Callaway Golf Company (CALY) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Callaway Golf First Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Brad Holiday, Chief Financial Officer, you may begin your conference.

Thanks Eric, and good afternoon, and thanks for joining our first quarter 2015 earnings conference call. Joining me today is Chip Brewer, our President and CEO. During today's call Chip will provide some opening remarks, I will provide an overview of the company’s financial results for the first quarter, and we will then open the call for questions. I would like to point out that any comments made about future performance, events, prospects, or circumstances including statements relating to estimated 2015 second quarter or full year net sales, sales growth, gross margins, operating expenses, pre-tax income, tax provision, earnings or loss per share, and profitability, future foreign currency exchange rate changes or the company’s ability to mitigate their effect, future industry or market conditions or market share gains or brand momentum, the success of the company’s future projects, steadily improved performance or creation of long term shareholder value, the collectability of accounts receivable and favorability of inventory, as well as the company’s estimated 2015 capital expenditures, and depreciation and amortization expenses 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. 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. For details concerning these and other risks and uncertainties, you should consult our earnings release issued today as well as Part One Item 1 of our most recent Form 10-K for the year ended December 31, 2014 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 in order to assist interested parties with period-over-period comparisons on a consistent and comparable basis, we will provide certain of the company's results and projections on a constant currency basis which essentially applies to prior period exchange rates to the current or future period financial information as though such prior period rates were in effect during the current or future period. We also provide information on the company’s earnings excluding interest, taxes, and depreciation and amortization expenses. This information may include non-GAAP financial measures within the meaning of Regulation G. The information provided on the call today and the earnings release we issued today include a reconciliation of such non-GAAP financial information to the most directly comparable financial information prepared in accordance with GAAP. The earnings release is available on the Investor Relations section of the company’s website at www.CallowayGolf.com. I would now like to turn the call over Chip.

