Acushnet Holdings Corp. (GOLF) Q1 2019 Earnings Report, Transcript and Summary

Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to Acushnet Holdings Corp. First Quarter 2019 Earnings Conference Call. [Operator instructions] I'd now like to turn the call over to the Vice President of Investor Relations, Tony Takazawa. Sir, please go ahead.

Thank you. Good morning, and welcome to Acushnet Holdings call to discuss the financial results for Q1 2019. This morning, we are joined by Acushnet President and CEO, David Maher. David will provide his observations regarding the start of the golf season, the cadence and timing of our business this year, and how we're positioned for the rest of 2019. Next, Acushnet CFO, Tom Pacheco, will spend some time discussing the overall financial results for Q1 and our outlook for the rest of the year. We will be making forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see our filings with the U.S. securities and exchange commission. Throughout this discussion, we will be making reference to non-GAAP financial metrics, including items such as revenues at constant currency and adjusted EBITDA. Explanations of how and why we use these metrics and reconciliations of these items to a GAAP basis can be found in the schedules in today's press release, slides that accompany this presentation and in our filings with the U.S. Securities and Exchange Commission. With that, it is my pleasure to introduce Acushnet CEO, David Maher. David?

Thanks, Tony. Good morning, everyone. We appreciate your time on today's call. I'm now on Slide 4, enduring these prepared remarks, Tom and I will address Acushnet's first-quarter results, provide additional insight into the cadence and timing of our anticipated 2019 business and share our observations about the start of the golf season and the industry's positioning as we approach the heart, the playing and retail seasons around most of the globe. And before I commence my business update commentary, I do want to announce that our board of directors today declared our quarterly cash dividend of $0.14 per share. Acushnet's quarterly dividend has increased by 17% since it was first initiated two years ago and is consistent with our positioning of Acushnet Holdings as a long-term total return opportunity. This increased dividend also affirms our board's confidence in Acushnet's proven business model, consisting of a laser-like focus on the game's dedicated golfer, a broad and diverse product category portfolio, an attractive mix of consumables and durables, brands that are trusted by the commercial core of the golf industry and strong pyramid of influence validation. And while these are still early days and with many gold markets having only been open for a few weeks, the game is off to an exciting start in 2019. It is only May, and golf fans are already geared up for the second major of the year as the PGA championship next week heads to Long Island in one of the country's great public golf courses, the Black Course at Bethpage State Park. This builds on a historic April, where we saw on inspiring final-round display of talent and sportsmanship at the inaugural Augusta National Women's Amateur. The drive, chip, and putt final showcased how much fun Junior golf can be, while reminding all golfers of the merits of playing and swinging like a kid. And, of course, Tiger's Masters victory was a great moment for the game as it catapulted golf to center stage of the sports landscape. These moments are all part of golf story in 2019, which we believe helped to fuel enthusiasm for the game and business of golf. As we all know, weather is also an inescapable part of golf story and its effect on rounds of play is once again part of the first-quarter narrative. However, not to the degree we have experienced in prior years. In the U.S, cold and wet weather in the west was a drag on the first-quarter rounds. However, this was partially offset by gains in the southeast and mid-Atlantic regions. Similarly, favorable weather in Japan, South Korea and the U.K. contributed to early starts to the golf season in each of these markets. And with that, as an industry backdrop, I will now get into Acushnet's results for the first quarter of 2019. Headlines for the quarter are a double-digit increase in Titleist golf ball sales, led by new Pro V1 and AVX models and healthy gains in our Titleist gear and FootJoy segments. We were excited about our TS metals franchise and its growing momentum, and while we experienced year-over-year declines in irons, wedges and putters, these were all planned for levels given our product launch cadence. Now turning to Page 5, Acushnet's consolidated sales of $434 million for the quarter were down 2% as reported and up 1% on constant currency. Golf balls, which were up 16% for the quarter, set the pace for the company, while Gear and FootJoy also posted nice starts to the year. Titleist golf club sales were off 20% due to the previously mentioned comps. Adjusted EBITDA for the period of $64 million was down 17% and in line with our expectations for the quarter. And before I get into segment and regional commentary, I will affirm that based upon what we have seen through the first 4 months of 2019, we remain confident in our position to deliver on both our full-year revenue and adjusted EBITDA targets. Now turning to Page 6, we'll take a closer look at Acushnet's 4 business segments with results presented in constant currency. And starting with golf balls, Titleist ball sales increased 16% in the quarter driven by new Pro V1 and Pro V1x models, which were launched in January. As you know, we make meaningful investment in golf ball R&D, in golf ball manufacturing excellence and our new Pro V1 models are byproducts of these financial and organizational commitments to producing golf balls of the highest performance, quality and consistency standards. Through this past week's Wells Fargo championship, Titleist Pro V1 and Pro V1x have been used by 74% players across worldwide tours, including Max Homa, what won his first tour win last week using our new Pro V1 model. And at the Augusta National Women's Amateur, 67 of the 72 participants