Callaway Golf ended 2008 with a bit of a whimper as sales for the fourth quarter declined 1.8% and led to a fiscal year sales decline of 0.7%. Net income for the year and the net loss for the quarter both improved as the company benefited from a change in its energy derivative valuation account, associated with the termination of a long-term energy supply contract.
For Q4, sales declined 1.8% to $171.3 million from $174.4 million for the year-ago period. During the quarter, ELY launched new product like the FT-iQ, which previously would have debuted during in the first quarter. On a conference call with analysts, management disclosed that new products launched during Q4 accounted for approximately $40 million in net sales, compared to $10 million to $15 million for the year-ago quarter.
Sales actually increased in the U.S. for the quarter, rising 4.6% to $89.0 million from $85.1 million last year. However, the strong U.S. dollar impacted international sales, which declined 7.9% for the quarter to $82.3 million from $89.4 million last year. The effects of currency translation hampered net sales by $8.5 million for the quarter. According to management, fourth quarter international sales increased 1% on a currency-neutral basis. Europe was weak for the fourth quarter, with sales dropping 23.8% to $19.8 million from $26.0 million last year. In Japan, Callaways Legacy product had a successful year and quarter. Fourth quarter sales in the region jumped 45.5% to $33.8 million from $23.2 million. However, sales to the Rest of Asia dropped 24.1% to $13.0 million from $17.1 million last year and sales to the Rest of the World dropped 31.5% to $15.8 million.
For the full year, international net sales increased 6.9% to $563.2 million from $527.0 million. In constant dollars, international sales increased 5%. Currency translation effects boosted net sales by $11.5 million. Net sales to Europe slipped 1.1% to $191.1 million for the full year. However, Japan had a particularly strong year with sales increasing 38.6% in U.S. dollars to $166.5 million and 21% on a currency-neutral basis. China also generated strong growth, though off a small base. The Rest of Asia region, which includes China, saw sales for the year decline 7.1% to $80.0 million. Sales to the Rest of the World slid 1.4% to $125.6 million for the full year.
The Golf Ball business posted strong growth for the fourth quarter, up 11.4% to $42.0 million from $37.7 million last year. However, that growth was more than offset by heavy declines in putter sales. Putters declined 37.2% for the quarter to $12.9 million from $20.5 million last year. However, sales of Irons increased 5.3% to $48.2 million from $45.8 million last year. That gain was offset by declines in Woods, which were down 3.0% to $31.2 million, and Accessories, which were down 3.1% to $36.9 million.
On an overall basis, sales of Clubs declined 5.4% to $129.3 million from $136.7 million for the year-ago fourth quarter. The quarterly operating loss for the Clubs business widened nearly 3x to a loss of $12.2 million from a loss of $4.1 million last year. However, the Golf Balls business improved its profitability, by slimming its loss to $3.1 million from a loss of $7.7 million for the year-ago quarter.
For the full year, sales of Clubs slipped 1.9% as operating income declined 11.7% to $134.0 million from $151.8 million last year. Operating profit for Golf Balls improved to $6.9 million from $900,000 last year.
Gross margins declined 130 basis points to 35.1% of net sales for the fourth quarter from 36.4% for the year-ago fourth quarter.
Gross margins were negatively impacted throughout the year by negative pricing and mix as consumers shifted their purchases to lower priced products. Offsetting this negative trend were improvements in gross margins due to the companys growth margin initiatives and the positive impact of currency translation on gross margins.
Offsetting some of that decline was a 60 basis point decrease in SG&A expenses to 47.5% of net sales.
Management declined to give guidance for 2009, instead giving an overview of their take of the overall golf market, which they expect to be down 5% to 10%.
“The bottom line is that we would expect our reported year-over-year revenues and earnings to be down when compared to 2008, primarily due to the negative effect of currency translation,” said Brad Holiday, Callaway Golf CFO. “However, on a currency neutral basis, which we believe is a more appropriate way to judge our operational performance, we estimate our earnings will be approximately flat with 2008 levels.”
