Ashworth, Inc. Announces Fourth Quarter and Fiscal Year 2005 Financial Results

-- Revenue up 15% for Fourth Quarter and 18% for Fiscal Year 2005

-- Loss of $0.16 for Fourth Quarter and $0.05 for Fiscal Year 2005 Due to Lower Gross Margin and Higher SG&A

-- Fiscal Year 2006 Guidance of $210 - $220 Million in Revenues and Earnings of $0.48 - $0.56 per Share

Ashworth, Inc. (NASDAQ:ASHW), a leading designer of golf-inspiredlifestyle sportswear, today announced financial results for the fourthquarter and fiscal year ended October 31, 2005.

During the fourth quarter, the newly realigned management teamtook aggressive steps to address the three issues encountered earlierin the year. First, the Company was successful in significantlyreducing its domestic inventory to a level lower than a year ago,though this effort negatively impacted the gross margin percentage inthe fourth quarter. Second, although the Retail distribution channelsuffered a 7.2% decline in sales against the same quarter of the prioryear, the Company's new merchandising strategy of offering more keyitems and less fashion merchandise has provided a more balanced mix onthe selling floor and consumers have reacted favorably. The Companyexpects to expand this new key item strategy in fiscal 2006. Third,the operating efficiency of the Company's U.S. Embroidery andDistribution Center (the "EDC") was significantly improved in thefourth quarter of fiscal 2005 compared to the first three quarters offiscal 2005.

The Company experienced full price sales growth in four of itsseven distribution channels including its international Golf channel,its Corporate distribution channel, The Game(R) brand headwear linesand its Company-owned outlet stores. The Company also successfullycompleted its first full year of operations with its new Gekkoacquisition which has proven to be accretive to earnings.Additionally, the Company's Spring/Summer 2006 forward orders for boththe Ashworth(R) and Callaway Golf apparel brands have increased overlast year, both in the U.S. and Europe. And in November 2005, theDarrell Survey ranked the Ashworth brand the number one brand in golfshirt usage in the U.S. for the 10th consecutive year.

Summary of Fourth Quarter Financials:

Consolidated net revenue for the quarter ended October 31, 2005increased 14.5% to $55.3 million compared to $48.3 million in the samequarter last year. Net revenue for the domestic segment increased16.5% to $47.9 million for the fourth quarter of fiscal 2005 from$41.1 million for the same period of fiscal 2004. Net revenue from theinternational segment increased 3.7% to $7.4 million for the fourthquarter of fiscal 2005 from $7.2 million for the same period of fiscal2004. Net loss for the fourth quarter was $2.2 million or $0.16 perbasic and diluted share compared to net income of $1.9 million or$0.14 per basic and diluted share for the same quarter last year. Amore detailed analysis of fourth quarter revenue is provided below.

The Company's operating margin suffered a loss of 5.4% in thefourth quarter of fiscal 2005 as compared to a profit of 7.3% in thesame period last year. The decline was largely driven by lower grossmargins as well as higher selling, general and administrative ("SG&A")expenses. Gross margins and earnings were adversely impacted by lowerthan anticipated sales of full-margin products and by the Company'sdecision to aggressively reduce the excess inventory built up in thethird quarter. During the fourth quarter, the Company continued theaggressive sales programs initiated in the third quarter to addressthe impact of product which failed to appeal to its target market.Continued efforts to document various internal controls to addressSarbanes-Oxley Section 404 requirements also added significantly tothe higher SG&A expenses and lower operating margin level. Inaddition, SG&A expenses were higher due to the expansion of theCompany-owned outlet stores. Finally, the SG&A expenses were impactedby several costs associated with management realignment and personnelreductions to improve product, financial and operational performancein 2006.

Summary of Fiscal 2005 Financials:

For the fiscal year ended October 31, 2005, consolidated netrevenue increased 18.3% to $204.8 million compared to $173.1 millionfor fiscal 2004. Net revenue for the domestic segment increased 19.0%to $171.9 million for the fiscal year ended October 31, 2005 from$144.4 million for fiscal 2004. Net revenue from the internationalsegment increased 14.6% to $32.9 million for the fiscal year endedOctober 31, 2005 from $28.7 million for fiscal 2004.

