Ashworth (NASDAQ:ASHW)
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Ashworth, Inc. (NASDAQ: ASHW), a leading designer of on-course golf
apparel and golf-inspired lifestyle sportswear, today announced
unaudited financial results for its first quarter ended January 31, 2008.
Summary of First Quarter Results:
Consolidated net revenue for the first quarter ended January 31, 2008
decreased 9.8% to $34.5 million as compared to $38.3 million for the
first quarter of 2007. The Company reported a consolidated first quarter
net loss of $7.4 million, or $0.50 per diluted share, compared to a net
loss of $2.4 million, or $0.17 per diluted share, for the same quarter
of the prior year. Net revenue for the domestic segment (including Gekko
Brands, LLC) decreased 5.8% to $30.1 million from $32.0 million for the
same period of the prior year. Net revenue from the international
segment (including Ashworth, U.K., Ltd.) decreased 30.1% to $4.4 million
from $6.3 million for the same period of the prior year.
In the first quarter of fiscal 2008, the Company’s
consolidated gross margin decreased 460 basis points to 36.2% as
compared to 40.8% in the first quarter of fiscal 2007. The decrease in
consolidated gross margin was driven by the deleveraging effects of the
decrease in revenue and an increase in product costs not offset by price
increases. In addition, as a result of a labor stoppage at a key
headwear vendor, the Company incurred additional costs to divert the
production of its NASCAR products to alternate manufacturing facilities
and expedite manufacturing and transportation.
Consolidated selling, general and administrative (“SG&A”)
expenses increased 1.3% to $19.4 million for the first quarter of fiscal
2008 as compared to $19.1 million for the first quarter of fiscal 2007.
As a percent of net revenues, SG&A expenses were 56.1% for the first
quarter of fiscal 2008 as compared to 50.0% for the same period of the
prior fiscal year. The expense increase is largely due to increased
consulting fees, primarily associated with product design and
supplementing the Company’s accounting
function during the executive transition period, combined with the
expense related to the employment and non-compete agreements entered
into with the principals of Gekko on June 4, 2007. These increases were
partially offset by a decrease in commission expense primarily as a
result of the reduction in revenues.
Analysis of First Quarter Fiscal Year 2008 Revenues by Channel
The Company’s first quarter fiscal 2008
revenues decreased in all distribution channels except for the Company’s
domestic golf and Collegiate/Racing distribution channels.
Golf
Total revenues in the domestic golf channel in the first quarter 2008
increased 5.6% to $9.5 million as compared to the same period last year.
Revenues from on-course golf retailers increased 8.9% or $578,000 over
the prior year, but this increase was partially offset by a decrease of
$76,000 in revenues from off-course golf retailers. The Company
continues to experience significant competitive pressure and market
consolidation within the off-course channel of distribution. As part of
the Company’s effort to restore sales growth,
management is implementing new sales management processes in both the
on-course and off-course channels of distribution. The Company is also
establishing a number of new programs with key off-course accounts.
Corporate
Revenues for the corporate distribution channel were $4.1 million in the
first quarter 2008, a decrease of 28.8% as compared to the same period
last year. The decrease in the corporate channel was driven by certain
customer event revenues that occurred in the first quarter of fiscal
2007 that did not reoccur in the first quarter of fiscal 2008, the
Company’s strategic decision to discontinue
sales to certain accounts and a pull-back in corporate spending as a
result of uncertain economic conditions. Management is developing plans
to address these declines through a retooling of sales programs and
account coverage.
Retail
Revenues for the retail distribution channel were $3.1 million in the
first quarter 2008, a decrease of 24.1% from the first quarter 2007.
This decrease was driven by the consolidation of retail accounts and
their associated location closures and a decision by management to exit
a number of large accounts. The Company is working to open a number of
new retail doors through specially tailored assortments and sales
programs.