Thanks Brad, good afternoon everybody, and thank you for joining us for today's call. Q1 2015 was a mixed quarter for Calloway Golf. Our revenues were lower than expected due primarily different headwinds from our international markets. Fortunately however, I believe the positive outweighed the negatives and had more relevant for the long term. These include improved operating efficiencies where our profitability was higher than anticipated at these revenue levels, and a continued brand momentum as measured by market share and third party research. These positive factors along with the cautiously optimistic effort from market conditions for the balance of the year are allowing us to raise our full year earnings guidance. Overall we remain pleased with the progress and outlook. With that said, I'll jump into some specifics. Revenues for Q1 were down 19% against guidance of a mid-teens drop. As you may remember, we expected a mid-teens drop due to a foreign exchange, a shift in launch timing where we moved our premium wood launch from the first quarter into the second half of the year, and a year-over-year effect of the April 2014 consumption tax increase in Japan. Approximately 1% of our Q1 mix was due to currency movements which occurred after our guidance was provided in our January call. Our Asian businesses were the most down during the quarter, looking at Japan specifically, our business there was down 28% on a local currency basis. That market faced challenging conditions, the market was down approximately 14% during Q1 along with an inventory correction by several large retailers as they recalibrate to lower inventory levels in order to restore profitability into the business. This recalibration is a move we understand and appreciate for the long term. Despite our lessened seller Q1, our brand position across Asia remains very strong, and we remain optimistic for the balance of the year and the long term. Europe performed roughly consistent with expectations and our US business was the highlight for the quarter. For Q1 market conditions were roughly flat in both of these markets. The US business is continuingly strong turnaround story that has been non-folding over the last three years. We also had excellent performance from our India subsidiary where the team there is growing their business in an intelligent manner. Turning to market share, our business once again performed well during Q1. In the US, our hard goods dollar market share was 20.6%, up 130 basis points year-over-year. In Japan, for the first quarter we had hard goods market share up at 16.6%, up 150 basis points year-over-year. In the UK, our Q1 hard goods market share was 17%, down 80 basis points year-over-year. This global market share performance was driven by gains in irons, putters and balls, partially offset by small decrease in the woods category. Our recent launches have been well received by both the trade and consumers. We are pleased with the receptions for our XR woods and irons and excited by the rational potentially for the Odyssey Works Putters and the Chrome Soft Golf Balls. We think we are positioned for very strong year in irons, putters, and golf balls. The wood category is highly competitive this year and we are most certainly going to hold a significant position. However, due to our strategic decision to realign launch timing, the comps for our wood business turned the first half of the year are going to be more difficult. We got off to a nice start on tour this year with a lot of exposure energy being delivered to the brand. This last weekend alone we had starch [ph] finish first and second on the PGA Tour, as well as winning on both the Champion for the European Tours. Our cost management and overall operating efficiencies during Q1 were at expectations or better. We are encouraged by this trend and believe it boards well for the long term profitability of our business. Brad will have more color on this during his comments. Speaking of Brad, seeing that this is his last earnings call, I'd like to take the opportunity to once again thank him for his many years of service. As Calloway Golf CFO for more than - I think I'm CEO so that makes you CFO. For more than 14 years Brad has consistently demonstrated high integrity and professionalism. He has significantly contributed to the success of our business and I truly appreciated the opportunity to work with him over the last three years. Thanks Brad and good luck in your upcoming retirement. Trying to fill Brad’s shoes will be Robert Julian who comes to us from Lydall Corporation where he has been CFO for the last few years. Robert is a strong candidate who separated himself during a rigorous search process. He will be joining the company on May 11 and I look forward to introducing to you on our next call. As discussed on almost all earnings calls this season, foreign exchange has become a significant headwind for us and as a result we actually believe big guns are looking for ways to help address the issue. We continue to believe that it's unlikely they will find anything that can materially impact this year’s results. Looking further forward however, in addition continued improvement in operational performance we should be able to mitigate the long term impact through changes and local pricing and improved efficiencies. Still the process is going to take time, probably multiple years to fully adjust and recover. Turning now to the balance of the year guidance, I believe the industry’s mood and approach is cautiously optimistic for Q2 and the balance of the year. I also believe Calloway Golf will be able to sustain our brand momentum. As a result for the balance of the year we are holding to our constant currency growth forecast at 12% that is for period Q2 through Q4 and only revising our full year constant currency revenue guidance downward by enough equal forecast in Q1, approximately $10 million on a constant currency basis which was all in Q1. On the earnings side, thanks to improvements in operating efficiencies and revenue quality, we are raising our EPS estimates by approximately $0.04 to a range that had its midpoint breaking in or slightly better. In closing, although there is much work to be done there is also reason for optimism. I am confident that Calloway Golf is in a much stronger position today than it has been in quite some time. The changes we have implemented are being noticed and are proving effective in driving increased consumer interest in improved operating profits efficiencies. I also believe that the industry’s fundamentals are improving, as a result I remain confident that we are on track with our overall plan and that the plan will lead to steadily improved performance and long term shareholders value. I look forward to continue and keep you updated on our progress and appreciate your interest and support. Brad, over to you.

