Callaway Golf Lowers Guidance for the Year

Callaway Golf Co. said its preliminary financial results show its second-quarter per share profit fell sharply on weaker sales, prompting the company to lower its guidance for the rest of the year.


Net sales in the second quarter are estimated to be $302 million, a decrease of 17% as compared to sales of $366 million for the second quarter of 2008. Changes in foreign currency exchange rates adversely affected net sales by approximately $19 million. On a currency neutral basis, estimated net sales would have been $321 million, a decrease of 12% for the quarter.


Gross margins are estimated to be 36% of net sales, compared to 47% of net sales in the year-ago period. Operating expenses are estimated to be $100 million for Q2, compared to $111 million in Q2 2008.  Earnings per diluted share are estimated to be approximately 10 cents, down from 58 cents for the second quarter of 2008.


Analysts on average expected the company to earn 12 cents per share on revenue of $296.6 million for the quarter.


The company currently estimates that sales will be down approximately 15% to 17% for the year due to these conditions, as well as an anticipated further contraction in retail inventory levels as the year progresses.   Callaway also estimated that full year gross margins will be in the range of 38% to 40%, as compared to the previous estimate of 40% to 42%, and that this decline will be partially offset by improvements in operating expenses.

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Callaway Golf Lowers Guidance for the Year

Callaway Golf Co. said its preliminary financial results show its second-quarter per share profit fell sharply on weaker sales, prompting the company to lower its guidance for the rest of the year.

Net sales in the second quarter are estimated to be $302 million, a decrease of 17% as compared to sales of $366 million for the second quarter of 2008. Changes in foreign currency exchange rates adversely affected net sales by approximately $19 million. On a currency neutral basis (i.e. translating the company’s second quarter 2009 net sales at second quarter 2008 exchange rates), estimated net sales would have been $321 million, a decrease of 12%.

Gross profit is estimated to be $110 million, or 36% of net sales, compared to gross profit of $171 million, or 47%, a year ago. Operating expenses for the quarter are estimated to be $100 million, compared to $111 million for the second quarter of 2008.

Earnings per diluted share are estimated to be approximately 10 cents (on 66.8 million shares), down from 58 cents (on 63.9 million shares) for the second quarter of 2008. The latest second quarterincludes after-tax charges of approximately 2 cents per share related to the company’s gross margin improvement initiatives while Q208 included charges of 5 cents per share for such initiatives. Dilution related to the preferred stock offering adversely affected earnings for the second quarter of 2009 by approximately 1 cent per share.

Analysts on average expected the company to earn 12 cents per share on revenue of $296.6 million for the quarter.

“Consumer spending is recovering more slowly than we had anticipated and market conditions remained soft in the second quarter of 2009 in both the United States and internationally,” said George Fellows, president and CEO of Callaway Golf. “Despite this challenging environment, we were able to outperform the market and gain market share in almost all categories, which is a testament to the strength of our brands and our products. We also reduced our operating expenses in the second quarter by approximately 10% and we raised $140 million through a preferred stock offering,” added Mr. Fellows. “The additional capital allowed us to remain in compliance with our credit facility and will provide us with the operational and financial flexibility to manage our business through 2010.”

Callaway says it will release its complete financial results on July 29.

OUTLOOK

The company also reported that macroeconomic factors and an aggressive promotional environment in many of the company’s key markets will continue to have a negative impact on the company’s sales and gross margins for the remainder of 2009 and the company therefore no longer expects that earnings for the second half of the year will be higher than last year. The company currently estimates that sales will be down approximately 15% to 17% for the year due to these conditions, as well as an anticipated further contraction in retail inventory levels as the year progresses.

Callaway also estimated that full year gross margins will be in the range of 38% to 40%, as compared to the previous estimate of 40% to 42%, and that this decline will be partially offset by improvements in operating expenses. The company currently estimates that full year operating expenses will be approximately $370 to $380 million, as compared to its prior estimate of $375 to $390 million, and as compared to $403 million in 2008. This estimate includes increased expenses in 2009 resulting from additional investments in the company’s business, including the Company’s uPro acquisition, costs related to the previously announced reduction in force, and international expansion. Dilution from the preferred equity offering is estimated to be 9 cents for the year.

“While we are disappointed with the pace of the economic recovery, we believe that the current conditions are temporary and we remain optimistic about the company’s prospects and the golf industry over the long-term,” said Fellows. “Underlying our optimism is the fact that rounds played in the United States are up for the year reflecting consumer interest in the golf category. We also continue to gain market share, reduce operating expenses, and realize savings from our gross margin initiatives, and we have a strong balance sheet and ample liquidity. These factors, together with the strength of our brand and expansive global presence will allow us to take advantage of opportunities as the economy and golf industry continue to recover.”

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Thomas J. Ryan

Thomas J. Ryan Senior Business Editor | SGB Media tryan@sgbonline.com | 917.375.4699

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