Ashworth, Inc. (NASDAQ:ASHW), a leading designer of golf-inspired
lifestyle sportswear, today announced unaudited financial results
for the fourth quarter and fiscal year ended October 31, 2007.
Summary of Fourth Quarter and Fiscal 2007 Financials Consolidated
net revenue for the quarter ended October 31, 2007 increased 8.9%
to $54.6 million compared to $50.2 million in the same quarter last
year. Net domestic revenue increased 9.1% to $44.7 million for the
fourth quarter of fiscal 2007 from $41.0 million for the same
period of fiscal 2006. Net international revenue increased 7.4% to
$9.9 million for the fourth quarter of fiscal 2007 from $9.2
million for the same period of fiscal 2006. For the fiscal year
ended October 31, 2007, consolidated net revenue decreased 3.5% to
$202.2 million compared to $209.6 million for fiscal 2006. Net
domestic revenue decreased 3.7% to $164.8 million for the full year
fiscal 2007 from $171.1 million for fiscal 2006. Net international
revenue decreased 3.0% to $37.4 million for the full year fiscal
2007 from $38.5 million for fiscal 2006. A more detailed analysis
of revenue for the fourth quarter and fiscal 2007 is provided
below. Consolidated net loss for the fourth quarter of fiscal 2007
was ($3.5) million or ($0.24) per basic and diluted share compared
to a net loss of ($4.4) million or ($0.30) per basic and diluted
share for the same quarter last year. Consolidated net loss for the
full year fiscal 2007 was ($14.1) million or ($0.97) per basic and
diluted share compared to a consolidated net income of $1.0 million
or $0.07 per basic and diluted share for fiscal 2006. As a result
of the quarterly assessments of its net deferred tax assets in
accordance with Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes during the last three quarters of
fiscal 2007, the Company recorded a tax charge of $7.3 million or
$0.50 per basic and diluted share to establish a valuation
allowance against deferred tax assets during fiscal 2007. The
Company�s gross profit improved to $20.0 million, or 36.7% of
sales, in the fourth quarter of fiscal 2007 as compared to $16.3
million, or 32.6% of sales, in the same period last year. The
improvement in gross margins was primarily due to improved fixed
cost leverage from higher sales and efficiencies realized through
process improvements in the Company�s Embroidery and Distribution
Center (�EDC�) in Oceanside, CA. The Company�s SG&A expenses
increased approximately $0.6 million primarily due to additional
royalties and commissions on increased sales as well as increased
tour event expenses, but fell as a percentage of sales to 42.2%
from 44.7% in the comparable prior year period due to improved
sales leverage. The Company�s gross profit declined to $77.8
million, or 38.5% of sales, for the full fiscal year 2007 as
compared to $85.8 million, or 40.9% of sales, for fiscal year 2006.
The year-over-year gross margin decline primarily resulted from
higher discounting to clear excess inventory as well as the
underutilization of the EDC due to lower sales volume in the
Company�s domestic distribution channels (excluding Gekko Brands,
LLC (�Gekko�)). The Company�s SG&A expenses for fiscal 2007
increased approximately $4.3 million and as a percentage of sales
were 42.4% as compared to 38.9% in the prior year. The increase in
SG&A expenses was primarily due to an approximate $1.9 million
increase in trade shows, sales meetings and license fees, a net
increase in employee severance of approximately $0.8 million,
approximately $0.7 million due to the full-year effect of the four
new outlet stores added in the second half of fiscal 2006 as well
as recognition of approximately $0.7 million of additional
compensation expense related to five officers of Gekko. This
additional compensation resulted from a change in the nature of
certain contingent acquisition obligations which previously were
accounted for as additional purchase price of the acquisition.
Analysis of Fourth Quarter and Fiscal Year 2007 Revenues by Channel
The Company�s fourth quarter fiscal 2007 revenues increased in
every distribution channel except for the Retail channel. For
fiscal year 2007, revenues decreased in all distribution channels
except for the Company�s outlet stores and its Collegiate
distribution channel. Golf For the fourth quarter of fiscal 2007,
revenues from the domestic Golf distribution channel increased
40.6% to $19.0 million from $13.5 million for the same period of
fiscal 2006. The improvement in the fourth quarter resulted from an
increased number of on-course accounts with slightly higher average
order size, and fewer off-course specialty retail accounts but with
a 35.3% higher average order size. For fiscal year 2007, revenues
in the Golf distribution channel were down 4.5% to $67.1 million
from $70.3 million for fiscal 2006. For the year, revenues in the
Golf distribution channel were adversely affected by customer
consolidation within the off-course channel of distribution and
continuing competitive pressure. Retail Revenues from the Retail
distribution channel decreased 45.5% to $4.1 million for the fourth
quarter of fiscal 2007 as compared to $7.6 million for the same
period of the prior year. For fiscal year 2007, revenues in the
Retail distribution channel declined 28.4% to $16.3 million as
compared to $22.7 million for the prior fiscal year. These
decreases were the result of the previous management�s decision to
reduce the presence of its Ashworth� brand in this distribution
channel. Corporate Revenues for the Corporate distribution channel
increased 13.3% to $6.1 million in the fourth quarter of fiscal
2007 as compared $5.4 million for the same period of the prior
fiscal year. The increase was primarily due to increased
promotional activity during the fourth quarter of fiscal 2007. For
fiscal year 2007, revenues in the Corporate distribution channel
were down 4.6% to $24.6 million as compared to $25.8 million for
the prior fiscal year. Company-Owned Outlet Stores Revenues from
the outlet stores increased 9.8% to $3.1 million in the fourth
quarter of fiscal 2007 as compared to $2.8 million for the same
period last year, primarily due to increased promotional activity.