Thank you, Chip. Our results for the first quarter were as follows; consolidated net sales were $284 million, a decrease of 19% compared to $352 million last year. Sales were adversely impacted primarily by the shift in product launch timing, but also by changes in foreign currency rates and lower sales in Japan due to the consumption tax increase which took effect in April of last year. On a constant currency basis year-over-year sales declined 16%. Regionally sales decreased 9% in the US to $169 million while our international sales were $160 million, a decrease of 31% on a GAAP basis and 23% on a constant currency. Details by region are included in the attachment to today's press release. Gross margins were 44.8% compared to 46.9% last year, a decrease of 210 basis points. This decline was due to changes in foreign currency rates within the increases in cost related to new product technology being offset by increased pricing and operational improvements. On a constant currency basis, gross margins would have been 47% flat to last year despite the lower sales during the quarter. Operating expenses were $90 million, a 12% decrease compared to last year due primarily to a shift in product launch timing. A majority of this favorable variance will shift into the second quarter with the balance falling into the second half of the year. On a constant currency basis the operating expenses would have been $93 million, a 10% decrease compared to last year. These results generated operating income of $37 million compared to $62 million last year. On a constant currency basis operating income would have been $47 million or a decrease of 25% compared to last year. We had other income of $500,000 compared to other expense of $4.9 million last year. This shift was due primarily to the impact of changes in currency rates on outstanding foreign currency hedging contracts which resulted in net gains this year compared to losses last year. The company generated net income of $36 million compared to $55 million in 2014 with earnings per share of $0.39 on 94 million shares compared to $0.61 in 2014 on 93 million shares. On a constant currency basis earnings per share would have been $0.47. On a product category basis, a schedule of sales both on a GAAP basis and currency neutral basis was included as an attachment to our press release today. Additional details on sales by product category on a currency neutral basis are as follows. Wood sales were $93 million, a decrease of 28% compared to last year, due primarily to the shift and timing of our big berth of premium products which were launched during this past fourth quarter versus during the first quarter of the year. Iron sales were $64 million, a decrease of 12% due to the timing of our XR Irons which were launched in late February compared to the mid-January launch of our X2 hot iron last year, as well as our Apex Irons where a significant portion were launched during the first quarter last year. Putter sales were $32 million, an increase of 2% compared to last year due to the successful launch of our other three works line of putters which more than offset less close out by this year. Golf ball sales were $44 million, a decrease of 16% compared to last year as the successful launch of our new Chrome Soft Ball only partially offset last year launch of two products, our premium Speed Regime line and Super Soft golf ball. Accessories and other sales were $64 million, a decrease of 4% compared to last year due to a decline in the sales of packaged sets, packed and gloves. The decline in bags was due to supplied issues, as well as port strike delays. Turning to our balance sheet, we ended the quarter with cash of $23 million, flat compared to $24 million last year. We had $94 million of outstanding borrowings on our APL credit facility compared to $141 million last year. Available liquidity including cash at the end of the quarter improved to $123 million compared to $76 million last year. Our consolidated net receivables were $262 million, a decrease of 9% compared to last year due to lower sales this year. DSOs increased to 84 days compared to 75 days last year due primarily to the shift in new product launch timing. We remain comfortable with the overall quality of our accounts receivables. Our inventory balance was $181 million, a decrease of 26% compared to last year due to the change in product launch timing, as well as continued improvements in forecasting and inventory management. As a result inventory as a percent of trailing 12 month sales improved to 22% compared to 27% in 2014. We remain comfortable with the quality of our inventory at this time. Also, our trailing 12 month EBITDA was $31 million, flat compared to $33 million last year. Capital expenditures for the quarter were $2 million compared to $4 million last year, and we estimate approximately $15 million for the full year. Depreciation and amortization expense was $5 million for the quarter compared to $6 million for the same period last year, and we estimate approximately $20 million for the full year. Now turning to our 2015 full year guidance, for the reasons Chip mentioned, we are lowering our net sales estimate on a GAAP basis to arrange $840 million to $860 million, a decline of 3% to 5% compared to $887 million last year. On a constant currency basis, this new estimate would equate to a range of $890 million to $910 million, or growth of flat to up 3% compared to last year. Second quarter sales are estimated to increase approximately 8% on a constant currency basis compared to last year, or plus 1% on a GAAP basis. Gross margins are estimated to be 41%, an improvement of 100 basis points from our last estimate of 40% due to better than expected results in the first quarter, continued improvements in our manufacturing and supply chain, and improved sales mix over the balance of the year. This would be an improvement of 60 basis points compared to 40.4% in 2014. On a constant currency basis this new estimate equates to 43.5% or improvement of 310 basis points compared to last year. Operating expenses are still estimated to be approximately $335 million for the year consistent with our previous guidance. This compares to $327 million in 2014 with the increase due primarily to additional investment in marketing and tour spending, as well as other normal annual cost increases. On a constant currency basis operating expenses are estimated to be approximately $345 million. As I mentioned earlier, a majority of the savings from the first quarter will move into the second quarter with the balance shifting to the second half of the year. Pre-tax income is estimated to range from $4 million to $11 million with a corresponding tax provision of approximately $7 million. On a constant currency basis, pre-tax income is estimated at a range from $36 million to $43 million, or an increase of 64% to 95% compared to last year. This compares to pre-tax income of $22 million in 2014 with a corresponding tax provision of $5.6 million. Despite a lower sales forecast we are raising our estimate of fully diluted earnings per share to range from a loss of $0.03 to earnings of $0.04 on 79 million shares outstanding compared to our previous estimated range of a loss $0.09 to earnings of $0.01. On constant currency basis this new earnings estimate per share would range from $0.36 to $0.43, an increase of 80% to 115% compared to last year. This compares to $0.20 in 2014 on 78 million shares. We will now open the call for questions.

