FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Cutter & Buck, Inc.
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2701 First Avenue, Suite 500
Seattle, WA 98121
(206) 622-4191
http://www.CutterBuck.com

UNION CITY, CA (April 5, 1997)/FOOLWIRE/ --- Cutter & Buck released third quarter fiscal 1997 results on March 13th. The company achieved net sales and earnings for the quarter of $8.451 million and $324,000 respectively, reflecting increases of 62.2% and 58.9% compared with the third quarter of 1996. Earnings per share for the quarter was $0.06, up from $0.05 in last year's third quarter. Gross margins for the quarter increased from 35% a year ago to 41% in the quarter just ended. They think this can be improved further, but cautioned that we will not see a big jump like this one going forward, it will be small improvements over time as they realize further efficiencies in pricing, sourcing, etc. They are very pleased with their strong revenue, profit, and gross margin growth.

PROGRAMS/INITIATIVES GOING WELL. They took on a lot of new projects at the beginning of this fiscal year and they are pleased with their progress. Their warehousing is operating smoothly and they are executing nearly 60% of their embroidering needs. Both of these functions improve their order response time, their control, and their customer service. The outerwear license that they repurchased is beginning to pay dividends as they have been building strategic inventories to particularly service their golf and corporate channels. Their European sales force continues to grow their account base, which is expected to be in the neighborhood of 600 accounts at the end of their Spring bookings. As they mentioned on last quarter's conference call, they will be one of only two sportswear vendors in the logo merchandise tent at this year's British Open which will give them wide exposure to the industry leaders in European golf as well as avid golfers from around the world.

BRAND BUILDING EFFORTS PAYING OFF. For them to continue to post good numbers now just involves blocking and tackling because they certainly have got enough on their plate. They are also pleased with their progress in building Cutter & Buck to "prestigious brand" status. In a recent survey in Golf Pro magazine, they were shown to be the fastest-growing men's apparel brand in on-course pro shops which is exactly where they want to be strong. Their recent trade shows at the PGA Merchandise Show and the Magic Apparel Show were very busy and successful and right now their early bookings for the Fall 1997 season are tracking well.

CONTRACT WITH CO-FOUNDER RODOLFO WILL NOT BE RENEWED. On a different note, they wanted to briefly address issues concerning co-founder Joey Rodolfo. The company indicated that Rodolfo was a founding partner and a talented guy who was instrumental in the early success of the company. However, he is a strong individual and best-suited to working independently. Cutter & Buck's strengths have always been in its team approach, both the product as well as all of their other operating areas. They don't have a design process that is isolated from the rest of the company. In their experience that is a recipe for failure. Their VPs of sales, merchandising, production, and the other executives have all made critical contributions to making their product line one of the best in the market. The company and Rodolfo just have differing philosophies about their approach. He has been notified that his consulting agreement ending July 1st will not be renewed.

INTERNAL DESIGN EFFORTS SUCCESSFUL. They feel very strong about the growth and confidence that their four internal designers have experienced over the last two years under the guidance of Pat Nugent, their VP of Merchandise and Design, who is a graduate of two design schools herself. Most of the actual designing has been done by their internal staff for the past couple of seasons, so the company gives them a great deal of credit for its current success. They strongly feel that their product line will be better than ever going forward.

DECISION DIFFICULT FOR RODOLFO. Unfortunately this decision has been a very difficult one for Rodolfo. In what they hope is an unrelated issue, Rodolfo has questioned the company's revenue recognition policies. As mentioned in the press release, they immediately asked their audit committee composed of outside board members, as well as Ernst & Young, their outside auditors, to fully examine the issues raised. They concluded that Rodolfo's concerns are without merit. However, Rodolfo has requested further information. The company believes that this is an issue that, at this time, does not deserve further mention.

