Apparel maker Cutter & Buck's (NASDAQ:CBUK) shares inflicted a nasty paper cut on their holders Thursday morning, falling more than 6% in the wake of disappointing fiscal Q1 2006 earnings results. The "upscale sportswear" maker and Motley Fool Hidden Gems "tiny gem" reported declining revenues and a 35% drop in income for the quarter compared to last year's fiscal Q1.

The company's golf division took the worst hit, with sales sinking by more than 10%. (However, this division faced "difficult comps" because its year-ago numbers were boosted by sales during the Ryder Cup tournament.) The next most disappointing unit was "corporate," where sales declined more than 9%. Overall, revenues declined 6.8% vs. the year-ago quarter.

The company's new CEO, Tom Wyatt, was frank in describing the challenges facing Cutter, including product lines that he termed "somewhat stale." Inventories increased by 11% despite the decline in sales, which definitely indicates that Cutter's goods aren't exactly flying off the shelves.

In this regard, Fools should pay heed to CFO Ernie Johnson's admonition that inventories throughout this year will be higher than in years past -- not only due to the unpopularity of last year's clothing lines, but also to an intentional buildup of new inventory from the "rejuvenated" corporate product lines.

It's also worth pointing out that the company's GAAP earnings and revenue numbers don't tell the entire tale. You could get a clue to this in the very first set of charts included in Cutter's earnings release, which showed the company's store of cash and short-term investments barely declining at all. Wyatt pointed out that free cash flow came in at $4.2 million for the quarter -- twice the amount of GAAP profits, even if it did represent a similar decline against the year-ago quarter (when Cutter generated $6.3 million in cash).

If you've been looking to buy into Cutter at a price close to $10, you just may get your chance come November 17. As already mentioned, Cutter lost nearly a dollar on its share price after releasing its earnings results. On November 16, the company plans to issue a special one-time $1.34-per-share dividend to shareholders of record. Immediately after the dividend payment, Cutter's share price should fall by about the value of the cash disbursement, putting it at least within shouting distance of $10.

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Fool contributor Rich Smith does not own shares in Cutter & Buck.