Consolidated net loss for the fiscal year ended October 31, 2005was $0.7 million or $0.05 per basic and diluted share compared toconsolidated net income of $8.2 million or $0.61 per basic share and$0.60 per diluted share for fiscal 2004.

In the second quarter of fiscal 2004, the Company sold itsexisting distribution center facility located in Carlsbad, Californiaand recorded a pre-tax gain on disposal of fixed assets of $1.6million. Additionally, during the third quarter of fiscal 2004, theCompany incurred a $3.0 million pre-tax charge related to a settlementto conclude a 1999 securities class action lawsuit. Without thepre-tax gain on the sale of the distribution center and the pre-taxcharge in connection with the litigation settlement, the Company wouldhave reported consolidated net income of $9.1 million or $0.66 perdiluted share for fiscal 2004. The Company believes that excluding theeffects of the charge related to the litigation settlement and thegain on sale of fixed assets provides useful information to investorsin analyzing the Company's operational performance in fiscal 2005 ascompared to fiscal 2004.

The Company's operating margin decreased to 0.7% in fiscal 2005 ascompared 9.5% in fiscal 2004. The decline was driven by lower grossmargins as well as higher SG&A expenses. Gross margins and earningswere adversely impacted by lower than anticipated sales of full-marginproducts and the Company's decision to aggressively reduce the excessinventory built up in the third quarter. Primary drivers of the higherSG&A included twelve versus four months of expenses from Gekko, thenet addition of five new outlet stores, higher sales promotionsexpense, EDC variable cost overruns, and expenses associated with thedocumentation of various internal controls to address Sarbanes-OxleySection 404 requirements.

FY 2006 Guidance:

The Company affirmed its previously stated consolidated revenueguidance for fiscal 2006 of approximately $210 to $220 million versusthe $205 million for fiscal 2005. Based on current trends, the Companyexpects consolidated net earnings of $0.48 to $0.56 per diluted shareversus a loss of $0.05 per basic and diluted share in fiscal 2005. TheCompany expects to achieve its fiscal 2006 goals primarily by 1)reducing the need for higher markdown allowances with the introductionof better designed product lines, 2) reducing lower margin sales whichresulted from the fourth quarter fiscal 2005 inventory reductionefforts, 3) realizing planned efficiencies at its U.S. EDC, 4)lowering sales and promotional expenses, 5) reducing Sarbanes-OxleySection 404 compliance expenses in its second year of Sarbanes-OxleySection 404 implementation, and 6) the reduction of payroll expenses.

The newly realigned management team is aggressively implementinginitiatives in 2006 which will strengthen the Company's systems toprovide better visibility and controls going forward. The team is alsoimplementing additional initiatives to expand its technical productofferings for 2006 and 2007. With the EDC running more efficiently,the Company plans to increase revenues by providing embroideryservices to other apparel and accessory companies in 2006 and 2007.

Acquisition of Gekko: Highly Successful First Full Year

In 2005 the Company began to realize the cross-selling potentialfrom the Gekko acquisition with sales and future bookings totalingapproximately $2.2 million of headwear into the Golf channel andapproximately $1.3 million of Ashworth apparel into the Collegiatechannel. Ashworth's July 2004 acquisition of Gekko added popularlines of headwear and apparel under The Game and Kudzu(R) brands tothe Company's product offerings. The acquisition also provided theCompany the opportunity in 2005 to distribute Ashworth sportswear intoThe Game's and Kudzu's three channels of distribution and existingaccount base which includes over 1,000 colleges and universities,resorts and sporting goods team dealers that serve the high school andcollege markets as well as Kudzu's outdoor and NASCAR-relatedcustomers. Additionally, Gekko is designing Ashworth-branded andCallaway Golf apparel-branded headwear for sale into Ashworth'sexisting Golf and Retail channels in 2006.