DISCUSSION OF THE SEASONAL NATURE OF C&B BUSINESS MODEL. The company reminded people of the seasonality of their business before going into a discussion of the highlights of third quarter results and a description of the key factors influencing their performance. The third quarter is usually a lower quarter for them in terms of both sales volume and profits. Their seasonality generally follows this pattern: first, their Fall season business corresponds to their first and second quarters while their Spring season business relates to the third and fourth quarters. In both their Fall and Spring season, their customers generally tend to order more heavily for delivery periods in the second and fourth quarters and less for the first and third quarters, respectively, reflecting seasonality of consumer demand and associated customer in-store-date delivery requirements. In particular, low seasonal sales in the third quarter reflect the impact of cold Winter weather on their Northern tier golf channel business. Due to the strength of their golf and resort channel, the Spring season is presently their largest which is compounded by their rapid rate of growth and the related cumulative progress in increasing their number of accounts sold and average order size per account. Overall, they are very pleased about the company's performance for the third quarter as they believe the operating accomplishments and strategic initiatives undertaken during this period have further strengthened the company's platform for long-term sales and profit growth and the long-term value of Cutter & Buck for its shareholders.

THIRD QUARTER NUMBERS. Net sales for the third quarter were $8.451 million compared to $5.21 million in the third quarter last year. This was an increase of $3.2 million and 62.2%. Gross profit was $3.489 million compared to $1.833 million for the third quarter last year, an increase of $1.656 million and 90.3%. Gross margins for the quarter were 41.3% compared to 35.2% for the third quarter last year. Operating expenses were $3.141 million compared to $1.659 million, an increase of $1.482 and 89.3%. Operating expense as a percentage of sales was 37.2% for Q3 1997 versus 31.8% in Q3 1996. Operating income was $348,000 for the third quarter 1997 versus $174,000 in the third quarter of 1996, an increase of $173,000 and in excess of 99%. Operating income as a percentage of sales was 4.1% compared with 3.4% last year. Factored commissions and net interest income was $40,000 in the third quarter versus a net interest expense of $12,000 in the third quarter last year, an increase of $52,000 on the plus side. License and royalty income for the third quarter this year was $93,000 versus $101,000 in the third quarter last year, and reflected an 8% drop. Income before taxes was $480,000 compared to $264,000, an increase of $216,000 and approximately 82%. Net income was $324,000 compared to $204,000, an increase of $120,000 and approximately 59%. Earnings per share were $0.06 compared to $0.05.

BREAKOUT OF SALES GROWTH BY CHANNEL. Their third quarter net sales growth of $3.2 million and 62.2% compared to the prior year's third quarter reflected solid growth in each of the company's primary channels of distribution as follows. In the golf channel, in the third quarter their sales wee $4.3 million compared to $2.1 million in the third quarter of fiscal 1996, an increase of $2.2 million and almost 103%. Specialty store sales in the third quarter this year were $1.212 million compared to $1.252 million in the third quarter last year, a drop of $40,000 and 3%. Note, however, that the specialty store sales are up 22% for the nine month period of 1997 compared to 1996. Corporate accounts channel sales were $1.92 million compared to $842,000, an increase of $1.079 million and 128%. Cutter & Buck Europe had sales for the quarter of approximately $300,000. In total sales have increased 62%. Increases in shipments to the golf pro shops, specialty store, and corporate channels represented 91.2% of the overall increases in sales during the first nine months of fiscal 1997 versus 1996 and were 94.7% of the total increase in sales for the third quarter.

INVESTING IN SALES PROGRAMS/FIXTURING PAYING OFF. As they have often described, underpinning their sales growth is the strategy to capitalize on the competitive strengths of Cutter & Buck's sportswear collection by investing on a larger sales force and marketing programs to build increased trade and consumer brand awareness with the objective of increasing the number of accounts sold and the average order size in each of their channels of distribution. In particular, they believe the expansion of their in-store fixturing program is continuing to contribute to their success in the marketplace.

BRAND AWARENESS BUILDING. They also believe the compatible nature of the company's distribution strategy is importantly having an overall synergistic brand building effect as sales success in any one channel is contributing to increased sales and heightened brand awareness in their other channels.