For fiscal year 2007, revenues from the Company-owned outlet stores
were up 10.8% to $11.7 million as compared to $10.5 million for the
prior fiscal year. Comparative store sales were up 9.8% for the
fourth quarter of fiscal 2007 and down 1.6% for fiscal year 2007 as
compared to the same periods of the prior year. New outlet stores
added during the second half of fiscal 2006 contributed $2.7
million in revenues for the full fiscal year 2007.
Collegiate/Racing (The Game�/Kudzu�) Gekko�s revenues increased
6.1% to $12.4 million in the fourth quarter of fiscal 2007 as
compared to $11.7 million for the same period of fiscal 2006. The
increase was driven by higher sales of apparel and headwear into
the Collegiate channel, a change in the timing of the Tour
Championship (played in September 2007 versus November 2006), and
increased sales of Kudzu products into the NASCAR/Racing
distribution channel, partially offset by decreased sales in the
Outdoor distribution channel. For fiscal year 2007, revenues in the
Collegiate/Racing distribution channel were up 8.2% to $45.2
million as compared to $41.8 million for the prior fiscal year,
primarily due to higher sales of apparel and headwear into an
increased number of accounts in the Collegiate/Bookstore
distribution channel and higher event sales due to the Tour
Championship being played twice during fiscal year 2007, partially
offset by lower sales of products into the NASCAR/Racing
distribution channel during the first nine months of fiscal 2007.
International Revenues from Ashworth UK, Ltd. increased 5.7% to
$7.8 million for the fourth quarter of fiscal 2007 as compared to
$7.4 million for the same period of the prior year. For fiscal year
2007, revenues from Ashworth UK, Ltd. were down 2.7% to $27.3
million as compared to $28.0 million for the prior fiscal year. The
increase for the fourth quarter was primarily due to the favorable
effect of exchange rate fluctuations, partially offset by the lack
of Ryder Cup sales in fiscal 2007. The decrease for the full fiscal
year 2007 is primarily due to Ashworth�s participation as the lead
vendor at the 2006 Ryder Cup which benefited 2006 results but not
2007 as there was no such event during the year, partially offset
by the favorable effect of exchange rate fluctuations. Other
international revenues increased approximately 14.8% to $2.1
million for the fourth quarter as compared to $1.8 million for the
same period of the prior year and decreased 3.8% to $10.1 million
for fiscal year 2007 as compared to $10.5 million for the prior
fiscal year. The increase for the fourth quarter of fiscal year
2007 was primarily due to the addition of new distributors in Guam
and Saipan while the decrease for the full fiscal year 2007 was
primarily due to lower sales in Canada as compared to the prior
year. Fiscal 2007 Year-End Balance Sheet The Company�s net accounts
receivable increased 1.7% from a year ago primarily due to the
higher revenues in the fourth quarter of fiscal 2007. Consolidated
net inventories increased 12.4% from a year ago primarily due to
higher than planned inventory levels in the Company�s U.K. and
Canada operations due to lower sell-through of certain styles as
well as accelerated receipts of inventory at Gekko to facilitate
apparel sales into the Collegiate market. New Management Team and
Strategic Plan Allan H. Fletcher, the Company�s Chief Executive
Officer, commented, �As many of you know, we�ve had a substantial
turnover in executive management in the second half of fiscal 2007.