Fiscal 2005 Year-End Balance Sheet:

The Company's balance sheet remains strong. Key operationalmetrics such as accounts receivable and inventory are improving. TheCompany's net accounts receivable decreased 5.0% from a year agodespite an increase in net revenues. Accounts receivable were downprimarily due to the increased markdown allowances in the third andfourth quarters resulting from less than expected product sell-throughin the Retail distribution channel. In addition, a new creditreporting system was recently installed which facilitates collectionefforts on a more timely basis. Consolidated net inventories decreased6.3% from a year ago despite a 38.7% increase in Gekko's inventorydesigned to facilitate sales into the Collegiate market. Totalliabilities to equity increased from 57.0% to 60.5% primarily due tothe negative cash flow of $1.4 million during the fiscal year.

Planned Amendment of Bank Agreement:

The Company is in negotiations with Union Bank of California, asAgent for its banking syndicate, on an amendment to its bank line ofcredit and has tentatively agreed to a proposed term sheet. Thepurpose of this amendment is, among other things, to address theCompany's current non-compliance with the following financialcovenants: 1) minimum tangible net worth, 2) minimum EBITDA, 3)maximum capital expenditures, and 4) the minimum fixed charge coverageratio. The amendment eliminates the EBITDA covenant and therequirement to reduce the balance of the revolving loan, and alsotransfers $7.5 million from the term loan to the line of credit, withthe existing term loan's remaining balance of $7.5 million amortizedover 60 months (which reduces the annual principal payment total from$4.0 million to $1.5 million).

Analysis of Fourth Quarter Revenues by Channel/Segment:

The Company attributed the increase in consolidated fourth quarterrevenue, as compared to the fourth quarter of fiscal year 2004, tohigher revenues in its international segment, its Corporatedistribution channel, the Collegiate/bookstores channel as well as inthe Company-owned outlet stores, partially offset by lower revenuesfrom its Retail distribution channel. An increase in the domestic Golfchannel was primarily a result of lower margin golf product sales tooff course accounts.

Revenues from the international segment increased 3.7% to $7.4million and revenues for the Corporate distribution channel increased22.4% to $6.4 million. Revenues from the Company- owned storesincreased 87.5% to $2.4 million, primarily due to the net addition offive stores when compared to the same quarter of the prior year.

Gekko's revenue increased 18.9% to $12.1 million in the quarter.Domestic Golf channel revenue increased 16.1% to $21.5 million. Theseincreases were partially offset by a decrease of 7.2% to $5.5 millionin revenues in the domestic Retail distribution channel. The Retaildistribution channel was negatively affected by a continued highlypromotional environment in the Fall/Holiday season and poor productperformance.

Revenues from Ashworth branded products increased 15.4% to $31.3million for the quarter from $27.1 million in the same quarter in 2004primarily due to an increase in lower margin sales. Revenues fromCallaway Golf apparel branded products increased 8.5% to $12.0 millionprimarily due to an increase in Corporate sales and moderate growth indomestic Golf sales.

Golf

The Ashworth brand was again ranked number one by the DarrellSurvey as having the largest overall market share in golf shirt usagefor the 10th consecutive year. While overall sales increased in itsGolf distribution channel in the fourth quarter, the Company continuedto experience a challenging pricing environment in this coredistribution channel.

The Company also recorded its third consecutive year-over-yearincrease for the Callaway Golf apparel line and anticipates continuedgrowth as it fully develops Callaway Golf apparel for Women and thenew X Series performance collection for Men.

Both brands were adversely affected by a core Golf distributionchannel that remained soft during the fourth quarter of fiscal 2005.The Company has, however, received favorable response to its Spring2006 product offering with its new technical Ashworth WeatherSystems(R) ("AWS") performance line and Callaway Golf apparel X Seriesline, and believes its current product offering is now more in linewith the direction of the market.

The Company recently signed a contract with the United States GolfAssociation ("USGA") to serve as the lead apparel vendor for the U.S.Open for the 2006 through 2009 seasons. This achievement represents anunprecedented second term agreement with the USGA following theinitial four year term in which Ashworth captured lead apparel vendorstatus for the U.S. Open in the years 2001-2004. For the 2005 U.S.Open at Pinehurst Resort, Ashworth and the Pinehurst Resort teamfielded the largest merchandise pavilion in the 105 year history ofthe U.S. Open at 38,000 square feet.

