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Callaway Golf was looking for a rebound to its business in 2010. It said as much at the start of the year, when CEO George Fellows stated, “As anticipated, the recovery for worldwide economy and particularly the golf industry is underway with some momentum evident in both – for both. While elements of the recovery are still somewhat mixed, the general trends are sufficiently positive for us to maintain our cautious optimism for the year.” Those words of reinforcement came after the company reported its 2010 first quarter operating results. “Reception of our 2010 new lineup continues to be quite positive. And just to remind everyone, we were the recipients of 15 medals, 10 of which were gold in Golf Digest's review of the 2010 new products; those were more than any other manufacturer. The trade was equally positive about our lineup pre-booking at the expected levels, which we believe is quite a vote of confidence in an uncertain environment,” he added.
That was then and this is now. Callaway pre-announced in early June its expected second quarter financial performance. The company, by no surprise, delivered in the range it shared back on June 14th. For the record, Callaway reported second quarter sales of $304 million, an increase of 1% compared to a year ago. It earned a profit of $8.8 million for the reporting period, up $2.4 million from a year ago.
A brief look at the breakdown in sales for the business shows that Callaway’s metal woods business continues on a downward spiral. Sales for the quarter were $63.3 million, down nearly $12.7 million or 17% from a year ago. Iron sales were $71.48 million, off $733,000 from last year. Callaway’s putter sales were $33.5 million, up $7 million from last year or 27%. Ball sales were $58 million for the reporting period, down 242,000 from a year ago. The accessories category, an area the company has generated significant sales under the Fellows administration, came in at $77.3 million, up almost $8 million or 11% from 2009.
"Global economic conditions and the golf industry have recovered more slowly than our original expectations coming into 2010," commented George Fellows, President and CEO. "Consumer spending remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. These constraints, together with unfavorable weather conditions in many key markets for a significant portion of 2010, have resulted in an overall decline in sales in the golf industry for the year,” stated Fellows in a company press release. Essentially saying that these factors are beyond anyone’s control.
"While the golf industry will recover, given recent increased uncertainty regarding retailer and consumer spending in the back half of the year, it does not appear that the industry will fully recover during 2010," continued Fellows. "We are therefore focused on the controllable portions of our business, including tight management of discretionary spending, investment in emerging markets and other key growth initiatives to drive long-term shareholder value, and improvements in our operations such as the restructuring of our global operations announced yesterday. These actions, together with the strength of our brands, will allow us to maximize results in the current environment and prepare us to take advantage of a better market once global conditions improve."
The company announcement, late yesterday, that it is relocating its club assembly away from its headquarters in southern California to Mexico and its distribution center to Dallas, TX is clearly a cost measure intended to bolster a bottom line that is under pressure. The reorg of manufacturing and distribution centers is also affected in Toronto, Canada, by the decision.
"While we expect that our overall financial results will be better than last year, the unusual uncertainty caused by the current macroeconomic and market conditions make it impossible to forecast retailer and consumer demand for golf products with any reliability," commented Brad Holiday, Chief Financial Officer of the Company. "We do expect that our full year gross margins will be improved compared to last year and that our full year operating expenses will be approximately flat compared to last year, even after taking into account the restoration of employee compensation and benefits that were temporarily suspended in 2009. Because of the lack of visibility into sales, however, we are not providing specific financial guidance for the balance of the year."
For more on this be sure to read the August 2nd issue of the Web Street Golf Report. If you don’t already subscribe to it, you can make arrangements by clicking on the BUY NOW button at http://www.golfbiz.net.