Callaway Golf Co. reported a preliminary third quarter loss and lowered its guidance for the year because of the global financial turmoil. The golf equipment provider said that based on current information, it expects to lose 12 to 14 cents per share for the quarter, including a one-time charge of 4 cents per share. That is down from earnings of 2 cents per share a year ago, which included an identical one-time charge.


Callaway also said it expects net sales to slip to $213 million for the quarter, down from $236 million for the quarter the year before.


The significant deterioration in global economies over the last several weeks of the third quarter have finally impacted what had been a record year for Callaway Golf, commented George Fellows, president and CEO of Callaway Golf, in a statement. Both our international and U.S. businesses were softer than expected as a result of the turmoil in the global financial markets. These recessionary conditions had a significant adverse effect on retailer and consumer confidence and exacerbated the normal end of season sales slowdown.

Although we are disappointed with the effect these conditions have had on our third quarter sales, the operating expense contingency plans and share repurchases we implemented earlier this year have allowed us to increase pro forma earnings by approximately 5% for the first nine months of 2008 compared to the first nine months of 2007. Furthermore, continued Fellows, despite the impact of these macro-economic issues on our top-line, the fundamentals of our business remain strong. For example:

  • We have a strong balance sheet with no long-term debt.
  • Net working capital continues to be tightly managed. As a result of a more responsive supply chain, and despite the rapid decline in demand that occurred at the end of the quarter, our inventory as a percent of trailing twelve month sales at the end of the quarter is estimated at 19.7%, in-line with our year end target of 20.0%.
  • Operating expenses also continue to be tightly managed to mitigate inflationary pressures and protect profitability. Operating expenses are estimated to be approximately $93 million for the third quarter of 2008, flat with 2007 and less than our previous guidance.
  • Our gross margin initiatives continue to deliver targeted savings and have been able to partially offset an estimated 250 basis point decline in third quarter gross margins as a percentage of sales. This decline resulted from the effect of the economy on sales and product mix as nervous consumers trended toward lower price point products.

Looking forward, concluded Fellows, we believe our 2009 new product line-up is stronger than our record setting 2007 offering, and along with the strong business fundamentals just mentioned, we feel we are well positioned for growth when the global economy and normal demand for new products finally begin to recover. In the meantime, we will continue to manage our business in a conservative and prudent manner.

Net sales for the first nine months of 2008 are estimated to be $946 million compared to $950 million in 2007. Earnings for the first nine months of 2008 are estimated to range from $1.06 to $1.08 per share (on 64 million shares outstanding), an increase of approximately 4% compared to $1.03 (on 68.4 million shares outstanding) for the first nine months of 2007. These results include after-tax charges related to the Company’s gross margin initiatives of 9 cents a share in 2008 and 7 cents in 2007. Excluding these charges, pro forma diluted earnings per share are estimated to be $1.15 to $1.17, an increase of approximately 5% compared to pro forma diluted earnings per share of $1.10 for the first nine months of 2007.

The company’s third quarter and first nine month results in 2007 benefited from a $0.03 per share gain related to the sale of a building.

Business Outlook

Management noted that given the continued uncertainty surrounding current and future economic conditions, the company is revising its annual guidance downward. The company currently estimates that for the full year 2008 its net sales will be in the range of $1.125 to $1.145 billion and that its pro forma fully diluted earnings will exceed 2007 and will be in the range of 92 cents to $1.02 per share (or 3% to 15% growth versus 2007). The company had previously estimated that net sales would be at the higher end of the range of $1.15 to $1.17 billion and that pro forma earnings per diluted share would be at the lower end of the range of $1.08 to $1.18. Pro forma earnings exclude after-tax charges related to the gross margin improvement initiatives in the amount of approximately 11 cents per share. Additional details will be provided at the upcoming Oct. 30th earnings conference call.