[Operator Instructions] Your first question comes from the line of Scott Hamann with KeyBanc Capital Markets. Your line is open.

Great, thanks, good afternoon. Just Chip, on the constant currency updated guide, you said you absorbed the $10 million ahead in the first quarter and then the rest of the year was unchanged, what was that $10 million hit solely related to some of the underlying conditions in Japan?

Scott, I don't know whether I would say solely but that was the primary factor, our Asian businesses were down more than what we had anticipated the market conditions there, we are a little bit worse than what we anticipated and that was the majority of them.

Okay, and then for the balance of the year can you give us a sense of what your underlying assumptions are in terms of just kind of general market growth in some of their larger areas and your share expectations?

Yes, I'm not going to get real specific Scott but I feel positive about the outlook for market conditions at this point. I expect flat or slightly up in most markets, and Calloway has demonstrated ability to compete very effectively in the marketplace and gain market share and I expect us to continue to perform at a high level, we're off to a good start market share in most parts of the globe and I'm pleased with that performance, I expect us to maintain a strong position through the year.

Okay, and then just on the GAAP sales guide, can you help us understand just some of the currency moves because it seems like sequentially from your last quarter that there was a material moving - some of your - the basket of currencies at least that we track, I'm just trying to get an understanding of how we should think about that for the balance of the year?

Yes, the big moment Scott was really in the Euro, and then the Canadian Dollar, those are the two that changed quite a bit from our original guidance. So that really were lot of the mess from a currency with another percent higher than what we would have thought when we gave our original guidance.

Okay, great. Thank you.

Thank you, Scott.

Your next question comes from the line of Randy Karnic [ph] with Jefferies. Your line is open.

Great, thanks a lot. Can you hear me?

Sure can.

Great, thanks guys. So I guess Chip, can you talk a little bit about the inventory levels that your channel partners are seeing or talking about right now. How does the channel feel on inventory because I guess what's interesting to note is you're getting these share gains and while the margin structure and company - gross margins, that it continues to move higher. So, can you kind of give us a feel for what the channel feels like right now? And then extend upon your comment around the wood category more competitive, I assume that your guidance and your thought process around the competitive nature around the category assuming some promotional activity could occur in that particular product category. Just want to get your thoughts there. And then lastly, it feels like when you assess the different markets around the globe, it feels like you're getting more and more kind of visibility coming through on the North American market and in Europe offset by almost less - a little less visibility in Asia, can you walk us through if that's the key and when do you think visibility might improve in the Asian market, particularly in Japan. Thanks.

Okay, let me see if I got most of that. You want some comment on deal inventories, pro activity in the woods category, and then visibility by changes by region, did I get that Randy?

Correct, yes, yes, sure.

The inventory in general - if you look across the globe, the retailers are probably stocking a little less inventory than they were a year ago, that was particularly acute in the international markets but Data Tech also supported that and if you look at the Data Tech numbers measured in the US market, retailers are carrying less inventory at the end of March this year than they did last year. So retailers are adjusting their business model I think in a healthy way for the long term and carrying less inventory but that clearly has an impact on manufacturing shipments while that process occurs. So improved over the position of a year ago, the dealing in the marketplace right now really globally is one of the cautious optimism and clearly, I think improved fundamental position. Promo activity, there will definitely be some promo activity in Q2, there always is and there will be again, the business has market share winners and losers that forces promo activity and then there is some normal plain promo activity. I think the overall level of promotional activity in the industry is going to be lower than it was/has been in the past, that is another fundamental change going on in our industry which I think is healthy. And then in terms of visibility changes by region, I don't really see anything different going on there, it just so happens in this last quarter that Japan market and Asian markets in general were down a little bit more than we expected but I wouldn’t say that I had a less visibility in those markets than any other market, it just happened to be down this time while the other markets were essentially in my view, flat. That answer your questions?

Great, it's very helpful. Thank you.

