65.5 F
San Diego
Monday, Mar 18, 2024
-Advertisement-

Callaway’s 2014 Lineup May Drive Up Sales

Callaway Golf Co. is preparing to introduce new versions of its storied Big Bertha brand of golf club Feb. 14 after a seven-year hiatus, and the company believes it and the club can reclaim former glory together.

Callaway’s (NYSE: ELY) plans to revive the Big Bertha brand come as the Carlsbad-based company shoots for profitability in its third year under CEO Chip Brewer’s turnaround strategy.

The business — which produces and sells clubs and balls under the Callaway Golf and Odyssey brands, and markets golf accessories — recently reported net losses for the fourth quarter and 2013 as a whole. But those losses show signs of top- and bottom-line improvement. Callaway reported a net loss of $19 million on net sales of $843 million for 2013, compared with a net loss of $123 million on net sales of $834 million for 2012.

In a recent quarterly call with analysts, executives said they forecast profitability for 2014 — projecting earnings of 12 to 16 cents per share. For 2013, Callaway lost 31 cents per share. The business predicts net sales of $880 million to $900 million by the time the current year draws to a close; changes to currency exchange rates could affect those numbers.

Analysts appear to like what they’re seeing and hearing from Callaway and Brewer.

As a CEO, Brewer tends to under-promise and over-deliver, analyst Casey Alexander of Gilford Securities Inc. wrote in a Jan. 30 research note. Alexander noted that Brewer did so during his decade running Texas-based Adams Golf, and it’s what Brewer did at Callaway during 2013. Callaway hired Brewer from Adams in early 2012.

Alexander rates Callaway as a buy, as does analyst Scott Hamann of KeyBank Capital Markets Inc., who said Callaway’s guidance was conservative. Hamann gives Callaway shares a price target of $10. As of Feb. 5 the stock traded at $8.14.

Rebirthing a Brand

The return of Big Bertha was Brewer’s decision, said Patrick Burke, Callaway’s vice president of global finance and investor relations. Burke said the CEO waited until Callaway had the right technology to market under the Big Bertha name.

That name “matters more to Callaway than anything,” writer John Holmes opined on PGA.com, the official website of the Professional Golfers’ Association of America.

Callaway introduced its first Big Bertha club in 1991. It was a departure from the norm because it was an oversized driver made of metal instead of wood. The driver with the 190-cubic centimeter head made quite a splash in the golfing world, and the following years brought many Big Bertha variations. The name was retired in 2007, but it was not forgotten.

On Feb. 14, U.S. customers will be able to buy two Big Bertha models. The new driver, which features an innovative sliding 8-gram weight, carries a suggested retail price of $399. The Big Bertha Alpha has an adjustable core, capable of changing the club’s center of gravity, plus three other adjustable components; it carries a $499 price tag.

Supplementing the Big Bertha are Apex Irons, introduced in December, as well as new ball lines.

Callaway “enters 2014 with one of the best lineups of new products in years,” wrote analyst James Hardiman of Longbow Research LLC, who gives Callaway stock a neutral rating. Longbow’s three-year projection sees Callaway topping $1 billion in sales with an operating margin of 8 percent, Hardiman wrote.

Improving Financial Performance

For Callaway, highlights from 2013 include a 28 percent increase in sales for drivers and fairway woods. Callaway executives said they had to work against bad weather and experienced adverse currency exchange rates. Sales in Japan increased nearly 3 percent from $157.2 million in 2012 to $161.6 million in 2013. However, the value of the yen changed, so on a constant currency basis, growth in Japan was 26 percent, Callaway executives said. Sales in South Korea also showed growth.

Executives spoke of making improvements to Callaway’s supply chain in 2013, as well as the company’s research and development department. In the latter category, Burke said Callaway made investments in computer-aided design and rapid prototyping technology.

Sales and marketing have also changed. In addition to striving for more “authenticity” in advertising, Burke said Callaway saw the need to become more engaged in social media, putting out its message in blogs, podcasts, and Twitter and Facebook posts.

On the financial front, Callaway retired all of its preferred stock during 2013.

In the fourth quarter, Callaway reported a net loss of $49 million on net sales of $127 million. The loss was no surprise. The fourth quarter is a time when many golf courses are unplayable and typically the slowest quarter for golf equipment sales. Callaway’s sales generally peak in the first quarter then take a slow slide during the rest of the year, although Burke said the third quarter is often marked by strong consumable sales.

Fourth quarter 2013 was an improvement on the same period of 2012, when the company turned in a net loss of nearly $71 million on net sales of $120 million.

If Callaway can regain profitability this year, it can’t be too soon. The company reported having $36.8 million in cash on Dec. 31, down from $52 million a year earlier.

-Advertisement-

Featured Articles

Oberon Eyes Europe for Renewable DME

Leaders of Influence in Law 2024

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-
-Advertisement-