Callaway Golf Posts Loss for 3rd Quarter
Callaway Golf Co. said Tuesday that it swung to a loss in the third quarter as it cut prices and delayed launching new products to shrink inventory.
The Carlsbad, Calif.-based company, the maker of Big Bertha clubs, posted a net loss of $35.9 million, or 53 cents a share, for the quarter that ended Sept. 30, contrasted with net income of $2.3 million, or 3 cents a share, a year earlier.
Excluding charges of $4.4 million, or 7 cents a share, related to the company’s purchase of golf ball manufacturer Top-Flite Golf Co., Callaway would have reported a loss of $31.5 million, or 46 cents a share.
On that basis, analysts had predicted a loss of 45 cents a share, according to a survey by Thomson First Call.
Revenue declined 16.4% to $128.5 million from $153.6 million a year earlier, reflecting steep drops in sales in Europe, Japan and the rest of Asia.
Operating expenses jumped 28% to $89.4 million from $69.9 million in the third quarter of 2003.
The lackluster report comes as Callaway struggles to rebound from a prolonged golf- industry slump and a management shake-up.
Ron Drapeau resigned in August from the jobs of chairman and chief executive under board pressure. Drapeau was replaced by longtime Callaway director William Baker.
A month later, Baker announced that Callaway would stop making earnings forecasts and didn’t expect to hit its projected third-quarter loss of 37 cents to 42 cents a share on sales of about $150 million to $160 million.
A decision to cut prices and delay the launch of certain new products until 2005 improved inventory levels, company executives said during a conference call Tuesday with analysts and investors.
One analyst described the company’s outlook as a “wait-and-see picture.”
“They’ve got to do a much better job than they have at developing products that meet the consumer’s needs,” said Dennis B. McAlpine, an analyst with McAlpine Associates.
“They announced a hybrid line of irons that sounded really good but are a thousand bucks a set. You’re not going to sell a lot of those.”
Encouraging signs included the company’s ability to reduce inventory despite hurricanes and other bad weather that disrupted golf playing in some parts of the U.S. during the third quarter, said John Moran, an analyst with Ryan Beck & Co.
“That they think they’ll be able to clear out retail channels by the end of this year is still positive,” Moran said. “I think the most important thing is to make sure they get the product right for 2005.”
Callaway has recently launched several new products, including the Big Bertha Heavenwood Hybrid and Odyssey White Steel Putter lines.
“These are not new technologies as much as they are fixes,” John Horan, publisher of Sporting Goods Intelligence, said in a recent interview.
Horan questioned the company’s decision to enter a multimillion-dollar endorsement deal with Masters champion Phil Mickelson, suggesting that the money would have been better spent on product development and straightening out the Top-Flite golf ball operation.
Callaway’s Baker said Tuesday that the company had no plans to scale back an active research and development program.
“We have a lot more on the drawing board,” he said.
Baker said he expected Mickelson to start next year with a bag filled with Callaway clubs. As for courting more endorsement deals, Baker said, “We are not going for the count, but rather for quality.”
The company released its third-quarter report after the stock market’s close Tuesday. Callaway shares fell 32 cents to $9.28 in regular trading Tuesday on the New York Stock Exchange. The stock’s price was little changed in after-hours trading.
