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
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