Callaway Golf registered a 6 percent drop in first-quarter sales to $286 million following the earthquake in Japan, the floods in Australia and a delayed opening of the golf season in South Korea due to foul weather. Sales in the U.S. suffered a 4 percent decline but were offset by a 9 percent increase in Europe on a dollar basis, and by higher sales also in Canada and emerging markets. On a currency-neutral basis, group sales were down by 8 percent.
Sales of golf clubs dropped by 4 percent, but golf balls were up by 13 percent.
The company has noted early signs of a recovery for the overall golf market, even in Japan where Callaway's sales plummeted by 30 percent in the first quarter. Industry sales are improving across a majority of product categories driven by increases in average selling prices and higher traffic at retail, it said.
The initial retail sell-through of the company's new products, especially the RAZR line of woods and irons, has been positive and Callaway expects that its underlying operational performance and full-year financial results will improve compared with 2010. Excluding an expected $23 million in pre-tax restructuring charges, the company anticipates it will be profitable in 2011.
The gross margin dropped to 43 percent in the quarter from 45 percent a year ago, partly due to $6 million in charges compared with $1 million a year earlier and the decline in sales to Japan, where the company sells a significant amount of premium-priced products. The operating margin slipped to 8 percent from 9 percent.
In the first quarter, the group started shipping finished clubs to the U.S. from its new manufacturing facility in Mexico. Production was relocated to the Central American country to reduce production costs resulting from increasing inflationary pressures in China.
