt sales in the corporate channel, while the lack of Ryder Cup product sales in Q1 this year versus last years Q1 hurt the golf channel. He said that an apples-to-apples comparison of the period, excluding the Ryder Cup effect, resulted in a 4.8% decrease in sales in that channel in the quarter, a decline Wyatt sees as an improvement from the double-digit declines the channel has experienced in the last quarter and last year.
The CEO does not see the benefits of efforts on the product side bearing fruit until the fiscal fourth quarter in Spring 06. The company sees the new 2006 'classics' product line as the answer to some of their problems and will launch it three months ahead of the usual product launch. The new line, which is expected to address the staleness and technical product issues, will now debut in October 2005. Wyatt said he also expects the new women's line will give them a “competitive advantage” in the corporate channel.
Inventory levels were inflated due to lower sales in the corporate channel, but were also affected by the early receipt of product to the specialty department store and direct to consumer businesses. They expect inventories to remain “somewhat above historical levels” for the next two quarters.
CBUK said 130 basis points of the gross margin decline in the period was attributable to a $390,000 increase to its inventory reserve on discontinued classics, which they said “reflects the unusually large number of discontinued styles in the classics line” as they make the transition to the new line.
In other news, Cutter & Buck staved off a potential proxy fight at its upcoming shareholder meeting by accelerating an initiative to eliminate its classified board structure and the related supermajority vote requirement.
If approved by shareholders, the move will require all current CBUK directors to stand for re-election at next year's company meeting. The company had initially planned to phase out the classified board structure over a period of three years. CBUKs largest shareholder, Pirate Capital LLC, has agreed to support the current company nominees for director and withdraw its own corporate governance initiatives.
| Cutter & Buck, Inc. | |||
| First Quarter Results | |||
| (in $ millions) | 2005 | 2004 | Change |
| Total Sales | $29.7 | $31.9 | -6.8% |
| Golf | $7.9 | $8.8 | -10.6% |
| Corporate | $13.7 | $15.1 | -9.3% |
| Specialty Retail | $5.5 | $5.3 | +2.9% |
| International | $0.7 | $0.7 | +9.2% |
| Other | $1.9 | $1.9 | -2.1% |
| Gross Margin % | 47.2% | 49.4% | -220 bps |
| SG&A % | 36.7% | 31.4% | +530 bps |
| Net Income | $2.1 | $3.3 | -35.3% |
| Diluted EPS | 18¢ | 29¢ | -37.9% |
| Inven @ Qtr-end | $28.7 | $25.9 | +10.6% |
| Acct Rec @ Qtr-end | $18.2 | $18.1 | +0.4% |
