Given that I may be the only person who worked on Wall Street and never picked up a golf club, I don't have a lot of firsthand experience with Cutter &Buck's (NASDAQ:CBUK) golf apparel. But firsthand experience can sometimes lead you astray, and you don't need to be an avid duffer to assess this sportswear maker's turnaround prospects.
Results for the company's fiscal fourth quarter suggest that even though the company may be on the right course, it hasn't quite cleared the hazards just yet. Revenue actually fell by about 9% and missed estimates, and net income was cut in half, which in turn led to a miss on the EPS line as well.
While sales in the specialty-retail and international sectors were both up, corporate sales were down slightly and golf sales dropped by 17% year over year. Though company executives expressed confidence in a new golf line that will start shipping in November, their guidance suggested that investors shouldn't expect a quick turnaround in this business.
Turning to the balance sheet, the picture doesn't get a whole lot clearer. The company still carries practically no debt, but inventories increased year over year and sales declined very slightly for the year as a whole. Thus, while the accounts-receivable picture is pretty sound, the situation in inventory turns isn't quite so bright just yet.
The cash flow offers more mixed news. Cutter & Buck was free cash flow positive for the year ($5.4 million) but didn't quite achieve the full-year results that fellow Fool Rich Smith had hoped for earlier. Though I'll admit that year-to-year comparisons of free cash flow aren't really fair in this case (because of unusual inventory and accounts-payable entries), producing only $0.47 a share in free cash flow is still a bit weaker than I'd like.
Now, on to the good news. This company still does produce free cash flow, and management doesn't appear stingy about sharing some of its balance sheet liquidity with investors. Not only will the company pay a $0.07 per share regular dividend, but the board has also approved a $15 million ($1.34/share) special dividend subject to shareholder approval. Last but by no means least, the company has spent more than $4.2 million on share repurchases and has re-upped its authorization to $10 million.
Though management did offer uninspiring (and meaningfully lower) guidance, I don't think patient shareholders have too much to fear. The stock is trading at low- to mid-teens multiples of earnings and free cash flow, so it's not as though high expectations have been baked into the stock price. Should management succeed in putting the company back on firm footing and restoring some growth, albeit even modest growth, shareholders should come out OK from a total return standpoint.
More Foolish apparel takes are pret-a-porter:
For a peek at Cutter & Buck's fiscal 2005 numbers, click here. Go here for the company's Q4 results.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.
