Acushnet Holdings Corp (GOLF) 2017 Q1 法說會逐字稿

Good morning, my name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2017 Acushnet Holdings Corp. earnings call. (Operator Instructions). Thank you. Mr. Tony Takazawa, Vice President of Investor Relations, you may begin your conference.

Thank you. Good morning and welcome to Acushnet Holdings' call to discuss our financial results for the first quarter of 2017. This morning, we are joined by Acushnet's CEO, Wally Uihlein. Wally will provide his observations and commentary on what is going on in the golf industry. Next Acushnet's COO, David Maher, will discuss the performance of our business across our segments and geographies. And finally Acushnet's CFO, Bill Burke, will spend some time discussing our overall financial results for the quarter. After the prepared remarks, we will then open up the lines for your questions.

We will be making forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see our filings with the US Securities and Exchange Commission.

Throughout this discussion, we will be making reference to non-GAAP financial metrics, including items such as revenues at constant currency and adjusted EBITDA. Explanations of how and why we use these metrics, and reconciliations of these items to a GAAP basis, can be found in schedules in today's press release, the slides that accompany this presentation and in our filings with the US Securities and Exchange Commission. With that, it is my pleasure to introduce Acushnet's CEO, Wally Uihlein. Wally?

Thank you, Tony. Good morning, everyone, from Fairhaven, Massachusetts, a place as good as it sounds, and thanks for joining us on today's call. Before I commence my business update commentary, I do want to announce that our Board of Directors today declared our second quarterly cash dividend of $0.12 per share for shareholders payable on June 16, 2017 for shareholders of record as of June 2, 2017.

This announcement is consistent with our long-term total return representation and affirms the Acushnet Company's playbook consisting of an inexorable focus on the game's dedicated golfer, a broad product category portfolio, a favorable mix of consumables and durables, of brands that resonate with a commercial core of the golf industry, strong pyramid of influence validation and a desirable concentration in high-margin equipment segments.

Big picture, the industry's structural underpinnings continue to stabilize; as the retail correction continues to play out there remain a number of positive takeaways. Total golfer count, total facilities and total annual rounds of play have appeared to have reached a reliable and predictive level.

On the previous call, we mentioned the annual Datatech-Yano size of market study where their findings revealed that the golf equipment and apparel opportunity at retail remains just under $12 billion. This number corresponding to a wholesale size of market somewhere between $7.8 billion and $8 billion. The total commercial opportunity remains attractive.

At the same time, some of the industry's initiatives, whether it be the USA specific, PGA Junior League or Drive, Chip and Putt, the HSBC grassroots idea of making golf part of the United Kingdom school physical education program and the Canadian Golf Federation's Future Links program, these are all representative of the global golf industry attempting to precipitate its own future.

And recent changes such as future OEMs, longer product life cycles and retail consolidation are all part of the ongoing correction and the new normal. We think this correction has another 12 to 24 months to run, minimum. This is based upon the experiences of correction periods in recent memory, the 1999-2000 dot.com correction and the 2008-2009 subprime correction.

And it is our opinion that not all of the revenue that previously existed will be sustained. Previous high inventory levels represented supply at retail greater than annual normative demand, helping explain the eventual fiscal demise of those retailers no longer with us. However, all in all this correction remains very much a long-term positive.

And even the conservative and frequently vilified regulatory bodies are helping breathe fresh air into the industry with an objective of simplifying the rules of golf. Their proposals, the most sweeping changes since the formal inception of the rules in 1744, recommend to reduce the number of rules governing competition in everyday play from 34 rules to a proposed 24 count. Certainly one of the recommendations that we hope becomes adopted is the rule change proposing the search time for a lost ball be reduced from 5 minutes to 3.

Taking all of this into account, the global golf industry is in a pretty good place and remains an attractive opportunity for those companies and brands with advantaged positions in the product, innovation, operations and route to market arenas.

Against this backdrop of continued industry correction, first-quarter 2017 produced lingering retail softness stemming from a number of factors including less off-price golf club product, fewer doors, isolated winter weather woes and some unusual golf ball product category promotion at a time of the year when total rounds of play are limited in all countries.

Looking at some of the key markets, rounds of play in the United States were mixed due to both weather and off-season regional comparisons. Of consensus is that overall retail spending was down 3% to 5%. In Japan, rounds of play for the quarter were off due to an unusually cold winter and retail golf equipment and apparel sales were off 8% to 10%, much of this due to fewer visits and less spend by the affluent Chinese golfer.

