At the beginning of this year, Callaway Golf acquired Jack Wolfskin's parent company, JW Stargazer Holding, for €418 million, thus adding outdoor clothing and accessories to its own product portfolio, previously limited to golf equipment and accessories.
For the German outdoor apparel producer, the new owner promises substantial opportunities for conquering the American market and increasing its overall sales outside Germany, which currently accounts for around 40 percent of the total turnover.
For the implementation of this plan, Jack Wolfskin intends to utilize Callaway's sales and customer service apparatus in the U.S. No new Jack Wolfskin shops are planned for now, as the focus in the initial phase will be on the wholesale business and e-commerce. Callaway's second strongest region is Japan – a market that Jack Wolfskin would also like to penetrate. Adapting to the demographics and buying behavior in Japan, the German company intends to only offer products from its premium collection in that market.
One of the latest filings by Callaway with the U.S. Securities & Exchange Commission disclosed the operating results of JW Stargazer for the financial year ended on Sept. 30, 2018. Its comprehensive net income increased by 57 percent to €6,450,000 for the year, but was up by just 5 percent to €5,778,000 excluding the effect of foreign currency exchange rates on sales abroad. The gross margin rose by 3.2 percentage points to 53.2 percent.
Revenues gained one percent to €333,378,000 from €330,551,000 due to a 7 percent increase in sales outside of Germany to €182.8 million that offset a 6 percent decline in domestic sales to €160.5 million. Apparel, which accounts for the vast majority of the company's revenues, was up by 2 percent for the year to €272.6 million, but footwear sales contracted by 8 percent to €41.6 million and equipment was flat at €29.2 million.
Incorporating Jack Wolfskin's results for the year into Callaway's financials shows a combined entity with pro forma 2018 revenues of $1,638,670 and net income of $81,033,000, including the two companies' net results less $30,532,000 in adjustments for inventory, financing, and other expenses.
On the balance sheet, Jack Wolfskin adds $521.2 million worth of acquired net assets, of which $58.1 million in cash was backed out of the purchase price. The balance includes $82.3 million in inventory, $73.8 million in goodwill, $288.9 million in other intangibles, $36.5 million in receivables, $52.0 million in payables, and the rest in property, equipment and other assets. And of course, on the liability side, there is a $461.9 million term loan that Callaway used to finance the transaction.
In the SEC filing, Callaway's expectations for Jack Wolfskin were at ground level. It is expected that this year's sales will stagnate at the previous year's level of around €333 million and that they will only grow in the medium term. The operating profit (Ebitda), which rose by one-fifth to €42 million in 2018, was projected to decline in 2019, mainly due to higher planned investments in marketing, design, and infrastructure.
Also, the online business, which currently accounts for a good 5 percent of sales, will be linked closer to the physical stores. This should have no negative impact on Jack Wolfskin's many stores in Germany, as no major closures are planned, according to the company.
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