Collegiate/Racing (The Game®/Kudzu®)
First quarter 2008 revenues for Gekko Brands, LLC were $10.9 million, an
increase of 4.6% over the first quarter 2007. This increase was
primarily driven by improved penetration within the NASCAR channel
combined with an additional increase as a result of having exclusive
vendor rights for the 50th running of the
Daytona 500. These increases were partially offset by a delay in
production due to a labor stoppage at a key vendor and the absence in
the first quarter of 2008 of certain corporate event revenues that
occurred during the first quarter of fiscal 2007.
Company-owned Outlet Stores
Revenues from the Company-owned stores were $2.5 million, a decrease of
7.9% as compared to the first quarter 2007. The decrease reflects a
generally difficult retail environment as well as increased promotional
activity.
International
Revenues from the international segment decreased 30.1% to $4.4 million
in the first quarter 2008, a decrease of $1.9 million from the same
period last year. Net revenues for Ashworth U.K., Ltd. decreased 45.1%
or $2.2 million to $2.6 million for the first quarter of fiscal 2008
from $4.8 million for the same period of the prior fiscal year. The
decrease was due to distribution center inefficiencies resulting from
the implementation of a new ERP system at the U.K. facility together
with changes in sales management. Net revenues for the other
international segment increased 19.8% or $287,000 to $1.7 million for
the first quarter of fiscal 2008 from $1.4 million for the same period
of the prior fiscal year. The increase was primarily due to increased
purchases from the Company’s international
distributors and the favorable effect of currency exchange rates,
specifically versus the Canadian dollar, when compared to the prior year
quarter.
Balance Sheet:
Net accounts receivable decreased 9.1% from the prior year, commensurate
with the 9.8% decrease in revenues for the first quarter. Net inventory
increased 3.2% to $58.2 million as of January 31, 2008 as compared to
$56.4 million as of January 31, 2007 primarily as a result of earlier
deliveries of inventory to the Company’s U.K.
and Canadian operations.
Overview
Allan H. Fletcher, the Company’s Chief
Executive Officer, commented, “We are
continuing to implement plans to improve our operations and cut
operating costs. We are establishing channel specific product strategies
and sales programs to better serve our customers and improve our
profitability. We are encouraged with the improvement in our domestic
core golf distribution channel, but a complete turnaround will take more
time. I believe the plans we’ve started to
implement will, in time, return the Company to sustainable profitability.”
Conference Call
Investors and all others are invited to listen to a conference call
discussing first quarter fiscal year 2008 results, today at 4:30 p.m.
Eastern Time (1:30 p.m. Pacific Time). Domestic participants can access
the conference call by dialing 800-765-8779. International participants
should dial 480-248-5081. Callers should ask to be connected to
Ashworth's first quarter earnings teleconference or provide the
conference ID number: 3853161. The call will also be broadcast live over
the Internet and can be accessed by visiting the Company's investor
information page at www.ashworthinc.com.
About Ashworth, Inc.
Ashworth, Inc. (NASDAQ: ASHW) is a leading designer of men’s
and women’s golf-inspired lifestyle
sportswear distributed domestically and internationally in golf pro
shops, resorts, upscale department and specialty stores and to corporate
customers. Ashworth’s three market-leading
brands include: Ashworth Collection (TM), a range of upscale sportswear
designed to be worn on and off-course; Ashworth Authentics (TM), which
showcases popular items from the Ashworth line; and Ashworth Weather
Systems®, a technical performance line.
Ashworth is also an Official Apparel Licensee of Callaway Golf Company.
Ashworth is also a leading designer, producer and distributor of
headwear and apparel under The Game® and Kudzu®
brands. The Game is a leading headwear brand in collegiate bookstores
and Kudzu products are sold into the NASCAR/racing markets and through
outdoors sports distribution channels, including fishing and hunting.
Ashworth is also the exclusive on-site event merchandiser for the
Kentucky Derby.
For more information, please visit the Company’s
Web site at www.ashworthinc.com.
