NEW YORK — With most of its restructuring and restatements behind it, gross margin expansion allowed Cutter & Buck Inc. to narrow its fourth-quarter loss.
For the three months ended April 30, the Seattle-based sportswear and golfwear marketer reported a net loss of $990,000, or 9 cents a diluted share. That compares with last year’s loss of $1 million, or 10 cents. Pretax earnings from the company’s now fully discontinued retail operations were $1.2 million, or 10 cents, but that was offset by a pretax loss of $2.1 million, or 20 cents, from continuing wholesale operations.
Additionally, C&B took a pretax charge of $5.6 million for restatement expenses, as well as an $8.2 million pretax restatement charge for the full year. As reported, the full-year charge included $4 million to settle two shareholder lawsuits in connection with 2000 and 2001 financial statements that had to be restated. The company said the settlement is subject to final court approval and does not reflect any admission of liability by the current or former directors or officers.
Sales for the period fell 31.1 percent, to $36.3 million from $52.7 million last year, but gross profit improved 4.5 percent to $16.1 million from $15.5 million a year ago. As a result, gross margin increased 1,500 basis points to 44.3 percent of sales from 29.3 percent in the prior-year quarter.
“We believe that our restructuring is now largely complete,” said chief executive officer Fran Conley on a conference call. “We will continue to incur costs related to the restatement, including the costs of pursuing the lawsuit against Genesis Insurance Co.. These continuing costs, as well as those already incurred, could be reduced or eliminated if Cutter & Buck is successful in its lawsuit against Genesis.”
As reported, the company will pay up to an additional $3 million depending on the result of its ongoing lawsuit with Genesis, the carrier of its directors’ and officers’ liability insurance at the time of the restatement. Genesis, according to C&B, has attempted to rescind the policies.
Also related to the restatement, last week C&B said that based on discussions with the Securities and Exchange Commission, the company expects to reach an agreement that would resolve the SEC’s previously announced investigation of the company. The agreement would provide for Cutter & Buck to comply with the financial reporting, maintenance of books and records and internal control provisions of the federal securities laws.More important, said Conley in the call: “We do not anticipate any fine or penalties from the SEC.”
Last August, Cutter & Buck identified certain revenue recognition issues that it publicly disclosed and brought to the SEC’s attention, the company said.
Overall, for the full fiscal year, C&B posted a net loss of $12 million, or $1.13 a diluted share. By comparison, last year the company lost $10.4 million, or 98 cents. This year’s loss included the aforesaid pretax $8.2 million restatement expense.
Sales for the period declined 18.3 percent to $131.7 million from $161.1 million a year ago.
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