teed up the Titleist golf ball, including the champion in 8 of the top 10 finishers. Early response to new Pro V1 and Pro V1x from golfers and our trade partners has been resoundingly positive and the new optic yellow models have been nice additions to our line. Powered by the introduction of the new Pro V1 franchise and a full year of availability for our AVX ball, we're confident that the Titleist golf ball business is poised for solid growth in 2019. Now moving to golf clubs, Titleist club sales of $91 million were down 20% versus last year and in line with plan. A differentiating and we believe positive attribute of the Titleist golf club business is our 24 months or eight-quarter product life cycles for metals, irons, wedges and putters. As you know, we stagger new product introductions across a 2-year cycle and when the model is working well, we generate growth in even-numbered years as was the case in 2018 and expect to be close to flat in the following odd-numbered years. In the first quarter last year, we launched new irons, wedges and putters, and our first-quarter decline this year is in line with our plan and reflective of the challenging comps our launch has presented. That said, our TS drivers and fairways continue to meet our high expectations and bring great momentum into what is the critical fitting season for golf clubs. TS has been the most play driver on the PGA Tour at 16 of 20 events in 2019, and recent wins by C.T. Pan with TS2 and Max Homa with the prototype TS4 model are just a few of the many success stories across the professional and amateur games. The TS4, which was introduced on tour in April, is designed for golfers, who have especially high launch, speed and spin characteristics, and we plan to make this product available to all golfers early in the third quarter. And looking to the rest of 2019, launching the new Scotty Cameron Phantom X line of mallet putters here in the second quarter, and will soon begin our seeding process with new Titleist irons as you prepare for their market debut in the third quarter. Next, moving to Slide 7. In Titleist gear, gear followed up a robust 15% gain in the fourth quarter of 2018, with a healthy 5% increase in Q1, which was fueled by steady gains in bags, gloves and travel gear. Our new Players four and Linksmaster's bags have been especially well received by both trade partners and golfers alike. Over the past few years, we've made investments in design and supply chain capabilities and both of these new product lines are reflective of these investments and the good work by our global team. In addition, the team is doing a great job executing regional designs and expanding our customization and personalization capabilities. In summary, the Titleist gear business is on solid ground and poised for a strong 2019. And now moving to our final segment, FootJoy, the No. 1 shoe and No. 1 glove in golf. first-quarter sales for FootJoy were up 3% and new footwear was a primary growth driver, led by new Fury and Flex models, which were launched earlier this year and the continued success of Pro SL, the No. 1 selling spikeless shoe in golf. FJ apparel is also off to a good start with early growth fueled by growing demand for our performance outerwear, women's athleisure and men's apparel lines. As this business has grown, we have added resources to our design team, and we expect this will continue to propel the FootJoy apparel business forward. And recently, we started shipping the second season of FootJoy's 1857 collection. Early response has been positive and our team is committed to building upon last fall's successful market debut. And now looking at our business regionally on Slide 8, U.S. sales increased 5% versus last year. Our U.S. team and trade partners continue to operate efficiently and benefit from what our generally rational market conditions, with supply and demand far more in sync, now that we are a few years removed from what was a necessary and positive retail correction. Looking outside the U.S, EMEA posted a gain of over 5% for the quarter. We admittedly took a conservative approach to the market given uncertainties around Brexit and one of the larger retail players in the region. That said, we've been pleased with the nice start in EMEA, which was aided by some good weather, which has helped to jump start the golf season in the region. In Japan, our sales were down 20% for the quarter. This year-over-year decline was primary a result of the anticipated difficult comparisons with the first-quarter 2018 introduction of Vokey Wedges, Cameron select putters and the Japan-specific VG3 club line. Conversely, Titleist golf ball growth in Japan was especially robust and led all regions during the quarter. Sales in South Korea were off 2% due primarily to the aforementioned wedge and putter comps, while golf balls and gears posted double-digit gains for the quarter in the region. And now turning to Page 9 and our outlook for 2019. While we would like to see better weather here in the Northeast and across the Midwest, we continue to believe the golf industry is in a healthy position as we enter the second quarter. Our team is focus on the game's dedicated golfer and the development of products and services, which will help them play their best golf, and in turn, enjoy their time spent attempting to master a game, which cannot be mastered. We are continually focused on the never ending pursuit of product performance, quality and consistency, and we believe that manufacturing and supply chain excellence is a competitive advantage for Acushnet, which helps us differentiate our products from the competition. With the successful first-quarter selling period behind us, Titleist and FootJoy products are effectively positioned and merchandised and our fitting specialists and trade partners are prepared, and excited for what will be a busy stretch over the next four to five months. In closing, we like our position and remain confidently on track to achieve our goals for the year. Once again, thanks for your continued interest and support. And I will now hand it over to Tom to provide an overview of our financial performance.

