CBUK Cutter & Buck (MM)

Cutter & Buck Announces Quarterly Results and Management Update SEATTLE, Dec. 9 /PRNewswire-FirstCall/ -- Cutter & Buck Inc. (NASDAQ:CBUK) today announced results of its second quarter ended October 31, 2004. For the quarter ended October 31, we had the following results: 2004 2003 In millions, except percentage and per share data Net Sales $35.5 $34.7 Gross Profit $17.1 $16.2 Gross Margin 48.2% 46.7% Net Income $2.9 $2.1 Earnings Per Share $0.26 $0.19 For the six months ended October 31, we had the following results: 2004 2003 In millions, except percentage and per share data Net Sales $67.4 $67.5 Gross Profit $32.9 $31.0 Gross Margin 48.8% 45.9% Net Income $6.2 $3.2 Earnings Per Share $0.54 $0.29 Balance Sheet Summary Oct. 31, April 30, Oct. 31, 2004 2004 2003 In millions Cash and Short-Term Investments $42.6 $37.7 $34.1 Accounts Receivable $19.2 $22.5 $18.5 Inventories $23.6 $21.9 $21.8 Working Capital $79.5 $75.1 $70.4 Shareholders' Equity $84.4 $79.7 $75.4 Financial Results and Management Viewpoint: The pre-tax income of our wholesale business was $4.9 million in the second quarter, up $0.3 million over the second quarter of last year, and was $10.0 million for the first six months of fiscal 2005, up $2.1 million over the first six months of last year (see Table B in this press release for a reconciliation to GAAP figures). Our strong gross margins are the primary contributor to these year-over-year increases. "We are continuing to see the results of the Company executing our business strategy," said Bill Swint, Interim CEO. "Our focus has been on improving our operations along with strengthening the upscale positioning of the Cutter & Buck brand. We are pleased with the second quarter results." Sales for the quarter in all of our channels showed increases over the comparable periods last year except for our "Other" channel, which includes e-Commerce, liquidation and sales not categorized elsewhere. Overall, our business has been getting stronger thanks to the improved economy and the dedicated efforts of the entire Cutter & Buck team. Our Golf unit continues to be a challenge, however. Revenues for the quarter and year-to-date include sales made at the Ryder Cup tournament, a bi-annual event, so the prior year comparative sales do not include sales from this tournament. If the Ryder Cup revenues were excluded from this year's Golf results, we would have reported a decrease in year-over-year sales of approximately 6% for the quarter and a decrease of approximately 16% for the six-month period. As mentioned in our first quarter earnings release, we are very focused on our men's golf business and continue to take steps that we believe will improve its performance over time. We have undertaken extensive market research, listened to our customers across the country and worked hard with our designers to create more of the fresh new products that Cutter & Buck is known for. However, because of the long lead times in the apparel industry, it could be six to twelve months before we see the impact of these efforts. In the near term, we are pleased with the success of our "Annika by Cutter & Buck" women's line, which has been well received both nationally and internationally. We expect to build on this success in future seasons with new styles and an increased marketing campaign. We are also pleased with the results of our Corporate unit, which has grown sales approximately 6% in each of the last two quarters. Our gross margins continued to be strong in the second quarter at 48.2%. While we expect our gross margins to remain strong as compared to last year, they will be impacted as we liquidate inventory as part of our normal business cycle in the next two quarters. We expect that our gross margins in FY 2005 will be between 45% and 48%. Operating expenses, excluding depreciation and restatement-related expenses for the quarter, increased $0.7 million year-over-year. Year to date, these expenses are essentially flat versus the prior year period. We are incurring expenses for our marketing initiatives, information system upgrades and replacements, and documentation and testing of our internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002. We expect these expenses to continue throughout the remainder of fiscal 2005, resulting in quarterly year-over-year increases for the balance of the fiscal year. Our balance sheet remains solid, with a cash balance of $42.6 million and $79.5 million of working capital at the end of the second quarter. We generated $6.7 million in free cash flow (defined as cash provided by operating activities less purchases of fixed assets) during the first six months of this fiscal year. Accounts receivable was at 48 days' sales outstanding at the end of the quarter, down from 50 days last year and the days sales in inventory ratio was 123 days, down from 130 days year-over-year. As we have stated previously, until a permanent CEO is in place and has had the opportunity to work with the board on setting the company's strategic direction, we plan to maintain our operating flexibility, and to generally