Callaway Golf continues to feel the impact of a sluggish golf industry as net sales fell 17% and profits tumbled 82.5% compared to the second quarter last year. The company attributed the drop in sales to challenging market conditions during the first half of the year, in which golf rounds for the year-to-date period were up slightly at 0.2% compared to the same period last year.
Rounds played in June were down 3.3% — the worst report since December 2008 — according to Golf Datatechs National Golf Rounds Played Report.
Callaways second quarter net sales declined to $302.2 million compared to a record $366.0 million last year. The company reported net income for the quarter of $6.9 million, or 10 cents per diluted share, compared to $37.1 million, or 58 cents per diluted share, in Q2 last year. Excluding after-tax charges for both years associated with the companys gross margin improvement initiatives, pro forma earnings per share for 2009 were 12 cents compared to 63 cents in 2008.
“The golf landscape continued to reflect the overall uncertainty of the worldwide economy and sustained its downward trajectory during the second quarter, albeit as a somewhat reduced rate,” commented George Fellows, president and CEO during a conference call with analysts. “This was not unexpected given the record pace achieved through this period a year ago. “
Woods sales for the quarter were $76.0 million as compared to $86.0 million in 2008. Year-to-date wood sales decreased 23% to $155.8 million compared to $202.5 million last year. These results were impacted mostly by the industry-wide decline in sales for the woods category, along with conservative retail inventory levels and promotional activity. At the same time, Callaway gained over three share points in the U.S. in dollar share through the first six month for this category.
Sales of Irons and Wedges for the quarter were $72.2 million compared to $100.0 million in the second quarter sales last year. YTD sales in the Irons category were $137.4 million compared to $196.5 million last year. At the same time – despite the similar factors mentioned – the company has gained over two share points in the Irons category in the U.S. on a year-to-date basis.
Golf Ball sales were $58.2 million for the quarter compared to last year sales of $74.8 million. YTD total golf ball sales declined to $105.5 million compared to $132.7 million last year, due primarily to increased promotional activity and the fact that Callaway has had no new premium products this year compared to several new competitive offerings. The companys YTD US market shares for golf balls declined 2 share points.
Putter sales for the quarter declined to $26.4 million versus $32.9 million last year, with YTD sales at $54.1 million compared to last year of $67.5 million. US market share has increased by two share points through the first half of the year. Accessory sales for the quarter decreased 5.0% to $69.4 million compared to $72.8 million last year. Through the first six months, accessory sales were $121.1 million a decrease of 9.0%, compared to 2008. The decline was partially offset by sales of new uPro GPS devices, which was launched in January 2009 by recently acquired uPlay, a Carlsbad, California-based developer and marketer of consumer electronics devices.
U.S. net sales were $163.7 million, a 7.0% decrease from $176.1 million in sales in Q2 2008, and International net sales were $138.5 million, a 27.1% decrease from net sales of $189.9 million in the year-ago quarter.
ELY sees signs of stability or recovery, particularly in Korea, Japan and Australia, and continued strong performance in China and a stabilizing in much of Europe. Also, Fellows said recent investments in infrastructure in Singapore, Malaysia, India and Latin America are beginning to provide growth opportunities that will benefit the business in the mid- to longer-term.
Changes in foreign currency exchange rates adversely affected net sales by approximately $19 million for the quarter.
“While signs of recovery are evident in a number of areas, the pace appears to be slower than originally hoped based on the most recent data, and we feel call for a somewhat more conservative projection for the balance of the year,” said Fellows. “I think its our judgment that 2010, from a promotional point of view not reach any renewal levels that we had this year, but that the consumers is still going to be focused more on the lower priced products, so the 299 driver price point will definitely still be the dominant price point next year as opposed to the $399 or $499 point. We have probably broadest golf line in the industry, so we cover all of the price points.”
