Investors are reportedly skeptical of Callaway Golf’s 3-year business plan to return the company to higher profitability. Some are suggesting that the company should be sold to a private equity group. Net income did grow by 23 percent to $22.5 million in the 2nd quarter, but the result was below expectations. The gross margin was hurt by higher raw material and labor costs, as well as distribution charges. Revenues increased by 6 percent to $341.8 million.
In Europe sales dropped by 4 percent to $54.3 million, mainly due to poor weather and greater interest in the World Cup than in golf. Turnover was up by 3 percent to $186.3 million in the USA. It grew by 12 percent to $34.0 million in Japan and by 34 percent to $25.6 million in the rest of Asia. Everywhere else sales rose by 16 percent to $41.5 million.
The wood business increased by 24 percent to $86.3 million, and was slightly offset by poor sales of the Hogan and Top-Flite brands, neither of which had any new products launched last year. The turnover in irons slipped by 4 percent to $106.8 million. Putter sales were up by 10 percent to $37.3 million, while the overall turnover in golf balls decreased by 2 percent to $69.1 million, mainly due to a decrease for the Top-Flite brand. Callaway is planning a major re-launch of the Top-Flite brand in 2007, involving a new sourcing structure to improve margins and new technology.
Sales of accessories rose by 14 percent to $42.3 million. Callaway has obtained the assets of its footwear licensee to keep the product on the market but it will reportedly find a new licensee for this product line after 2007.