*DJ Callaway Golf 1Q EPS 50c >ELY

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May 09, 2019 16:20 ET (20:20 GMT)

*DJ Callaway Golf 1Q Net $48.6M >ELY

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May 09, 2019 16:20 ET (20:20 GMT)

*DJ Callaway Golf 1Q Sales $516.2M >ELY

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Press Release: Callaway Golf Company Announces Record First Quarter Net Sales And Raises Full Year Earnings Per Share Guidance

Callaway Golf Company Announces Record First Quarter Net Sales And Raises Full Year Earnings Per Share Guidance

- First quarter 2019 net sales of $516 million, a 28% increase compared to the first quarter of 2018.

- First quarter 2019 non-GAAP fully diluted earnings per share of $0.63, a 3% decrease compared to $0.65 in the first quarter of 2018. On a GAAP basis, first quarter 2019 earnings per share decreased to $0.50 compared to $0.65 in first the quarter of 2018.

- First quarter 2019 Adjusted EBITDA of $93 million, a 4% increase compared to $89 million in the first quarter of 2018. On a GAAP basis, net income for the first quarter of 2019 was $48.6 million compared to $62.9 million for the first quarter of 2018.

- Full year 2019 net sales guidance of $1.67 billion to $1.70 billion, which is consistent with prior guidance.

- Full year 2019 non-GAAP earnings per share guidance increased to $0.96 - $1.06, compared to prior guidance of $0.93 - $1.03.

- Full year 2019 Adjusted EBITDA guidance of $200 million - $215 million, which is consistent with prior guidance.

PR Newswire

CARLSBAD, Calif., May 9, 2019

CARLSBAD, Calif., May 9, 2019 /PRNewswire/ -- Callaway Golf Company (NYSE:ELY) announced today record net sales for the first quarter of 2019 and increased its earnings per share guidance for the first half and full year 2019.

In the first quarter of 2019, as compared to the same period in 2018, the Company's net sales increased $113 million (28%) to $516 million, a new record for the Company, and Adjusted EBITDA increased $4 million (4%) to $93 million. These results were achieved despite an estimated $15 million negative impact from changes in foreign currency rates and reflect the acquisition of Jack Wolfskin in January 2019, which contributed $93 million in net sales in the first quarter of 2019. These first quarter 2019 results, compared to the first quarter of 2018, also reflect increased sales in both the Golf Equipment segment (+3.6%) and the Apparel, Gear & Other segment (+112%), as well as in all major product categories and in all major regions as follows:

Golf Clubs + 1.7% U.S. + 5.9%
Golf Balls + 12.6% Europe + 147.3%
Apparel + 692.2% Japan + 5.7%
Gear/Accessories/Other + 22.4% Rest of World + 41.6%

"We are pleased with our first quarter 2019 results and the strong start to the year in both our golf equipment and soft goods businesses," commented Chip Brewer, President and Chief Executive Officer of Callaway Golf Company. "These results reflect the addition of our Jack Wolfskin business as well as strong growth in all major product categories and regions. We are especially pleased to be able to deliver these results despite foreign exchange headwinds and flat golf market conditions in the first quarter."

Mr. Brewer continued, "We remain excited about the long-term prospects for the Jack Wolfskin brand and the growth and scale opportunities it presents for our overall apparel portfolio. In the short-term, however, we are lowering our outlook for this business for 2019 due to lower than anticipated pre-books for the fall/winter season as a result of the much reported softer market conditions in Central Europe and China. We firmly believe that this will be a short-term issue and we remain excited about this business over the long-term. Fortunately, given our brand momentum and the success of our 2019 product lineup, our golf equipment and TravisMathew businesses are exceeding our expectations, allowing us to confirm our full year net sales and adjusted EBITDA guidance despite stronger foreign currency exchange headwinds."

GAAP and Non-GAAP Results

In addition to the Company's results prepared in accordance with GAAP, the Company provided information on a non-GAAP basis. The purpose of this non-GAAP presentation is to provide additional information to investors regarding the underlying performance of the Company's business without certain non-recurring items and non-cash purchase accounting adjustments related to our acquisitions.

The Company also provided sales information on a constant currency basis and information regarding its earnings before interest, taxes, depreciation and amortization expense, non-cash stock compensation, and the non-recurring OGIO, TravisMathew and Jack Wolfskin transaction and transition-related expenses ("Adjusted EBITDA").

