Callaway Golf Company (ELY)
Q1 2009 Earnings Call
April 30, 2009 5:00 pm ET
Brad Holiday - Senior EVP and CFO
George Fellows - President and CEO
Tom Shaw - Stifel Nicolaus
Scott Hamann - Keybanc Capital Markets
Dan Wewer - Raymond James
[Eric Hollawaddie] - Stephens Inc.
Hayley Wolff - Rochdale Securities LLC
Jeff Blaeser - Morgan Joseph & Co., Inc.
Rommel Dionisio - Wedbush Morgan Securities Inc.
Previous Statements by ELY
» Callaway Golf Company Q2 2009 Earnings Call Transcript
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I would now like to turn the call over to Brad Holiday, Chief Financial Officer. Sir, you may begin.
Thank you and welcome, everyone, to Callaway Golf Company's first quarter 2009 earnings conference call.
Joining me today is George Fellows, President and CEO of Callaway Golf. During today's conference call George will provide a few opening remarks and I will provide an overview of the company's financial results, and we will then open the call for questions.
I would like to point out that any comments made about future performance, events or circumstances, including statements relating to future growth or market share gains, the ability to manage costs or invest in future initiatives, future benefits from the gross margin initiatives, the estimated industry or company sales for 2009 or estimated 2009 gross profit, operating expenses, CapEx and depreciation and amortization expenses, prospective amendments to the credit facility and future inventory levels are forward-looking statements subject to safe harbor protection under the federal securities laws.
Such statements reflect our best judgment today based on current market trends and conditions and other information. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risks and uncertainties applicable to the company and its business, including changes in economic conditions, credit markets or foreign currency exchange rates. For details concerning these and other risks and uncertainties you should consult our earnings release issued today as well as Part 1, Item 1A of our most recent Form 10-K filed with the SEC, together with the company's other reports subsequently filed with the SEC from time to time.
In addition, during the call we may provide certain pro forma information relating to the company's EBITDA. This information may include non-GAAP financial measures within the meaning of Regulation G. The earnings release and related schedules we issued today includes a reconciliation of such non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP. The earnings release is available on the Investor Relations section of the company's website at www.CallawayGolf.com.
I would now like to turn the call over to George for a few opening remarks.
Thanks, Brad, and thank you all for joining us.
Going into this year it was evident that unfavorable global economic conditions, together with a dramatically negative shift in foreign exchange rates, would have a significant effect on both the industry and company performance in 2009. Also, given Callaway's record pace in the first quarter of 2008 and, indeed, through the first half of the year, comps for the first quarter of 2009 would be particularly difficult.
Unfortunately, these estimations were borne out. The widespread global economic downturn accelerated from the fourth quarter of '08 into the first quarter of '09, resulting in reductions in retail traffic of greater magnitude than originally anticipated. This was compounded by heightened retailer reluctance to carry traditional beginning of season inventories. At the same time, foreign exchange rate movement has more negatively impacted the translation of the company's international results into U.S. dollars more than originally projected. These factors in the aggregate resulted in first quarter revenues falling 26% below the company's record 2008 results.
While we expect global economic conditions and foreign currency to continue to negatively impact results in the short term, the severity of their impact should decrease as the year progresses. Furthermore, we have taken additional steps to help mitigate this impact, including the implementation of several cost reduction initiatives and the reduction of approximately 10% of the company's worldwide positions. These steps, together with continued benefit from the aggressive implementation of our gross margin initiatives, will provide some additional offset to macro conditions.
Now we are clearly disappointed in the manner in which the year has started; however, we firmly believe that the golf industry will recover as the economy recovers. Rather than approach the balance of the year from a purely defensive posture, we not only will continue to aggressively manage costs and focus on liquidity but we will also concentrate on positioning Callaway to emerge this trying period in a stronger position when the industry does recover. In this regard, we will continue to invest in additional gross margin initiatives to further improve our cost structure as well as spend behind the strength of our 2009 product lineup in order to continue to gain market share.
As expected, both the retail trade and consumers tend to focus on leading brands in tough times, and that has certainly been evident in the golf industry today. On a year-to-date basis, Callaway has increased share in most product categories worldwide and expects to continue to do so.
Clearly, the short-term outlook remains unclear but there have been some glimmers that we may well have bottomed or have come close to doing so. But whatever your view may be on the broader economic issues, golf as an industry will recover as the economy does and those players who position themselves properly and focus on the longer term will benefit from the shakeout. We are quite confident Callaway will be one of those clear beneficiaries.