In commenting on its excellent results for the third quarter ended on Sept. 30, Callaway Golf Co.'s management said it is investing in IT upgrades to support omni-channel solutions for all the group's brands and better infrastructures to support their international distribution.
It will be converting Jack Wolfskin's German logistics facilities in Hamburg and its Chinese distribution center to handle all the group's brands, which is expected to result in an annual net benefit of around $15 million by 2022. It is also expanding distribution capabilities in the U.S. with its North American hub in Texas in view of a planned re-launch of Jack Wolfskin in the U.S. market in the first or second quarter of 2020.
Just as in the second quarter, Callaway's recent acquisition of Jack Wolfskin boosted the group's revenues in the third quarter, but the company performed well also on an organic basis. Total sales surged by 62 percent in the period ended on Sept. 30 to $426.2 million, or by 65 percent in constant currencies.
Acquired last January, Jack Wolfskin contributed $134 million to the quarterly revenues. Its inclusion into the group led to an increase in total apparel sales to $140.0 million, up from $27.4 million a year ago.
However, Jack Wolfskin's sales were down slightly from the same quarter a year ago because of lower wholesale pre-orders in Europe, due to some inventory back-up from the last winter. The sell-in for the present season is said to be at or above plan, with new products resonating among the clients. Its direct-to-consumer sales are up so far this year by a double-digit rate online and at a low single-digit rate at the brand's own stores.
Excluding Jack Wolfskin, Callaway's sales increased by 11 percent in the latest quarter, driven by the timing of product launches in the golf clubs segment, as well as double-digit growth for TravisMathew, whose golfwear was launched this year in the U.K. and Japan. The golf equipment business continued to deliver steady revenue growth, and is now up by 5 percent year-to-date on a constant currency basis.
Callaway's overall gross margin improved by one percentage point to 44.9 percent in the quarter, thanks to the higher margins generated by the Jack Wolfskin and TravisMathew businesses and the timing of golf club launches. These factors were partly offset by the negative impact of foreign currency exchange rates.
In the U.S., the group's quarterly revenues were up by 13.6 percent to $161.6 million. Sales in Europe quadrupled to $133.4 million, but the gains were all from Jack Wolfskin, as golf sales declined slightly in the region.
Meanwhile, the group's sales in Japan rose by 17.9 percent to $64.1 million, or by 13.3 percent in constant currencies. In the Rest of World, which includes Korea and other Asian markets, sales jumped by 104.0 percent to $67.0 million, or by 111.9 percent at constant exchange rates.
The addition of Jack Wolfskin, along with TravisMathew, lifted apparel sales to $140.0 million, for a whopping increase of 412.1 percent from the year-ago quarter. Sales in the Gear/Accessories/Other categories gained 56.9 percent to $75.7 million.
The company's net income jumped to $31.0 million from $9.5 million for the third quarter of 2018. Breaking out the profitability of its hardgoods and softgoods segments, Callaway reported increases in pre-tax earnings of 36.0 percent to $23,1 million for golf equipment and 335.1 percent to $34.9 million for apparel, gear and other items.
More on Callaway's golf business in SGI Europe.