Callaway Golf Company Q2 net sales were $380.0 million, an increase of 11% compared to $341.8 million for the same period in 2006. These record sales are primarily the result of strong sales of the Fusion FT-5 and FT-i drivers and X-20 irons, as well as increases in sales of accessories and golf balls. Fully diluted earnings per share of 53 cents on 69.3 million shares outstanding, an increase of 61% compared to 33 cents on 68.6 million shares outstanding in 2006.
Fully diluted earnings per share include $0.02 of after-tax charges for gross margin improvement initiatives. The second quarter of 2006 includes after-tax charges of $0.01 for the integration of Top-Flite and $0.01 for the restructuring initiatives announced in September 2005. Excluding these charges, the Company's pro forma fully diluted earnings per share for the second quarter of 2007 would have been $0.55, an increase of 57% compared to $0.35 for the second quarter of 2006.
Gross profit for the second quarter of 2007 increased 25% to $175.1 million (or 46% of net sales) compared to $140.1 million (or 41% of net sales) for the second quarter of 2006. The increase in gross profit as a percent of sales is primarily the result of an increased mix of higher margin woods and irons products and positive results from the Company's gross margin improvement initiatives announced in November, 2006.
Operating expenses for the second quarter of 2007 were $113.0 million (or 30% of net sales) compared to $101.3 million (or 30% of net sales) in 2006. The dollar increase is primarily due to higher selling expenses associated with increased sales, the negative impact of the weaker dollar on international operating expenses, higher legal expense associated with protecting the Company's intellectual property, and increased annual incentive compensation associated with the improved financial results compared to 2006.
Highlights for the first six months include:
Net sales increased 11% to $714.6 million, a new record for the Company. Net Sales were $644.3 million for the same period in 2006. Fully diluted earnings per share increased 55% to $1.01 on 68.8 million shares outstanding, as compared to $0.65 on 69.4 million shares outstanding in 2006.
Fully diluted earnings per share include after-tax charges of $0.03 associated with the Company's gross margin improvement initiatives. Results for the first half of 2006 include after-tax charges of $0.02 for the integration of Top-Flite and $0.01 for restructuring. Excluding these charges, the Company's pro forma fully diluted earnings per share for 2007 and 2006 would have been $1.04 and $0.68 respectively, an increase of 53%.
Gross profit for 2007 was $335.8 million (or 47% of net sales) compared to $271.6 million (or 42% of net sales) for 2006. The increase in gross profit is primarily the result of an increase in mix of higher margin products as well as positive results from the Company's gross margin improvement initiatives.
Operating expenses for 2007 were $217.9 million (or 30% of net sales), compared to $196.5 million (or 30% of net sales) for 2006. The increase is primarily due to higher selling and marketing expenses associated with the increase in sales, the negative impact of a weaker dollar on international operating expenses, increased legal expense associated with protecting the Company's intellectual property, and increased annual incentive compensation associated with the improved financial results.
“With the first half of 2007 behind us, we are pleased with our progress on many fronts,” commented George Fellows, President and CEO. “Sales have increased 11% for the quarter and first half of the year, the result of strong consumer acceptance of our new products. Great technology in our Fusion line, particularly our driver products, an improved product development process, and improved ability to ship our products to market efficiently and on time are all contributing to these strong results. We have also seen U.S. revenue market share increase for the Top-Flite brand since December, 2006 driven by the successful introduction of the new D2 golf ball and a cleaner retail channel, resulting in improved profitability of this important brand.”
“We are also making great progress on our gross margin initiatives,” continued Mr. Fellows. “In fact, we are ahead of our internal targets, and are on track with the inventory reduction initiatives we announced earlier this year. Because of these results, we are increasing our full year outlook for the second time this year.”
Business Outlook
The Company estimates that its full year 2007 net sales will be in the range of $1.070 to $1.080 billion compared to the previous estimate of $1.035 to $1.055 billion. It is also estimated that the 2007 full year pro forma fully diluted earnings per share will be in the range of 78 cents to 84 cents compared to the previous estimate of 72 cents to 82 cents, both on 70 million shares. Pro forma earnings exclude charges related to the Company's gross margin improvement initiatives, currently estimated at eight cents per share for 2007, but include charges related to employee equity-based compensation under FAS 123R.
Callaway Golf Company
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended
June 30,
-----------------------
2007 2006
--------- ---------
Net sales $380,017 100% $341,815 100%
Cost of sales 204,892 54% 201,729 59%
--------- ---------
Gross profit 175,125 46% 140,086 41%
Operating expenses:
Selling 80,910 21% 77,045 23%
General and administrative 24,187 6% 18,101 5%
Research and development 7,907 2% 6,194 2%
--------- ---------
Total operating expenses 113,004 30% 101,340 30%
Income from operations 62,121 16% 38,746 11%
Other expense, net (1,891) (1,273)
--------- ---------
Income before income taxes 60,230 16% 37,473 11%
Income tax provision 23,591 14,934
--------- ---------
Net income $ 36,639 10% $ 22,539 7%
========= =========
Earnings per common share:
Basic $ 0.54 $ 0.33
Diluted $ 0.53 $ 0.33
Weighted-average shares outstanding:
Basic 67,970 67,799
Diluted 69,274 68,577
