Callaway Golf Company reported that fourth quarter net sales were $174.4 million, a 3.0% decrease from $179.9 million for the 2006 quarter, which the coampny said had included “significantly more sales from new product launches.”  ELY siaw its loss for the period widen considerably to $16.2 million, or a loss of 25 cents per diluted share, compared to a loss of $10.2 million, or 15 cents per diluted share, in the fourth quarter of 2006.


The 2007 fourth quarter loss per share included an after-tax charge of a penny related to gross margin improvement initiatives announced in November 2006. The fourth quarter of 2006 also included after-tax charges of a penny for gross margin improvement initiatives and a penny for the restructuring charges announced in 2005. Excluding these charges, the company’s pro forma loss per share for the fourth quarter of 2007 would have been 24 cents, as compared to pro forma loss per share of 13 cents in the prior year period.

 

Gross profit for the fourth quarter of 2007 was 36% of net sales compared to $33% of net sales for the fourth quarter of 2006.  Operating expenses for the fourth quarter of 2007 were $92.0 million compared to $79.9 million for the same period in 2006.

 

Full year sales increased 10% to $1.13 billion, compared to $1.02 billion for the prior year period.  Net income jumped 136% to $54.6 million, or 81 cents per diluted share, compared to $23.3 million, or 34 cents per diluted share, in the Q4 2006.  Fully diluted earnings per share for 2007 included after-tax charges of 8 cents for gross margin improvement initiatives.  Similarly, full year 2006 included after-tax charges of 4 cents for the integration of Top-Flite, 3 cents for restructuring, and 2 cents for gross margin improvement initiatives.  Excluding these charges, the company’s pro forma fully diluted earnings per share for 2007 would have been 89 cents, an increase of 107% compared to 43 cents for 2006.

 

Gross profit for 2007 was 44% of net sales, compared to 39% of net sales in the prior year.  Callaway said the increase was primarily the result of gross margin improvement initiatives announced in 2006 as well as an increased mix of higher margin drivers and X-20 irons. Operating expenses for 2007 were 36% of net sales compared to 35% of net sales in 2006.  The increase was due primarily to higher employee annual incentive compensation expense related to the company’s significantly improved financial performance as well as an increase in marketing expense to support the Top-Flite re-launch.

“We have made significant progress improving operations and profitability in 2007,” announced George Fellows, President and CEO. “Specifically, we were able to re-gain woods market share, re-launch the Top-Flite Brand with the successful introduction of the D2 golf ball, and grow our accessories business. In addition, we made significant progress in improving profitability, increasing our gross margins by five percentage points, which contributed to a $135 million increase in cash from operations.”

“While pleased with our progress so far, we continue to focus on improvement,” continued Mr. Fellows. “We have a strong line-up of 2008 products including our recently announced I-Mix driver with its state of the art technology aimed at providing the best and most flexible performance possible for our consumers. Another area we are targeting is supply chain management, where we’ve made tremendous progress in 2007 but believe there is still room to drive efficiencies. With this strong portfolio of products along with improved operations, we feel well positioned to sustain the momentum we enjoyed in 2007.”


The company estimates that its full year 2008 net sales will be in the range of $1.15 to $1.17 billion. The company also estimates that its 2008 full year pro forma fully diluted earnings per share will be in the range of $1.08 to $1.18, which represents an estimated increase of 21% to 33% as compared to the company’s pro forma fully diluted earnings per share in 2007 of $0.89 as discussed above. Estimated pro forma earnings for 2008 exclude estimated charges of approximately 8 cents per share related to the company’s gross margin initiatives.