Callaway Golf Co. announced preliminary financial results for the quarter ended March 31 and provided additional commentary on the company’s performance amid the COVID-19 pandemic.

“Through early March, we were pleased that our business continued to deliver strong results and was on track for record net sales for 2020, continuing our trend of delivering successive record results in each of the last three years,” commented Chip Brewer, president and CEO of Callaway Golf Co. “Notably, Japan and Korea delivered year-over-year growth in the first quarter of 2020 despite challenges from COVID-19. Additionally, our golf equipment market shares remained strong in all of our major markets. Through March, we held the #1 share position in the U.S. for total Hardgoods as well as for total Golf Clubs, and in Europe, we held the #1 position in Hardgoods through February, which is the last month for which data is available. We believe we gained share in both Europe and Asia while ceding some share in the U.S. primarily due to launch timing.”

Brewer continued, “In March, global regulatory responses implementing social distancing and shelter-in-place orders significantly slowed retail sales and created various business operations challenges worldwide which significantly affected our first-quarter financial results after a great start. Although we still delivered a profitable quarter, given the uncertain duration of the impact, the company has been focused on significantly reducing costs and enhancing liquidity to ensure we are well-positioned to navigate through a protracted downturn. Our thoughts and prayers go out to all those globally who are affected by the virus and our sincerest gratitude goes out to all those working diligently to stop the virus or care for those affected by the virus.”

Preliminary Summary of First Quarter 2020 Financial Results
The results in this section reflect preliminary expectations of financial results for the quarter ended March 31, 2020, and have been prepared in good faith on a consistent basis with prior periods. The company and its auditors have not completed their financial closing and review procedures and actual results are therefore subject to change. Additional information concerning the preparation of these preliminary estimates is set forth toward the end of this release.

In addition, the manner in which the non-GAAP EBITDAS information is derived is discussed further towards the end of this release, and the company has provided in the tables to this release a reconciliation of the non-GAAP information to the most directly comparable GAAP information.

Based on currently available information, the company estimates the following results for the quarter ended March 31, 2020:

The company expects to report consolidated net sales in the range of $438 million – $443 million for the first quarter of 2020, compared to $516 million for the same period in 2019. This decrease is attributable to the impact of COVID-19 on the company’s golf equipment business and soft goods business. Foreign currencies negatively impacted net sales by approximately $4 million in the first quarter of 2020 compared to the same period in 2019. The company expects to report first-quarter 2020 GAAP EPS in the range of $0.27 – $0.31 compared to first quarter 2019 GAAP EPS of $0.50. The company expects to report cash and cash equivalents of approximately $167 million and net debt of approximately $631 million as of March 31, 2020.

Response to COVID-19
The company previously reported that due to the COVID-19 pandemic the company was taking actions to significantly reduce costs, maximize liquidity and protect its employees. The company continues to take such actions and strengthen its operating and financial position during this prolonged disruption. This includes:

  • Achieved an almost 20 percent reduction in planned operating expenses and capital expenditures through efforts to reduce discretionary spending and infrastructure costs on a worldwide basis, including voluntary reductions in compensation by the Board of Directors, the CEO and Senior Management.
  • Implemented other programs to maximize cash and liquidity, including proactive inventory reduction programs and a suspension of the company’s open market stock repurchase program.
  • As of March 31, 2020, the company had over $250 million in cash and availability under its credit facilities. While the company believes its cash and credit facilities are adequate to sustain its business through this crisis, the company continues to consider other available sources of capital as market conditions and programs present themselves. As previously reported, during the first quarter of 2020 the company added $40 million of loan commitments and the company is in the process of amending its credit facilities to increase its flexibility to opportunistically take advantage of other available sources of capital, including capital markets and government-sponsored programs for which the company may qualify in the United States and internationally.
  • The safety and health of the company’s employees, customers and partners have remained paramount. Using guidelines promulgated by health organizations around the world, the company has implemented preventive measures to help protect its constituents, including restricting travel, visitors, and meetings and implementing work-from-home programs. A majority of the company’s employees in the United States and Europe, including its corporate offices in California, are currently working from home. The company has established a global leadership taskforce that meets on a weekly basis to develop protocols to protect its employees now and as it transitions back to normal operations, including protocols for social distancing, in-office safety precautions and reporting procedures.

Business Outlook
“Although the full impact of the COVID-19 outbreak on society, the economy, and our businesses remains unclear, we are confident that our principal businesses (golf equipment, golf apparel and accessories as well as outdoor apparel and accessories) position us well for a world of social distancing and a ‘new normal,'” commented Brewer. “The joy of being outdoors, whether hiking, camping or simply taking a walk in nature, has never been more evident and is both logically and emotionally appealing today more than ever. At the same time, we expect the sport of golf to come back quickly as it is commonly viewed as a relatively safe and healthy outdoor activity that one can enjoy while still observing social distancing guidelines. This theory is supported by high usage rates of many golf courses that are open in North America as well as the reported usage rates as markets opened up post COVID-19 outbreaks in both Korea and China. It is also supported by third party National Golf Foundation research which indicates a pent-up desire to play the game. Furthermore, while many portions of our business are currently operating on a limited basis due to various government orders, which will significantly impact our second-quarter financial results, we are starting to see some signs of recovery, particularly in the regions that were first affected by COVID-19 and are in the process of recovering.”

The company also announced that:

  • E-commerce (both in the company’s soft goods and golf equipment businesses) has been exceeding expectations globally and is partially offsetting the decline in wholesale and retail.
  • Due to the early impact from COVID-19, the company’s golf and apparel businesses in China were down significantly at the beginning of the year but both have rebounded well, exceeding the company’s expectations in April, with golf rebounding particularly strongly in-country.
  • Overall, the business is seeing core resilience across Asia, especially in Korea. As a result, the company expects sales in that region will be a strong net contributor for the full year. Even with the severe disruptions associated with COVID-19 in the first quarter, the company’s business in both Japan and Korea delivered revenue growth in the first quarter and is continuing to perform well in April.
  • Recent steps to relax social distancing regulations in Germany and the DACH region are encouraging given Jack Wolfskin’s business has a significant portion of sales in this region relative to broader Europe.
  • In the United States, the National Golf Foundation estimates that approximately half of U.S. golf courses are open currently. Trends indicate the continued opening of courses as golf is commonly viewed as a safe and healthy outdoor activity. The company is also starting to see some golf retail activity phase back in as state and county governments allow courses to open.

“As we move forward, we remain committed to maintaining our disciplined approach to managing capital and expenses in this uncertain environment, while continuing to make sure we are structured and positioned appropriately in our ‘new normal.’ The strength of our brands, geographic diversity and the strong operational steps we’ve taken to date affirms the ability of Callaway to navigate through this crisis,” concluded Brewer.

The company previously reported that due to COVID-19 the company was no longer providing financial guidance at this time. The company expects to provide a further update on its business and market conditions at its first-quarter earnings call in May.

Photo courtesy Calloway Golf