Thanks, David, and good morning, to everyone on the call. I would like to echo David's comments and thank all of our associates and trade partners for enabling us to deliver a solid first quarter. Overall, we are pleased with our Q1 results. While there were a number of expected puts and takes due to launch timing, we are right on track to achieve our goals for 2019. Consolidated net sales were $434 million, down 1.8% versus Q1 of last year and up almost 1% on a constant currency basis. Growth was driven by the Titleist golf ball business and the very successful introduction of the new Pro V1 and Pro V1x golf balls as well as by increased sales volumes of AVX golf balls. We also recognized sales increases in FootJoy, footwear and apparel, and Titleist travel gear and golf bags. As previously mentioned, Titleist clubs had a challenging year-over-year comparison as a result of launches of Vokey Wedges, Scotty Cameron Select model putters and VG3 irons in Q1 of 2018, as well as anticipated lower volumes of AP irons, which were in the second year of their two-year product cycle. Gross profit was $222 million, down $5.5 million versus last year. The decrease was a result of the lower sales volumes in irons, wedges and putters, partially offset by an increase in Titleist golf balls driven by the higher volumes in the Pro V1 franchise and AVX. Gross margins were 51.2%, down 30 basis points versus last year. SG&A expense was $155 million, up $4 million over Q1 2018. The increase was primarily due to an increase in selling expenses across all segments, as well as higher advertising and promotional expenses supporting the launch of the new Pro V1 and Pro V1x. Research and development expense of $13 million was up $400,000 compared to last year and was about 3% of net sales. Operating income was $52 million, down $10 million due to the lower gross profit and higher SG&A expenses I just mentioned. Interest expense was $4.9 million, up slightly versus last year, reflecting higher average interest rates on outstanding borrowings. Our effective tax rate was 25.4% compared to 26.1% last year. The decrease in the ETR was driven by a discreet tax benefit realized in the first quarter of 2019 related to share-based compensation expense, offset by amounts related to the U.S. tax cuts and jobs act of 2017 and changes to our geographic mix of earnings. We now expect our 2019 effective tax rate to be around 28% for the year. Q1 net income attributable to Acushnet Holdings was $35 million, down $6.6 million from last year. And finally, adjusted EBITDA was $64 million, down $12.9 million due to the previously described decline in operating income. To assist you in your review of the calculation of adjusted EBITDA, we have provided a reconciliation in our earnings release, as well as in the slide presentation. Now looking to the balance sheet, we had about $45 million of cash on hand at March 31, 2019. Total debt outstanding at the end of Q1 was approximately $516 million. Q1 CapEx was $5.5 million. For 2019, we expect CapEx to be about $36 million with the remainder of the spending this year primarily related to investments to support the manufacturing and distribution of products, our go-to-market activities and continued investments in IT to support our global strategic initiatives. This quarter, we continue to invest in innovation, golfer connection and operational efficiency as it is the key to long-term success in the golf business. R&D, targeted sales and marketing programs and CapEx targeted to deliver a favorable return on investment are a few of the current areas of focus as we look to deploy our capital internally. In addition, as David noted, we declared a cash dividend of $0.14 per share. This represents approximately $10.6 million to be returned to shareholders. While we did not repurchase any shares this past quarter, we do have an open authorization to repurchase up to $50 million of stock and expect to begin this process in the coming months. We also continue to evaluate targeted M&A opportunities, which would help support our long-term strategies and to drive growth at a favorable return. We are focused on being good stewards of shareholder capital, and as always, we will carefully evaluate the various opportunities we have to both invest in the business and to return capital to shareholders. As to the outlook for full-year 2019, we continue to expect reported consolidated net sales will be in the range of $1.655 billion to $1.685 billion. This is up approximately 2.2% at the midpoint. On a constant currency basis, we expect revenues to increase in a range of up 2.8% to up 4.7% versus last year. And we are forecasting our adjusted EBITDA for 2019 to be $235 million to $245 million. And at the midpoint of the range, this would represent growth of about 4% versus 2018. As you will recall, we expected sales comparisons between first half 2019 and first half 2018 to be impacted by the size and timing of various product launches. We had several major launches and powerful product cycles in the first half of 2018, but expect to only have two launches in the first half of 2019, the Pro V in Q1 and the Phantom X putters in Q2, as well as the ongoing momentum in the TS metals. As a result, we continue to expect first half 2019 consolidated net sales to be approximately flat compared to first half of 2018 on a reported basis. I would also like to point out that we expect to launch our new irons in the third quarter this year. As a result of this launch timing, we expect second half 2019 sales will be skewed toward Q3 with Q3 being a little more than half of the sales in the second half. In summary, 2019 is off to a good start. The success of the new Pro V1 and Pro V1x has helped to drive results, and we are optimistic about the state of the golf industry and how we are executing across our businesses. We are well-positioned and looking forward to an exciting 2019. With that, I will now turn the call over to Tony for Q&A.