maintain our current direction, cash balances and capital structure. Management Update The company also announced that it was close to naming a new CEO. The search for a new CEO began in July with the announcement that Fran Conley would step down in September. Since then, the board, with the assistance of an outside consultant, has identified, reviewed and selected a short list of candidates to be interviewed. The Board is in final discussions with the lead candidate. The company further announced that Jim McGehee, Executive Vice President and Manager of the SBU (Strategic Business Unit) Group, has decided to leave the company, effective at the end of the year. Jim joined Cutter & Buck in February 1990 and has been an important contributor to the growth and success of the Cutter & Buck brand. In light of the ongoing discussions concerning the retention of a new CEO, the Company has elected to defer any decision on Jim's replacement until the Company's new CEO is in place and has had an opportunity to evaluate the Company's management team and structure. "We wish Jim every success in his future endeavors," said Bill Swint, Interim President and CEO. Dividend and Stock Repurchase Program The board of directors has approved a dividend of $0.07 a share, payable on January 7, 2005 to shareholders of record on December 23, 2004. During the second quarter, we purchased 81,600 shares of our common stock at an average price of $11.23. Since the inception of our stock repurchase program, we have repurchased a total of 155,226 shares of our common stock at an average price of $10.78. We still have $4.3 million available in the program for share repurchases at times and prices that we believe are advantageous for our shareholders. Conference Call: Cutter & Buck invites investors to listen to a broadcast of the company's conference call to discuss these matters. The conference call will be broadcast live over the Internet at 11:00 AM Eastern Time, 8:00 AM Pacific Time, December 9, 2004. To listen to the conference call, go to http://www.cutterbuck.com/ . At the website select "Investor Relations." The call will be archived shortly after its completion and will be available on the web through March 9, 2005. The call can also be accessed at 1-800-642-1687, ID # 2598647 through March 9, 2005. Statements made in this news release that are not historical facts are forward-looking statements. Actual results may differ materially from those projected in any forward-looking statements. Specifically, there are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking statements. Those factors include, but are not limited to the following: relations with and the performance of suppliers; our ability to control costs and expenses including costs associated with the upgrade and replacement of some of our computer systems, regulatory compliance and personnel matters; our ability to carry out successful designs, effectively advertise and communicate with the marketplace and penetrate our chosen distribution channels; costs associated with the indemnification of former officers; competition; access to capital; risks related to the timely performance of third parties, such as shipping companies, including risks of strikes or labor disputes involving these third parties; our need to maintain the integrity of our technology and information systems while enhancing and changing systems; our need to attract and retain employees during intensive organizational change; our need to maintain satisfactory relationships with our banking partners; political and trade relations; changes in international trade quota systems for apparel; the overall level of consumer spending on apparel; global economic and political conditions and additional threatened terrorist attacks and responses thereto, including war. Additional information on these and other factors, which could affect the company's financial results, are included in its Securities and Exchange Commission filings. Finally, there may be other factors not mentioned above or included in the company's SEC filings that may cause actual results to differ materially from any forward-looking statements. You should not place undue reliance on these forward-looking statements. The Company assumes no obligation to update any forward-looking statements as a result of new information, except as may be required by securities laws. About Cutter & Buck Cutter & Buck designs and markets upscale sportswear under the Cutter & Buck brand. The Company sells its products primarily to golf and specialty retailers, corporations and international distributors and licensees. Cutter & Buck products feature distinctive, comfortable designs, rich detailing, and high quality materials and manufacturing. Cutter & Buck Table A: Condensed Consolidated Statements of Operations (unaudited) Three Months Ended Six Months Ended Oct. 31, Oct. 31, Oct. 31, Oct. 31, 2004 2003 2004 2003 In thousands, except share & per share amounts Net sales $35,538 $34,747 $67,437 $67,484 Cost of sales 18,399 18,527 34,546 36,525 Gross profit 17,139 16,220 32,891 30,959 Operating expenses