After a difficult fourth quarter, which was due essentially to a temporary lack of new products, Callaway Golf posted mixed results for the first three months of this year.
Net income tumbled by 23 percent from the year-ago quarter to $48.6 million, although sales jumped by 28 percent to $516.2 million, despite an estimated $15 million negative impact from changes in foreign currency rates. The revenues included a $93 million bump from Jack Wolfskin, acquired in January 2019, and double-digit growth by TravisMathew, acquired in 2017. Organic core sales advanced by 7 percent.
The group's gross margin fell by 3.5 percentage points in the quarter to 46.2 percent, with 0.7 percentage points attributed to foreign currencies, one percentage point to purchase accounting adjustments for Jack Wolfskin, and the balance of 1.8 percentage points coming from higher manufacturing costs, the product mix and lower seasonal product margins generated by Jack Wolfskin. Adjusted Ebitda increased by 4 percent to $93 million, however.
The company lowered its outlook for Jack Wolfskin's sales in 2019 by between 2 and 3 percentage points due to lower than anticipated pre-bookings for the autumn/winter season as a result of softer market conditions in Central Europe and China. As indicated in the article below, Callaway was projecting flat sales for Jack Wolfskin this year, compared with €333 million in 2018.
However, it confirmed the group's full-year sales guidance, anticipating a sales increase of between 34 and 37 percent, driven by the launch of many new golf products in a market that is expected to be flat or slightly positive.
In the U.S., the group's revenues were up by 6 percent to $249.0 million, while Europe surged by 147 percent to $126.6 million, boosted by the addition of Jack Wolfskin. In constant currencies, European sales climbed by 167 percent. Meanwhile, sales in Japan increased by 6 percent to $73.2 million – or by 8 percent in constant currencies – and in the Rest of World, which now includes Korea and other Asian markets, sales jumped by 42 percent to $67.4 million, or by 49 percent at constant exchange rates.
By categories, club sales gained 2 percent to $261.8 million, boosted by the Epic Flash driver, Apex irons and Stroke Lab putters. Sales of golf balls advanced by 13 percent to $61.8 million, thanks to strong sales of the new ERC ball. The management said that the ball segment overall continues to gain market share.
The addition of Jack Wolfskin, along with TravisMathew, lifted apparel sales to $96.2 million, up from $12.1 million for the year-ago quarter. Sales in the Gear/Accessories/Other category gained 22 percent to $96.3 million.
Callaway now breaks out profitability for its hardgoods and softgoods segments: profits from golf equipment sales declined by 10 percent to $70.0 million, while profits from apparel, gear and other items rose by 17 percent to $22.7 million.