Thanks, Tom. James, can we now open up the line for questions.

[Operator Instructions] And our first question comes from the line of Steven Zaccone from J.P. Morgan. Your line is open.

Great. Thanks very much. Good morning, guys. I wanted to start with two product questions. The first one is on the Pro V1 launch. Just curious to get your sense how this year's launch is progressing relative to the launch two years ago? How do you feel about channel inventories for golf balls both in the U.S. and in multiple basis? And then I was hoping to get your opinion to discuss the new TS4 launch. Maybe just elaborate how it complements the existing Woods' offering? And why you saw the need to launch, well, outside of your normal metals offering cadence?

Okay. Good morning, Steve. So three questions, I'll hit Pro V1 first. We're real pleased with Pro V1's global launch. We've got a bit of a different dynamic this year as we're launching a product next to AVX and we're real pleased with how Pro V1 has established itself, both from a performance standpoint, from a tour validation and global pyramid validation. As I mentioned in my prepared remarks, the yellow's been a nice addition to the line that's added some increased interest in trial. So we're very pleased with Pro V1, one of our more successful launches in the history of Pro V1. Inventories, here we are, early May, I'll give the global flavor, and that is, we're at a time where manufacturers are effectively loading up the retail channels. Inventories ought to be robust right now. We see that. We'd have great concerns if there was a real drag on rounds around the world. We're not seeing that. So net-net inventories again, are robust and full as ought to be this time of year, but I would say, very much, in the band of normal. And then, thirdly, TSR gives you a chance to maybe, or gives us a chance to understand how we think about servicing and meeting the needs of the dedicated golfer. We've got a product line, TS2 and TS3, which we believe meets the needs of the vast majority of golfers in our dedicated golf for set. We do accept there are some, I don't want to call them outliers, but there's a small percentage of payers, who because of their launch conditions, very high speed, very high spin, very high launch, would benefit from a product that provides a different and more dialed-in launch condition. TS4 is just that smaller profile, moderate launch, lower launch, lower spin. Just to give you a frame of reference, we still think, on the worldwide tours, roughly 85% of our players will fit into a TS2 or TS3 model. TS4, again will account for about 15% of our total usage. But for us, it's really the way to showcase our fitting capabilities, our design excellence to really fine-tune all golfers, who fall into our dedicated golfer consideration set.

Great. Thanks for the detail. I just had 1 other question. I just wanted to -- I was curious if you could talk to the gross margin performance in the first quarter, maybe just to elaborate what drove the year-over-year decline since it's a bit surprising since you had a Pro V1 launch? And as we look to the balance of the year, just any help to think about how -- when we can see some more expansion on that line? Thanks.

