Callaway Golf Co. reduced its loss in the third quarter to $22.9 million, or 32 cents a share, from $89.2 million, or $1.19, a year ago. Revenues grew 38 percent to $178.2 million from $147.9 million.
Callaway said its results include sales growth as well as significant improvements in gross margins, operating expenses, and earnings for the third quarter and year to date, both on a GAAP and non-GAAP basis. These financial results reflect the continued success of the company's turnaround plan, including continued improvement in the development of more exciting and performance-oriented products, brand momentum, operating efficiencies, and cost management.
The company was able to grow sales despite adverse changes in foreign currency rates and the sale in 2012 of the Top-Flite and Ben Hogan Brands and the transition to a licensing arrangement for apparel and footwear in North America. The sale of these brands and licensing arrangements negatively impacted 2013 sales by approximately $53 million for the first nine months, and by approximately $9 million for the third quarter, compared to the same periods in 2012. In addition, changes in foreign currency rates negatively affected 2013 net sales by approximately $32 million for the first nine months, and by approximately $14 million for the third quarter, as compared to the same periods in 2012. On a constant currency basis, the company's current business, which excludes the sold or licensed brands and businesses, achieved 13 percent sales growth for the first nine months of 2013, and 38 percent sales growth for the third quarter of 2013, compared to the same periods in 2012.
In addition to sales growth, the company's 2013 financial results also benefitted from increased operating efficiencies, and the continued success of the company's cost reduction initiatives, including a decrease in charges related to these initiatives in 2013. As a result, the company reported significant improvements in earnings with non-GAAP diluted earnings/loss per share improving by $0.32 and $0.60, respectively, for the third quarter and first nine months of 2013 as compared to the same periods in 2012, and with GAAP earnings per share increasing even more.
GAAP results
For the third quarter of 2013, the Company reported the following GAAP results:
Dollars in millions except per share amounts | 2013 | % of Sales | 2012 | % of Sales | Improvement / (Decline) |
Net Sales | $178 | – | $148 | – | $30 |
Gross Profit | $59 | 33% | $4 | 3% | $55 |
Operating Expenses | $76 | 43% | $87 | 59% | $11 |
Operating Loss | ($17) | (10%) | ($83) | (56%) | $66 |
Net Loss | ($21) | (12%) | ($87) | (59%) | $66 |
Diluted loss per share | ($0.32) | – | ($1.33) | – | $1.01 |
For the first nine months of 2013, the Company reported the following GAAP results:
Dollars in millions except per share amounts | 2013 | % of Sales | 2012 | % of Sales | Improvement / (Decline) |
Net Sales | $716 | – | $714 | – | $2 |
Gross Profit | $286 | 40% | $239 | 33% | $47 |
Operating Expenses | $251 | 35% | $284 | 40% | $33 |
Operating Income/Loss | $35 | 5% | ($45) | (6%) | $80 |
Net Income/Loss | $31 | 4% | ($52) | (7%) | $83 |
Diluted earnings/loss per share | $0.36 | – | ($0.91) | – | $1.27 |
NON-GAAP fINANCIAL RESULTS.
In addition to the Company's results prepared in accordance with GAAP, the Company has also provided additional information concerning its results on a non-GAAP basis. The manner in which the non-GAAP information is derived is discussed in more detail toward the end of this release and the Company has provided in the tables to this release a reconciliation of this non-GAAP information to the most directly comparable GAAP information.