Thanks Randy, appreciate you calling.

Your next question comes from the line of Dan Wewer with Raymond James. Your line is open.

Chip, in talking with some of the of course and specialty retailers, they appreciate some of your competitors like Paler Mae [ph] becoming more rational, and the number of drivers they currently have in their offering, but the feedback is that perhaps Calloway is maybe a little bit too aggressive with the number of product launches, new product out in the last 12 months. I was curious as to whether or not maybe Calloway need to set to simplify the driver offering?

I say Dan, yes, we probably should simplify our driver offering going forward. We made a strategic decision to move two different launch timing and in doing that we had some product launch a little closer to each other than is ideal for the long term. And also in doing that we had to go through and awkward quarter in which one just represented, I think it's the right thing for the long term and in different categories we are lengthening product launch cycles, certainly in the iron category we moved to two year cycles, in fact we're on two year product cycles on virtually every category except woods now. We changed launch timing which we think is long term best interest and strategic, so there is always room for improvement but also in general, when I say a lot of what we've done must be doing okay because the consumer is boarding based on market share and brand writing and those reviews have been very, very strong; and my feeling regarding relationships with the trader also positive. So we're listening and always evolving but I think we're doing more right than wrong.

Right. The second question with regards to your comments around golf balls and I think you used the work potential, but I also remember what DR Roy [ph] used to say about potential being, you haven't done it yet. I'm just curious with when you think about what appears to be the success at Chrome Soft and I'm comparing it I guess some weakness with Speed Regime ball. How do you handicap the golf ball business this year?

I'm very optimistic regarding the golf balls, as you know, I think that - if I don't want to get ahead in myself, I'm not done, I've still overpromised or you talked about things relative to potential but we've had a very successful launch with Chrome Soft. Over the last three years we took the golf ball business that was losing money and turned it into a profitable business contributing significantly to our business. We now have a product and technology that we think is just dynamite and differentiates to the marketplace, the sell through of the Chrome Soft has been very strong, the consumer reaction knows they have tried it, love it. But as you said, potential means we haven't done it yet, so we still haven't done, all we want to do is golf ball but I like our position and like where we're trending.

The last question I have and penciling through your updated cost and currency forecast for this year. It's implying about 5.5% operating margin rate with gross margin rate of 43.5% which is almost back to the levels you were back in 2008. So with that in mind and thinking about we're running golf company should be in the 7% to 8% rate, how do we bridge operating margin rate that's 200 basis points. So it looks like it's going to have pick up average but I'm not sure there is really much more than you can cut.

It doesn't have to come from expense leverage per se, you're looking at Q1 and we are down in Q1, majority are down in Q1 was a shift in launch timing. We feel like we are making good progress, we still have to overcome the FX impact but we're committed to doing that. Also that 7% to 8% target will get harder at these FX rates, so that is another hurdle for us to get through. We're pleased with the progress, you're exactly right on your back of the envelope math there in terms of - on a constant currency basis we deliver - we would be delivering excellent results, we're certainly progressed where we were. And we think we continue to make improvements, now we have to get over both the FX and make further improvements from where we are. We're committed to do that and we'll continue to update you as we make progress against it.

Great, thank you very much.

Thank you.

Your next question comes from the line of Lee Giordano with CRT. Your line is open.

Thanks, good afternoon everybody. Chip, for the past couple of years we've had late starts to the spring season, it looks like this year at least in the northeast you've had another late start due to colder weather. What is your thoughts on the early spring season throughout the country and has weather been any - has it had any impact on the business you saw through at the retail stores or green weathers [ph]. Thanks.

We're cautiously optimistic on the outlook and most of the customer base we're talking to are as well. There are pockets of the country and the globe that had rough winters that extended a little further into the springs and we would all like - there are other areas that are pretty good. The net is we think it should be better than last year and there is a lot of positives out there. So weather at this point we don't think it is going to be part upon a headwind going into the balance of the year but as you know that it could change but at this point the net sum of it is looks like we should be in for a better season than last year.

Got it. And then just secondly, what types of manufacturing improvements have you implemented to-date and then I guess what's left to complete that could result in further efficiencies as you move forward? Thanks.

