Inclement weather and a slow recovery from its Europe region curtailed growth for Callaway Golf Co. during the first quarter of fiscal 2010; but cost cuts and improved sell-through helped the company more than double earnings as it enters a second quarter that is historically crucial to the golf industry.
Management for the Carlsbad, CA-based golf manufacturer said despite rounds played slipping about 20% in February, new product introductions and higher average selling prices helped the company to earnings growth nearly triple that of last years first quarter. Likewise, management continually emphasized its optimism about a second quarter that they expect to rebound on improved weather patterns and a revitalized golf consumer seeking to upgrade their equipment.
The quarter also drew strength from improvement in four of the companys five business segments.
For Callaways Woods segment, which is its largest in terms of dollars, sales increased 18.3% on an improving marketplace and increases in both unit volumes and ASPs. Sell-through was supplemented by the Fusion Technology drivers, which management said is one indicator that consumers are willing to trade up for higher price points after seeking out bargain prices for the majority of fiscal 2009.
For Golf Balls, sales improved 8.0% on higher unit sales and ASP improvement in association with the launch of two higher-end balls-the Tour iS and the iZ models.
Management said the 19.2% improvement from the Accessories and Others segment was due to an increase in packaged club sets that were driven by the launch of the Solaire offering. Also contributing to sales growth were additional apparel sales under the new Perry Ellis agreement; incremental uPlay sales and gloves.
Putter sales improved by 37.8%, largely aided by the introduction of the new White Ice line and Odyssey Backstryke putters, which management said drove both an increase in unit volume and ASPs for the category.
For the lagging Irons segment, a 11.9% sales decline came as a result of lower volumes and ASPs that slid due to lower retail prices of the Diablo Edge line, which are priced comparatively lower than the X-22 irons released during the year-ago period.
With regard to the second quarter, management said they expect sales to improve as the weather begins to turn and playing hours increase. As a result, management said sales at big box retailers should start to catch up with strong first quarter results from green grass and off-course specialty retailers.
right now, were seeing much stronger early response in green grass and off-course-largely because of the weather, said company CEO George Fellows, adding that the second quarter will give a much better indication of the state of each market.
The fact is, green grass [retailers]-good weather or bad-can hold demo days and that brings out buyers even if the conditions are not ideal. The [big box] guys who cant do demo days quite the same way really have to delay activity until the weather clears and people start going out and shopping, Fellows added.
Regarding outlook, the company maintained its guidance from January. Annual 2010 sales are estimated to be in the range of $990 million and $1.05 billion with pro forma EPS between 25 cents per share and 35 cents per share, which excludes after tax charges of 10 cents per share for charges associated with ELYs global operations strategy.
