While reporting higher sales in its seasonally small third quarter, Callaway Golf announced the recruitment of Hideyuki “Rock” Ishee, the departing senior director of golf ball innovation at Nike, as the company's new senior director of advanced golf ball research. Earlier, Callaway had placed Sean Toulon in charge of its global putter business, after purchasing his newly formed design company.
Toulon left as executive vice president of product design and creation for TaylorMade-Adidas Golf in June 2015, after more than 15 years in the post, as the Adidas Group indicated its intention to restructure the business and eventually sell it. It's a similar story for Ishee, who is leaving Nike following its decision to get out of golf equipment. Ishee spent 20 years with Nike, where he was among other things responsible for customizing balls for Tiger Woods and Rory McIlroy.
Beating forecasts, Callaway's sales grew by 6.9 percent to $187.8 million in the third quarter. They were driven by irons, golf balls and the company's new apparel joint venture in Japan, plus a $5.6 million benefit from the appreciation of the yen and other favorable foreign currency effects. On a constant-currency basis, sales were up by 6.9 percent in the U.S., by 6.1 percent in Europe and by 2.9 percent in Japan, but they were off by 8.7 percent in the rest of Asia.
In terms of U.S. dollars, Callaway's sales of golf balls went up by 11.6 percent to $32.6 million in the quarter. Total sales of clubs rose by 6 percent to $155.2 million, with a 26 percent drop in woods and flat sales of putters offset by increases of 18.4 percent in irons and wedges, lifted by the recently launched Steelhead, and 35 percent for the gear/accessories/other sales segment.
Callaway claims it is gaining market shares in the U.S., reaching levels of 22.7 percent for the first nine months of this year in the overall golf equipment market - 25.7 percent in golf clubs and 13.7 percent in golf balls.
The company reported a net loss of $5,866,000 for the period, up by 62 percent from the loss incurred in the same period a year ago, but blamed this mainly on planned increases in operating expenses related to marketing and the new Japanese joint venture. Also, Callaway was the biggest trade creditor of Golfsmith, the American golf retailer that recently went bankrupt, although it hopes to recover most or all of the related outstanding debt of $5 million either in court or through insurance.
The gross margin contracted by 2.1 percentage points to 42.0 percent due to shifts in the timing of new product launches, but the management expects the gross margin to grow by two full percentage points for the full financial year. It has raised its guidance for annual sales and profits. Sales should grow to a range of $870 million to $880 million, up from $844 million in 2015, while earnings should hit a higher-than-expected level of more than $49 million.