Retail

While Retail sales declined 7.2% in the quarter as compared to ayear ago the Company's new merchandising strategy for the Retaildistribution channel resulted in improved performance in the fourthquarter of fiscal 2005 versus the third quarter of 2005. A shift inassortments to more key items and less fashion merchandise hasprovided a more balanced mix on the selling floor and customers havereacted favorably. The Company expects to expand the key item strategyin fiscal 2006.

Corporate

The Corporate distribution channel experienced improvedperformance in the fourth quarter with a 22.4% increase in revenues.The Callaway Golf apparel line has been strong and the Corporatemarket has reacted positively to this well recognized consumer brand.The Company's strategy is to continue to focus and grow the Corporatedistribution channel for fiscal 2006 as it offers two high qualityapparel brands and a full range of headwear from The Game brand. Forfiscal 2006, the Company has added Callaway Golf apparel for Women andthe technical Ashworth AWS Collection to its Corporate distributionchannel product offering. The Company also enjoyed better thanexpected results with an expanded offering of Callaway Golf hardgoods, balls and accessories.

Collegiate/Racing (The Game/Kudzu)

In the fourth quarter of fiscal 2005, revenues from The Game andKudzu products increased by 18.9% over the fourth quarter of fiscal2004. The increase was primarily due to sales of The Game product inthe Collegiate channel. The result for the full year was an increaseof 176.4% primarily due to the prior year only including four monthsof revenues from Gekko, which was acquired on July 7, 2004.

Ashworth UK, Ltd.

Revenues at Ashworth Europe continue to grow and increased 12.2%to $6.1 million for the quarter and 22.5% to $23.4 million for fiscalyear 2005 as compared to the same periods in the prior year. Theincrease was primarily driven by growth in the Ashworth brand.

Additional Board Members:

The Company also announced that two new directors, John W.Richardson and Detlef Adler, have been elected to the Board ofDirectors. The Corporate Governance and Nominating Committee iscontinuing the interviewing process in an effort to add one or twoadditional outside directors in the coming months.

Retention of Financial Advisor

The Company has retained Houlihan, Lokey, Howard, & Zukin("Houlihan Lokey"), an international investment bank, to advise theCompany in identifying and evaluating strategic alternatives andoptions. Given the Company's growth in its Ashworth and Callaway Golfapparel brands and the development of its multi-channel businessmodel, the Company believes it is well positioned to increaseshareholder value despite general softness in the golf industry.Management also believes the Company's current stock price does notreflect the true value of the Company and its prospects. With theassistance of Houlihan Lokey, the Company will assess its position inthe market and evaluate a wide range of strategies and alternatives toincrease future shareholder value. No assurance can be given, however,that any transaction will be entered into or consummated.

Ashworth, Inc. is a designer of men's and women's golf-inspiredlifestyle sportswear distributed domestically and internationally ingolf pro shops, resorts, upscale department and specialty stores andto corporate customers. Ashworth products include three main brandextensions. Ashworth Collection(TM) is a range of upscale sportsweardesigned to be worn on and off course. Ashworth Authentics(TM)showcases popular items from the Ashworth line. Ashworth WeatherSystems(R) utilizes technology to create a balance between fashion andfunction in a variety of climatic conditions. Callaway Golf is atrademark of Callaway Golf Company. Ashworth, Inc., 2765 Loker AvenueWest, Carlsbad, CA 92008 is an Official Licensee of Callaway GolfCompany.

