It's interesting how much your performance can improve when you sell products that people actually want. Just ask Cutter & Buck (Nasdaq: CBUK), the maker of golf- and sports-related apparel. Its recent second-quarter results found sales up a surprising 10.7%, to $37.3 million, beating analyst expectations of $36 million. The stronger sales stemmed from Cutter & Buck's decision to clear out more unpopular lines last year, leaving only popular, desirable products. Smart move!
Gross margins were up some 200 basis points year over year, to 47%; last year's numbers were hurt by those clearance sales Cutter & Buck was holding. But since margins were also up 100 basis points compared to this year's first quarter, it seems the retailer has set itself up for a strong drive ahead.
You can get a look at the raw numbers in this Fool by Numbers article, but in short, nearly all of Cutter's segments are enjoying growth. Despite little change in the number of golf rounds played, golf segment sales grew 6.6% over the year-ago period. In a competitive and concentrated market, Cutter & Buck says it's gaining market share.
The company is finding that its catalog, now in customers' hands for more than a year, is validating the products carried in its stores. People are ordering essentially the same products from the catalog that they're buying in the stores, and the company reported that consumer direct sales rose to $2.1 million. International licensing also saw healthy improvement, with revenues up 20% year over year, while specialty retail sales increased 23% for the same period.
The one disappointment lay in Cutter & Buck's big-and-tall line, where a significant customer's inventory issues delayed shipments and hurt sales. The company says those sales should return to normal levels in what will otherwise be a flat market segment. While that may be true, big-and-tall retailer Casual Male (Nasdaq: CMRG) has apparently avoided the shrinking sales that have pinched Cutter & Buck; its sales for the same period grew 14% from last year.
Nonetheless, Cutter & Buck is once again generating free cash flow after the beginnings of a slowdown last year. Earlier this year, Cutter connected by limiting negative free cash flow to $200,000, even as the company cleared out those discontinued, unpopular inventory items we discussed earlier. It's since lived up to its promise of resumed positive cash flow. While this current quarter's numbers look like they've fallen by half from last year, those earlier numbers only look better because of changes in Cutter & Buck's net inventories.
Cutter & Buck Free Cash Flow
|
Year
|
Q1
|
Q2
|
Q3
|
Q4
|
|
2004
|
$6.3
|
$0.4
|
$0.9
|
($2.2)
|
|
2005
|
$4.2
|
$1.4
|
($0.2)
|
$1.9
|
|
2006
|
$5.5
|
$0.7
|
*
|
*
|
Dollars in millions.
With a new catalog out, a line of self-branded clothes, and its inventory issues apparently conquered, Cutter & Buck has open fairways ahead. Although management has cautioned investors not to expect second-half growth -- its third quarter is typically slower than the rest of the year -- the company does expect the same kinds of year-over-year improvements in H2 that it witnessed in H1. That's the kind of open and honest management Fools like to see.
Cut through the obfuscation with these related Foolish articles:
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Fool contributor Rich Duprey owns shares of Casual Male, but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.
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