FACTORS CONTRIBUTING TO SALES GROWTH. Additional key factors contributing to the momentum of the company's sales growth are: 1) strong sales management and a highly experienced professional sales organization; 2) strong customer service and embroidery capabilities; 3) continued strong consumer acceptance of Cutter & Buck's high quality sportswear and outerwear collection and its sporting lifestyle image; 4) excellent shelf view of Cutter & Buck garments; and 5) the general trend toward casual dressing in the workplace.

SPRING BOOKING TRENDS STRONG. They continue to be encouraged by their fiscal year 1997 Spring season bookings as they are tracking very positively with their plans which call for strong increases in sales compared with the fiscal 1996 Spring season. It is important to note that the in-season orders for the golf and specialty store channels are historically with smaller accounts and tend to bring down the average order size for the entire season. In addition, they experience fallout against their initial bookings for order cancellations including credits, oversold stock, production shortages, and account management issues. Therefore, while their fiscal 1997 Spring bookings position is strong, they have additional business to close and a number of critical steps in management execution ahead of them. Notwithstanding the importance of this qualification, they are very encouraged by their Spring sales bookings progress to date.

SALES BOOKINGS FOR SPRING. The increased brand building and sales strength achieved by the company during the third quarter is also reflected by the substantial increase in the sales bookings for Cutter & Buck's Spring season fiscal 1997 versus fiscal year 1996, both in terms of account base and average order size in each of the company's principal distribution channels. First in the golf channel -- for Spring fiscal year 1997 they have bookings in excess of $13.9 million compared to $7.2 million in fiscal 1996, a 92% increase. In terms of number of accounts for fiscal year 1997 in the golf channel they have in excess of 2200 accounts compared to 1550 in Spring of last year, an increase of 42%. Their average order size in the golf channel for fiscal year 1997 is almost $6300 compared with about $4700 in fiscal year 1996, an increase of 35%. In the specialty store channel, they have bookings for the Spring 1997 season of $2,508,000 compared to $2,181,000 in fiscal 1996, an increase of 15%. The number of accounts for Spring 1997 are 386 versus 406 in fiscal year 1996, a drop of 5%.

AVERAGE ORDER SIZES FOR SPRING BOOKINGS. The average order size for the Spring 1997 season from specialty stores is approximately $6500 compared to $5400 for Spring 1996, an increase of 21%. In the corporate sales account channel, Spring 1997 bookings are almost $3.2 million compared to $1.35 million last year, an increase of 134%. The number of corporate accounts for Spring 1997 are 480 versus 222 a year ago, an increase of 116%. The average order size for the Spring 1997 season is in excess of $6600 compared to $6100 last year, an increase of 8.2%. They have had a slight drop in their international distributor business, it is at $592,000 for the Spring 1997 season compared to $890,000 in Spring 1996, down about 33%. The primary reason for this is that the company started their own direct European operation and on the plus side, for the Spring 1997 season Cutter & Buck Europe has bookings approaching $1.7 million.

SPRING BOOKINGS AHEAD OF LAST YEAR/FALL LOOKS GOOD TOO. In total the company's Spring bookings are ahead of last year by over 100%. With respect to Fall 1997 (fiscal 1998) the early trends are very positive. They are tracking in line with internal expectations and feel pleased with where they are at this particular time.

GROSS MARGINS. In the third quarter gross margins were 41.3%, an increase of 6.1% from 35.2% in the third quarter last year. The improvement in gross margins was primarily attributable to the positive impact of lower product costs attributable to economies of scale associated with their higher production volumes. Also, expanded sourcing strength enabled them to realize the benefit of high quality at competitive pricing. Third, effective production scheduling resulted in reduced expediting costs. Fourth, a reduction in the net cost of embroidering golf and corporate logos resulted from the success of the company's in-house embroidery operations. In general, the company's improved margins in the third quarter resulted from the following. In the second quarter of 1997 they had margins that were a 39%. They are realizing an increase in their standard margins of 3%. They have achieved reductions in embroidery cost variances of 0.5%, reductions in freight variances of 0.5%, and they had some other minor variances that resulted in a reduction in margins of about 1.7%. For the third quarter, they did 56% of their total embroidery requirements in house. They believe this has benefitted them greatly in achieving their margin objectives.

