Callaway Golf Company had an update of good tidings for the industry last week as the company announced that it expected net sales for the 2006 fiscal year to increase 2% to approximately $1.02 billion from $998 million last year and that diluted earnings per share should grow between 74% and 84% to a range of 33 cents to 35 cents per share, compared to EPS of 19 cents per share last year.
The updated earnings estimate includes after-tax charges of eight cents for employee equity-based compensation; after-tax charges of four cents associated with the Top-Flite integration; three cents for the restructuring initiatives announced in September 2005; and two cents for the gross margin improvement initiatives announced in November 2006. Excluding these charges, pro forma fully diluted earnings per share is expected to range from 50 cents to 52 cents, growing between 32% and 37% from 38 cents per share last year.
The company attributed the growth in sales to a 9% increase in sales of its Callaway Golf and Odyssey brands. This growth was offset, though, by a 31% drop in sales of the Top-Flite and Ben Hogan brands. The company hopes to alleviate the pressure of declines at Top-Flite in the coming year with a re-launch of the brand, more focused marketing, and increased distribution.
Gross margins as a percentage of net sales for 2006 are estimated to be down 300 basis points for the year to approximately 39% of net sales from 42% last year. Excluding pre-tax charges of $6 million, gross margins were expected to be approximately 40% of sales.
The company estimates that its operating expenses for 2006 will be approximately $361 million, or 35% of sales, compared to $397 million, or 40% of sales, in 2005. On a pro forma basis, operating expenses are estimated to be approximately $349 million, or 34% of sales, in 2006 compared to $384 million, or 38% of sales, in 2005.