Callaway Golf Company (NYSE: ELY) has announced its first quarter financial results and updated its full year financial outlook for 2016.
The Company’s 2016 first quarter net sales of $274 million, as compared to $284 million in the first quarter of 2015, were consistent with the Company’s expectations and primarily reflect a strategic change in product launch timing, including the extension of product lifecycles. As a result of this strategic change, a majority of the Company’s anticipated sales growth in 2016 is expected to occur in the second half of the year. Despite this change, the Company’s 2016 product line has been well received by retailers and consumers alike, enabling the Company to continue its brand momentum and build upon its significant market share gains of the last few years. For the first quarter of 2016, Callaway maintained its #1 dollar market share position in the U.S. for total golf clubs and its total U.S. hard goods dollar share was the Company’s highest first quarter share since 2007.
The Company’s 2016 first quarter financial results also reflect the Company’s continued improvements in gross margins and profitability. For the first quarter of 2016, despite the planned reduction in net sales, the Company’s gross margins improved by 350 basis points to 48.3%, resulting in a $5 million (or 4.0%) increase in gross profit compared to the same period in 2015. These improvements are the result of continued favourable trends in the Company’s business, including continued operational efficiencies, increased average selling prices, and less promotional activity. A $3 million decrease in operating expenses also contributed to a 22.7% increase in operating income (29.2% on a constant currency basis) for the first quarter of 2016 compared to the same period in 2015.
The Company’s diluted earnings per share increased to $0.40 for the first quarter of 2016 compared to $0.39 for the first quarter of 2015. On a constant currency basis, first quarter diluted earnings per share increased by 23.1%. The improvement in earnings per share is attributable to the improved gross margins and reduced operating expenses, which allowed the Company to more than offset the over $7 million in net foreign currency losses.
“The first quarter of 2016 was a strong start to the year for Callaway Golf and we are encouraged by how our business is trending,” commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. “We are seeing sustained improvements in market dynamics, including less promotional activity and higher average selling prices. We are also steadily improving our profitability via operational improvements and our brand momentum by maintaining our leadership position in the club category while building share in our golf ball business, which
presents an excellent growth opportunity. In addition, we had an exceptional start on tour, winning the first two majors of the year. Lydia Ko won the ANA Inspiration, the LPGA’s first major of the year, and Danny Willett enjoyed a strong win at the Masters. Both won with our new XR 16 driver which is contributing to the buzz around that product.”
Mr. Brewer continued, “Looking forward, we will continue to focus on our core business by delivering innovative golf products and by continuing to improve our operational efficiencies. The effectiveness of this core strategy is proven; for example, our trailing twelve month EBITDA as of March 31, 2016 increased by 49.0% to $46.2 million compared to the same period in 2015. Moving forward, in addition to focusing on our core business, we intend to use our increased profitability and strengthened financial condition to dedicate additional resources to business development opportunities both within our core business and in tangential areas. Such opportunities include our previously announced agreement in principle to form a joint venture with our long term licensee, TSI Groove & Sports Co., Ltd., for the manufacture and distribution of Callaway branded apparel, footwear and headwear in Japan. We are excited about this second leg of our growth strategy and believe it opens up a new and exciting path for increasing long-term shareholder value.”
The Company’s revised pre-tax income and earnings guidance includes an $18 million pre-tax gain on the sale of approximately 10% of the Company’s investment in Topgolf International, Inc. The Company still holds an approximate 15% ownership interest in Topgolf.
Callaway Golf Company www.callawaygolf.com