Despite the troubles that beset the global golf industry and its leading rival last year, Callaway Golf managed to increase its turnover in all regions and most categories, and it returned to profit for the first time since 2008. After many cutbacks as well as investments, the company said the momentum was on its side but it still warned that currency exchange rates would substantially decrease its earnings this year.
Callaway's sales reached $877 million last year, up by 5 percent in dollars and by 7 percent in constant currencies. Sales of woods increased by 8 percent to $269.5 million, compared with increases of 12 percent for irons, 4 percent for golf balls and 2 percent for accessories and other products. Only sales of putters declined, down by 8 percent to $81.2 million for the year.
The overall rebound was strongest in Europe, where Callaway's sales jumped by 11 percent to $134.4 million for the year, but the increase amounted to a lower 4 percent in constant currencies. The other way around, sales climbed by just 3 percent to $166.2 million in Japan but they were up by 12 percent in yen. Meanwhile, Callaway's sales advanced by 5 percent to $421.8 million in the U.S., by 7 percent in other Asian countries and by one percent in other foreign countries.
Callaway's gross profit margin improved by 3.1 percentage points to 40.4 percent. Income from operations advanced to $31 million, against a loss of $11 million the previous year. Callaway ended the year with a net profit of $16.0 million, compared with a loss of $18.9 million in 2013.
The improvement was aided by a decrease of $17 million in pre-tax charges related to cost cuts finalized in 2013. On the other hand, that advantage was mitigated by an increase of $6 million in expenses due to a decrease in foreign currency contract gains. Operating expenses were nearly flat, in spite of investments in marketing.
Chip Brewer, Callaway's chief executive, pointed out that the performance came amid tough market conditions and that Callaway gained market share. Callaway said it increased its golf equipment market share in 2014 by 3.4 percentage points in the U.S. to 18.5 percent, by 0.5 percentage points to 14.4 percent in Japan, and by 3.7 percentage points to 18.3 percent in the U.K. Although the company did not spell it out in its announcement, there is little doubt that much of these gains came from sagging sales at TaylorMade Adidas Golf.
The weakness of the golf business was one of the factors that prevented the Adidas Group from reaching some of its initial targets last year. While TaylorMade was evidently affected by wider industry woes, Herbert Hainer, the Adidas group's chief executive, reportedly admitted in a recent interview with the Süddeutsche Zeitung that it had been a mistake to continue launching products under the circumstances.
Callaway's annual results came after a robust fourth quarter in which the company expanded its sales by 6 percent to $135 million. Sales of irons soared by 27 percent while sales of woods were up by 21 percent, due to a strategic change in the timing of product launches. The quarter saw the launch of new Big Bertha woods, irons and hybrids, while no such products were released in the same quarter last year. Callaway's turnover in golf balls improved by 3 percent, while sales of putters shrank by 37 percent and accessories were down by 7 percent. A drop of 1 percent in quarterly U.S. sales was amply compensated for by sales increases of 17 percent in Europe and 20 percent in Japan.
The group's gross profit margin jumped by 4.4 percentage points to 27.4 percent for the quarter. Due to the seasonality of the business, this quarter remained loss-making but the level of the loss was slightly reduced to $42 million, compared with $49 million for the same quarter in 2013.
Callaway said that it expected continued improvement in its underlying operational performance this year. It predicted a sales increase of 1 to 4 percent in constant currencies: While Callaway's sales in its core channel business are expected to climb by 5 to 6 percent, they should be adversely impacted by changes in the timing of product launches and a reduction in closeout sales. In reported terms, sales for the full year should decline by 1 to 4 percent.
When it comes to the gross margin, the company estimates that it will remain roughly stable this year. In constant currencies it should improve by about 2.1 percentage points, owing to supply chain improvements and a more favorable sales mix. However, operating expenses will increase by 6 percent in constant currencies, due to more investments in marketing and in spite of continued focus on cost management.
Callaway further predicts that its pre-tax income will jump by 32 to 73 percent for the full year but that it will decrease in reported terms. Adverse changes in currency exchange rates should also lead to a significant decline in fully diluted earnings per share. Callaway estimates that it could end the year with a result ranging from a loss per share of $0.09 to earnings per share of $0.01. In constant currencies, earnings per share would soar by 40 to 90 percent.