OPERATING EXPENSES INCREASED. Operating expenses for the quarter were up in both dollars and as a percentage of sales. Design and production expenses were $87,000 and 31.7% higher for the third quarter this year versus last year. Selling and handling expenses were 117.7% higher and an increase of a little over $1 million. G&A expenses were 71.7% higher and about $365,000 higher. In total, operating expenses increased by about 89.4% and $1.482 million.

OPERATING EXPENSE DETAILS AS A PERCENTAGE OF SALES. The primary areas for increased operating expenses were attributable to their domestic selling and customer service expense which increased 115% and $852,000. Their warehousing costs increased by about 212% or $178,000. Domestic selling and customer service costs for the third quarter this year were 18.8% of sales compared to 15.2% in last year's third quarter. Warehouse costs were 3.1% of sales this year versus 1.6% last year. G&A was at 10.3% of sales this year versus 9.7% last year. Design, production, and other costs were 5% of sales compared to 5.3% of sales last year. Overall, as a percentage of sales, operating expenses for the quarter were 37.2% compared to 31.8% in the same quarter last year.

CAUSES OF OPERATING EXPENSE INCREASES. The increases in selling, customer service, warehouse, and general and administrative expense was primarily attributable to increases in management, staffing, and facilities costs to support the company's operations. The increases in operating expense as a percentage of sales was primarily caused by the company's conversion of certain sales and warehouse costs to a fixed and semi-variable basis from a more variable basis. They believe this has enabled the company to handle increased sales volumes with improved effectiveness and efficiencies, but it does result in cost pressure during low-volume quarters such as the third quarter.

EFFECTS GOING FORWARD. Based upon anticipated higher sales volumes and the nature of their cost structure, they expect to achieve economies of scale in the fourth quarter that they believe will result in a significant reduction in operating expense as a percent of sales. The majority of the increase in selling expense was due to increased salesperson compensation, customer service, staffing costs, sales samples, travel, and sales meeting costs associated with higher sales volume and a larger sales force. In addition, certain of these costs were disproportionate to sales growth in the quarter as the company ramped its investment in customer service and sales support staff to handle larger seasonal sales quarters and anticipated increased sales volume in future periods.

CHANGES IN SALES COMPENSATION PLAN. Further contributing to the increase in sales costs was a change in the compensation program for salesmen that places greater emphasis on salaries rather than commission. This compensation plan was adopted in order to facilitate an increase in the number of salesmen who exclusively represent Cutter & Buck. It is believed that this goal was achieved, however it does result in higher sales costs as a percent of sales and lower volume quarters. It is anticipated that the compensating cost efficiencies will be achieved in the company's higher seasonal sales quarters. They are targeting a reduction in sales expense from 18.8% of sales in the third quarter to 15% or less in the fourth quarter.

INCREASED WAREHOUSING COSTS. Similar to these comments was the greater fixed cost basis associated with their in-house warehouse operations, the company's warehouse costs were higher as a percentage of sales during the third quarter. Further contributing to increased warehouse costs is the company's accelerated investment in increased inventory of its classic items, necessitating increased warehouse storage and handling costs. However, as the company operates in higher volume quarters, it is anticipated that economies of scale and increased operating leverage will be achieved. They are targeting a reduction in warehouse expense as a percentage of sales from 3.1% in the third quarter to 2.1% in the fourth quarter.

NINE MONTH OPERATING EXPENSE FIGURES SUPPORT ASSUMPTIONS. Moreover, for the nine months ended January 31, 1997, the company's total operating expense was 32.7% of sales compared to 34.1% of sales during the first nine months of fiscal year 1996. They believe this supports their expectations that the company's greater investment in fixed sales and distribution costs will result in offsetting cost savings during the company's higher seasonal volume quarters. In addition to the expected cost savings, they believe the investment in the exclusive sales force, expanded fixturing and marketing programs, and in-house distribution center will enable the company to more effectively realize its growth and profit objectives.

