Callaway Golf Company (NYSE:ELY) has announced that, based on current information, the Company’s net sales for the third quarter of 2008 are estimated to be $213 million compared to $236 million in 2007.
Management also estimates that the third quarter loss per share is expected to range from $(0.12) to $(0.14) (on 62.5 million shares outstanding), including after-tax charges of $0.04 per share associated with the Company’s gross margin improvement initiatives announced in November 2006.
For the third quarter of 2007, the Company reported fully diluted earnings of $0.02 per share (on 67.6 million shares outstanding), including after-tax charges of $0.04 per share associated with the Company’s gross margin initiatives.
Excluding the charges for the gross margin initiatives, pro forma loss per share is estimated to range from $(0.08) to $(0.10) for the third quarter of 2008 as compared to earnings of $0.06 per share for the third quarter of 2007.
Net sales for the first nine months of 2008 are estimated to be $946 million compared to $950 million in 2007. Earnings for the first nine months of 2008 are estimated to range from $1.06 to $1.08 per share (on 64.0 million shares outstanding), an increase of approximately 4% compared to $1.03 (on 68.4 million shares outstanding) for the first nine months of 2007.
These results include after-tax charges related to the Company’s gross margin initiatives of $0.09 per share in 2008 and $0.07 per share in 2007. Excluding these charges, pro forma diluted earnings per share are estimated to be $1.15 to $1.17, an increase of approximately 5% compared to pro forma diluted earnings per share of $1.10 for the first nine months of 2007.
The Company’s third quarter and first nine month results in 2007 benefited from a $0.03 per share gain related to the sale of a building.
“The significant deterioration in global economies over the last several weeks of the third quarter have finally impacted what had been a record year for Callaway Golf,” commented George Fellows, president and CEO of Callaway Golf. “Both our international and U.S. businesses were softer than expected as a result of the turmoil in the global financial markets. These recessionary conditions had a significant adverse effect on retailer and consumer confidence and exacerbated the normal end of season sales slowdown.
“Although we are disappointed with the effect these conditions have had on our third quarter sales, the operating expense contingency plans and share repurchases we implemented earlier this year have allowed us to increase pro forma earnings by approximately 5% for the first nine months of 2008 compared to the first nine months of 2007.
“Furthermore,” continued Mr. Fellows, “despite the impact of these macro-economic issues on our top-line, the fundamentals of our business remain strong. For example:
• We have a strong balance sheet with no long-term debt.
• Net working capital continues to be tightly managed. As a result of a more responsive supply chain, and despite the rapid decline in demand that occurred at the end of the quarter, our inventory as a percent of trailing twelve month sales at the end of the quarter is estimated at 19.7%, in-line with our year end target of 20.0%.
• Operating expenses also continue to be tightly managed to mitigate inflationary pressures and protect profitability. Operating expenses are estimated to be approximately $93 million for the third quarter of 2008, flat with 2007 and less than our previous guidance.
• Our gross margin initiatives continue to deliver targeted savings and have been able to partially offset an estimated 250 basis point decline in third quarter gross margins as a percentage of sales. This decline resulted from the effect of the economy on sales and product mix as nervous consumers trended toward lower price point products.
“Looking forward,” concluded Mr. Fellows, “we believe our 2009 new product line-up is stronger than our record setting 2007 offering, and along with the strong business fundamentals just mentioned, we feel we are well positioned for growth when the global economy and normal demand for new products finally begin to recover. In the meantime, we will continue to manage our business in a conservative and prudent manner.”
Management noted that given the continued uncertainty surrounding current and future economic conditions, the Company is revising its annual guidance downward.
The Company will release actual third quarter financial results on 30th October 2008. A conference call and webcast will also take place at that time.
Callaway Golf www.callawaygolf.com