Sport-Haley, Inc. posted a double-digit increase in sales for the fourth quarter, but saw issues with its Reserve Apparel and Wal-Mart business affect the bottom line, which while still a gain, was well down. For the whole year, results were just the opposite of Q4 as the company posted a decline in sales, but shrank its overall net loss.

Net sales increased 12% to $7.9 million from $7.0 million for the fourth quarter. Gross profit decreased 710 basis points to 28.4% of net sales from 35.5% last year, while other operating costs increased 180 basis points to 29.9% of sales from 28.1% last year. This combination of factors cancelled out the sales gain, dropping net income 65.2% from $587,000 during last year’s fourth quarter to $204,000. Diluted earnings per share reflected the income decrease at 8 cents per share, down from 23 cents per share for the same quarter last year. In discussing earnings, management noted that the fashion apparel segment, which does not include Reserve Apparel and its Top Flite business, saw income from operations of $245,000 in the quarter.

For the full fiscal year, which ended June 30, the company saw sales decrease 4.9% to $21.0 million from $22.0 million one year ago. Net sales of fashion apparel for fiscal 2006 were $18.5 million, a decrease of 16% from $22.0 million last year. Net sales of branded apparel for fiscal 2006 were $2.5 million. Net sales of Ben Hogan apparel were relatively flat at $11.2 million, while sales of SPORT HALEY apparel decreased 33.2% to $6.5 million from $9.8 million last year. Net sales of Top-Flite branded apparel, which began shipping in March were $2.5 million.

Gross margin increased 420 basis points to 33.0% of net sales from 28.8% of sales in 2005. Meanwhile, other operating expenses decreased 640 basis points to 38.2% of sales for the year, which prompted the company’s reported net loss to shrink to $415,000 from a loss of $3.3 million during the previous year, or to a loss of 15 cents from a loss of $1.29 in diluted earnings per share terms. The company reported an operating loss of $677,000 for the fiscal year, which was down from $3.3 million last year. Of that $677,000, $150,000 was related to the Sport-Haley business, while the remainder was attributed to Reserve Apparel.

The consolidation of Reserve Apparel Group LLC into the Sport-Haley operations was pointed to as the main influence in the quarterly results by management. As previously reported, Reserve Apparel was formed in November 2005 to enable Sport Haley to introduce Top-Flite branded apparel in Wal-Mart stores. The company encountered numerous problems in introducing Top-Flite branded apparel within Wal-Mart stores, including poor performance of third party suppliers, extraordinary shipping charges, and markdown money due to Wal-Mart as a result of the delivery delays and poor sell-through, all of which caused Reserve Apparel to perform at a level “significantly below” SPOR's expectations.

The company was notified in September by Wal-Mart that the retail giant did not intend to “continue purchasing Top-Flite branded apparel into the near future.” While the loss of such an account might frazzle most, Donald W. Jewell, CEO of Sport-Haley saw a bright side to the development saying, “we believe that the style and quality of products that we could offer under the Top-Flite brand were restricted by the limits imposed by Wal-Mart for golf apparel within their stores and that we can readily expand the Top-Flite apparel line to suit a number of other markets, which we have recently begun to explore.”