Callaway Golf Company reported a 6% decrease in net sales to $286 million for the first quarter ended March 31 , down $17 million from net sales of $303 million for the first quarter of 2010. 


Our first quarter results varied significantly by region with some reflecting robust recoveries and others reflecting the effects of external mitigating factors, commented George Fellows, President and Chief Executive Officer of Callaway Golf Company. Our sales in Europe, Canada and emerging markets are off to a strong start this season and were able to offset the slight decline in sales in the United States.  Unfortunately, the recent tragedy in Japan, the flooding in Australia, and the delayed opening of the golf season in Korea due to extreme weather have offset these recoveries and caused a decline in our first quarter sales.

We are encouraged, however, by early signs of recovery in Japan and by early indications that the overall golf industry is recovering in 2011, continued Mr. Fellows. We are seeing improved industry sales across a majority of product categories, driven by increases in average selling prices and increased traffic at retail. Consistent with these industry trends, the initial retail sell-through of our new products in general, and our RAZR line of woods and irons in particular, has been positive. As a result of the favorable industry trends, initial retail sell-through, and continued improvement in our operations, we expect that in 2011 our underlying operational performance and full year financial results will improve compared to 2010.



• Sales in Japan decreased $16 million (30%).  Changes in foreign currency exchange rates favorably affected net sales by $8 million.  On a currency neutral basis (i.e. translating the Companys first quarter 2011 results at first quarter 2010 exchange rates), net sales would have been $278 million, a decrease of 8% compared to the first quarter of 2010.


•Gross profit of $124 million (43% of net sales), compared to gross profit of $137 million (45% of net sales) for the first quarter of 2010.  First quarter results included charges of $6 million and $1 million for 2011 and 2010, respectively, associated with the Companys global operations strategy.  The decline in sales in Japan also affected gross margins as the company sells a significant amount of premium priced specialty products in Japan. 

•Operating expenses for the quarter of $101 million (35% of sales), compared to $109 million (36% of sales) for the first quarter of 2010.  Operating expenses for 2011 included a gain of $6 million on the sale of three buildings in Carlsbad. 

•Operating income for the quarter of $23 million (8% of sales), compared to $28 million (9% of sales) for the first quarter of 2010.

•Other expense for the quarter increased $3.0 million (to $1.4 million in expense from $1.6 million of income for the first quarter of 2010), due to the impact of a weaker U.S. dollar on outstanding foreign exchange contracts compared to last year.

•Earnings per diluted share of 15 cents (on 84.7 million shares).  For the first quarter of 2010, the Company reported fully diluted earnings per share of 24 cents (on 83.9 million shares).  The first quarter of 2011 included an after-tax charge of approximately 5 cents per share, while the first quarter of 2010 included a charge of 1 penny share, related to the companys global operations strategy.

Operationally we are pleased with the progress of our global operations strategy, and given the increasing inflationary pressures in China, we remain confident in our decision to diversify our supply base by relocating our North American club manufacturing operation to Mexico, added Mr. Fellows.  We believe this will be an important step towards adding supply-chain flexibility, significantly reducing production costs, and driving long-term shareholder value. The start-up of our new facility has gone smoothly and we began shipping finished clubs to the U.S. during the quarter. 


While early market indicators are trending positively, the second quarter is an important quarter of the year and is driven by successful sell-through at retail, emphasized Mr. Fellows.  While it is difficult to estimate the full year impact of Japan at this time, we are encouraged that Japan is showing signs of recovery and by improving industry and market conditions. We are also encouraged by the continued growth in our emerging markets, further development of our apparel business, and the progress on the Companys global operations strategy, including the reorganization of our manufacturing and distribution operations.  As a result, we expect that in 2011 our underlying operational performance and full year financial results will improve compared to 2010 and we expect that the significant investments we have made in our global operations strategy will be completed by the end of 2011.


Business Outlook  


Given the difficulty of estimating the full year impact of the recent natural disasters in Japan, the company is temporarily suspending specific financial guidance for 2011 at this time.  The company, however, still expects to be profitable on a pro forma basis, excluding charges for the final stages of its global operations strategy, which are estimated to be approximately $23 million (pre-tax) or 22 cents per share (after-tax) for the full year 2011.