Description

Ashworth is the leading golf apparel company. Ashworth designs, markets, and distributes it's line of accessories through golf pro shops, resorts, department and specialty stores.

ASHW reported Q4 01 revenues of $20.3mm, and EPS of (.17). This was within the range which ASHW guided towards in November, but down from the prior year of $27mm and .08 respectively.

Reasons for the nasty decline: ASHW's domestic green grass segment (AKA: golf channel) decreased over 34% to $10.2mm in Q4. This includes ASHW's resort business. In the wake of September 11, it is easy to conclude that resort was impacted dramtically, and to a lesser extent perhaps the golf channel was as well. Further, ASHW has been impacted by a nymber of unexpected expenses/events: Bad debt reserve increased, Ryder Cup postponement, legal settlement with former distributer. Mgt indicated this total impact to be in the area of 6.5 Cents/share. Further, there was the impact of start up expenses in the Calloway Golf apparel segment; a recent win/license. This recent agreement with Calloway should allow ASHW to leverage their core competency and infrastructure significantly.

Callowy: Estimated to add only $6-8mm in revenues, and .02-.03 in EPS in 02. The real leverage will come in 03. Already, 900 unique sellers have indicated they will carry this new line (out of 4,000 ASHW sells into) in spite of the fact that the line will not be luuanched until Q2.

Financials:
ASHW has reiterated guidance of .42-48/share in '02. Revenue should come in at $125-130mm.

Book Value: $5.59
Share capitalization: $95.87.
Enterprise Value (Cap+Debt-Cash): $104.68
Estimated 02 EBITDA: $14.4mm

Why own?:
Reasonable Multiple of troughing EBITDA for a dominant player versus comps.
Dominant player by order of magnitude in a niche which seems to maintin a fervor (golf), unlike other "fads" (cigars).

Catalyst

Reasonable Valuation...(see above) which I realize is not a catalyst in and of itself, but applicable I believe for a dominant sustainable niche player.
The Calloway initiative is exciting, and further distances AHSW from any competition (Cutter & Buck..which has a broader segment; multi-spots line to ASHW's golf; which by the way is still clearly over inventoried)
Share repurchases: ASHW bought in 50m shares last Q. Management is shareholder friendly.
Take out candidate: Tiny sized bite for a larger specialty or broad line player.