Callaway Golf Company said its three-year targets outlined earlier this year are still “quite alive and well” despite a number of bumps in the road so far. Top-Flite continues to be a drag on the overall numbers with the stabilization of that business proving to be a bit elusive. The Hogan business also cut into the Callaway gains for the period. Management said they are making progress against a number of initiatives and are also adding a number of key personnel to help move the business forward.
The companys net sales gain for the quarter came on the back of “strong growth” in the Callaway and Odyssey businesses that came across all product categories for those brands.
The decline in the Hogan business for the quarter was attributed to a lack of new products in Q2 this year compared to the new CS-3 driver, new fairway woods, and a moderately-priced line of irons introduced in Q2 last year.
The pain at Top-Flite continues to be a recurring story as higher price-point products failed to perform at “expected levels,” offsetting other golf ball models that reportedly were “performing well” at retail. Management said they were focused on “restoring the Top-Flite business” and will be taking initiatives over the balance of the year to “clear some of the slower moving inventory at retail.” They also see implementing several initiatives to stabilize the brand and set the stage for what they say is a “major re-launch” of the brand in 2007.
All of the growth in the Woods category was due to gains at Callaway, which posted 28% growth in the quarter thanks to an expanded line of Woods including the FT-3 driver, X Series of drivers and fairway woods, and the new Fusion Hybrid clubs. ELY pointed to Phil Mickelsons early season success and a positive response to the Optifit system that Callaway developed to support retailers in their custom fitting business as key reasons for success here.
The decline in the Irons category was due entirely to decreases at Ben Hogan, which had no comparable product introductions this year to anniversary the BH-5 irons launched last year. Callaway saw 3% growth in Irons on the introduction of the Fusion White Sole Model, higher second year sales of the X18 irons, and the increase in sales of the BB06 compared to comparable sales of the older BB04 model last year.
Golf Ball sales suffered from lower Top-Flite sales that was nearly offset by continued growth in Callaway branded golf balls, which grew 15% compared to last year.
Putter sales growth was attributed to the launch of the White Hot XG line of putters, as well as some shipments of two- and three-ball SRT putters compared to the White Steel line of putters in 2005.
ELY also announced a new head for the International business, Thomas Yang, who joined the company last week and a new head of Worldwide Operations, Dave Laverty, who will join them shortly. The company is in the process of opening an office in China, and will start selling there directly in early 2007.
>>> Other than the benefits in the ball manufacturing end of things, this Top-Flite deal could go down as one of the worst deals in recent memory. Trouble always seems to follow the brand
| Callaway Golf Company | |||
| Second Quarter Results | |||
| (in $ millions) | 2006 | 2005 | Total Change |
| Total Sales | $341.8 | $323.1 | +5.8% |
| U.S. Sales | $186.3 | $181.5 | +2.7% |
| Intl Sales | $155.5 | $141.7 | +9.7% |
| Woods | $86.3 | $69.6 | +24.1% |
| Irons | $106.8 | $111.7 | -4.4% |
| Putters | $37.3 | $34.0 | +9.8% |
| Golf Balls | $69.1 | $70.8 | -2.3% |
| Access., Other | $42.3 | $37.1 | +13.9% |
| GM % | 41.0% | 45.4% | -440 bps |
| Net Income | $22.5 | $18.4 | +22.5% |
| Diluted EPS | 33¢ | 27¢ | +22.2% |
| Inventories* | $232.2 | $193.4 | +20.1% |
| Accts Rec.* | $257.8 | $238.3 | +8.2% |
| * at quarter end | |||