In October 2004, Ashworth, Inc. acquired Gekko Brands, LLC("Gekko"), a leading designer, producer and distributor of headwearand apparel under The Game(R) and Kudzu(R) brands. This strategicacquisition provides opportunity for additional growth in three new,quality channels of distribution for the Ashworth(R) and Callaway Golfapparel brands as well as further growth from The Game and Kudzubrands' sales into the Company's three traditional distributionchannels. The Game brand products are marketed primarily underlicenses to over 1,000 colleges and universities, as well as to thePGA TOUR, resorts, entertainment complexes and sporting goods dealersthat serve the high school and college markets. The Game brand is oneof the leading headwear brands in the Collegiate distribution channel.The Kudzu brand products are sold into the NASCAR/racing markets andthrough outdoor sports distribution channels, including fishing andhunting.

To learn more, please visit our Web site at www.ashworthinc.com.

This press release contains forward-looking statements related tothe Company's market position, finances, operating results, marketingplans and strategies. Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as ofthe date hereof. These statements involve risks and uncertainties thatcould cause actual results to differ materially from those projected.These risks include the timely development and acceptance of newproducts, as well as strategic alliances, the integration of theCompany's recent acquisition, the impact of competitive products andpricing, the success of the Callaway Golf apparel product line, thepreliminary nature of bookings information, the ongoing risk of excessor obsolete inventory, potential inadequacy of booked reserves, thesuccessful operation of the new distribution facility in Oceanside,CA, and other risks described in Ashworth, Inc.'s SEC reports,including the report on Form 10-K for the year ended October 31, 2004and Form 10-Q's filed thereafter. The Company undertakes no obligationto publicly release the results of any revision of the forward-lookingstatements.
ASHWORTH, INC.
Consolidated Statements of Operations
Fourth Quarter and Twelve Months ended October 31, 2005 and 2004


(Unaudited) Summary of Results
of Operations
2005 2004
------------- -------------
FOURTH QUARTER
------------------------------------------
Net Revenue $55,304,000 $48,265,000
Cost of Sales 36,114,000 28,162,000
------------- -------------
Gross Profit 19,190,000 20,103,000
Selling, General and Administrative
Expenses 22,182,000 16,560,000
------------- -------------
Income (Loss) from Operations (2,992,000) 3,543,000
Other Income (Expense):
Interest Income 13,000 15,000
Interest Expense (639,000) (505,000)
Other Expense, net (190,000) 110,000
------------- -------------
Total Other Expense, net (816,000) (380,000)
------------- -------------
Income (Loss) Before Provision for Income
Taxes (3,808,000) 3,163,000
Provision for Income Taxes 1,568,000 (1,265,000)
------------- -------------
Net Income (Loss) ($2,240,000) $1,898,000
============= =============

Income (Loss) Per Share - BASIC ($0.16) $0.14
Weighted Average Common Shares Outstanding 14,020,000 13,513,000
============= =============

Income (Loss) Per Share - DILUTED ($0.16) $0.14
Adjusted Weighted Average Shares and
Assumed Conversions 14,020,000 13,826,000
============= =============


TWELVE MONTHS
------------------------------------------
Net Revenue $204,788,000 $173,102,000
Cost of Sales 127,875,000 100,971,000
------------- -------------
Gross Profit 76,913,000 72,131,000
Selling, General and Administrative
Expenses 75,441,000 55,613,000
------------- -------------
Income from Operations 1,472,000 16,518,000
Other Income (Expense):
Interest Income 62,000 60,000
Interest Expense (2,372,000) (1,353,000)
Other Expense, net (452,000) (1,554,000)
------------- -------------
Total Other Expense, net (2,762,000) (2,847,000)
------------- -------------
Income Before Provision for Income Taxes (1,290,000) 13,671,000
Provision for Income Taxes 561,000 (5,469,000)
------------- -------------
Net Income ($729,000) $8,202,000
============= =============

Income Per Share - BASIC ($0.05) $0.61
Weighted Average Common Shares Outstanding 13,872,000 13,401,000
============= =============

Income Per Share - DILUTED ($0.05) $0.60
Adjusted Weighted Average Shares and
Assumed Conversions 13,872,000 13,728,000
============= =============


ASHWORTH, INC.
Condensed Consolidated Balance Sheets
As of October 31, 2005 and 2004
(Unaudited)

October 31, October 31,
ASSETS 2005 2004
----------------------------------------- -------------- -------------

