Callaway Golf Posts $18.2MM Q4 Loss, Currency-Neutral Sales Increase 3%

Gross profit of $58 million (31% of net sales) compared to gross profit of $60 million (35% of net sales) in the fourth quarter of 2008. Operating expenses of $87 million (47% of net sales), a decrease of 2% compared to $89 million (52% of net sales) for the same period in 2008.

A pro forma loss of 27 cents per share (on 63.5 million common shares outstanding), compared to a pro forma loss of $0.24 per share (on 62.7 million common shares outstanding) in 2008.  The pro forma loss per share for the fourth quarter of 2009 excludes a charge of 2 cents per share associated with the company's gross margin improvement initiatives.  The loss per share for the fourth quarter of 2008 excludes a non-cash gain of 22 cents per share associated with the reversal of the company's previous energy derivative valuation account and a charge of 3 cents per share for the gross margin improvement initiatives.  Including the gross margin initiative charges and energy derivative gain, the company's reported fourth quarter results were a loss of 29 cents per share for 2009 and a loss of 5 cents per share for 2008.

For the full year, the company reported net sales of $951 million, a decrease of 15% compared to $1.1 billion for the same period last year. On a currency neutral basis, net sales would have been $987 million, a decrease of 12% compared to 2008.

Gross profit of $344 million (36% of net sales), compared to $487 million (44% of net sales) for 2008, reflecting the unusually heavy discounting in the marketplace as a result of the economic environment.

Operating expenses of $374 million (39% of net sales), a decrease of 7% compared to $403 million (36% of net sales) for 2008.

A pro forma loss per share of $0.27 (on 63.2 million common shares outstanding) compared to pro forma fully diluted earnings per share of 94 cents a share (on 63.8 million common shares outstanding) for 2008.  The pro forma loss per share for 2009 excludes 6 cents per share associated with the company's gross margin improvement initiatives.  Pro forma fully diluted earnings per share for 2008 excludes a gain of 22 cents associated with the reversal of the energy derivative valuation account and charges of 12 cents per share for the gross margin improvement initiatives.  Including the gross margin initiative charges and energy derivative gain, the company's reported full year results were a loss of 33 cents per share for 2009 and earnings of $1.04 per share for 2008.

“The economic and market conditions in 2009 were without a doubt the most challenging in recent history,” commented George Fellows, president and chief executive officer.  “The actions we took in 2009 to manage those difficult conditions not only allowed us to weather 2009 but they also put us in a good position to take advantage of what we expect will be improving economic and market conditions in 2010.”

Added Fellows, “Our balanced approach to managing expenses while at the same time investing in targeted growth initiatives allowed us both to reduce our operating expenses in 2009 and at the same time prepare for new market expansion, including the India launch earlier this month. Improved processes resulting from our gross margin initiatives have also allowed us to reduce our inventory levels to their lowest year end levels for the past five years and finish 2009 with inventory as a percent of net sales of 23%, despite declining sales in 2009. All of these actions and others should benefit us in 2010.”

“We are cautiously optimistic that the economy and the golf industry will begin to recover in 2010,” continued Fellows. “Factors contributing to our optimistic outlook include positive customer and media feedback on our 2010 product line, conservative inventory levels at retail, improving economic and foreign currency trends, and an anticipated decrease in discounting in the marketplace.  While it will take more than 2010 for the golf industry to fully recover, we believe this year will be a good step toward that full recovery.”  

Business Outlook

The company estimates sales in 2010 will improve to a range of $990 million to $1.05 billion due to improved economic and market conditions in addition to favorable foreign currency exchange rates compared to 2009.  Gross margins for the year are estimated to improve to a range of approximately 42% to 44%, due to a strong product offering and anticipated lower discounting activity at retail.  Operating expenses for the year are estimated to be approximately $375 – $405 million compared to $374 million in 2009.  This estimate includes increased expenses associated with re-instatement of several employee benefits suspended during 2009 and additional expenses associated with new market expansion, such as India, as well as other growth initiatives.  The company estimates full year pro forma earnings per share of $0.25 to $0.35, which includes a reduction of approximately $0.16 per share related to the company's preferred stock, and which excludes after tax charges of approximately $0.10 per share associated with the company's global operations strategy targeted at improved gross margins.