Callaway Golf widened its net losses to $34.9 million in the fourth quarter ended Dec. 31 from $18.2 million a year earlier, largely due to an impairment charge of $7.5 million for its Top-Flite brand and other charges, while revenues were virtually flat at $185.5 million against $185.9 million.
The group saw its gross margins fall to 20 percent from 31 percent due to expenses of $6 million related to the group's program to boost efficiency General and administrative as well as research and development expenses also went up during the quarter, and currency swings had a negative impact of $5.3 million on the results.
For the full year, Callaway reported a loss of $29.3 million, up from $20.9 million a year earlier, on a 2 percent gain in sales to $967.7 million.
Sales of wood golf clubs sales rose by 32 percent in the fourth quarter to $40.8 million, bringing the annual total to a 1 percent gain at $225.4 million. Sales of irons went up by 1 percent in the quarter to $46.8 million and fell by 4 percent in the full year to $232.9 million. Putters declined by 30 percent in the quarter to $18.7 million but rose by 8 percent in 2010 to $106.2 million for the year. Golf balls rose by 1 percent in the quarter to $32.2 million but fell by 1 percent for the year to $176.5 million. Quarterly accessories sales fell by 6 percent to $47.0 million but increased by 8 percent in the year to $235.8 million.
Regionally, U.S. sales rose by 3 percent in the quarter to $78.6 million but were down for the full year by 2 percent to $468.2 million. European sales rose by 4 percent in the quarter to $23.0 million but declined by 3 percent in 2010 to $130.1 million. Japanese sales fell by 9 percent in the last three months to $44.6 million while increasing by 1 percent for the year to $164.8 million. Revenues in other Asian countries rose by 3 percent in the final quarter to $18.7 million and were up by 16 percent for the year to $89.5 million. Other foreign countries rose by 3 percent in quarter to $20.7 million, bringing the full year to a gain of 14 percent to $115.1 million.
Callaway expects past investments in R&D and supply chain improvements to bear fruit in 2011. It anticipates a turnover of between $980 million and $1.02 billion for the year and sees gross margins rising to 41-43 percent. The bottom line should show a net profit of $9.6-$16.0 million compared with a $29.3 million loss in 2010.
The company's profit forecast excludes charges of $22 million related to Callaway's supply chain initiatives, which have saved $85 million since inception and are expected to contribute another $25-35 million in savings over the next three years. Callaway said it would first wait for a return to good results in its core business, which would mean generating solid single-digit growth and gross margins of 45-46 percent, before considering whether to diversify out of golf.
The group sees sales growth coming primarily from emerging markets such as China and India as well as continued progress in the apparel/accessories markets. The forecast sees a modest increase in equipment revenues overall, in line with the market gains. Callaway notes that the U.S. golf equipment market is bottoming out after a 2 percent decline in 2010, which compared with a 12 percent drop the prior year. The trend is similar abroad.
