Callaway Golf Company (NYSE:ELY) has reported record sales for the first quarter ended March 31, 2001. Reported net sales increased 32% to $261.4 million from $197.4 million during the first quarter of 2000. Net income increased 181% to $34.1 million in the first quarter of 2001 from $12.1 million in the first quarter of 2000. First quarter 2001 diluted earnings per share increased 181% to $0.47 from $0.17 in the same period last year.
Excluding the impact of recently adopted accounting pronouncements (SAB 101 on Revenue Recognition and Emerging Issues Task Force 00-10 on Accounting for Shipping and Handling Revenues and Costs), first quarter net sales increased 25% to $258.9 million from $206.6 million last year. Net income and diluted earnings per share increased 109% during the first quarter to $33.8 million and $0.47 per diluted share, respectively, as compared to $16.2 million and $0.22 per diluted share in the prior year. Implementing SAB 101 effectively shifts revenue from one period into a subsequent period, while adopting EITF 00-10 does not change earnings for any period.
“We are pleased with our overall first quarter results,” stated Ely Callaway, founder, chairman and CEO. “Good momentum has continued from last year into the first quarter of 2001 due to the success of several of our new product introductions and key sales programs. We have continued to outpace the market and our brand is as strong as it’s ever been.
“Golf ball sales doubled in the first quarter of 2001 compared to the first quarter of 2000, reaching $12 million,” he continued. “These growing golf ball sales are based upon the recognition that our ‘Rule 35’ golf balls incorporate technology that is the state of the art in modern golf ball design. The ‘Rule 35’ has quietly become the #2 ball in use on the five major professional tours combined, #2 in tour earnings and in top ten finishes and, of course, it is the only ball used to score a 59 on tour this year. “On May 1, our ‘Rule 35’ golf balls will be joined by our new ball offering, the CB1à” Red and CB1 Blue golf balls. We think these new two-piece high performance balls will be equally appealing representatives of the Callaway Golf brand.
“The first quarter of 2001 was a very good quarter for our new Big Bertha ERC II and Big Bertha Hawk Eye VFT Drivers,” added Mr Callaway. “The ERC II Forged Titanium Driver has already been selected as Driver of the Year for 2001 by Choice Magazine, the leading golf magazine in Japan. The Hawk Eye VFT Driver appears to be well on its way to becoming the best selling premium driver in the US, just as others of the various Big Bertha driver models have every year since 1993.
“In light of its success as the most used driver model on the European PGA Tour thus far in 2001 it should not surprise anyone to learn that the ERC II Driver has sold very well outside the US where it fully conforms with the Rules of Golf as published by the Royal and Ancient Golf Club of St. Andrews,” Mr Callaway continued. “But it may surprise some to know that we have already sold and delivered almost as many ERC II Drivers in the United States as we have outside the US despite the fact that the sale and use of this club is strongly and aggressively opposed by the USGA. This, in our opinion, is a strong testament to the performance benefits that the unique ERC II driver design technology can deliver to average and skilled golfers everywhere.”
First quarter net sales of $258.9 million (excluding the impact of the accounting pronouncements described above) by product category and region were as follows:
First quarter gross margin as a percent of net sales was 52% versus 45% in the comparable period last year. This increase was primarily attributable to higher golf club margins resulting from manufacturing improvements, a product mix favouring higher margin metal woods, and improved golf ball margins.
Selling and tour expenses for the first quarter were $53.2 million (20% of net sales), compared to $42.8 million (22% of net sales) in 2000. The dollar increase was primarily due to increased advertising and promotional expenses related to the company’s new product launches.
General and administrative expenses for the first quarter of 2001 were $19.9 million (8% of net sales), compared to $17.5 million (9% of net sales) in 2000. This dollar increase is primarily due to costs related to consolidating operating facilities and an increase in the Company’s provision for bad debt expense, partially offset by a decrease in depreciation expense.
“We are encouraged with the results we saw in the first quarter from our manufacturing and operational initiatives,” stated Brad Holiday, executive vice president and chief financial officer. “These initiatives contributed considerably to net income growth during the quarter. Equally as important, our October 2000 retailer event enabled us to take orders and ship our products earlier in the selling season. As a result, we were better able to meet market demand while improving our inventory management.”
In accordance with the company’s dividend practice for 2001, the dividend for the first quarter will be determined by the board of directors at its meeting in May 2001.
Callaway Golf Company www.callawaygolf.com