Sure. Thanks, Steve. This is Tom. You're right. We would normally expect gross margins to be up in the first quarter of an odd-numbered year given the strength of the Pro V1 launch. However, the significant decline in gross margin in clubs, which are directly a result of the lower volumes related to the timing of product launches that we talked about, was just too large to overcome even with margin improvement in the Titleist golf club business. As you think about the balance of the year, there are some tailwinds that should help, including continued high volume -- higher volumes of Pro V1s, high volumes of clubs as -- particularly as you get into Q3 with the launch of the irons and continued performance rebounds from FootJoy and gear are all kind of tailwinds there. And so we do see gross margins improving for the balance of the year.

Your next question comes from the line of Dave King from ROTH Capital Partners. Go ahead, please. Your line is now open.

Thanks. Good morning, guys. I guess, first, on the upcoming irons launch in the third quarter, do you expect that to be as large as the 2017 launch, when I think you had yet three clubs that you launched then? How should we be thinking about that as we [indiscernible] to that?

Yeah, Dave, well, you're not -- we haven't introduced these products to the pyramid to our trade partners, etc. yet, so we will be a little bit coy in terms of how much we do want to say about them. But fair to say, the right starting point would be what happened in 2017, although, we're certainly going to try to build upon and grow that. Another thought is and we're always conservative as it relates to our launch timing, which historically straddles the third and fourth quarter. We're going to do what we can to move that forward upwards of a month to maybe catch the tail end of the golf of the summer season, late August, early September. That, again, is our intention, but we always take a conservative approach with new product launches to give you some flexibility as it relates to prepping the supply chain and organizing your supplies for a global launch. But I think the right way to think about it is just that is yes, we will look at 2017 again we're going to -- and we intend to build upon that and we may go earlier if circumstances allow.

That helps. Thank you. And then I appreciate the color on the revenue guidance by quarter. How should we be thinking about EBITDA, playing out by quarter versus the full-year guidance? In the first quarter, I think you had a fair amount of increase in marketing. Should we expect that same level of increase in Q3, when you do an iron's launch, etc.? Thanks.

Sure, Dave, this is Tom. We expect the EBITDA progression to be similar to the sales progression, with the guidance we've given or the help we've given about the progression. In terms of sort of our SG&A spend, that your mentioned, we do expect that over the balance of the year, SG&A will grow at a slower rate than revenue.

Okay. Great. Some more leverage. I appreciate it.

Thanks, Dave. Next question, please.

Next question comes from the line of Daniel Imbro from Stephens, Inc. Your line is open.

Yeah. Thanks, guys. Good morning. Wanted to start on the competitive environment, particularly on the club side. Here in the U.S. seeing a majority of manufacturers rolling out not only new drivers, but seemingly there's a number of new tour balls or tour level balls that have entered the market. How would you compare the competitive environment today to maybe last year or the last Pro V launch in 2017?

I would say, you know two -- maybe two answers, Daniel. Golf balls, very similar to what we've seen over the last handful of years. So nothing in golf balls surprises us. We're on our launch cadence and our competitors are on their launch cadence and not to say any of us don't deviate but it's -- again, it's largely as we've seen in previous cycles. So not a lot of change there. The club situation, a little bit different, notably in drivers, we've just seen a whole lot of drivers launched in the last several months, six, seven, eight of our top competitors all out there with new drivers. So the driver landscape is certainly crowded, more crowded than it was the last year or two, but the rest of the club marketplace, I would say, is as we'd expect, and as we've seen in previous cycles.

Great. And as a quick follow up on that. Over the last few years, ASPs have really been going higher, particularly as PXG kind of opened up the higher end of the market. As we're seeing now PXG lowering ASP now there is small percentage of market share, but lowering their ASPs on drivers, and rolling out a cast-iron kind of entering the more lower-price point iron market, how do you think that changes? Are we seeing any pricing dynamic shifts that are different from the last few years?

