Shares of Callaway Golf jump 13 percent as analysts see market gains

NEW YORK -- Share of Callaway Golf rose Thursday, after the company's second-quarter profit met expectations and analysts saw signs that its performance could improve as it gains more market share.

Shares rose 74 cents, or 13 percent, to $6.42 on the day.

"Callaway is likely to at least maintain, if not gain, some market share next year in important high-margin product categories such as drivers and balls," Wedbush Morgan analyst Rommel Dionisio told investors in a research report.

While all sellers of golf gear suffered amid the weak consumer spending environment, Callaway used deep promotions to pare down its inventory, said KeyBanc Capital Markets analyst Scott Hamann.

Hamann, who has a "Buy" rating on the shares, added that there was more upside potential on margin improvement. He said that broad market share gains were evident.

On Wednesday, Callaway said it earned 12 cents per share, excluding certain items, meeting an estimate of analysts surveyed by Thomson Reuters. For the second quarter, the company reported net sales of $302 million, a decrease of 17 percent compared to $366 million for the second quarter of 2008. On a currency neutral basis, net sales would have been $321 million, a decrease of 12 percent compared to the second quarter of 2008, officials said. The company also reported gross profit for the second quarter of 2009 of $110 million (36 percent of net sales), compared to gross profit of $171 million (47 percent of net sales) in the second quarter of 2008, and reported operating expenses of $100 million (33 percent of net sales) compared to $111 million (30 percent of net sales) for the same period in 2008. For the first six months of 2009, Callaway reported net sales of $574 million, a decrease of 22 percent compared to last year's record six month sales of $732 million. On a currency neutral basis, net sales would have been $616 million, a decrease of 16 percent compared to $732 million in the first half of 2008. Also for the first six months, gross profit was $226 million (39 percent of net sales) compared to $347 million (47 percent of net sales) for 2008 and operating expenses were $202 million (35 percent of net sales) compared to $221 million (30 percent of net sales) for 2008. "Although market conditions remained challenging during the first half of the year, we are pleased we were able to increase our market share, manage our inventories, and reduce our operating costs, while at the same time continuing to invest in our business," said President and CEO George Fellows. "As we have said before, the economy and golf industry will recover and there have been some positive signs of late. We therefore are taking a balanced approach between managing our expenses and liquidity for the current environment and taking action and making investments that are in the best long-term interests of our shareholders."

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