Slicing Into Sales

No executive is more keenly attuned to Asia’s economic problems these days than Callaway Golf Co. Chief Executive Donald Dye, whose Carlsbad-based company has relied heavily on Asia’s growing appetite for high-priced golf equipment at a time when domestic sales growth overall is slowing.

As Asian economies gathered steam in the 1990s, so did sales of imported luxury items like fine wine, expensive cars, cigars and golf clubs. And Callaway scored big. Japan now accounts for 10% of Callaway’s total revenues, which are expected to surpass $800 million this year, while South Korea accounts for 2.5% of sales.

“Asian markets have been especially attractive for us because golf seems to flow with capital markets,” Dye said this week. “The finance people, the politicians, the influence peddlers all look to golf as an activity that enhances their business.”

But now Callaway’s rising Asian sales curve is threatened. The battering of Asian stock markets, oncoming recessions and devaluations of several currencies have undercut its market. And that affects not just Callaway, but the other deluxe golf equipment firms headquartered in San Diego County, including Taylor Made and Cobra Golf Inc.

“Callaway’s growth plans have to be closely tied to growing in Europe and Asia because there is a question of how many more golf clubs they can sell in America,” said an editor at an influential golf equipment trade magazine who asked not to be named.

The company, maker of the popular Big Bertha metal driver, was founded in 1982 by Ely Callaway, who remains the company chairman. Dye said Asia is still a small enough portion of Callaway’s overall business that “we haven’t been running up the alarms. Business is still strong in our U.S. and European operations.”

But Asia is a source of worry. Dye said Callaway has felt the most impact of the region’s economic problems in South Korea, where the company had seen a “couple of million dollars” worth of orders canceled since the first of October. Over that time, South Korea’s currency has lost 50% of its value against the dollar, doubling the cost of Callaway’s clubs and other imports.

Sales in Hong Kong have been “flat to declining” since the former British colony was turned over to China in July.

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Continued loss of sales in South Korea, Dye admitted, would be a blow. But Dye said that would be nothing compared to the impact if Japan’s economy deteriorated. “The real question in my mind is whether the cloud of doubt will spread from Korea to Japan. Then there could be more consequences for us,” he said.

Golf club manufacturers have been on a roll overseas. Total golf exports last year totaled $388 million, a 19% increase from 1996, at the same time that U.S. sporting goods exports overall were increasing only 5.3%, according to the Sporting Goods Manufacturers Assn. of North Palm Beach, Fla.

Callaway will still show solid sales growth in 1997, with the more than $800 million in revenue anticipated by Wall Street, surpassing last year’s $678.5 million by more than 19%. Total payroll of 2,600 employees is more than four times the 600 employees in April 1993.

But perhaps because of the Asian malaise and its impact on Callaway’s future prospects, the company’s stock has been lackluster lately. Shares closed at $26.94, off 56 cents in Tuesday trading on the New York Stock Exchange. That is down 6.4% for year and even more from the stock’s 1997 high, which was $38.38 on July 16.