The manner in which this non-GAAP information is derived is discussed further toward the end of this release, and the Company has provided in the tables to this release a reconciliation of the non-GAAP information to the most directly comparable GAAP information.

Summary of First Quarter 2019 Financial Results

The Company announced the following GAAP and non-GAAP financial results for the first quarter of 2019 (in millions, except EPS):

2019 RESULTS (GAAP) NON-GAAP PRESENTATION
Q1 2019 Q1 2018
Q1 2019 Q1 2018 Change Non-GAAP Non-GAAP Change
Net Sales $516 $403 $113 $516 $403 $113
Gross
Profit/ % of $238 $200 $38 $244 $200 $44
Sales 46.2% 49.7.% (350) bps 47.2% 49.7% (250) bps
Operating
Expenses $169 $114 $55 $163 $114 $49
Pre-Tax
Income $58 $80 ($22) $73 $80 ($7)
Income Tax
Provision $10 $17 ($7) $13 $17 ($4)
Net Income $49 $63 ($14) $60 $63 ($3)
EPS $0.50 $0.65 ($0.15) $0.63 $0.65 ($0.02)


Q1 2019 Q1 2018 Change
Adjusted EBITDA $93 $89 $4

For the first quarter of 2019, the Company's net sales increased $113 million (28%) to $516 million, compared to $403 million for the same period in 2018. Net sales increased in all operating segments, in all major product categories and in all major regions. The Jack Wolfskin business, which was acquired in January 2019, contributed $93 million in net sales in the first quarter. Excluding the Jack Wolfskin business and a $8 million negative impact on the core business, first quarter net sales increased 7% on a constant currency basis. The 7% increase in constant currency core net sales is attributable to the strength of the Company's entire 2019 golf equipment product line and continued brand momentum in the TravisMathew business despite a flat golf market in the first quarter of 2019.

For the first quarter of 2019, the Company's gross margin decreased 350 basis points to 46.2% compared to 49.7% for the first quarter of 2018, which is slightly better than the Company's expectations. Excluding non-cash purchase accounting adjustments related to the Jack Wolfskin acquisition and a 70 basis point negative impact from changes in foreign currency rates, gross margins were 47.9%, a decrease of 180 basis points. This decrease is primarily attributable to the seasonality of the Jack Wolfskin business as well as the current year product mix of higher priced products which typically have lower gross margins due to more advanced technology, partially offset by the TravisMathew business, which is accretive on a gross margin basis.

Operating expenses increased $55 million to $169 million in the first quarter of 2019 compared to $114 million for the same period in 2018. Excluding one-time costs related to the Jack Wolfskin acquisition, operating expenses were $163 million, an increase of $49 million in the quarter. This increase is primarily due to the addition in 2019 of operating expenses from the Jack Wolfskin business, and investments in the TravisMathew business and the golf equipment business.

First quarter 2019 earnings per share decreased $0.15 to $0.50, compared to $0.65 for the first quarter of 2018. On a non-GAAP basis, 2019 first quarter earnings per share was $0.63, which excludes $0.13 per share related to the non-cash purchase accounting adjustments and the non-recurring transaction and transition expenses related to the Jack Wolfskin acquisition. The non-GAAP earnings in 2019 includes an $8 million increase in interest expense related to the new term loan entered into in January 2019 to fund the purchase of Jack Wolfskin. This increased interest expense was substantially offset by hedging gains recorded in the quarter and a lower tax rate.

Business Outlook for 2019

Basis for Full Year 2019 Non-GAAP Estimates. The Company currently estimates that non-cash purchase accounting adjustments will have a negative impact on 2019 earnings per share in the amount of $0.09 to $0.16. The non-cash amortization expense related to the purchase accounting for the OGIO and TravisMathew acquisitions will have a $0.01 negative impact on earnings per share in 2019, consistent with 2018. Both of these estimates are unchanged from the Company's prior estimates.

The Company's non-GAAP guidance for 2019 excludes the impact of the purchase accounting adjustments related to the Jack Wolfskin, TravisMathew and OGIO acquisitions mentioned above as well as $0.07 of non-recurring transaction and transition expenses related to the Jack Wolfskin transaction. For consistency and comparability purposes, the 2018 non-GAAP adjusted results presented below also exclude the non-cash purchase accounting amortization for the OGIO and TravisMathew acquisitions discussed above as well as the $0.01 of non-recurring transaction income related to the Jack Wolfskin acquisition.

Full Year 2019 Guidance

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