INCREASED FIXTURE COSTS. Other significant insights into expenses is that the company has made an increased investment in marketing and sales expense including trade advertising, the fixturing program and salesman samples. During fiscal year 1997 to-date, the company has invested an additional $910,000 in store fixtures and sent fixtures to 228 new accounts, bringing the total number of accounts with in-store fixtures to 442 from 214 at the beginning of the year, using a total of 742 fixtures. During the third and fourth quarters they plan to ship 471 fixtures to an additional 210 shops. This will result in a total of 1070 fixtures in 580 accounts. In the third quarter, the company invested an additional $512,000 in fixtures, shipping 143 new units to 72 accounts.

INCREASED ADVERTISING/MARKETING EXPENSES. The company also increased its trade advertising and sample expense resulting in an increase in total marketing expense encompassing amortization of fixtures, trade advertising, and salesman samples of 93.1%, and 87.3% in the third quarter and first nine months of fiscal year 1997 versus fiscal 1996 respectively. Given the company's rapid rate of sales growth during the quarter and year to date, they believe it is very clear that their investment in these marketing and sample programs provide highly leveraged benefit to their growth. Moreover, this clearly demonstrates the power of the strategic purpose of this investment and the desirability of expanding these programs, especially their investment in in-store fixturing.

OPERATING INCOME. As a result of all of these factors, they have seen the increase in operating income to $348,000, an increase of about 99% for the quarter. In addition, factored commissions and net interest income was approximately $40,000 in the third quarter which is a $52,000 increase over fiscal year 1996 and this is largely reflecting the benefit of their follow-on public offering which closed in November and December of 1996. License and royalty income has declined slightly. This decrease is primarily attributable to their repurchase of the Cutter & Buck outerwear license effective in May 1996 which allows them to directly design and market Cutter & Buck outerwear. Moreover, the decline reflects the economic advantages to the company in emphasizing direct distribution of its product over product and geographic market and license relationships.

Q3 NET INCOME. Third quarter net income increased by $120,000 and approximately 59% from $204,000 to $324,000 in the third quarter this year compared to the third quarter last year. Regarding Cutter & Buck Europe, on net sales of $300,000 they lost $139,000 in the third quarter of 1997. They are looking forward to much heavier seasonal shipments in the fourth quarter and the emergence of their European operation as a solid contributor to Cutter & Buck's sales and profit growth.

LIQUIDITY & CAPITAL RESOURCES. Regarding their liquidity and capital resources, the company's primary need for funds continues to be to finance their increased working capital requirements associated with sales growth primarily in support of accounts receivable and inventory, especially for their classics merchandise program. Their working capital needs have been primarily funded by collections of their accounts receivable, bank borrowings, and the sale of common stock. The principal increases of investment during the first nine months have been an increase of receivables of slightly over $1 million and an increase in inventory of about $7.9 million.

SUMMARY. They believe the company is coming off a quarter of solid progress that is building momentum for the fourth quarter Spring fiscal 1997 and beyond. They feel this has been a period of continued brand building, infrastructure development and strengthening of the company's platform and breakout position for sales and profit growth. Moreover, they believe the third quarter of fiscal 1997 resulted in a continuation of their evolution of building Cutter & Buck into a premier international sportswear brand providing opportunities for heightened sales and profit growth and enhanced long-term shareholder value.

SOUTHERN CALIFORNIA MARKET. The company was asked about the Southern California market. They responded that they feel pretty good about it. They have gone through a number of sales people down there in the golf area and they are not real happy about that, but oddly enough New York and California are just the two most difficult markets in the country to find good hard-working sales people. They have got a couple of very strong people there now, they are experienced in that market and they are doing a really good job. Fall bookings in Southern California have been very encouraging. In Northern California they have had a strong guy in place for 3-4 seasons and they are very happy with their distribution there. In the retail area, they recently segmented Southern California off as its own region and they hired a specific representative to handle both corporate and retail there, working exclusively for Cutter & Buck.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.