Callaway Golf is laying off 12 percent of its workforce and implementing a series of cuts that the company hopes will save about $52 million a year, company officials said Wednesday.
Callaway CEO Chip Brewer, who took over earlier this year, called the 12 percent reduction in the company’s workforce “a lousy part of the process but a necessary one.”
“If anybody is surprised that Callaway had to cut costs," Brewer said, "they probably had their head in the sand.”
Callaway, based in Carlsbad, Calif., cut 250 employees from its worldwide workforce of 2,100. The reduction and other initiatives are expected to generate $52 million in gross annualized savings and will cost an estimated $40 million – more than half anticipated non-cash charges – during the next 12 months, according to Callaway.
“It’s painful stuff," said Brewer, the emotion apparent in his voice. "It keeps you up at night. The reality, though, is that we had too many costs and too many people. So we had to make those tough decisions.”
Callaway's stock closed at $5.66 per share on Wednesday, a drop of about 9 percent on the day. Before the drop, it was down about 8 percent over the past year.
Callaway's "business has not recovered at a satisfactory pace and we are taking actions to accelerate the recovery," said Brewer. "The cost reduction initiatives we announced today are part of those actions and are consistent with the significant changes we are making in streamlining and simplifying our organization and in how we approach and operate our business.
"These changes, however, will have a greater impact on our financial results in 2013 and 2014 than on 2012," he added. "As a result, and given the slower than anticipated pace of recovery, we no longer expect that 2012 full year financial results will be significantly better than last year. At this point, we expect for full year 2012 a pro forma loss per share of $0.55-$0.75."
Estimated costs over the next year associated with these moves are $40 million, over half of which are expected to be non-cash charges, Callaway said.
The layoffs and cost reduction program will impact all regions and all levels of the organization, officials said in a statement, as the company plans to streamline its operations and sharpen its focus on the core product lines of the Callaway and Odyssey brands. In recent months, Callaway sold its Top-Flite and Ben Hogan brands, licensed its North American apparel business and its footwear business and have made what officials call "significant changes in senior management, including new hires to oversee our global marketing and global operations organizations."
Based on current information, Callaway estimates net sales for the second quarter (ended June 30) of $280 million, an increase of 3 percent over the second quarter of 2011. First half 2012 net sales are estimated at $565 million, a 1 percent increase compared to the same period in 2011.
Brewer joined Callaway as president and CEO on March 5 after serving as the head of Adams Golf. He maintained that Callaway would come out of this restructuring leaner and more agile, adding that “the Callaway consumer will benefit from all this. That’s why they hired me.”
Looking ahead to 2013, Brewer promised “exciting new products that people will be talking about.” In June, he led a management reorganization that enabled him to become heavily involved in research and development, with Alan Hocknell, senior vice president of research and development, reporting directly to Brewer.
Previously, Hocknell reported to Jeff Colton, the senior vice president of global brand and products. Colton’s job at Callaway was eliminated in June.
“I’m a hands-on guy when it comes to product,” Brewer said. “It’s the thing that gets me excited every day. Having a guy in between (Colton) didn’t make any sense.”
Callaway, which grew from a start-up into one of golf's major players with the development of the Big Bertha line of metalwoods under the late Ely Callaway, has struggled in recent years. The company (stock ticker ELY on the NYSE) reported a net loss of $171.8 million in 2011 after a net loss of $18.8 million in 2010. Callaway recorded net sales of $886.5 million last year, down from $967.7 million in 2010.
Brewer laid down an ultimatum – to himself, if not to Callaway stockholders: “If you look at my track record, you know I’m a product guy. If I don’t feel that we’re world-class – if not the world’s best – then I’m out of here. I’m done. I’m gonna hang up the spikes."
Brewer said much the same thing when he was CEO of Adams Golf, and he oversaw a total revamping and revitalization of the Plano, Texas-based company's product line.
“In the 120 days that I’ve been here at Callaway, we’ve made a lot of changes,” Brewer said. “This first stage (layoffs) had to be completed. Now we move on.
“It will present some near-term challenges. Some people will be asked to expand their responsibilities, but we won’t have to worry about whether we have resources to get the job done. I feel we’ll come out of this stronger than we were before.”
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