Callaway Looks for a Mulligan

2009-08-05

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By Steve Pike
Callaway Golf Company (NYSE:ELY) took a major hit to its bottom line the second quarter of this year. The shrinking equipment giant reported earnings of $6.5 million in Q2 - an 82 percent drop compared to the second quarter of 2008.

Callaway's Q2 sales fell 17 percent to $302.2 million. For the first six months of this year, Callaway reported earnings of $13.2 million on sales of $574 million compared to earnings of $76.7 million on sales $732 million the same period a year ago.

"Clearly, this year is disappointing to all of us,'' Callaway Chairman George Fellows told Wall Street analysts this week.

Thanks for that bit of wisdom, George. Good to see you are on top of things. Well, maybe not.

Callaway's metal woods sales - what is still supposed to be its core business - dropped $10 million the second quarter versus Q2 of 2008 to $76 million. Year-to-date the company's metal wood sales have decreased 23 percent to $156 million compared to $203 million last year.

Cue the tap dancing music: Callaway Golf Chief Financial Officer Brad Holiday told analysts the company has gained more than three share points metal woods sales in the U.S. in dollar share through the first six months, "which is a reasonable proxy for most of our international markets.''

That's more of an indictment of the struggling golf equipment industry than it is a pound-your-chest moment for Callaway Golf.

Likewise in irons. Holiday said sales of irons and wedges for Q2 were $72 million, compared to second quarter sales last year of $100 million. Year-to-date sales in Callaway's iron category were $137 million compared to $197 million last year.

Despite the sales declines, Holiday said Callaway gained more than two share points in the U.S. on a year-to-date basis in iron sales.

Callaway's Q2 Golf ball sales were $58 million compare to last year sales of $74 million. Year to date its total golf ball sales declined to $106 million compared to $133 million last year, Holiday said, "due primarily to increased promotional activity (obviously not by Callaway) and the fact that we had no new premium products this year compared to several competitive offering.''

Holiday said Callaway's year-to-date U.S. market shares declined two share points. Putter sales for the quarter declined to $26 million versus $33 million last year, with year-to-date sales at $54 million compared to last year of $67 million. U.S. market share, he said, has increased by two share points through the first half of the year.

Again, cue the tap dancing music. Market share increases are always good, but the golf equipment industry has been a declining market for the better part of the past 18 months.

The bottom line is, well, the bottom line. And Callaway's isn't pretty. You can't tap dance around that.