Ashworth, Inc. Reports Second Quarter and YTD Fiscal 2008 Financial Results

  
    
  
  
    
      Ashworth, Inc. (NASDAQ:ASHW), a leading designer of on-course golf 
      apparel and golf-inspired lifestyle sportswear, today announced 
      unaudited financial results for its second quarter ended April 30, 2008.
    
    
      Allan H. Fletcher, Chief Executive Officer of Ashworth, said, “We 
      are pleased to report a profit for the second quarter. Throughout the 
      second quarter, we continued to implement the strategic initiatives the 
      Management team believes will eventually produce the desired results. 
      Although we’ve seen some signs of improvement 
      in our core golf distribution channel, we still believe the turnaround 
      will take more time, sharp focus and strong execution. Our Management 
      team is committed to doing the things we believe will, in time, position 
      the Company for sustainable and profitable growth.”
    
    
      “During the past few months we have faced 
      difficult retail markets as well as a deteriorating economy, but we have 
      taken steps designed to improve the Company’s 
      operational efficiency and inventory productivity over time and we are 
      optimistic about the future of Ashworth.”
    
    
      Summary of Second Quarter Results:
    
    
      Consolidated net revenue for the second quarter ended April 30, 2008 
      decreased 3.4% to $57.8 million as compared to $59.9 million for the 
      second quarter of 2007. The Company reported consolidated second quarter 
      net income of $0.9 million, or $0.06 per diluted share, compared to a 
      net loss of $2.5 million, or $0.17 per diluted share, for the same 
      quarter of the prior year. In the second quarter of fiscal 2007, the 
      Company recorded a tax charge of $2.9 million or $0.20 per diluted share 
      to establish a valuation allowance against deferred tax assets. Domestic 
      net revenue (including Gekko Brands, LLC) decreased 5.1% to $44.8 
      million from $47.2 million for the same period of the prior year. 
      International net revenue (including Ashworth, U.K., Ltd.) increased 
      2.9% to $13.1 million from $12.7 million for the same period of the 
      prior year.
    
    
      In the second quarter of fiscal 2008, the Company’s 
      consolidated gross margin increased 340 basis points to 42.2% as 
      compared to 38.8% in the second quarter of fiscal 2007. The increase in 
      consolidated gross margins was due to an improved gross margin in the 
      Company’s Domestic segment driven by a higher 
      average selling price as compared to the same period of the prior year 
      as well as a reduction in overhead expenses.
    
    
      Consolidated selling, general and administrative (“SG&A”) 
      expenses increased 4.3% to $22.8 million for the second quarter of 
      fiscal 2008 as compared to $21.8 million for the second quarter of 
      fiscal 2007. As a percent of net revenues, SG&A expenses were 39.4% for 
      the second quarter of fiscal 2008 as compared to 36.5% for the same 
      period of the prior fiscal year. The increase is largely due to 
      increased consulting fees, primarily associated with athlete 
      endorsements, design consultants and the consulting agreement for the 
      services of our CEO. Also contributing was an increase in royalties due 
      to a higher concentration of revenues from licensed products, an 
      increase in commissions due to a higher concentration of revenues from 
      independent sales representatives and the expense related to the 
      employment and non-compete agreements entered into with the principals 
      of Gekko on June 4, 2007. The increases were partially offset by a 
      decrease in salaries and wages, primarily performance based bonuses.
    
    
      Revenues by Channel/Segment:
    
    
      Golf
    
    
      Total revenues in the domestic golf channel in the second quarter 
      increased 2.3% to $22.3 million from $21.8 million for same period last 
      year. This is the third consecutive quarter in which revenues in the 
      golf channel have increased. The increase in the second quarter was 
      primarily driven by higher revenues from on-course golf retailers, 
      partially off-set by lower revenues from off-course and off-price golf 
      retailers over the comparable prior year quarter. The Company continues 
      to experience competitive pressure and the effects of market 
      consolidation in off-course specialty golf retail. 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.
    
    
      Corporate
    
    
      Revenues for the corporate distribution channel were $5.4 million for 
      the second quarter of fiscal 2008, a decrease of 18.1% as compared to 
      the same period last year. The decrease in sales primarily resulted from 
      certain customer events that occurred in the prior year quarter that did 
      not recur in the comparable 2008 quarter and the Company’s 
      strategic decision to discontinue sales to certain accounts. In the past 
      the Company has experienced missed sales opportunities in this channel 
      due to out-of-stock positions in selected styles. The Company believes 
      that the narrowing of Corporate assortments will improve its inventory 
      productivity and customer in-stock position.
    