Lee, getting into the specifics of those improvement will be beyond my ability during this call, as Dan just pointed out on a constant currency basis we would be delivering 43.5% gross margin. What you're seeing is greatly improved operating efficiencies both on the golf balls, the same continuation trend, we have a golf ball business that was $130 million to $135 million, so our business was losing money. We made that same skill business profitable through operating efficiencies, and our driving more efficiencies through that same business unit, we're being more efficient in the corporate office. I'm not going to be able to call out specifics in terms of that but our throughputs, our efficiencies and the quality of our revenues, you can see our inventories are well down year-over-year, so the quality of our sales is higher. There is just a lot of changes that have been going on now for several years starting to manifest themselves in the overall efficiency and profitability of the business.

Great, thank you.

Thank you.

Your next question comes from the line of Mike Swartz with SunTrust. Your line is open.

Thanks, good afternoon guys. This is actually Mitch sitting in for Mike. You discussed your woods in balls outlook in detail but could you put in some more color on irons and putters for the balance of the year?

Sure. Irons and putters are two categories Mitch that we are very excited about. Let's start with putters, putters is the category where Calloway Golf has had a leadership position for some time with our brand. We launched a product this year called RC works [ph], it has a new insert technology in it that combines right feel and roll, and it is doing beautifully in the marketplace. One of the more successful launches that we've seen in a long time, big surge in market share, strong product differentiations, strong branding, and as a result we are very optimistic for that category for the balance of the year. Similar story in irons a category where Calloway Golf has had a strong heritage position, late last year we launched the big irons with cut-based technology, we followed that with the SR irons with cut-based technology. This cut-based technology delivers ball speed and across the save unlike anything else we've seen and through the first quarter in the US we were the number one selling brand in iron, in the UK we had the highest market share coming out of March that we've had in the history of that market, we've got outstanding differentiated product in the iron category that should lead us to a strong year in that category.

Okay, thank you. And then just one more on the gross margin, given the number of puts and takes in the commentary you made around woods being more promotional in the second quarter. How should we think about the cadence of gross margin throughout the year?

Brad, I will leave that one to you.

Yes, I don't think Chip would saying it would be - woods would be more competitive, I think he said the overall promotional activity would be lower this year, he just had mentioned earlier that it was a competitive market but the inventories are in good shape so we don't really see it that much incremental as it would be a better environment. And typically our margins - if you did look at it kind of first half, second half or higher in the first half of the year as we're launching full price in line product, and then plus you have the volumes that go with it. And then tail off a little bit in second half of the year, I mean that's generally kind of the trend that we would see overall. But the good news is, at Chip pointed out that on a currency neutral basis we're seeing significant progress compared to last year and that's really the result of good quality product and sales that we're generating, as well as lot of the operational performance that Chip was talking about and that seems to be sticking well for us. So we're going to continue to keep pushing on that and the team is doing a great job in really driving efficiencies throughout across the whole spectrum of things that we do from the supply chain and manufacturing perspective.

Okay, thank you guys.

Your next question comes from the line of Casey Alexander with Gilford Securities. Your line is open.

Yes, hi, good afternoon. Sorry, if it sounds lengthy but I'm in transit and I'm into northeast, so it's cold and windy. Most of my questions have been answered but does your guidance presume sort of similar second half launch sequence as this last year did which is sort of what has caused this gap in the first quarter?

It does indeed Casey.

Okay. And secondly, just last week I think 67 courses were shuttered in China, and I know Calloway has some people on the ground there and I just wondered if you had a color about that and what you think it means for the China market going forward?

The China market like it soft Casey, golf has rightly or wrongly got caught out in some of the government initiatives relative to anti-corruption and maybe excesses that could have occurred with government officials and such, and so government officials aren’t supposed to play golf, golf courses aren’t supposed to be open and it put a little bit of a shadow across the golf industry there as this time. So that market is dealing with that and might deal with it for some time till that sentiment ultimately changes.

Okay, great. Thank you for answering my questions.

Thanks, Casey.

And Brad, congratulations on your retirement again.

Thanks, Casey. I appreciate it.

Your next question comes from the line of Andrew Burns with D. A. Davidson. Your line is open.

