Big Bertha gets Callaway Golf swinging. With its flagship driver named after a WWI cannon, Callaway makes premium-priced golf clubs that are popular with amateurs and professionals alike. The company's other drivers, as well as its fairway woods, irons, wedges, hybrids, and putters, are sold under the Top-Flite, Callaway, and Odyssey names. It also makes Top-Flite and Callaway golf balls and uPro-branded GPS range finders. At the top of the golf market, Callaway designs apparel and shoes and licenses its name to travel gear, eyewear, and other golf accessories. Its products are sold through its websites and by golf pro shops, sporting goods retailers, and mass merchants in more than 100 countries.
Callaway kickstarted a restructuring plan in mid-2011meant to give the company $50 million in annual savings. To achieve this, it cut employees, reviewed its business processes, and reorganized the company to concentrate on certain product categories and regions. Callaway is reinvesting half of the savings in its global 2012 brand and marketing initiatives. The restructuring plan followed its Global Operations Strategy (GOS) Initiatives in fiscal 2011, whereby the golf company adjusted its operations to increase efficiency in its supply and distribution, among other areas of focus.
The move was spurred by Callaway's sour 2011 results. Overall sales dropped 8% due to declines in golf clubs and golf balls. Europe held up well, though, with a 3% rise in sales while the rest of Callaway's business in the US (-10%), Japan (-9%), Rest of Asia (-8%), and Other foreign countries (-12%) drained the golf company of any hope of a turnaround. The company points to stalled product launches for its woes in the US as competitors successfully launched theirs in 2011.
Signaling a turnaround at the time, Callaway's sales in 2010 rebounded after having logged a frustratingly low revenue figure the year prior. What helped the golf products maker bring itself back was its global operations strategy, an initiative aimed at improving gross margins, meeting regional demand, and reducing costs. As part of the streamlining effort, Callaway relocated some of its production capabilities for making golf clubs and golf balls to either other locations or to third parties outside the US. By the end of 2010, some 60% of the company's golf club and golf ball production was performed outside the US. Back in North America, Callaway reorganized its manufacturing and distribution centers in California, Massachusetts, and Canada and opened a new production facility in Monterrey, Mexico. These efforts and others, completed by the end of 2011, were intended to move the gauge on gross-margin improvements.
Callaway's sales had grown steadily until 2009, when the global economic downturn greatly stifled its progress. That year revenues fell by 15% to $950 million, as consumers curbed their spending on the firm's seemingly discretionary items, and retailers slashed their inventory levels and discounted what was already in stock. Additionally, the stronger US dollar hurt international sales. In response to the decreased demand, Callaway reduced its workforce worldwide by about 10% and cut spending related to advertising, promotions, travel and entertainment, and employee commissions and costs. The manufacturer also completed a private stock offering, which yielded nearly $135 million in proceeds. (Some of the funds were used to pay toward an outstanding $90 million loan and for capital expenditures.)
Prior to the stalled sales among the golf industry, Callaway had added some technological expertise to its operations. It purchased the assets of California-based uPlay, which specialized in making GPS-enabled range finders under the uPro name, for $11 million. The 2008 deal included uPlay's technology, database, plant, equipment, and trademarks. Callaway previously added to its brand portfolio when it purchased the Top-Flite, Strata, and Ben Hogan brands from SHC's bankrupt Top-Flite Golf Company.
Already partners since inking a deal in 2009 to make apparel for Callaway, Perry Ellis bought the Ben Hogan brand from the golf club and ball maker in early 2012. The deal, valued at $6.8 million, included all trademarks, service marks, certain other intellectual property, and license arrangements for apparel and accessories. As a result, Callaway pocketed a net gain of $700,000.
The company has taken numerous successful swings at marketing its name. Through licensing agreements, watchmaker Fossil made Callaway-branded clocks and watches; Nikon Vision makes range finders; IZZO Golf produces practice aids; TRG Accessories designs travel gear; and Global Wireless Entertainment develops golf-related software and applications for wireless handheld platforms. Callaway also designs branded apparel and accessories that sell worldwide. Perry Ellis International handles distribution of men's and women's clothing in the US, while Sanei International serves Japan, Korea, China, and other Asia/Pacific countries. It has buying service agreements for its footwear collection with Advanced Manufacturing Group, and its eyewear line with MicroVision Optical.
Several professionals -- young and old -- count Callaway among their favorite tools of the trade. Tour players who have used Callaway clubs include Stuart Appleby (eight-time PGA Tour winner, who signed with Callaway in 2009), Phil Mickelson (2010 and 2004 Masters champion), Charles Howell III (2001 PGA Rookie of the Year), and Annika Sorenstam (2003 LPGA Player of the Year). Golfing great Arnold Palmer is one of the company's endorsers, while celebrity Callaway aficionados include 1970's shock-rocker Alice Cooper and Microsoft's Bill Gates.
Looking to improve its scorecard, Callaway made some changes to its executive suite. At the helm since 2005, George Fellows stepped down as president and CEO in mid-2001 as Callaway announced preliminary results for Q2 2011 that included stale sales in the US and continued investing in its global operations strategy. In the interim, the golf manufacturer will be headed by Anthony Thornley as president and CEO. Thornley joined the Callaway board in 2004, coming from wireless technology firm Qualcomm where he served as president, COO, and CFO during his tenure there. Deemed the financial expert among Callaway's directors, Thornley is tasked with reducing headcount at the golf company, re-evaluating its business processes and priorities, and aggressively returning the company to profitability. – less