So I think part of the ASP journey is really two-fold. It's -- the industry has done a nice job bringing us some terrific products, which warrants and commands higher ASPs. And then the other part of the ASP frontline over the last couple of years certainly has to do with the retail correction. We're just seeing a whole lot less off-price discounted product available in the market, which has contributed to the ASP bump. In terms of any one competitor having an impact on that, I don't frankly see a whole lot of puts or takes, again, based on one competitor's action. So really not banking on a whole lot of change as a result of, again, one competitor's actions. But I think in general, the landscape for golf clubs, in the case of this discussion, what we're seeing is just, is a far more healthy environment than we're accustomed to over the last two, three, four years. Add to that, you see a continued push toward club fitting, which I think is only, and can only be viewed as a positive for the category.

Thanks so much.

Thanks, Dan.

Thanks, Dan.

Next question, please.

Next question comes from the line of Michael Swartz from SunTrust. Go ahead, please. Your line is open.

Hey, good morning, guys. I just wanted to touch on the club business in the quarter, and I think there were some things that maybe a bunch of us didn't appreciate with some of the comps and timing of product launches, but may be the right comparison is two years ago. So we go back two years ago to 2017, I think your sales were about $101 million, $102 million, which would still imply revenue was down from that period and I think that was, again, a driver year for you. Can you maybe talk about how we should be thinking about it from that lens? Maybe what some of the puts and takes '19 versus '17 would've been?

Sure. Michael, this is Tom. I think one fairly significant difference in '19 versus '17 is the putter. In '17, we did have a putter launch, which is normal for us for an odd-numbered year. We also had a putter launch in 18. But in '19, due to the timing of our launch and the putter launch didn't actually occur until April. So that pushes a chunk of revenue out of Q1 and into Q2. Other than that, I think '17 and '19 were reasonably similar.

Okay. Okay. That's very helpful. And then may be more of a housekeeping question. Did you, I may have missed, so I apologize, did you say what PG golf added to the quarter? And is your outlook for that business unchanged in '19? I think before you had said, it was somewhere between like $25-or-so million?

Yes. So, we didn't say PGA, as we've said, is pretty small. It was a few million dollars in the quarter and our outlook overall has not changed for the year.

Okay. Great. Thanks.

You're welcome.

Thank you. Next question, Please.

Your next question comes from the line of Simeon Siegel from Nomura Instinet. Go ahead, please. Your line is open.

Hey, good morning. This is Dan on for Simeon. Thanks for taking my questions. On the M&A front, I'm wondering if you could go into any color there in terms of opportunity and sort of the categories that you would be looking out? And then secondly on tariffs. I think you previously mentioned like a low single-digit million headwinds. Wondering if there's an update to that? Or if you've been able to mitigate any of it? Thanks.

So Dan, I will take the first question and Tom will handle your tariff questions. M&A, we've been pretty clear on our approach. We're certainly open-minded to acquisitions, and we've made a few in the last couple of years with PG golf and Links & Kings. Our broader capital strategy is focused on dividend. It's focused on organic growth. It's focused on share repurchase and M&A. And specific to M&A, we've been consistent in our approach from the beginning and that is, we look for opportunities that are synergistic with our dedicated golfer focus, number 1, and synergistic with our channel of distribution bias. We benefit greatly by having a strong profile of trade partners and when and where we see products with which we can leverage across that distribution profile, we pay especially close attention. So that's the framework and how we think about M&A. And then to your second question, I'll hand it off to Tom.

Thanks, Dave. Dan, so as it relates to tariffs, if you recall, the current Section 301 tariffs that are in place are at 10% and primarily impact our headwear, our golf bags and our travel gear. The tariffs were set to increase to 25% in on March 1, but those were delayed based on progress that was being made in the China trade talks at that time. We did say that if the tariffs were increased to 25%, we thought it would have a couple of -- a couple to $3 million impact on the year. As we've heard in the news, the Trump administration is now threatening to increase the tariffs as early as the end of this week 2% to 25%. But as we move through the season and we've done a bunch of -- received a bunch of our product of already in that $2 million to $3 million has been lowered to some extent. And so we're not expecting it to be that high, but -- and we are in the process of working on mitigation -- mitigating actions that would minimize any impact beyond 2020 -- sorry, beyond 2019.

Your next question comes from the line of Casey Alexander from Compass Point. Go ahead, please. Your line is open.

Hi, good morning. Let me ask a question. I mean clearly, as it relates to consensus estimates, this quarter is a miss. And you're talking about product cadence. These estimates were out there eight weeks ago, when you presented fourth-quarter earnings. If you had to do it over again, would you have been a little bit more transparent about the product cadence at that point in time and allowed people to right size their estimates?