CURRENT ASSETS
Cash and Cash Equivalents $3,839,000 $5,541,000
Accounts Receivable-Trade, net 37,306,000 39,264,000
Inventories, net 46,126,000 49,249,000
Other Current Assets 14,565,000 6,766,000
-------------- -------------
Total Current Assets 101,836,000 100,820,000

Property and Equipment, net 38,082,000 34,531,000
Intangible Assets, net 24,436,000 23,668,000
Other Assets, net 238,000 467,000
-------------- -------------
Total Assets $164,592,000 $159,486,000
============== =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------

CURRENT LIABILITIES
Line of Credit $12,000,000 $2,500,000
Current Portion of Long-Term Debt 4,449,000 4,502,000
Accounts Payable - Trade 11,024,000 13,959,000
Other Current Liabilities 9,411,000 8,101,000
-------------- -------------
Total Current Liabilities 36,884,000 29,062,000

Long-Term Debt 22,737,000 27,186,000
Other Long-Term Liabilities 2,409,000 2,022,000
Stockholders' Equity 102,562,000 101,216,000
-------------- -------------
Total Liabilities and Stockholders'
Equity $164,592,000 $159,486,000
============== =============

This earnings release includes information presented on anadjusted non-GAAP basis. These adjusted non-GAAP financial measuresare considered "non-GAAP" financial measures within the meaning of SECRegulation G. The Company believes that this presentation of adjustednon-GAAP results provides useful information to both management andinvestors to better understand the impact of the charge related to thesettlement of the class action lawsuit booked in the third quarter offiscal 2004 and the gain on sale of the Company's former distributionfacility in Carlsbad, California booked in the second quarter offiscal 2004. The presentation of this additional information shouldnot be considered in isolation or as a substitute for results preparedin accordance with generally accepted accounting principles. Thereconciliations set forth below are provided in accordance withRegulation G and reconcile the adjusted non-GAAP financial measurewith the most directly comparable GAAP-based financial measure.
ASHWORTH, INC.
Pro Forma Consolidated Statements of Income
Twelve Months ended October 31, 2005 and 2004
(Unaudited)

Twelve Months
Ended Twelve Months Ended
10/31/05 10/31/04
------------- -----------------------------------------
Elimination
of Gain on
Sale of
Former
Distribution
Center
and the Class
Action
As As Settlement Pro Forma
Reported Reported Charge Results
------------- -------------------------- --------------
Net Revenue $204,788,000 $173,102,000 - $173,102,000
Cost of Sales 127,875,000 100,971,000 - 100,971,000
------------- ------------- ------------ -------------
Gross Profit 76,913,000 72,131,000 - 72,131,000
Selling,
General and
Admini-
strative
Expenses 75,441,000 55,613,000 1,589,000 57,202,000
------------- ------------- ------------ -------------
Income from
Operations 1,472,000 16,518,000 (1,589,000) 14,929,000
Other Income
(Expense):
Interest
Income 62,000 60,000 - 60,000
Interest
Expense (2,372,000) (1,353,000) - (1,353,000)
Other
Expense,
net (452,000) (1,554,000) 3,000,000 1,446,000
------------- ------------- ------------ -------------
Total Other
Expense,
net (2,762,000) (2,847,000) 3,000,000 153,000
Income Before
Provision for
Income Taxes (1,290,000) 13,671,000 1,411,000 15,082,000
Provision for
Income Taxes 561,000 (5,469,000) (564,000) (6,033,000)
------------- ------------- ------------ -------------
Net Income ($729,000) $8,202,000 $847,000 $9,049,000
============= ============= ============ =============

Income Per
Share - BASIC ($0.05) $0.61 $0.06 $0.67
Weighted
Average
Common
Shares
Outstanding 13,872,000 13,401,000 13,401,000 13,401,000
============= ============= ============ =============

Income Per
Share -
DILUTED ($0.05) $0.60 $0.06 $0.66
Adjusted
Weighted
Average
Shares
and Assumed
Conversions 13,872,000 13,728,000 13,728,000 13,728,000
============= ============= ============ =============