For the third quarter of 2013, the Company reported the following non-GAAP results:
Dollars in millions except per share amounts | 2013 | % of Sales | 2012 | % of Sales | Improvement / (Decline) |
Net Sales | $178 | – | $148 | – | $30 |
Gross Profit | $60 | 34% | $31 | 21% | $29 |
Operating Expenses | $75 | 42% | $79 | 53% | $4 |
Operating Loss | ($15) | (9%) | ($48) | (32%) | $33 |
Net Loss | ($11) | (6%) | ($31) | (21%) | $20 |
Diluted loss per share | ($0.18) | – | ($0.50) | – | $0.32 |
For the first nine months of 2013, the Company reported the following non-GAAP results:
Dollars in millions except per share amounts | 2013 | % of Sales | 2012 | % of Sales | Improvement / (Decline) |
Net Sales | $716 | – | $714 | – | $2 |
Gross Profit | $293 | 41% | $267 | 37% | $26 |
Operating Expenses | $248 | 35% | $279 | 39% | $31 |
Operating Income/Loss | $45 | 6% | ($12) | (2%) | $57 |
Net Income/Loss | $28 | 4% | ($10) | (1%) | $38 |
Diluted earnings/loss per share | $0.33 | – | ($0.27) | – | $0.60 |
“We are pleased with our results for the third quarter and first nine months of the year,” commented Chip Brewer, President and Chief Executive Officer. “Market conditions during the third quarter were better than we had anticipated as we entered the quarter, due in part to improvements in weather and rounds played in both Europe and the Americas. These market conditions, along with continued gains in market share in our major markets and the realization of the benefits from the many actions we have taken over the past year to improve our operations and reduce our costs, have resulted in an increase in sales and operating income. On a constant currency, continuing business basis for the third quarter and first nine months of 2013, sales increased 38 percent and 13 percent, respectively. Likewise, non-GAAP operating income for the third quarter and first nine months of the year increased approximately $33 million and $57 million, respectively, compared to the same periods in 2012. Moreover, our inventory levels, both internally and at retail, are in good shape, positioning us well for the balance of this year and the start of the 2014 golf season.”
“While we are pleased with our first nine months results, which provide evidence that our turnaround is working, we are fully aware that we have more work to do to return to acceptable levels of performance,” continued Mr. Brewer. “As I mentioned when I started with Callaway, successful turnarounds take time and we did not expect to complete everything in only one year. With that said, our turnaround is proceeding at or above our original expectations, particularly given the headwinds we experienced this year from unfavorable changes in foreign currency rates, adverse weather conditions, a very late start to the 2013 golf season, and higher than normal promotional activity in both North America and Europe. I remain optimistic about the opportunities that lie ahead for Callaway and look forward to reporting to you on our continued progress.”
Business Outlook
Due to better than expected third quarter performance, the company is increasing its 2013 full year financial guidance as follows:
- Net sales for the full year 2013 are currently estimated to be approximately $836 million, compared to previous guidance of $810-$820 million. Net sales for full year 2012 were $834 million, which included sales of $60 million related to the brands and products that in 2012 were sold or transitioned to a third party model. Excluding sales from the sold or transitioned businesses, the company estimates that net sales from its current business on a constant currency basis will increase by approximately 13 percent compared to 2012.
- For the full year 2013, the company estimates non-GAAP pre-tax income of $2 million – $7 million, which based upon an assumed tax rate of 38.5 percent equates to an estimated non-GAAP net income within a range of $2 million to $4 million and non-GAAP diluted earnings/loss per share of ($0.03) to $0.01, including the impact of dividends paid on the company's outstanding convertible preferred stock. The company's prior guidance was for a non-GAAP pre-tax loss of $9 million to breakeven, which equated to a non-GAAP net loss of $6 million to breakeven, and a non-GAAP diluted loss per share range of ($0.12) to ($0.04). For the full year 2012, the company's non-GAAP loss was $43 million with a non-GAAP diluted loss per share of ($0.77).*
Callaway Golf Company | ||||||
Statements of Operations | ||||||
(In thousands, except per share data) | ||||||
(Unaudited) | ||||||
Quarter Ended | ||||||
September 30, | ||||||
2013 | 2012 | |||||
Net sales | $ 178,229 | $ 147,906 | ||||
Cost of sales | 118,820 | 144,106 | ||||
Gross profit | 59,409 | 3,800 | ||||
Operating expenses: | ||||||
Selling | 49,871 | 60,273 | ||||
General and administrative | 18,870 | 18,238 | ||||
Research and development | 7,689 | 7,978 | ||||
Total operating expenses | 76,430 | 86,489 | ||||
Loss from operations | (17,021) | (82,689) | ||||
Other expense, net | (3,095) | (3,359) | ||||
Loss before income taxes | (20,116) | (86,048) | ||||
Income tax provision | 1,037 | 750 | ||||
Net loss | (21,153) | (86,798) | ||||
Dividends on convertible preferred stock | 1,766 | 2,414 | ||||
Net loss allocable to common shareholders | $ (22,919) | $ (89,212) | ||||