    
      Retail
    
    
      Revenues for the retail distribution channel were $3.1 million for the 
      second quarter of fiscal 2008, a decrease of 52.0% from the second 
      quarter of fiscal 2007. The retail channel experienced a decline in the 
      second quarter primarily due to account consolidation in the channel as 
      well as a decision by the management team to strategically exit a number 
      of underperforming doors. The Company will seek to continue to improve 
      its brand positioning by focusing on premium retail accounts and doors 
      within the channel.
    
    
      Collegiate/Racing (The Game®/Kudzu®)
    
    
      Second quarter of fiscal 2008 revenues for Gekko Brands, LLC were $11.8 
      million, an increase of 20.0% over the second quarter of fiscal 2007. 
      This increase was primarily driven by improved penetration within its 
      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 the 
      absence in the second quarter of 2008 of certain corporate event 
      revenues that occurred during the second quarter of fiscal 2007 and a 
      decline in the Outdoor Direct catalog sales.
    
    
      Company-owned Outlet Stores
    
    
      Revenues from the Company-owned stores were $2.2 million for the second 
      quarter of fiscal 2008, a decrease of 14.2% from the second quarter of 
      fiscal 2007. The decrease was largely due to the difficult retail 
      environment.
    
    
      International
    
    
      International revenues (including Ashworth U.K. Ltd.) increased 2.9% to 
      $13.1 million for the second quarter of fiscal 2008, an increase of $0.4 
      million over the same period last year. The increase is largely due to 
      the timing of the shipment of certain orders which were delayed from the 
      first quarter to the second quarter due to first quarter distribution 
      center inefficiencies resulting from the implementation of a new ERP 
      system at the U.K. facility as well as the favorable effect of currency 
      exchange rates.
    
    
      Balance Sheet:
    
    
      Net accounts receivable decreased 3.7% to $44.2 million from $45.9 
      million in the prior year, commensurate with the 3.4% decrease in 
      revenues for the second quarter. Net inventory decreased 1.4% to $52.4 
      million as of April 30, 2008 as compared to $53.1 million for the same 
      period last year.
    
    
      Income Taxes:
    
    
      The effective tax rate for the income tax provision for the three months 
      ended April 30, 2008 and 2007 was 32% and 518%, respectively. The 
      decrease in the effective rate for the current period as compared to the 
      same period of the prior fiscal year is primarily due to discrete 
      one-time charges in the second quarter of the prior fiscal year of $1.3 
      million to establish a valuation allowance against non-originating 
      deferred tax assets and a $1.6 million valuation allowance against 
      originating deductible temporary differences.
    
    
      Conference Call:
    
    
      Investors and all others are invited to listen to a conference call 
      discussing second quarter results, today at 4:30 p.m. Eastern Time (1:30 
      p.m. Pacific Time). Domestic participants can access the conference call 
      by dialing 800-762-8779. International participants should dial 
      480-248-5081. Callers should ask to be connected to Ashworth’s 
      second quarter earnings teleconference or provide the conference ID 
      number 3885458. 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, the 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 Income
        
        
        
        
        
        
        
        
        
      
      
        
          Second Quarter and Six Months ended April 30, 2008 and 2007
        
        
        
        
        
        
        
        
        
      
      
        
          (Unaudited)
        
        
        
        
          Summary of Results of Operations
        
      
      
        
        
        
        
        
           
        
        
          2008
        
        
           
        
        
        
        
           
        
        
          2007
        
        
           
        
      
      
        
          
            SECOND QUARTER
          
        
        
        
        
        
        
        
        
        
      
      
        
          Net Revenue
        
        
        
        
          $
        
        
          57,826,000
        
        
        
        
        
        
          $
        
        
          59,864,000
        
        
        
      
      
        
          Cost of Sales
        
        
        
        
           
        
        
          33,438,000
        
        
           
        
        
        
        
           
        
        
          36,623,000
        
        
           
        
      
      
        
          Gross Profit
        
        
        
        
        
        
          24,388,000
        
        
        
        
        
        
        
        
          23,241,000
        
        
        