Forward-Looking Statements
This press release contains forward-looking statements related to the
Company’s market position, finances,
operating results, marketing and business plans and strategies within
the meaning of Section 27A of the Securities Act, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements may contain the words “believes,”
“anticipates,” “expects,”
“predicts,” “estimates,”
“projects,” “will
be,” “will
continue,” “will
likely result,” or other similar words and
phrases. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to update any forward-looking
statements, whether as a result of new information, changed
circumstances or unanticipated events unless required by law. These
statements involve risks and uncertainties that could cause actual
results to differ materially from those projected. These risks include
the uncertainties associated with implementing a successful transition
in executive leadership, successful resolution of the current dispute
with Callaway Golf, the impact of borrowing base limitations in the
Company’s new credit facility, the evaluation
of strategic alternatives that may be presented, timely development and
acceptance of new products, as well as strategic alliances, the
integration of the Company's acquisition of Gekko Brands, LLC, the
impact of competitive products and pricing, the success of the Sun Ice®
and Callaway Golf apparel product lines, the preliminary nature of
bookings information, the ongoing risk of excess or obsolete inventory,
the potential inadequacy of booked reserves, the successful operation of
the distribution facility in Oceanside, CA, the successful
implementation of the Company's ERP system, and other risks described in
Ashworth, Inc.'s SEC reports, including the annual report on Form 10-K
for the year ended October 31, 2007 quarterly reports on Form 10-Q filed
thereafter and amendments to any of the foregoing reports, including the
Form 10-K/A for the year ended October 31, 2007.
ASHWORTH, INC.
Consolidated Statements of Operations
First Quarter ended January 31, 2008 and 2007
(Unaudited)
Summary of Results of Operations
2008
2007
First Quarter
Net revenue
$
34,519,000
$
38,272,000
Cost of goods sold
22,021,000
22,655,000
Gross profit
12,498,000
15,617,000
Selling, general and administrative expenses
19,362,000
19,117,000
Loss from operations
(6,864,000
)
(3,500,000
)
Other income (expense):
Interest income
30,000
37,000
Interest expense
(1,007,000
)
(601,000
)
Other income (expense), net
610,000
(16,000
)
Total other expense, net
(367,000
)
(580,000
)
Loss before income taxes
(7,231,000
)
(4,080,000
)
(Provision) benefit for income taxes
(192,000
)
1,632,000
Net loss
$
(7,423,000
)
$
(2,448,000
)
Loss per share – BASIC
($0.50
)
($0.17
)
Weighted-average common shares outstanding
14,714,000
14,520,000
Loss per share – DILUTED
($0.50
)
($0.17
)
Adjusted weighted-average shares and assumed conversions
14,714,000
14,520,000
ASHWORTH, INC.
Consolidated Balance Sheets
As of January 31, 2008 and 2007
(Unaudited)
January 31,
January 31,
ASSETS
2008
2007
CURRENT ASSETS
Cash and cash equivalents
$
4,207,000
$
3,966,000
Accounts receivable-trade, net
25,086,000
27,602,000
Inventories, net
58,199,000
56,376,000
Other current assets
8,567,000
12,898,000
Total current assets
96,059,000
100,842,000
Property and equipment, net
36,232,000
39,066,000
Other assets, net
25,424,000
25,800,000
Total assets
$
157,715,000
$
165,708,000
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES
Line of credit payable
$
31,205,000
$
17,450,000
Current portion of long-term debt
869,000
5,830,000
Accounts payable – trade
9,224,000
12,230,000
Other current liabilities
12,433,000
10,048,000
Total current liabilities
53,731,000
45,558,000
Long-term debt
11,104,000
11,495,000
Other long-term liabilities
1,624,000
2,023,000
Stockholders’ equity
91,256,000
106,632,000
Total liabilities and stockholders’ equity
$
157,715,000
$
165,708,000