Callaway Golf Co. saw sales for the first quarter decline by 14 percent to $442.3 million, weighed down by the impact of Covid-19 on its golf equipment and softgoods businesses, including the recently acquired Jack Wolfskin brand. Currency fluctuations negatively affected revenues by $4 million. The gross margin decreased by 2.0 percentage points to 44.2 percent, due to the pandemic, currency fluctuations, increased tariffs on imports from China, and costs associated with transitioning the North American distribution center to a new facility in Texas.
The management said that, through early March, its operations continued to deliver strong results. But in March, social distancing measures and lockdown restrictions significantly slowed retail sales. The company is now focusing on reducing costs and enhancing liquidity. It achieved a reduction of about 20 percent in planned operating expenses and capital expenditures through efforts to reduce discretionary spending and infrastructure costs on a worldwide basis, including voluntary reductions in compensation for the members of the board of directors, the chief executive and senior management. Overall, it expects to cut capital expenditures down to $33 to $38 million for 2020, from $55 million last year.
As of March 31, 2020, the company had over $250 million in cash and availability under its credit facilities, as it added $40 million of loan commitments during the quarter. On May 4, Callaway completed the issuance of $259 million of 2.75 percent convertible senior notes due in 2026.
By region, the company believes it gained share in both Europe and Asia during the quarter, while ceding some share in the U.S., primarily due to the timing of product launches. E-commerce performed well everywhere.
The U.S. recorded a 13 percent decline in revenues to $217.5 million during the quarter. Sales slipped by 24 percent to $96.7 million due to store closures.in Europe, held the number one share position in golf hardgoods through February, which is the last month for which data is available. A bright spot was Japan, where revenues rose by 6 percent to $77.3 million, but sales in the rest of world plunged by 25 percent to $50.7 million. The management believes that the Asian business will recover faster than expected in the second quarter, especially in China, where the golf and apparel businesses were down significantly at the beginning of the year but both have rebounded well, exceeding expectations in April.
Golf club sales declined by 4 percent to $251.2 million, while ball sales dropped by 35 percent to $40.4 million, as Callaway delayed the launch of the new Chrome Soft launch into March, when retailers closed down. Apparel sales dipped by 20 percent to $77.3 million, despite a good performance from TravisMathew. Gear and other sales plunged by 24 percent to $73.3 million.
EBITDAS, which excludes interest, taxes, depreciation and amortization as well as stock compensation, declined to $58 million, against $79 million last year. Net income tumbled by 41 percent to $28.9 million.
The management did not release any guidance for the full year, but warned that many portions of the business are currently operating on a limited basis due to various government orders, which will significantly impact second-quarter financial results. It expects one-time expenses of about $6 million in 2020. However, it believes that golf will come back quickly, as the National Golf Foundation estimates that 80 percent of golf courses in the U.S. will be open by mid-May. it is also starting to see some signs of recovery in Germany and the DACH region, where lockdown restrictions are easing.