      
      
        
          Selling, General and Administrative Expenses
        
        
        
        
           
        
        
          22,781,000
        
        
           
        
        
        
        
           
        
        
          21,841,000
        
        
           
        
      
      
        
          Income from Operations
        
        
        
        
        
        
          1,607,000
        
        
        
        
        
        
        
        
          1,400,000
        
        
        
      
      
        
          Other Income (Expense):
        
        
        
        
        
        
        
        
        
      
      
        
          Interest Income
        
        
        
        
        
        
          20,000
        
        
        
        
        
        
        
        
          21,000
        
        
        
      
      
        
          Interest Expense
        
        
        
        
        
        
          (715,000
        
        
          )
        
        
        
        
        
        
          (771,000
        
        
          )
        
      
      
        
          Other Income (Expense), net
        
        
        
        
           
        
        
          446,000
        
        
           
        
        
        
        
           
        
        
          (44,000
        
        
          )
        
      
      
        
          Total Other Expense, net
        
        
        
        
           
        
        
          (249,000
        
        
          )
        
        
        
        
           
        
        
          (794,000
        
        
          )
        
      
      
        
          Income Before Provision for Income Taxes
        
        
        
        
        
        
          1,358,000
        
        
        
        
        
        
        
        
          606,000
        
        
        
      
      
        
          Provision for Income Taxes
        
        
        
        
           
        
        
          431,000
        
        
           
        
        
        
        
           
        
        
          3,139,000
        
        
           
        
      
      
        
          Net Income (Loss)
        
        
        
        
          $
        
        
          927,000
        
        
           
        
        
        
        
           
        
        
          ($2,533,000
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (Loss) Per Share – BASIC
        
        
        
        
          $
        
        
          0.06
        
        
        
        
        
        
        
        
          ($0.17
        
        
          )
        
      
      
        
          Weighted Average Common Shares Outstanding
        
        
        
        
           
        
        
          14,714,000
        
        
           
        
        
        
        
           
        
        
          14,520,000
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income (Loss) Per Share – DILUTED
        
        
        
        
          $
        
        
          0.06
        
        
        
        
        
        
        
        
          ($0.17
        
        
          )
        
      
      
        
          Adjusted Weighted Average Shares and Assumed Conversions
        
        
        
        
           
        
        
          14,714,000
        
        
           
        
        
        
        
           
        
        
          14,520,000
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            SIX MONTHS
          
        
        
        
        
        
        
        
        
        
      
      
        
          Net Revenue
        
        
        
        
          $
        
        
          92,345,000
        
        
        
        
        
        
          $
        
        
          98,136,000
        
        
        
      
      
        
          Cost of Sales
        
        
        
        
           
        
        
          55,459,000
        
        
           
        
        
        
        
           
        
        
          59,278,000
        
        
           
        
      
      
        
          Gross Profit
        
        
        
        
        
        
          36,886,000
        
        
        
        
        
        
        
        
          38,858,000
        
        
        
      
      
        
          Selling, General and Administrative Expenses
        
        
        
        
           
        
        
          42,143,000
        
        
           
        
        
        
        
           
        
        
          40,958,000
        
        
           
        
      
      
        
          Loss from Operations
        
        
        
        
        
        
          (5,257,000
        
        
          )
        
        
        
        
        
        
          (2,100,000
        
        
          )
        
      
      
        
          Other Income (Expense):
        
        
        
        
        
        
        
        
        
      
      
        
          Interest Income
        
        
        
        
        
        
          50,000
        
        
        
        
        
        
        
        
          58,000
        
        
        
      
      
        
          Interest Expense
        
        
        
        
        
        
          (1,722,000
        
        
          )
        
        
        
        
        
        
          (1,372,000
        
        
          )
        
      
      
        
          Other Income (Expense), net
        
        
        
        
           
        
        
          1,056,000
        
        
           
        
        
        
        
           
        
        
          (60,000
        
        
          )
        
      
      
        
          Total Other Expense, net
        
        
        
        
           
        
        
          (616,000
        
        
          )
        
        
        
        
           
        
        
          (1,374,000
        
        
          )
        
      
      
        
          Loss Before Provision for Income Taxes
        
        
        
        
        
        
          (5,873,000
        
        
          )
        
        
        
        
        
        
          (3,474,000
        
        
          )
        
      
      