Yeah, Casey, fair to say, we're -- most of our efforts were focused on the first half. We take a -- especially in the first half in golf, you know how things can swing from Q1 to Q2, but most of our efforts were really focused in on presenting and painting the picture on the first half. We run our business versus our plan, and hey, we were very much in line with our expectations. Clearly, from what we've seen, there was a bit of a misunderstanding on the club cadence realities. And might we have -- might we provide a little more quarter-to-quarter color on that, sure it's something we would think about in the future.

And were you surprised that Japan was down 20% given what you said that previously that I thought there was a statement that rounds played in Japan was -- or Japan had gotten off to a good start earlier in the year?

So to your question, no, we weren't surprised at all with Japan and it is commentary on the uniqueness of that market and how that market functions and how it differs from all other regions. In Japan, which we've said in the past is a very retail-centric market as opposed to others, which tend to be more fitting centric. New product pipelines in Japan are sizable and they represent the highest percentage of our full-year forecast anywhere in the world. It's just you load up the pipeline and then they sell it through at retail. Other markets, you tend to capture sales more in line with when it's sold through, but again, in Japan, in just tends to a big loaded market relative to other markets. May be a way to frame that, on the positive would be, as I mentioned on my remarks, our golf ball business grew faster in Japan in the quarter than anywhere else in the world. That's a commentary on the loading realities of that market. So as you'd expect, in our club journey and in our 8-quarter club journey, if the clock starts in quarter one as a year ago and even near, you do a meaningful pipeline of wedges and putters, that's all good and positive, but indexing against that, comping against that a year later will always be a challenge. So again, Japan didn't surprise us, but it does give us a good opportunity to talk about, the uniqueness of the Japan market, which, again, is so very load-in, sell-in centric in terms of newer business plan.

Okay. And my last question is just referring back to when the company became public. There was a pretty rigid view of that eight-quarter product introduction cycle. And at this point in time, I can think of three or four instances in the last year, where all of the sudden the company is deviating from that kind of rigid view of the eight-quarter product introduction cycle. Would you say that Acushnet is trying to be more flexible than in the past in relation to product introduction cycles? And is that a response to the competition also changing their product introduction cycles?

Good question, Casey. We're still -- in the 8-product cycle we're talking about is really, first and foremost, borne of how the golfer thinks about replacement cycles and it's borne of the reality that, you can imagine, with a vast product portfolio like we have to do it all in a quarter or a year, would be incredibly challenging. So we're very comfortable and confident in our approach that 2-year product lifecycles make a lot of sense. Now that said, we're always going to be nimble and agile based on needs of the consumer, based on changing market wins, based on the increasing capabilities of our R&D -- our R&D department. So it's fair to say we believe strongly in our model, in our approach, but we're as prompted and warranted by the market, by consumers and by our own capabilities, we're always going to be nimble and agile within that framework.

Okay. Thank you for taking my questions.

Thanks. Thanks, Casey. Next question, please.

Your next question comes from the line of Tim Conder from Wells Fargo Securities. Go ahead, please. Your line is open.

Thank you, and thank you for the clarity on Japan and answering Casey's question. Just maybe one to continue that line of thought on Korea, not as much dramatic here as Japan, but is -- are there similar characteristics there that the costs in Korea to be down, again, versus what we're seeing in the U.S, what we're seeing in the EMEA area?

Yeah. Tim, a good question. The Korea, a lot of what I talked about in Japan doesn't apply to Korea, so I'll touch on Korea a little bit separately. You know framing what happened in Korea [ph], balls and gear had terrific performances in the first quarter and the club story was as we noted. So the question is why is Korea down while the U.S. and EMEA are up? And really it speaks to some shifts happening in FootJoy, twofold: one, we're transitioning our apparel line from what was more of a globally inspired line to what is now more of a Korea-centric, locally designed line. So that's had a bit of a hit on our calendarization. And secondly, as we shift to more of a stand-alone FootJoy store model in the market, we're shifting some of our revenue recognition from wholesale to retail. And what that says is, "hey, you capture it when you sell it through, not when you ship it in." So really, the FootJoy story is we're going through a bit of a transition and that, at the end of the day, is what distinguishes and separates it from what you're seeing in the U.S. and EMEA. But fair to say, Korea and Japan markets, very, very different in terms of how they function and how they operate.

