Callaway Golf Company said third quarter sales are expected to decline 11% to $191 million from $213 million a year ago. Changes in foreign currency exchange rates adversely impacted net sales by approximately $3 million for the quarter. It expects to report a loss of 25 cents a share versus a loss of 25 cents a year ago.

On a currency neutral basis, estimated net sales would have been $194 million, a decrease of 9% compared to the third quarter of 2008.

Gross profit is estimated to be $60 million, or 31% of net sales, as its heavy promotional period comes to an end, compared to gross profit of $80 million or 38% of net sales in the third quarter of 2008.
   
Operating expenses for the quarter are estimated to be $85 million, a 9% improvement compared to $93 million in the third quarter of 2008.

The loss per share for the third quarter of 2009 was adversely affected by approximately 4 cents per share related to the company’s preferred stock and by $0.01 per share associated with the company’s gross margin improvement initiatives. The loss per share for the third quarter of 2008 includes after-tax charges of 4 cents per share for the gross margin initiatives.

“While the global economic environment has been very challenging for our business this year, there appear to be some positive signs indicating the beginning of a recovery,” commented George Fellows, President and CEO of Callaway Golf. “In spite of these macroeconomic challenges, we have been able to successfully increase our market share and manage those key areas of our business within our control. Our gross margin initiatives have continued to over deliver cost savings compared to our plan, partially offsetting the effects of a shift to lower price points by consumers, an increased promotional environment, as well as the negative impact of a stronger dollar. We have managed operating expenses very tightly this year, balancing significant reductions in spending with investments in growth initiatives like uPlay and new markets, which together have resulted in year to date spending being down 9% compared to last year. Improvements in our supply chain have helped to mitigate the impact of the dramatic drop in sales this year with inventory as a percent of trailing twelve month sales at the end of the quarter estimated at 21.2%, in line with our target.”

As we begin to prepare for the upcoming year, we are encouraged by some positive trends of late,” continued Fellows. “These trends include:

    * Global economic conditions are improving and foreign currency exchange rates are becoming more favorable to the Company.
    * Early feedback on our 2010 new products has been very positive.
    * The International Olympic Committee recently voted to add golf as an Olympic sport beginning in 2016, which we believe will have a positive impact on the golf industry globally and in particular in emerging markets such as China, India, and Latin America as countries begin to invest in golf programs in preparation for the 2016 games.
    * We continue to realize the benefits of our preferred stock offering which has allowed us to operate our business in this difficult environment, remain in compliance with the financial covenants under our credit facility, and invest in growth initiatives without any long-term debt.”

While we believe that retailers will continue to cautiously manage their inventory for the balance of the year, we believe the factors just mentioned, along with our stronger market share base, gross margin initiatives, and disciplined expense controls implemented this year, will position us for growth and improved gross margins as the global economy and normal demand for new products recovers and allow us to generate a meaningful turnaround and return to profitability next year,” concluded Fellows.