Inspite of declining markets both at home and abroad the Company increased sales and improved its underlying operational performance.
Full Year Results
Net sales of $968 million, an increase of 2% compared to $951 million for the same period last year. On a currency neutral basis, net sales would have been $939 million in 2010, a decrease of 1% compared to 2009.
Gross profit of $365 million (38% of net sales), compared to $344 million (36% of net sales) for 2009. Gross profit for 2010 and 2009 includes charges associated with the Company’s Global Operations Strategy of $13 million and $6 million, respectively.
Operating expenses of $392 million (41% of net sales), compared to $374 million (39% of net sales) for 2009. Operating expenses for 2010 include (i) a $7.5 million non-cash charge related to a reduction in the recorded book value of certain non-amortizing intangible assets acquired as part of the 2003 Top-Flite acquisition and (ii) $2 million of charges associated with the Company’s Global Operations Strategy. There were no such charges in operating expenses in 2009.
Operating Results. Operating loss of $27 million, compared to an operating loss of $31 million in 2009. The operating loss for 2010 includes (i) the $7.5 million non-cash Top-Flite intangible asset charge and (ii) charges in 2010 and 2009 associated with the Company’s Global Operations Strategy of $15 million and $6 million, respectively.
Earnings Results. A loss of $0.46 per share for 2010 and a loss of $0.33 per share for 2009.
The loss per share for 2010 includes a loss of $0.08 per share related to the non-cash Top-Flite intangible asset charges. The loss per share includes charges in 2010 and 2009 for the Company’s Global Operations Strategy of $0.14 per share and $0.06 per share, respectively.
Compared to 2009, the Company’s earnings were adversely affected in 2010 by an increase in other expense. This increase is attributable to mark-to-market charges of approximately $0.11 per share related to unfavorable changes in foreign currency.
The Company’s preferred stock adversely affected the Company’s earnings by approximately $0.16 per share in 2010 as compared to $0.09 per share in 2009 as the preferred stock was not issued until June of 2009.
Comments from George Fellows, President and Chief Executive Officer
“Although the delayed golf industry recovery, along with some non-operational charges, unfavorably impacted our financial results for the fourth quarter and full year 2010, our underlying operational performance improved significantly in 2010 as we realized additional benefits from our gross margin initiatives, investments in emerging markets, and cost management initiatives,” commented George Fellows, President and Chief Executive Officer of Callaway Golf Company.
“And while our financial results are not where we expect them to be when the golf industry does fully recover, we are encouraged by the progress we have made this year even though the golf industry declined in the United States by approximately 2% and 12% in 2010 and 2009, respectively, and by approximately that much internationally as well. We expect that the improvements in gross margins this year and the positive trends in our full year operating results will continue into 2011.”
“When the economic crisis hit the golf industry, we made the decision to weather the downturn with a balanced approach between tightly managing costs while continuing to invest in our business for the long-term,” commented Mr. Fellows. “And even though the golf industry has taken longer than we expected to fully recover, we still believe this was the correct approach. The investments we made, while adversely affecting 2009 and 2010 results, have already provided benefits and, more importantly, have set the foundation for greater returns in 2011 and beyond.
“More specifically, in 2011, we expect to realize additional benefits from our investments in our emerging markets in China, Indonesia, and India, which collectively were up over 25% in 2010 compared to 2009, and in our soft goods and accessories category which was up 8% in 2010 compared to 2009,” continued Mr. Fellows.
“We expect to realize further improvements in our gross margins primarily due to our continued investment in our global operations strategy, which yielded approximately $15 million in savings in 2010. And we expect increased sales in 2011 due to our continued investment in research and development, including our new proprietary forged composite technology embedded in many of our 2011 products. We are already receiving very favorable customer and media reviews on our new products for 2011, and we received more medals than any other golf manufacturer in Golf Digest’s 2011 product review.”
Economic picture appears to be improving
“In addition to these benefits from continued investment in our business, we are also encouraged by improving economic and market conditions,” explained Mr. Fellows. “The overall economic picture appears to be improving; the price discounting that was pervasive in 2009 was less in 2010; retail inventory levels are at reasonable levels; and we remain No. 1 or No. 2 in market share in almost all major product categories.
“While 2011 will ultimately depend on the degree to which consumers return to purchasing golf equipment, given these improving conditions and the expected continued improvement in our operational performance, we are cautiously optimistic as we begin the new golf season.”
Business Outlook
The Company estimates sales in 2011 will improve to a range of approximately $980 million to $1.02 billion. The Company also estimates that pro forma gross margins for the year will improve to a range of approximately 41% to 43%, pro forma operating expenses for the year will be approximately $375 – $395 million, and pro forma earnings per share for the year will be approximately $0.15 to $0.25. The pro forma estimates exclude charges associated with the Company’s Global Operations Strategy. These charges are estimated to be approximately $23 million (pre-tax), or $0.22 per share (after-tax), in 2011.
Callaway Golf www.callawaygolf.com