Callaway Golf Company reported that net sales declined 25.8% to $271.9 million in the first quarter, compared to $366.5 million in Q1 2008.  Net income fell 82.8% to $6.8 million, or 11 cents per diluted share, compared to $39.7 million, or 61 cents per diluted share, in the 2008 first quarter.

U.S. net sales were $141.3 million, a 23.4% decrease from $184 million in sales in Q1 2008, and International net sales were $130.6 million, a 28.3% decrease from net sales of $182.1 million in the year-ago quarter. Changes in foreign currency exchange rates adversely affected net sales by approximately $22 million for the quarter.

Gross margins decreased 520 basis points to 42.7% of sales in the first quarter, compared to 47.9% of net sales for the comp period in 2008. The company said gross profit was adversely affected by the first quarter decrease in sales volume, by overall lower average selling prices, and by changes in foreign currency rates, partially offset by the benefits from the company’s gross margin initiatives.

Operating expenses for the quarter were $103 million, or 38% of net sales, compared to $111 million, or 30% of net sales, for the first quarter of 2008. The $8 million decrease in operating expenses was said to be primarily attributable to a decrease in employee compensation costs as well as changes in foreign currency exchange rates, partially offset by investment in new business initiatives.

“Going into this year, we said that unfavorable global economic conditions and changes in foreign currency rates would significantly affect our 2009 results, particularly in the first quarter,” commented George Fellows, ELY president and CEO. “The widespread economic weakness, which affected the entire industry, caused traffic at retail to be down more significantly than originally anticipated and retailers reduced the levels of inventory they were willing to carry prior to the season opening up. At the same time, changes in foreign currency exchange rates negatively impacted the translation of the company’s international results into U.S. dollars. These factors in the aggregate resulted in a 26% decline in the company’s sales compared to a record first quarter in 2008.”

“While we expect that global economic conditions and foreign currency will continue to negatively impact results in the short term, we expect that the severity of the impact will decrease as the year progresses,” continued Mr. Fellows. “Furthermore, we have already taken steps that will help mitigate such impact, including the implementation of several cost reduction initiatives and the elimination of approximately 10% of the company’s worldwide positions. We also continue to benefit from the implementation of our gross margin initiatives, which positively impacted gross profit by approximately $7 million for the first quarter.”

“As we said before, it is very difficult to forecast future results in this economic environment,” added Mr. Fellows. “Based on current trends, we estimate that the industry will likely be down about 15%-20% for the year assuming reasonable retail inventory levels. Based on our recent market share gains, we estimate that Callaway Golf’s annual sales for 2009 will decrease at a pace less than the industry. Furthermore, we estimate that, excluding charges for gross margin initiatives, 2009 full year gross profit as a percent of net sales will range from 40% to 42%, and that operating expenses will range from $375 to $390 million.”

“We firmly believe the golf industry will recover as the economy recovers,” added Mr. Fellows. “Therefore, in addition to aggressively managing costs, our focus is to position Callaway to emerge a stronger company when the golf industry does recover. In this regard, in addition to other actions, we are continuing to invest in additional gross margin initiatives and are taking advantage of the strength of our 2009 product line to increase our market share, which has already increased in most product categories worldwide.”