For the third quarter ended Sept. 30, Callaway Golf reported an 11 percent drop in sales to $190.9 million. It also widened its net loss, with a negative $16.1 million compared with a loss of $7.4 million in the same period last year. The gross margin fell by 6.3 percentage points to 31.2 percent.
Product-wise, woods, rising by 4 percent to $35.7 million, and accessories/other, up by 5 percent to $47.8 million, were the only segments to post top-line improvement. Elsewhere, irons sales fell by a whopping 23 percent to $49.4 million, putters declined by 20 percent to $17.1 million and golf balls were down by 16 percent to $40.9 million.
Nonetheless, Callaway confirmed that most of its categories have gained market share year-to-date in U.S. golf channels, not including balls or footwear. In most cases, the company has gained market share in specific segments from secondary and tertiary brands. It said that the drop in its golf ball sales was due to promotional activity in the market as well as a lack of new products this year.
Geographically, sales were down by 11 percent in the period in international markets to $97.0 million, an 8 percent drop on a currency-neutral basis. Turnover from the U.S. was down by 10 percent to $93.9 million. European sales declined by 19 percent to $27.0 million; Japanese sales fell by 11 percent to $29.1 million, but the rest of Asia was 13 percent higher at $21.0 million. Chinese sales had a sharp climb off a small base, Korea had strong sales trends and the market in India will soon be open for the brand. The turnover in other foreign countries fell by 18 percent.
The brand’s inventory level stood at $199 million as of Sept. 30, down by 10 percent compared with last year and at its lowest third-quarter level in the last five years, due to supply chain improvements. Nonetheless, the company’s current outlook for the full year calls for a 16 percent drop in revenues, gross margins of 37 percent versus prior guidance of 38-40 percent, and an earnings loss of $18.9 million to $22.1 million.
Management remains steadfast that the golf market will recover along with the overall global economy, and says the largest brands have gained market share in the tough market of this year. It noted that quarter-by-quarter, its performance has improved this year, with this quarter’s 11 percent drop comparing with declines of 26 percent and 17 percent in the first and second quarters respectively.
Looking ahead to the 2010 fiscal year, Callaway believes that the promotional environment will be above the norm but wane from this year’s levels. The management suggested that, when economic conditions improve, it will be up to companies such as Callaway to “wean consumers off the promotional train,” and plans less discounting even for the coming holiday season.
