Comping against peaking sales for the FT-i and FT-5 drivers last year proved too tall an order for Callaway in the second quarter as sales declined in the mid-singles. However, the companys continued focus on operations led to an increase where it counts – on the bottom line. The company also benefited from its expansion into international markets with one product in Japan in particular helping sales outside the U.S. account for more than 50% of total company revenues for the second quarter.
Overall Golf Club sales declined 5.1% for the quarter to $291.8 million from $307.6 million last year. Operating income for Clubs declined 8.6% to $67.2 million from $73.7 million for the year-ago quarter. Softness in Woods and Putters offset gains in Irons. Woods sales were down for the quarter against a record second quarter last year when the FT-i and the FT-5 drivers were at their peak in sales.
Sales of Irons and Wedges for the quarter were up 3% to $100 million, as the introductions of the FT i-brids and other product launches more than offset last years X-20 launch.
Putter sales for the quarter declined to $33 million versus $38 million last year with year-to-date putter sales up 1% compared to last year.
Accessory sales were $73 million dollars, an increase of 22% for the quarter driven by growth in nearly ever category and are up 23% through the first six months. Packaged sets and eyewear were called out as strong performers on a conference call with analysts.
Golf Ball sales were $74.2 million for the quarter, an increase of 2.5% compared the last year’s sales of $72.4 million. The increase was driven by strong sales of Callaway branded golf ball including several new products but in particular the strong introduction of the new HX Hot Bite model and the Callaway Tour I and IX balls.
Top-Flite was said to be performing well with nearly all of the lower margin older product cleared out. The business was also said to be “quite comfortable in the black and growing.” The Golf Ball business as a whole saw operating income jump 43.6% for the second quarter to $8.3 million over $5.8 million last year.
Turning to the companys regional breakout, U.S. sales declined to $176 million for the quarter compared to $204 million last year. International sales continued to be strong and were $190 million for the quarter, an increase of 8% compared to last year’s sales of $176 million. In constant dollars, International sales increased 3%.
Most regions experienced positive growth this year with Japan and Europe being particularly strong both in U.S. dollars and local currency. Sales to Europe increased 2.2% to $71.8 million from $70.3 million for the year-ago quarter.
Sales in Japan jumped 37.6% to $46.6 million from $33.8 million last year. In local currencies, sales in Japan jumped 22% for the quarter as the companys Legacy driver line captured a 9% share of the countrys golf market. Management also felt there was still a bit of a boost from lingering pent-up demand following the countrys conversion to R&A conforming rules regarding driver design.
The rest of Asia was the companys only region besides the U.S. to see sales decline, down 13.9% to $22.1 million from $25.6 million last year. The Rest-of-World region saw sales increase 8.0% for the quarter to $49.5 million from $45.9 million last year.
The increase in gross margin was attributed to the positive effects of the companys initiatives paired with a benefit from foreign currency exchange rates, offset by product mix.
Excluding 2008 after-tax charges of 5 cents and 2007 after-tax charges of 2 cents associated with the gross-margin initiatives, pro forma earnings per share for the quarter increased 15% to 63 cents from 55 cents last year.
ELY maintained its original full-year guidance with sales ranging at the high end of the $1.145 billion to $1.165 billion range and pro forma, fully diluted earnings per share at the lower end of the $1.08 to $1.18 range, excluding 11 cents per share for gross-margin initiatives.
Management expected sales to be down slightly in Q3, but offset by gains in the fourth quarter as a larger holiday product offering helps to boost sales for the period. The International business is expected to continue to outperform domestic growth for the remainder of the year.
