Archive for April, 2012

Callaway Golf Q1 Profits Surge Despite Flat Sales Growth; H1 Outlook Revised Down…

April 30, 2012

Callaway Golf Co. is downwardly revising its first half guidance due to
a slow recovery as the company announced that sales in the first
quarter dipped 0.3 percent to $285 million. The revision in guidance
was also a result of the impact of the sale of Top-Flite and Ben Hogan
assets, and the expansion of the North America apparel license.
Consolidated net sales for the first quarter were $285.1 million, with
net income of $31.8 million, or 37 cents per diluted share, compared
to $285.6 million in net sales, net income of $12.8 million, or 15 cents
per diluted share. Overall sales, while flat compared to last year, were
positively impacted by an additional driver launch in Q1, positive Japan
sales comps, and strong sales of the RAZR Fit Driver and new Callaway
Premium Golf Balls. Offsetting those positive factors were lower
Irons sales, the planned timing shift of new Asia products that are
scheduled to launch in Q3 this year compared to the first quarter last
year, as well as the launch timing of Callaway’s new Odyssey Metal-X
Putter, which launched during the second quarter of 2012.
Gross margins were up 30 basis points to 43.6 percent of net sales.
Included in last year’s gross margins were pre-tax charges of $6 million
associated with Callaway’s Mexico manufacturing initiative. Excluding
those charges, 2011 gross margins were 46 percent. According
to Callaway CFO Brad Holiday, gross margins were in line with the
company’s expectations for the quarter and were adversely impacted
this year due to higher technology costs in the RAZR Fit product line,
the lower retail price on the new RAZR Black driver as compared to
the Octane driver, the planned shift in launch timing of the Asia line of
clubs to the third quarter, and closeout activity in the putter category
in anticipation of the second quarter launch of the new Metal-X line of
putters. Those adverse factors were partially offset by lower club assembly
costs associated with the company’s new manufacturing facility
located in Mexico, as well as higher gross margins on Callaway Premium
Golf Balls.
By product category, Woods sales increased 12.0 percent to $90.7
million. The increase was due to strong sales of the RAZR Fit driver, as
well as the Q1 launch of the RAZR Black line of woods compared to the
Octane line of woods that was launched during Q4 2010. Irons sales
declined 16.7 percent to $58.3 million, a result of lower sales of new
irons compared to the successful launch of the RAZR-X irons last year.
Putters sales fell 16.4 percent to $24.1 million, due to the timing of
the launch of the new Metal-X line of putters that were launched during
the second quarter rather than the first quarter last year.
Golf ball sales declined 4.6 percent to $42.5 million compared, due to
lower Top-Flite sales, offset somewhat by strong sales of Callaway golf
balls. Accessories and other sales increased 13.5 percent to $69.4 million,
due to increases in packaged club sets and apparel.
U.S. sales increased 3.0 percent to $150 million in Q1. International
sales for the quarter were $135.4 million, a decline of 3.4 percent.
The decline was said to be due to lower sales in Europe and rest of
Asia, partially offset by a 12 percent increase in Japan sales.
Despite the slow recovery, Chip Brewer, Callaway’s president and
CEO, on a conference call with analysts, pointed out several promising
developments during Q1 and fiscal year. He stated ELY has “made
good progress on some big issues such as the global cost reduction
restructuring that occurred last summer, the sale of the Top-Flite and
Ben Hogan brands, the comprehensive settlement agreement with
Acushnet, and the comprehensive licensing agreement with Perry Ellis
International, which will simplify our North American model.”

Brewer said Callaway is pleased with several recent product launches, especially the RAZR Fit Driver, and the Hex Black Tour and Chrome golf balls. He mentioned that the company is also optimistic about the recent launch of the Metal-X putters. Regarding outlook, the company provided a revised guidance for the first half of 2012. Net sales for the first half are projected
to be $560 – $575 million, compared to $559 million in 2011 and compared
to prior guidance of $610 – $630 million. Gross margins for the first half of
2012 are projected to be about 43 percent, compared to 43 percent in 2011 and compared to prior guidance of 44 percent. As part of its non-GAAP estimates, Callaway expects earnings at 20 cents to 25 cents per share, compared to 15 per share in 2011. The estimates assume shares outstanding
at 64.5 million, and include the after-tax impact of the company’s outstanding
preferred equity.