Callaway Golf Company’s net sales declined 17.2 percent to $154 million in the fourth quarter, compared to $186 million a year earlier, ending a tough year for the golf company and industry. But the Carlsbad, CA company said it expected its top and bottom lines to improve in 2012.

Gross profits declined 32 percent, or $18 million, to $38 million, which pushed down gross margin by 600 basis points to 24 percent. Callaway reduced its operating expenses by $11 million, or 11.2 percent, during the quareter, producing an operating loss of $50 million, or 32 percent of sales, compared to a loss of $42 million, or 23 percent of sales in the fourth quarter of 2010.
Net loss for the quarter nearly doubled to $63 million, resulting in a loss per share of $1.01, compared to a loss of 54 cents per share a year earlier.
For the year, net sales reached $887 million, down $81 million from a year earlier and ross margin fell 300 basis points to 35 percent. The company reported a net loss of $172 million, compared to a loss of $19 million in 2010.
“While 2011 was a very challenging year for Callaway, I am pleased with the significant progress we have made over the last six months with our restructuring and reinvestment initiatives,” said Tony Thornley, president and CEO. “We have achieved our $50 million annual savings target we began last June, implemented a flatter/more streamlined organization structure, and have begun investing a significant portion of those savings in our newly developed 2012 globally integrated brand and marketing initiatives. Critical to improving results in 2012 is a product offering that appeals to golf consumers, and we are very happy with the results of the Golf Digest's equipment review in which we netted the most medals for new products of any manufacturer and received the Editor's Choice for our new Razr Fit driver. We expect to be profitable in 2012 as the first step towards returning to industry leading returns in the coming years.”
Business Outlook*
Overall for 2012, as compared to 2011, the company expects to generate higher sales, improved gross profit margins, flat to improved operating expenses after incremental demand creation investment, and a return to overall profitability. The company also provided more detailed guidance for the first half of 2012 as follows:
 
  • Net sales are projected at $610 – $630 million compared to $559 million in 2011. Second quarter sales are estimated to be higher than the first depending on the timing of shipments of products.
  • Gross margins are projected to be approximately 44%, an increase of 140 bps compared to non-GAAP gross margins of 42.6% in 2011 and should also be higher in the second quarter compared to the first quarter.
  • Operating expenses are projected to be $214 million compared to non-GAAP operating expenses of $210 million in 2011. The slight increase is due to a higher investment in marketing, which is skewed more to the first half of the year, and higher variable costs associated with increased sales, partially offset by savings from the cost reduction initiatives taken in 2011. Operating expense is estimated to be evenly split between the first and second quarter.
  • Non-GAAP earnings per share is estimated at $0.40 to $0.45 compared to $0.15 in 2011 and assumes shares outstanding at 84.6 million including the dilutive impact of the company's outstanding preferred equity.

*Note: For comparability purposes, the non-GAAP results for 2012 and 2011 are derived based upon an annualized statutory tax rate of 38.5%. The company's actual tax rates for those periods are significantly affected by the company's deferred tax asset valuations and therefore are not directly correlated to the company's pre-tax results. The 2011 results also exclude certain restructuring and other charges as explained toward the end of this release. No such restructuring or other charges are excluded from the 2012 estimates.

 

Callaway Golf Company

 

Statements of Operations

 

(In thousands, except per share data)

 

(Unaudited)









Quarter Ended



December 31,



2011

2010






Net sales

$ 153,872

$ 185,528

Cost of sales

116,299

130,004

Gross profit

37,573

55,524

Operating expenses:



Selling

53,637

55,620

General and administrative

25,570

32,861

Research and development

8,113

9,152


Total operating expenses

87,320

97,633

Loss from operations

(49,747)

(42,109)

Other expense, net

(796)

(3,377)

Loss before income taxes

(50,543)

(45,486)

Income tax provision (benefit)

12,442

(13,231)

Net loss

(62,985)

(32,255)

Dividends on convertible preferred stock

2,625

2,625

Net loss allocable to common shareholders

$ (65,610)

$ (34,880)






Loss per common share:



Basic

($1.01)

($0.54)

Diluted

($1.01)

($0.54)

Weighted-average common shares outstanding:



Basic

64,887

64,113

Diluted

64,887

64,113









Year Ended



December 31,



2011

2010






Net sales

$ 886,528

$ 967,656

Cost of sales

575,226

602,160

Gross profit

311,302

365,496

Operating expenses:



Selling

265,325

257,285

General and administrative

92,756

98,431

Research and development

34,309

36,383


Total operating expenses

392,390

392,099

Loss from operations

(81,088)

(26,603)

Other expense, net

(9,173)

(8,959)

Loss before income taxes

(90,261)

(35,562)

Income tax provision (benefit)

81,559

(16,758)

Net loss

(171,820)

(18,804)

Dividends on convertible preferred stock

10,500

10,500

Net loss allocable to common shareholders

$ (182,320)

$ (29,304)






Loss per common share:



Basic

($2.82)

($0.46)

Diluted

($2.82)

($0.46)