Eddie Fadel was appointed President on May 23, 2007, Paul Bourgeois
joined the Company as SVP of Sales on October 1, 2007 and on
October 24, 2007 I was appointed CEO and Greg W. Slack was
appointed CFO of Ashworth. This is an experienced team with an
excellent understanding of the golf industry. We have been working
together to develop a plan to build on the Company�s strong apparel
and headwear brands and return Ashworth to profitable growth. Our
goal is to reinvigorate the Ashworth brand, by focusing on its
quality, strength, authenticity and innovation. We are currently
evaluating and implementing plans to improve or add product lines,
reorganize and strengthen the sales force team and cut supply chain
and operating costs. We are looking at all opportunities to improve
profitability and foster a stronger alignment of the interests of
management, employees and sales representatives with those of
shareholders and strategic partners. This Company faced many
challenges in the past few years and a complete turnaround will
take hard work and time and may result in short-term peaks and
valleys, but 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 fourth quarter and fiscal year 2007
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 fourth quarter
earnings teleconference or provide the conference ID number:
3825153. 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, the continued willingness of the Company�s lenders to
provide waivers of compliance with financial covenants, 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 Callaway Golf apparel product line, 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, 2006,
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, 2006. ASHWORTH, INC. � � Consolidated
Statements of Operations Fourth Quarter and Twelve Months ended
October 31, 2007 and 2006 � Summary of Results of Operations � 2007
� � 2006 � FOURTH QUARTER (Unaudited) Net Revenue $ 54,591,000 $
50,152,000 Cost of Sales � 34,566,000 � � 33,824,000 � Gross Profit
20,025,000 16,328,000 Selling, General and Administrative Expenses
� 23,014,000 � � 22,431,000 � Loss from Operations (2,989,000 )
(6,103,000 ) Other Income (Expense): Interest Income 52,000 15,000
Interest Expense (712,000 ) (668,000 ) Other Expense, net �
(101,000 ) � (333,000 ) Total Other Expense, net � (761,000 ) �
(986,000 ) Loss Before Provision for Income Taxes (3,750,000 )
(7,089,000 ) Provision for Income Taxes � 264,000 � � 2,734,000 �
Net Loss � ($3,486,000 ) � ($4,355,000 ) Loss Per Share � BASIC
($0.24 ) ($0.30 ) Weighted-Average Common Shares Outstanding �
14,660,000 � � 14,520,000 � � Loss Per Share � DILUTED ($0.24 )
($0.30 ) Adjusted-Weighted Average Shares and Assumed Conversions �
14,660,000 � � 14,520,000 � � TWELVE MONTHS Net Revenue $
202,189,000 $ 209,600,000 Cost of Sales � 124,422,000 � �
123,787,000 � Gross Profit 77,767,000 85,813,000 Selling, General
and Administrative Expenses � 85,814,000 � � 81,475,000 � Income
(Loss) from Operations (8,047,000 ) 4,338,000 Other Income
(Expense): Interest Income 134,000 55,000 Interest Expense
(2,921,000 ) (2,897,000 ) Other Income (Expense), net � (215,000 )
� 257,000 � Total Other Expense, net � (3,002,000 ) � (2,585,000 )
Income (Loss) Before Provision for Income Taxes (11,049,000 )
1,753,000 Provision for Income Taxes � (3,067,000 ) � (802,000 )
Net Income (Loss) � ($14,116,000 ) $ 951,000 � Income (Loss) Per
Share � BASIC ($0.97 ) $ 0.07 Weighted-Average Common Shares
Outstanding � 14,576,000 � � 14,400,000 � � Income (Loss) Per Share
� DILUTED ($0.97 ) $ 0.07 Adjusted-Weighted Average Shares and
Assumed Conversions � 14,576,000 � � 14,514,000 � ASHWORTH, INC. �
Condensed Consolidated Balance Sheets As of October 31, 2007 and
2006 October 31, October 31, 2007 2006 ASSETS (Unaudited) � �
CURRENT ASSETS Cash and Cash Equivalents $ 6,104,000 $ 7,508,000
Accounts Receivable-Trade, net 34,545,000 33,984,000 Inventories,
net 50,529,000 44,971,000 Other Current Assets � 6,293,000 �
12,632,000 Total Current Assets 97,471,000 99,095,000 � Property
and Equipment, net 37,515,000 39,126,000 Intangible Assets, net
25,056,000 25,495,000 Other Assets, net � 372,000 � 327,000 Total
Assets $ 160,414,000 $ 164,043,000 � LIABILITIES AND STOCKHOLDERS'
EQUITY � CURRENT LIABILITIES Line of Credit $ 19,615,000 $
14,000,000 Current Portion of Long-Term Debt 2,360,000 2,117,000
Accounts Payable � Trade 12,728,000 10,724,000 Other Current
Liabilities � 10,677,000 � 10,758,000 Total Current Liabilities
45,380,000 37,599,000 � Long-Term Debt 13,844,000 15,671,000 Other
Long-Term Liabilities 1,553,000 2,139,000 Stockholders' Equity �
99,637,000 � 108,634,000 Total Liabilities and Stockholders' Equity
$ 160,414,000 $ 164,043,000
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