Thanks, good afternoon. Just a quick follow-up on the ball segment, just trying to push out the moving parts here in terms of product launches versus the overall trend here, and so I understand on the ball revenue while it was down, just curious as we move through the balance of the year, is a potential to get a positive for the overall category for the year as well as say you're able to do $137 million in revenue as you did in 2014, are there any large drivers one way or the other versus the very strong 11% margin you put up last year in that category. Thanks.

I think the golf ball segment, we would expect to have some upside, so we're bullish on the category and we are selling through in the marketplace better this year with our launches than last year. So that provides both operating leverage and some volume potential. We are dealing with the FX issues that are by the golf ball as well so that puts a little pressure on the gross margins there above the international business but the net is we're very optimistic on that golf ball segment and I think it's a key strategic error for us going forward.

Thanks and good luck.

Thank you.

Your next question comes from the line of John O'Neil with Imperial Capital. Your line is open.

Thank you. Good evening everybody. With respect to sales comparisons for this quarter were made unusual by a lot of different things, we've got foreign exchange, launch timing, inventory reduction that retail, can you talk more about what you're seeing for sell through rates, what is retail movement look like year-to-date for some of your different categories?

John, are you looking for market conditions or sell through rates for by product category?

No more sell through rates by product category that you are seeing from your retail customers right, so if you get there POS stay there, you're talking to them, you maybe up that retail but they may not have ordered as much because they are reducing their inventory level, they are looking more at timing in second quarter replenishment kind of thing.

Our sell through rates is measured by market share, they look very good. I'm quite pleased with the brand momentum and overall direction in most categories, our wood share is down slightly, I anticipated that, I called that highly competitive category, by that I just mean that there are multiple players right now that are doing well. We are doing well, but there are several other brands that are also doing well. I don't expect it to be more promotional, I expect it to be less promotional than last year. Our iron share is phenomenal, our sell through is very good, and I'm pleased and optimistic on that; putters is very good, golf ball is very good; soft good accessories is fine, nothing really matching expectation I guess. So overall - and this is a global answer right now, I'm very pleased with the brand momentum on most category.

Okay. I guess what I was looking at is more kind of dollar sales growth level but I think you did comment that the market overall was flat in US and Europe, is that correct?

Yes, so the first quarter is flat in my estimate for the market in Europe and the US would be flat.

Okay, so then if you're gaining share then you are up in the local currency. So I guess my second question would be the revenue guidance implies for the back half of the year, kind of sales growth of 6% to 12% in gap which is quite an acceleration, maybe you can just comment on the visibility there, why the increase is part of that - kind of the timing of the woods launch?

Well the timing of the wood launch for the second half will be - will be [ph] similar launch. So it's really based on the brand momentum and a better outlook for the industry overall. So those two things combined should show growth and that is what we're predicting.

Great, thank you very much and Brad, best of luck to you. Thank you.

Thanks, John.

There are no further questions at this time. Mr. Brewer, I will turn the call back over to you.

Thank you. I don't usually do this but I'm going to actually provide a small closing comment. When you look at our business and our industry, after a year of concerns being pressed about the industry, I believe there are more and more reasons for optimism for the long term, both of the industry and Calloway, and I'd like to go through those real quickly. If you look at the sell through data here in the US, there have been consecutive months of sell through growths. The rounds play data since the second half of last year onwards has been positive. The NGF participation data is showing that participation is stabilizing. There are several key growth initiatives by the PGA and other governing bodies that we think have potential. Top golf is a wonderful potential catalyst for the game of golf and millennial participation going forward. The customers, really across the globe are generally optimistic. The market is finally talking about being more responsible on inventory and focused on profitability, and there is a great amount of excitement in pro-golf. The ratings at this year’s Masters were up significantly, the ratings for the PGA Championship ahead of that were up significantly. We've got young guns like Jordan Smith and Rory McIlroy, as well as exciting young players on our stats such as Patrick Reed, Harris English, [indiscernible] among others that are exciting golfers, young and old. Calloway itself has brand momentum in market share and we've demonstrated ability to drive improved operating performance and profitability. As a result we are pleased with our progress and optimistic about the outlook. We appreciate you calling in today and we look forward to updating at the end of Q2.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.