Depreciation 691 1,051 1,457 2,113 Selling, general & administrative 11,609 10,532 21,623 21,015 Restatement expenses 268 1,678 281 3,350 Total operating expenses 12,568 13,261 23,361 26,478 Operating income 4,571 2,959 9,530 4,481 Interest income (expense) Interest expense (13) (44) (30) (102) Interest income 149 42 253 85 Net interest income (expense) 136 (2) 223 (17) Income from continuing operations before taxes 4,707 2,957 9,753 4,464 Income tax expense 1,792 866 3,588 1,420 Income from continuing operations 2,915 2,091 6,165 3,044 Income from discontinued retail operations, net of tax -- -- -- 146 Net income $2,915 $2,091 $6,165 $3,190 Diluted earnings per share: Earnings from continuing operations $0.26 $0.19 $0.54 $0.28 Earnings from discontinued retail operations -- -- -- $0.01 Net earnings $0.26 $0.19 $0.54 $0.29 Shares used in computation of: Diluted earnings per share 11,363 10,993 11,331 10,910 Table B: Management Viewpoint of Operations and Reconciliation to GAAP Numbers Above To understand the performance of our wholesale business, management considers it useful to review our operating results excluding costs that are not elements of running our wholesale business on an ongoing basis, such as restatement expenses. We adjust our net income calculated in accordance with generally accepted accounting principles to exclude income and expense items that are not directly related to our wholesale business, in order to give us better information regarding the profitability of our wholesale business. We use this analysis to compare pretax wholesale business income on a quarterly and year-to-date basis. Three Months Ended Six Months Ended Oct. 31, Oct. 31, Oct. 31, Oct. 31, 2004 2003 2004 2003 (in thousands) Net income as reported $2,915 $2,091 $6,165 $3,190 Income (loss) from discontinued retail operations -- -- (146) Income tax expense 1,792 866 3,588 1,420 Pre-tax expense of closed European operations (35) 24 (15) 72 Restatement expenses 268 1,678 281 3,350 Ongoing wholesale business income before tax $4,940 $4,659 $10,019 $7,886 Table C: Summary of Net Sales by Strategic Business Unit Three Months Ended October 31, 2004 2003 $ change % change In thousands Golf $10,022 $9,872 $150 1.5% Corporate 14,559 13,762 797 5.8 Specialty Retail 8,350 8,257 93 1.1 International 729 660 69 10.5 Other 1,878 2,196 (318) (14.5) Total $35,538 $34,747 $791 2.3% Six Months Ended October 31, 2004 2003 $ change % change In thousands Golf $18,849 $20,919 $(2,070) (9.9)% Corporate 29,701 28,038 1,663 5.9 Specialty Retail 13,672 13,264 408 3.1 International 1,415 1,230 185 15.0 Other 3,800 4,033 (233) (5.8) Total $67,437 $67,484 $(47) (0.1)% Table D Condensed Consolidated Balance Sheets (unaudited, unless otherwise stated) Oct. 31, April 30, Oct. 31, 2004 2004 2003 In thousands (audited) Assets Current Assets: Cash and cash equivalents $16,689 $19,715 $34,070 Short-term investments 25,880 17,952 -- Accounts receivable 19,216 22,502 18,501 Inventories 23,633 21,938 21,818 Other current assets 5,004 4,848 6,041 Total current assets 90,422 86,955 80,430 Furniture and equipment, net 6,311 6,290 7,305 Other assets 704 685 680 Total assets $97,437 $93,930 $88,415 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $3,600 $2,940 $1,849 Accrued liabilities 5,624 7,161 7,362 Income taxes payable 1,419 1,217 817 Current portion of capital lease obligations 315 557 37 Total current liabilities 10,958 11,875 10,065 Capital lease obligations, net of current portion, and other liabilities 2,082 2,326 2,929 Total shareholders' equity 84,397 79,729 75,421 Total liabilities and shareholders' equity $97,437 $93,930 $88,415 Table E Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended Oct. 31, Oct. 31, 2004 2003 In thousands Net income $6,165 $3,190 Net cash provided by operating activities: Depreciation 1,552 2,215 Deferred gain on sale and leaseback of capital assets (3) (45) Loss on disposals of furniture and equipment 19 Amortization of deferred compensation 31 Changes in assets and liabilities: Accounts receivable 3,286 5,832 Inventories (1,695) 12,721 Prepaid expenses and other current assets (175) 2,327 Accounts payable and accrued liabilities (1,034) (9,433) Income taxes payable 201 -- Net cash provided by operating activities 8,297 16,857 Investing activities: Purchases of furniture and equipment (1,573) (646) Purchases of short-term investments (42,316) -- Maturities of short-term investments 34,388 -- Net cash used in investing activities (9,501) (646) Financing activities: Principal payments under capital lease obligations (325) (1,218) Payment of dividends (1,300) -- Repurchases of common stock (1,099) -- Issuance of common stock 902 213 Net cash used in financing activities (1,822) (1,005) Net increase in cash and cash equivalents (3,026) 15,206 Cash and cash equivalents, beginning of period 19,715 18,864 Cash and cash equivalents, end of period $16,689 $34,070 DATASOURCE: Cutter & Buck Inc. CONTACT: Bill Swint, CEO, or Ernie Johnson, CFO of Cutter & Buck Inc., +1-206-622-4191 Web site: http://www.cutterbuck.com/

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