Callaway 2014 Annual Report Download - page 4

MY FELLOW
SHAREHOLDERS:
Two thousand and fourteen was an
excellent year for Callaway Golf Company
and I am proud of the signifi cant progress
the team has made in turning this
business around and returning Callaway
to a leadership position.
A renewed focus on our core business
has allowed us to introduce a variety of
best-in-class products that are gaining
market share, building brand momentum
and – in concert with numerous
operational improvements and
cost-reduction initiatives – improving
our fi nancial performance. This has led
to a return to profi tability in 2014 for the
fi rst time since 2008.
In 2014, net sales increased by
$44 million (5%) as compared to 2013.
Our growth spanned the globe, with
particularly positive results in the
United States, Europe, Japan, Australia
and Korea. This growth, together with
a 310 basis point improvement in gross
margins and generally fl at operating
expenses (despite increased investments
in R&D, tour and marketing), have resulted
in a signifi cant improvement in earnings
per share in 2014 to $0.20 compared to
a loss per share of ($0.31) in 2013.
We are pleased with these results,
particularly because they were achieved
in the face of several well-publicized
challenges in the golf industry in 2014,
including unfavorable market conditions
in the United States, our largest business
region, as well as adverse changes in
foreign currency rates.
In addition to the increased sales,
there is other objective evidence that
our turnaround plan is working.
For example, our 2014 hard goods dollar
share in the United States increased 340
basis points to 18.5% compared to
15.1% in the prior year. In Japan,
Callaway Golf remains the #1 U.S. brand
with 2014 market share of 14.4%,
an increase of 50 basis points, and
Europe’s market share of 20.3% also
showed an increase of 340 basis points.
These global market share gains were
driven by increases in the woods,
irons, golf balls and accessories and
other categories. Additionally, as a
result of the numerous operational
improvements in our business, our
Americas custom-fi tted club business
increased by 32% and golf ball
profi tability improved by $19 million on
a $6 million increase in revenues.
The key products we introduced in
2014 resonated widely with golfers
and helped energize the marketplace.
To much anticipation, we reintroduced
the Big Bertha brand in the form of new
drivers, fairway woods, hybrids and
irons, delivering on its original promise
to be demonstrably superior and
pleasingly different. Our Apex irons
brought distance to a forged iron and
generated word-of-mouth buzz that
few products ever have, turning casual
fans into advocates and loyalists.
The Supersoft golf ball was an overnight
success with its low compression and
great feel. It paved the way for new,
exciting research resulting in our new
‘soft/fast’ core technology found in our
newest ball, the Chrome Soft, which has
received a strong consumer reception in
the form of sell-through at retail.
In the fall we introduced the
Big Bertha iron, the fi rst iron to feature
Cup 360 technology to deliver incredible
ball speed which quickly became the
#1 model at U.S. retail in market share.
Last but not least, we introduced the
Big Bertha Alpha 815 driver, which
ushered in a new category in golf:
long distance from a combination of
low spin and increased forgiveness.
The superior performance of our
2014 products was validated by the
speed at which Callaway Tour Staff
professionals switched into them,
including Phil Mickelson, Gary Woodland,
Henrik Stenson, Patrick Reed, Chris Kirk,
Sang-Moon Bae, Branden Grace,
Lydia Ko and Morgan Pressel. It seemed
like virtually every leaderboard at every
event on every major tour featured a
Callaway Tour Staffer benefi ting from
our latest performance technologies.
That trend is continuing in 2015 as player
after player puts our new XR clubs and
Chrome Soft golf ball technology in play,
including Phil Mickelson who says his
short game has never been better than
with Chrome Soft technology.
We continued to invest in professional
tours around the globe, including more
than doubling our PGA Tour staff from
15 staff players when I joined Callaway,
to 32 staff players today. And beyond that,
we are leveraging our investment in
these players in new and exciting
ways through both digital and
traditional marketing efforts. Much of
this has been driven by our team in
“Callaway Media Productions,” an
in-house production team that helps set
our marketing apart from competitors via
the quantity and quality of video content
created and distributed through a variety
of channels. We believe these efforts
have made us one of the most open
and engaging brands in our sport.
We are very excited about our product
line-up in 2015. That’s because we
believe the technology in both the
XR clubs and Chrome Soft golf balls
are true game-changers. XR clubs are
engineered to help players generate
faster ball speed for more distance via
better aerodynamics, improved face
technology, and the addition of cup face
technology in cavity back irons. At the
same time, Chrome Soft golf balls deliver
remarkably soft feel and great greenside
spin without sacrifi cing distance thanks
to their innovative core that combines low
compression with high resilience;
we are optimistic that this golf ball