Callaway tops forecasts, sees improving climate for golf industry

Callaway Golf’s shares climbed Thursday after the Carlsbad club maker posted better-than-expected financial results during its third quarter – typically a slow time for golf sales as the summer playing season winds down.

Callaway benefited from a 21 percent increase in club sales, a 20 percent gain in golf ball purchases and a 72 percent rise in gear and accessories sales. The accessories gains were led by Callaway’s recent acquisitions of backpack/golf bag maker OGIO and clothing brand TravisMathew.

“The overall trend is improving market conditions and strengthening fundamentals,” said Callaway Chief Executive Chip Brewer in a conference call with Wall Street analysts. “Europe has been good all year. The U.S. market has been down slightly, but it is really a market correction from the Golfsmith bankruptcy and an ongoing reduction of inventory in the field.”

Golfsmith, the largest golf specialty retailer in the U.S. with 109 stores, filed for bankruptcy in a little over a year ago. Many of its assets were sold to Dick’s Sporting Goods through bankruptcy court.

Callaway posted third quarter revenue of $244 million – higher than the $211 million forecast by Wall Street analyst. The results marked a 30 percent increase over $188 million in sales for the same quarter last year.

Casey Alexander, an analyst with Compass Point Research and Trading, believed Callaway’s July through September sales reached a record high compared with previous third quarter numbers.

Callaway reported net income of $3.1 million, or 3 cents per share, compared with a loss of $2.2 million, or 2 cents a share, a year earlier.

Wall Street analysts were forecasting a loss of 5 cents per share.

The golf industry overall has been struggling with flat participation for several years, particularly in the U.S. Through August, the number of golf rounds played in the U.S. is down 2.6 percent from the prior year, according to industry research firm Golf Datatech.

One result is some of Callaway’s competitors have exited the business – most notably shoe giant Nike, which stopped selling golf clubs and balls last year.

Meanwhile, Callaway has turned its business around – steadily gaining ground on rivals over the past five years.

“In market share categories both in the quarter and year to date, we believe we are the number one driver and the number one hard-goods brand in the U.S., United Kingdom, Europe and Japan,” said Brewer.

Callaway raised its full-year revenue forecast. It now expects sales of $1.03 billion to $1.04 billion, up from prior estimates of $980 million to $995 million.

The company expects full-year earnings of 39 cents to 43 cents per share under generally accepted accounting principles.

Callaway released financial results Wednesday after markets closed. Its shares gained 4.7 percent on Thursday to close at $14.79 on the New York Stock Exchange.

mike.freeman@sduniontribune.com;

Twitter:@TechDiego

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