Callaway Golf Co. saw its net loss in the fiscal fourth quarter deepen to $40.6 million, compared with a loss of $29.2 million last year. However, sales surged by 20.2 percent to $374.6 million, led by strong demand in the golf equipment segment and a quicker-than-expected recovery in the softgoods business, boosted by higher sales of TravisMathew and Jack Wolfskin apparel.
Currency fluctuations had a $9 million favorable impact on revenues. The gross margin decreased by 4.6 percentage points to 37.1 percent, due to inventory reduction initiatives for softgoods segment, as well as increased operational costs due to Covid-19, including higher freight costs.
In dollars, there was a 40 percent increase in the golf equipment segment, while softgoods revenues inched up by 1 percent. E-commerce performed well everywhere.
The U.S. recorded a 34.2 percent surge in revenues to $174.8 million during the quarter, thanks largely to a boom in golf rounds played during the period, helped by favorable weather conditions. In constant currencies, sales inched up by 0.1 percent in Europe to $91.5 million, while Japan fell by 3.0 percent to $53.5 million. In Rest of World, revenues jumped by 26.2 percent to $54.8 million.
The management highlighted the potential of the merger with Topgolf, which it announced at the end of October. Topgolf operates large, technologically enhanced driving ranges with restaurants and bars. Callaway identified many synergies and strong growth prospects. It said the merger is on track, subject to shareholder approval planned for March 3, to close in the first quarter of 2021. Callaway noted that Topgolf’s exceeded expectations in the fourth quarter, despite some store closures in the U.S. and the U.K. due to the pandemic.
Golf club sales soared by 48.5 percent to $170.5 million, on the strength of Epic drivers and Apex irons, while ball sales increased by 14 percent to $43.3 million due to supply constraints. Apparel sales were up by 8.7 percent to $110.0 million, but Gear and other sales plunged by 12.4 percent to $50.7 million.
Ebitdas, which stands for operating earnings excluding interest, taxes, depreciation and amortization as well as stock compensation, showed a loss of $21.0 million, against a loss of $9.6 million last year.
For the full year, Callaway recorded a net loss of $126.9 million, versus a net profit of $79.4 million in 2019, due to a $174 million impairment charge on the Jack Wolfskin goodwill and trade name earlier in the year. Revenues declined by 6.6 percent to $1,589 million and the gross margin dropped by 3.7 percentage points to 41.4 percent.
Looking forward, the group declined to release a formal guidance, but said it anticipates that the pandemic will continue to negatively impact its business in 2021, although to a lesser degree than in 2020, thanks to increasing demand for golf equipment and recovery in the softgoods sector.
It also said that on a pre-merger basis, which does not take into account Topgolf, its consolidated sales for the first quarter of 2021 will exceed 2020 sales. The gross margin should be negatively impacted by increased operational costs due to Covid-19, including higher labor costs, logistical challenges and increased freight expenses resulting from a shortage of ocean freight containers. Despite these headwinds, the company believes that its gross margin will be approximately the same as in 2019. Operating expenses are estimated to be about $70 million to $80 million higher as compared to 2019, due to planned investments in the softgoods business, including the opening new doors for TravisMathew, along with investments related to new market expansion for Jack Wolfskin in North America and Japan.