fnews.yahoo.com
Cutter & Buck: Bucking the Golf Slump
You may not know it from the way most golf stocks have performed lately, but the sport of golf is in a major upswing. Aging
Baby Boomers are hitting the links in record numbers, yet many equipment makers are struggling. It is the apparel stocks that
are thriving in this golf boom. Cutter & Buck (Nasdaq:CBUK - news) has averaged 73% growth in sales over the past three
years and triple digit profit growth. Analysts are projecting a 30%+ growth rate for earnings going forward. Since we first
profiled it about two years ago, the stock is up 140%.
Cutter & Buck designs, sources and markets upscale men's and women's sportswear. The clothes are primarily distributed
through golf pro shops and resorts (where profit margins are huge), as well as high-end specialty stores. Cutter & Buck also
targets corporations with promotional clothing such as embroidered shirts, so their strong presence in pro shops and specialty
stores puts their brand in front of executives who are potential corporate clients.
Part of the reason apparel stocks might be holding up better than other golf-related stocks is there are some tangential trends
that give Cutter & Buck a multi-dimensional business model. The sportswear can be worn not only for golf or tennis, but to the
office as well. Cutter & Buck's high quality and style are ideally suited for office casual wear, a trend that is sweeping the
nation and should continue as baby boomers take over the board room.
So while the financial turmoil around the globe is putting the pinch on so many companies these days, business is booming at
Cutter & Buck. Revenues topped $70 million last year compared to $13.4 million in 1995. In the company's latest results, the
first quarter of its fiscal year 1999, sales were up 44% and net profits soared 67%. Margins are rising nicely thanks to
tightly-controlled distribution through golf pro shops and other high-end retailers, where margins are fattest. With a
fast-growing company like this, investors have to careful that the best days aren't already behind it. But for Cutter & Buck,
there appears to be plenty of room for further growth since they have less than 30% penetration of the pro shops. The
company is getting larger orders from existing accounts as well as signing up new customers among the 13,000 golf pro shops
in the U.S.
Last month, the company also announced plans to open a flagship store in Seattle this Fall. The 3,400 square foot space will
be located in Pacific Place, a glitzy new shopping center in downtown Seattle.
Cutter & Buck's stock price has retreated along with the rest of the market in recent months, slipping from a July peak of $32
to as low as $20 this month. At its current price of $24.50, the stock carries a P/E of 21.7 using trailing 12-month earnings.
Using the consensus estimate for this year (FY99 ending in April), Cutter & Buck has a forward P/E of 18, which is well
below the 30% expected growth rate. The stock is 15% management-owned. With a market capitalization of $135 million and
Wall Street coverage expanding quickly (7 analysts now follow it), Cutter & Buck is attracting more widespread attention from
institutional investors...especially if they spend a little time in the pro shop. |
