Callaway Golf Co. released preliminary results for the first quarter which pointed to a drop in revenues and earnings due the coronavirus, but it expressed optimism going forward for its golf equipment and outdoor clothing operations, leading the share price to jump by 17 percent.
The group said it expects to report sales of $438-443 million for the first quarter, against $516 million for the year-ago period, 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 impacted revenues by approximately $4 million. Net income should reach $0.27 - $0.31 per share, down from $0.50 last year. EBITDAS, which excludes interest, taxes, depreciation and amortization as well as stock compensation, is forecast to have declined to $55-59 million, against $79 million last year.
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.
However, it expects golf to come back quickly as it believes that this activity can be practiced while respecting social distancing guidelines. it is also starting to see some signs of recovery, particularly in the regions that were first affected by Covid-19 and are in the process of recovering, such as Germany and the DACH region, where Jack Wolfskin represents a significant portion of sales. However, this did not reassure markets, with Callaway’s share tumbling by 17 percent after the announcement.
The management said that, through early March, its operations continued to deliver strong results. In March, global regulatory responses implementing social distancing and shelter-in-place orders significantly slowed retail sales. The company has been focused 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.
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. Callaway is now in the process of amending its credit facilities to increase its flexibility to take advantage of other available sources of capital, including capital markets and government-sponsored programs. A majority of the company’s employees in the U.S. and Europe, including its corporate offices in California, are currently working from home.
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. Its golf equipment market share remained strong in all major markets. Callaway held the number 1 share position in the U.S. for total Hardgoods as well as for total Golf Clubs through March, and in Europe in Hardgoods through February, which is the last month for which data is available. E-commerce has been exceeding expectations globally and is partially offsetting the decline in wholesale and retail.
In Asia, Japan and Korea delivered year-over-year growth over the period despite challenges from Covid-19. The golf and apparel businesses in China were down significantly at the beginning of the year but both have rebounded well, exceeding expectations in April.