Okay. Okay. And then on the adjusted EBITDA, just wanted to circle back there. Understand that realistically you mean that your business in two halves of the year rather than and, as much on a quarterly basis. But was there anything in Q1 that you may be pulled forwards, some R&D or the marketing expenses? Again, may be a little better communication on the cadence of the quarters, but was there anything unusual that happened in Q1 that suppressed the EBITDA margin?

Tim, this is Tom. No, I would say there was nothing unusual. I mean, the EBITDA margin and the actual EBITDA itself are purely a function of the lower operating income, which is really, you know driven by the lower sales volumes that we've discussed and its impact on revenue and gross margin.

Okay. So no pull forward or timing of R&D or marketing expenses that could have magnified that, Tom, in anyway?

No, not in an unusual manner. No, Tim. Thank you, gentlemen.

Thanks. We will have time for one more question, and then we'll have some concluding comments from David.

Your last question comes from the line of Brett Andress from KeyBanc Capital Markets. Go ahead, please. Your line is open.

I guess back to the topic of the week, tariffs and the recent escalation there. It was touched on in earlier question, but I guess, in the event of a lift four, which is really tariffs on everything from China, can you remind us what your supply chain looks like today in regards to China? And how a situation like that could manifest itself in both the P&L and from a consumer demand standpoint?

Sure. Brett, this is Tom. So you know, as you can imagine, we have, certain parts of our business do have more concentration in China from a supply chain perspective, in particular, some of our footwear and much of our apparel. So that would be a situation we would have to closely monitor and look at mitigating actions that we could take to minimize impact. But that is, that would be perhaps a more significant problem for not only us, but for much of the retail industry in general.

Brett, I'll add on that too. Our ball business, majority of our production is here in Massachusetts. Secondly, the rest of it is in our Ball Plant IV in Thailand. Clubs. Club assembly happens really in local market. So we custom fit, we tend to assemble in local markets. And gear, our gear teams has done a nice job of diversifying that supply chain. So we certainly have a lesser exposure to China than we may have had three, four, five years ago.

Understood. Thank you. And kind of back to the industry. Obviously, some level of rounds played pressure earlier in the year but from our view, retail dollars, for the industry, as reported by Datatech, I think they're holding up okay, again, some tough compares. So I mean can you just -- at least, so far this year, but can you just maybe talk about how the industry retail spend has held up relative to your expectations so far this year? And what you're expecting for 2019 from that standpoint?

Yeah. I'll -- you know much like you said, Brett, it's -- what we're seeing is it's holding up quite nicely despite some pockets where rounds are down, I would imagine it looks better in the southeast for the quarter than it does for the west, which was hit hard by weather. But again, speaking the globe rounds, global rounds are in decent shape overall. Again, echoing your comments about retail sell-through. We're seeing pretty good stability. And as you would expect, the reminder I'll put forth is that, so much of the golf season is just getting under way. Here in New England, we're two, three weeks into it. So the data we look at now is pretty good. But just as a reminder, it's from Q1. Q1 play represents globally anywhere from 10% to 15% of play for the year, and again, that's a global number. So for us, so much of our resources and efforts are geared toward sitting in sell-through, which really happens in April, in July, August and even now into September timeframe. But again, early days, but we see nothing out there that prompts any caution.

Any review on April rounds played, just from where you guys sit?

Well, if you're asking for a more recent, it was a wet April. But again, around the world, I think you're going to see similar to what we saw in the first quarter. There were pockets where it's been pretty good, Northeast and Midwest, slower than you'd like, around the globe, again, pretty good. So no outlying inputs one way or the other, which is a little bit different from where we've been certainly last year, where this time last year we had tough weather in many markets around the globe. But the key thing here is, we've got to -- as we roll into May, we've got to see how the Midwest and Northeast markets open up. And again, after a wet April, we'd like to think things will soon normalize.

Understood. I appreciate the color.

Okay. Thanks. And thanks everyone for your call. We appreciate your time and ongoing interest in Acushnet. We invite all of you to do your part to contribute to quarter two rounds of play, as whether improves here and we wish you all the best and look forward to reporting back in early Q3. Thanks, again.

This concludes today's conference call. You may now disconnect.