Callaway Golf Company believes that discount programs put in place to reduce inventories of their Woods at retail have helped bring that inventory to a level commensurate with their market share in the category. The company also pointed to an improving Golf Ball business that saw Callaway brand ball sales triple for the fourth quarter ended December 31 and reduced losses for the year and quarter versus Q4 last year.
Net sales for Q4, which is the first full anniversary quarter for the combined Callaway and Top-Flite businesses, dipped 1.5% to $144.4 million versus $146.6 million in the year-ago period, due primarily to declining International sales. Top-Flite sales rose 3.0% to $36 million in the quarter, while Callaway brand sales declined 2.9% in the fourth quarter.
FX rate benefits contributed just $3.5 million in upside in the quarter as International sales fell 13.1% to $58.6 million, or 40.5% of total sales, versus $67.4 million, or 46.0% of sales, in Q4 last year. Excluding Top-Flite, International sales deceased 18% for Q4.
Europe sales increased 6.2% in Q4 to $22.6 million, but sales in Japan fell 48.8% to $12.1 million, moving the region to the fourth largest region in Q4 2004 versus the number two spot in Q4 last year. ELY pointed to a product return program in Japan and the associated reserve taken against sales in the period. Other Asia declined 8.8% to $8.6 million and Other International increased 17.4% to $15.2 million in fourth quarter. For the year, Europe sales increased 16.8% to $169.5 million, while Japan sales fell 30.3% to $70.5 million. Other Asia decreased 11.4% to $51.7 million and Other International jumped 61.4% to $96.6 million.
Fourth quarter Domestic sales increased 8.4% to $85.9 million versus $79.2 million in the year-ago period. Callaway brand sales in the U.S. increased 14% in Q4.
Total sales of Clubs declined 9.7% in Q4 to $100.8 million from $111.6 million in the year-ago period, but sales of Balls jumped 24.6% to $43.6 million from $35.0 million last year. Callaway brand golf ball sales tripled to $15 million versus $5 million, due primarily to the HX Tour product. Woods sales fell 35.1% to $25.0 million, due primarily to the carryover of price reductions to net down retail inventories, and sales of Putters fell 26.3% to $43.6 million. Sales of Irons rose 3.2% to $39.3 million and Accessories sales jumped nearly 82% to $17.8 million in the period. For the year, sales of Woods declined 5.5% to $238.6 million and sales of Irons decreased 7.7% for the year. Putter sales fell nearly 30% to $100.5 million, but Golf Ball sales nearly tripled to $231.3 million and Accessories increased 76.2% to $105.1 million.
ELY posted a net loss of a net loss of $28.5 million, or 42 cents per fully diluted share, in the fourth quarter, compared to a net loss of $33.4 million, or 50 cents per share, in Q4 last year.
On a pro forma basis excluding Top-Flite integration charges, ELY would have reported a net quarterly loss of $25.3 million, or 37 cents per fully diluted share, compared with a pro forma net loss of $17 million, or 26 cents per diluted share, in Q4 last year and “analyst consensus” estimates of a net loss of 31 cents per fully diluted share.
Fourth quarter gross margins improved 360 basis points to 26.8% of sales versus 23.2% in Q4 last year, but the actually fell about 1200 basis points to roughly 28% of sales versus 40% of sales when excluding Top-Flite integration charges.
The decline in inventories at year-end was due primarily to a $24 million reduction in Callaway revenues, partially offset by the inclusion of inventory from the Frog Trader acquisition and an expanded Ben Hogan product line for 2005.
The company through off just $9 million in cash in 2005, compared to $119 million in 2003. Still, management said they will entertain more acquisitions in line with the Top-Flite deal, pointing to the positive effect the deal has had on Golf Ball operating margins. While Golf Club operating profits fell 76.6% for the year to $39.3 million and the operating loss for Clubs jumped nearly ten-fold to a loss of $29.7 million in fourth quarter, the Golf Ball operating loss shrank more than 83% for the year to $10.1 million and was reduced nearly 60% to an operating loss of $6.6 million in the 2004 fourth quarter.
