Callaway Golf has reported net sales of $442 million for the first three months of 2020, down $74 million on last year’s figures for the same period.
Net income was for the first quarter was $29 million compared to $49 million for the first quarter of 2019.
Chip Brewer, Callaway’s President and Chief Executive Officer, said: “We are pleased that during the first quarter of 2020 our golf equipment market shares remained strong in all of our major markets and that we were able to deliver a profitable quarter despite the negative impact of COVID-19. In fact, through early March we were on track for another record sales year, which would have made it our fourth consecutive record year.
“While the COVID-19 pandemic will have a significant impact on our results in the short term, we believe we will be well positioned to emerge from this pandemic. Our golf and outdoor lifestyle businesses support an active and healthy lifestyle that is compatible with a world of social distancing. We are also pleased that we are beginning to see some signs of recovery, particularly in those regions that were first affected.”
“The decrease in sales reflects the negative impact of the COVID-19 pandemic on both the golf equipment and soft goods operating segments globally. This decrease, however, was partially offset by an increase in net sales in Japan and Korea for the same period despite the impact of the COVID-19 pandemic.”
Brewer added: “Our golf equipment market shares remained strong in all of our major markets. Through March, we held the number one position in the US for total hardgoods, as well as for total clubs, and in Europe we held the number one position in hardgoods through February, which is the most up-to-date data currently available. We believe we gained market share in both Europe and Asia. During the quarter, we also made good progress on key initiatives, including the completion of our golf ball modernization effort for our facility in Massachusetts facility, and the initial phases of our transition to our new 800,000 sq ft ‘superhub’ just outside of Fort Worth, Texas.”
“The COVID-19 outbreak initially impacted just our Asian businesses and supply chain, but by early March, the issue became global. By mid-March, global regulatory responses implementing social distancing and shelter-in-place orders significantly slowed retail sales and created business challenges worldwide.
“During that time, our focus shifted to being proactive in actions to protect our business and its many constituencies. These actions included securing increase near-term liquidity via both our ABL and equipment loans, decreasing our operating expenses and capital expenditures in total by approximately 20%, aggressively decreasing inventory commitments to better match up with revised demand expectations and to minimize working capital needs and evaluating more long-term capital options, which led us to issue approximately $250 million in convertible debt last week under what we believe were favorable terms and conditions.
“Given our initial actions, we believe we had adequate liquidity to make it through this pandemic crisis even before the convert debt issuance. Now, of course, we have an even higher confidence, but not only getting through this, but emerging in a position of relative strength. Throughout all of this, the safety and health of the company’s employees, customers and partners has remained paramount in our minds. Following guidelines established by health organisations across the world, we initially took actions including, limiting and then suspending business travel, restricting visitors and establishing work-from-home programs.”
“As things develop, almost all of our North American and European operations have been shut down for various lengths of time. At present, our corporate headquarters in California is still working from home and our golf ball plant in Chicopee, Massachusetts is still closed by state order. However, many of our facilities elsewhere in the US and across the globe are starting to return to more normal operations.”
Discussing how second quarter sales figures would be impacted as a result of almost all golf courses being closed thought April and half of May, Brewer added: “Unfortunately, Q2 is certainly going to be down significantly and we are unsure what to expect for the balance of this year. Experts are telling us there will likely be a significant recession, maybe a reoccurrence, which may or may not be managed well and maybe even on the positive side of e-life recovery. With this as our backdrop, we have suspended guidance until market conditions are more predictable.
“Having said all this, we are seeing some encouraging signs and these include, our primary Asian businesses, they’ve held up or recovered better than initial expectations. After a full shut down for a large part of Q1, our China business impressed us, with April revenues and our golf business returning to levels roughly equivalent to 2019 and our China apparel business only down slightly for the month of April.
Demand to play golf is high in both China and Korea. In Korea, Tee times outside Seoul are reportedly booked through May already. We believe our Asian businesses overall will be a positive contributor for the balance of the year.
“Markets in Central Europe and the US are starting to reopen as well, which is especially as relevant for our golf business. By mid-May, the National Golf Foundation believes 80% of US golf courses will be opened in the US, and I have a feeling it may actually be quite a bit better than this. Anecdotal reports are that there is high utilization of the golf courses that are open and research shows there is a pent-up demand to play.
Callaway is well positioned to both weather this storm and come out in a position of strength. We are confident that our principal products, golf equipment, golf apparel and golf accessories, as well as outdoor apparel, gear and accessories are attractive segments for a world of social distancing and a ‘new normal’.”