Callaway Golf's expansion drive is proving successful. The company posted results for the third quarter of the year that exceeded its own guidance, driven by strength in its woods business, continued growth in golf balls and the successful integration of its new business ventures.
Earlier this year, the group bought Ogio International, a brand of golf bags and accessories, for $75.5 million. In the last quarter, it purchased Travis Mathew, an upmarket ten-year-old U.S. golf apparel brand, for $125.5 million in cash. The buyer said that it has been generating double-digit sales growth in the golf and lifestyle apparel categories and that it will neatly complement Callaway's existing business with a tangential offering.
Callaway's management said that investments outside its core areas are all meeting or beating its expectations and should provide incremental growth and profitability over the coming years.
Sales for the third quarter rose by 29.7 percent from the year-ago quarter to $243.6 million. The growth was fueled by a increases of 20.5 percent to $146.1 million in sales of golf clubs and 19.7 percent to $39.1 million in golf balls, with strong demand for the Epic range and the Chrome Soft golf ball franchise.
Sales of gear and accessories surged by 71.9 percent to $58.4 million, due to the acquisition of Ogio, Travis Matthew and Callaway's apparel joint venture in Japan, which was formed in the third quarter of last year.
The U.S. market generated the largest increase, up by 33.2 percent to $123.8 million. The company noted that Callaway has been the U.S. market's number one brand every month for 32 consecutive months. It credited this performance to the significant investments made over the last two years, including capital projects in its ball plant as well as the sales force, marketing and R&D.
Callaway's strong performance in its domestic market compares with a sales rise of 23.2 percent to $32.4 million in Europe, up by 20.5 percent in constant currencies. The management said that the European market has given clear signs of more stable conditions, thanks to a reduction in field inventory and a healthier retail channel. Year-to-date market share data through August for Europe show that the company has a 25.5 percent share in hardgoods, up by 3.7 percentage points year-over-year, driven by its number one position in drivers, woods, irons, hybrids and putters.
Callaway's turnover firmed up by 28.3 percent to $53.1 million in Japan, or by 38.8 percent in constant currencies, due to the addition of its Callaway Apparel JV, strong market share performance in its core equipment business, and a particularly strong start for the Epic Star irons that were launched in the country during the quarter. The company believes that on a market share basis, for both the quarter and year-to-date, it ranks as the number one driver and the number one hardgoods brand in the U.S., U.K., Europe and Japan.
Sales in other Asian countries advanced by 28.2 percent to $20.4 million, and sales in other foreign countries inched up by 22.7 percent to $13.8million.
Callaway's gross profit margin was up by 1.1 percentage points to 43.1 percent, due to a favorable shift in product mix toward the higher margin Epic woods and irons combined with overall higher average selling prices.
The group's net income stood at $3.1 million, as opposed to a loss of $5.7 million for the year-ago quarter. The management noted that it managed to generate these profits in a period when the company typically reports a loss due to the seasonality of golf.
On the back of this performance, Callaway raised its guidance for the full-year, with sales expected to range between $1,030 million and $1,040 million, up from a previous forecast of $980 million to $995 million. The updated guidance includes $15-$20 million of Travis Mathew sales and projects sales growth of 18-19 percent in 2017 as compared to 2016.