        
          Provision for Income Taxes
        
        
        
        
           
        
        
          623,000
        
        
           
        
        
        
        
           
        
        
          1,507,000
        
        
           
        
      
      
        
          Net Loss
        
        
        
        
           
        
        
          ($6,496,000
        
        
          )
        
        
        
        
           
        
        
          ($4,981,000
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss Per Share – BASIC
        
        
        
        
        
        
          ($0.44
        
        
          )
        
        
        
        
        
        
          ($0.34
        
        
          )
        
      
      
        
          Weighted Average Common Shares Outstanding
        
        
        
        
           
        
        
          14,714,000
        
        
           
        
        
        
        
           
        
        
          14,520,000
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss Per Share - DILUTED
        
        
        
        
        
        
          ($0.44
        
        
          )
        
        
        
        
        
        
          ($0.34
        
        
          )
        
      
      
        
          Adjusted Weighted Average Shares and Assumed Conversions
        
        
        
        
           
        
        
          14,714,000
        
        
           
        
        
        
        
           
        
        
          14,520,000
        
        
           
        
      
    
    
    
    
      
        
          ASHWORTH, INC.
        
        
        
        
        
        
           
        
        
           
        
        
        
      
      
        
          Consolidated Balance Sheets
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          As of April 30, 2008 and 2007
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          (Unaudited)
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          April 30,
        
        
        
        
        
        
          April 30,
        
      
      
        
          
            ASSETS
          
        
        
        
        
          2008
        
        
        
        
        
        
          2007
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          CURRENT ASSETS
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and Cash Equivalents
        
        
        
        
          $
        
        
          3,481,000
        
        
        
        
        
        
          $
        
        
          4,227,000
        
      
      
        
          Accounts Receivable-Trade, net
        
        
        
        
        
        
          44,181,000
        
        
        
        
        
        
        
        
          45,874,000
        
      
      
        
          Inventories, net
        
        
        
        
        
        
          52,380,000
        
        
        
        
        
        
        
        
          53,125,000
        
      
      
        
          Other Current Assets
        
        
        
        
           
        
        
          7,136,000
        
        
        
        
        
        
           
        
        
          8,990,000
        
      
      
        
          Total Current Assets
        
        
        
        
        
        
          107,178,000
        
        
        
        
        
        
        
        
          112,216,000
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Property and Equipment, net
        
        
        
        
        
        
          34,909,000
        
        
        
        
        
        
        
        
          38,802,000
        
      
      
        
          Other Assets, net
        
        
        
        
           
        
        
          25,344,000
        
        
        
        
        
        
           
        
        
          25,694,000
        
      
      
        
          Total Assets
        
        
        
        
          $
        
        
          167,431,000
        
        
        
        
        
        
          $
        
        
          176,712,000
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            LIABILITIES AND STOCKHOLDERS’ 
            EQUITY
          
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          CURRENT LIABILITIES
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Line of Credit Payable
        
        
        
        
          $
        
        
          39,342,000
        
        
        
        
        
        
          $
        
        
          29,470,000
        
      
      
        
          Current Portion of Long-Term Debt
        
        
        
        
        
        
          883,000
        
        
        
        
        
        
        
        
          6,039,000
        
      
      
        
          Accounts Payable – Trade
        
        
        
        
        
        
          12,664,000
        
        
        
        
        
        
        
        
          11,514,000
        
      
      
        
          Other Current Liabilities
        
        
        
        
           
        
        
          9,795,000
        
        
        
        
        
        
           
        
        
          11,082,000
        
      
      
        
          Total Current Liabilities
        
        
        
        
        
        
          62,684,000
        
        
        
        
        
        
        
        
          58,105,000
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Long-Term Debt
        
        
        
        
        
        
          10,939,000
        
        
        
        
        
        
        
        
          11,456,000
        
      
      
        
          Other Long-Term Liabilities
        
        
        
        
        
        
          1,780,000
        
        
        
        
        
        
        
        
          2,032,000
        
      
      
        
          Stockholders’ Equity
        
        
        
        
           
        
        
          92,028,000
        
        
        
        
        
        
           
        
        
          105,119,000
        
      
      
        
          Total Liabilities and Stockholders’ Equity
        
        
        
        
          $
        
        
          167,431,000
        
        
        
        
        
        
          $
        
        
          176,712,000