Global Edition

Callaway Releases Preliminary First Quarter 2007 Results

12.45am 19th April 2007 - Corporate

Callaway Golf Company (NYSE:ELY) has announced that, based on current information, the Company estimates net sales for the first quarter ended March 31, 2007 of $330 million to $335 million, an estimated increase of approximately 10%, with a corresponding estimated increase of approximately 42% in earnings per diluted share that is estimated to range from $0.46 to $0.48 (on 68.3 million shares), including long-term incentive compensation expense. These results also include after-tax charges of approximately $0.01 per share related to gross margin improvement initiatives announced in November 2006.

For the first quarter of 2006, the Company reported net sales of $302 million and fully diluted earnings per share of $0.33 (on 70.1 million shares), including long-term incentive compensation expense. Those results included after-tax charges of approximately $0.01 per share for the Top-Flite integration.

Business Update
“We are very pleased with our preliminary first quarter results,” commented George Fellows, President and CEO of Callaway Golf. “As a result of improved product development and supply chain processes, we were able to ship more of our new products to retail than originally anticipated. The earlier sales of these higher margin products, together with the progress we have made on our gross margin improvement initiatives, are estimated to result in a marked improvement in gross margins for the quarter compared to last year.”

“Initial acceptance of our new products has been encouraging thus far,” continued Mr. Fellows. “However it is still early in the year and the first quarter should be viewed partly as a retail pipeline fill rather than a total indicator of our full year performance. The second quarter will be a better indicator in that regard as its success is driven by consumer purchases of our products and resulting retail reorders. Therefore, although we expect the second quarter to be our highest revenue quarter for the year, we will be in a better position, if necessary, to update our annual outlook at our May 3rd earnings conference call.”

The estimated increase in sales for the first quarter is attributable to several factors including:

  • increased driver sales associated with the early launch of the FT-i and FT-5 fusion technology products

  • increased irons sales associated with the X-20 and X-20 tour models as well as the new X-forged product line

  • increased accessories sales associated with footwear, bags, and gloves

Gross Margins
The Company estimates its gross margins as a percentage of net sales to be approximately 48% for the first quarter. Excluding charges related to gross margin improvement initiatives, it is estimated that pro forma gross margins as a percentage of net sales would also be approximately 48%. In the first quarter of 2006, the Company’s gross margins were 43% and excluding integration and restructuring charges were 44%. The four percentage point increase in pro forma gross margins is primarily attributable to increased sales of higher margin products such as fusion drivers, X-series irons, and accessories, as well as manufacturing efficiencies and the successful implementation of gross margin improvement initiatives.

Operating Expenses
The Company estimates that its operating expenses for the quarter will be approximately $105 million, an increase of approximately $10 million when compared to last year’s first quarter. The increase is primarily due to an increase in marketing expense associated with the first quarter launches of the Company’s new products and higher expenses associated with the year over year increase in net sales.



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