In retrospect, the announcement that Callaway was reducing its workforce by 12 per cent should not have come as a surprise, but any time that 250 out of 2,100 employees at one company lose their jobs, it sends shock waves through the golf industry.
It’s not an easy task for the company, which still has stockholders who will lose somewhere between 55 and 75 cents per share this year to deal with and product introductions ahead that immediately need to capture the imagination of the marketplace.
“The actions we are announcing (Wednesday) will better align our cost structure with our current business and the changes we are making to our sales and marketing strategy will position us for sales growth in 2013 and beyond,” said president and CEO Chip Brewer in a release.
“Lastly, I am very excited by the consumer-oriented changes we have made to our 2013 product line and look forward to providing more information about those new products later in the year,” he added.
That type of optimistic statement is common from any company and/or executive with product launches on the horizon, but in this case, it’s important that Callaway put one out of the park with not only research and development, but sales/marketing, as well. Complicating matters is a stagnant economy and a competitive golf market.
We’ll see what happens, but Brewer is known as a hands-on product guy from his days at Adams and word is that he’s been working closely with Alan Hocknell, senior vice president of research and development, on the 2013 product line and that R&D wasn’t affected much in the recent cuts.
Brewer has been on the job for just a little over four months, but net losses grew and net sales dropped the past couple of years before his arrival, causing speculators to prematurely sound the death knell.
The second quarter this year showed a slight improvement in net sales, among other things, compared to the same quarter in 2011, but it wasn’t enough. Recently, the company sold off some dead weight in the Top-Flite and Ben Hogan brands, so it could concentrate on its core brands, Callaway and Odyssey.
While the situation improved somewhat in the second quarter, it wasn’t enough and the need for more cost-reduction was becoming clear in Carlsbad, Calif.
The recent initiatives are expected to yield an estimated $52-million in gross annualized savings, with estimated pre-tax charges of $40-million over the next 12 months associated with these moves, over half of which are expected to be non-cash charges.
Brewer freely admits that the impact of these initiatives won’t be felt until next year and in 2014, so the anxiety and uncertainty continues for now, but Brewer says he’s pleased with the progress of a company that is now leaner after its most recent staff cuts.
As a media guy, it was refreshing that Brewer didn’t try to sugar coat or put positive spin on the challenges ahead, instead offering a realistic assessment that investors should appreciate.
While it would be difficult to hide what’s ahead, the temptation is always to immediately install smoke and mirrors to deflect the truth that Brewer put out there on Wednesday. Brewer and the company now need to deliver after setting the parameters.
Stockholders are looking for a more immediate sign from a brand that has the attention and recognition of the marketplace if it can deliver something with the impact of a Big Bertha or White Hot putter, two products among many that has made Callaway one of the most recognizable names in the game, along with Odyssey.
That’s a big `if’ with no available information at this point, but it would be a big step in turning around one of the best-known names in golf — the first of many on the long road back.