Callaway Golf Company took its medicine from the Street two weeks ago when it pre-warned that sales and earnings for the first quarter would fall well short of expectations. Callaway delivered its bad news for the quarter in earnest last week, revealing a quarter that saw both club and balls sales take a dive for the period.

Total Golf Club sales were down 17.4% for the quarter to $240.8 million, compared to $291.7 million in the year-ago period. Operating earnings for the Golf Club business fell 48.8% to $40.4 million from $78.8 million in profit in Q1 last year. The Golf Ball business, which saw sales decline 18.1% for the period, swung to a $1.7 million profit versus a loss on $1.6 million in the year-ago period.

The U.S., which was the scene of heavy discounting in the club business last year, actually fared better than the International business. While the Domestic market saw sales decline 15.0% for the period, Europe sales fell 27.2% to $48.9 million and Japan sales decreased 21.6% to $24.9 million. Other Asia was down 8.2% and Other International declined 15.7% for the quarter. The International decline was a bit more pronounced than reported, as FX rate benefits from the weaker dollar added about $5.0 million to the top line.

Excluding the benefits from currency, total company sales were down 17.6% and International sales were down 24.9% for the period. On a constant dollar basis, the U.S. represented 62.8% of total sales in Q1, up from 59.8% of sales in Q1 last year.

As management had indicated earlier this month, the shortfall for the quarter comes as Callaway staggered new product launches more evenly this year and managed the amount of inventory shipped into the marketplace during the first quarter.

ELY chairman and CEO William Baker said the actions to curtail sales “were taken to assure that every product launch was fully supported and to avoid the build-up of inventory at retail that was experienced last year. Both initiatives should promote sell-through of new and existing product.”

Analysts had initially been looking for 49 cents per share on revenue of $339.3 million.

Mr. Baker said he was not able to give quarterly guidance for the second quarter, stressing that the business is heavily dependant on re-orders for the period. There is new product in the pipeline, but he said he wasn’t sure if it would make it into the market in Q2 or fall to third quarter.


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