South Korea remains healthy where both rounds of play and retail spend increased 3% to 5% on a year-on-year comparison basis. And while the early-season environment was mixed, our results were steady and reflect the strength of our strategy, our positions in all business segments and in all geographies, and exemplary execution by our associates worldwide.

We are pleased with our reported net sales of $434 million and adjusted EBITDA of $78 million, both of which were down a bit, less than 1% year-over-year. And now David will provide some color on our key business segments.

Thanks, Wally, and good morning, everyone. I would like to first take a moment to frame how we view the first quarter of any given year. For Acushnet, the first three months are a staging period as we stock, merchandise, educate and prepare our trade partners for the upcoming golf season. We are pleased with the good work of our team in executing these priorities across the 46 countries in which we have direct sales capture.

While the game is in high gear during Q1 in Sun Belt markets such as Florida and Arizona, the fact remains that much of the golf world is still in hibernation or preseason mode waiting for the weather conditions to cooperate. In most years, the primary golf retail season kicks into gear globally with the opening tee shot at the Masters.

My remarks today will focus on our four business segments: Titleist golf balls, golf clubs and gear and FootJoy. And before commenting on these segments, I will reiterate that the Titleist ball and club businesses generally run on two-year product life cycles, which may prompt added explanation of our year-on-year comparisons. Titleist gear and FootJoy tend to operate with more normalized sales comps.

Starting with the number 1 ball in golf, net sales for the quarter of $134 million were up 3%, both reported and on level FX. The 2017 Pro V1 launch is right on target. In the US, in spite of having 600 fewer doors to sell to, our Q1 launch equaled that of Q1 2015, the previous launch quarter reference point. And worldwide we shipped more Titleist Pro V1 and Pro V1x golf balls in Q1 2017 than any previous first quarter. Strong golfer response fueled our annual Pro V1 loyalty [rewarded] campaign with Encore's channel growth helping to offset any retail consolidation impact.

On the leadership front, Titleist ball counts have increased 300 to 500 basis points on the major tours as three out of four previous Nike players have made their way to us. Importantly, player feedback on our new Pro V1 and x golf balls has been excellent and we are very happy with the resulting usage mix.

At the end of the quarter, we have over 20,000 golf ball displays activated and ready for the upcoming playing season. We feel confident about the state of the Titleist golf ball business in what remains a very competitive category where we have seen promotional activities take place earlier than in most years.

With that said, we will continue to differentiate our position based on a leading IPR portfolio and commensurate annual R&D investments; a world-class leveraged manufacturing footprint, we make every ball that we sell; and a route to market advantage resulting in Titleist golf balls being prominently positioned in over 30,000 golf shops worldwide.

Turning to Titleist golf clubs, net sales of $102 million were down 11.7% versus last year and 10.8% on a constant currency basis. There are a few notable factors behind this decline. First is the plan for comparison against three major golf club introductions from Q1 2016: a record Vokey wedge launch, strong iron sales and the VG3 launch in Japan.

There were also some industry factors that impacted our results. First, reflected in this comp is the negative impact of the Golfsmith store closings. And secondly, there was aggressive ad spending in the golf club market during the quarter.

A majority of our fitting-based A&P spend is slotted in Q2 and Q3 when most fittings occur, so we did see an impact here, mostly in drivers, a category where we have seen some good competitive entries. This had an effect on our 917 drivers and fairways, which got off to fast starts in Q4, but we saw this growth slow during Q1.

Our golf club playbook is superior performing product which is optimized for the golfer by a professional custom fitting experience. We have over 4,000 custom fitting partners worldwide and will conduct over 6,500 fitting events in this second quarter, a 40% increase versus last year. Much of this activity is underway including Titleist Thursdays, our broad-based weekly trial and fitting events.

Moving to the Titleist golf gear segment, first-quarter sales of $42 million were up 7.2% for the period, or 7% on a constant currency basis. This growth was led by successful launches of the new Players stand bag line, travel gear and the 2017 Titleist headwear collection. These products were among the first to be introduced based upon our new design and supply chain processes and we are excited with the progress we are making in this segment.

As we have said previously, our ability to both perform and exceed expectations with gear is commensurate with the speed of conversion as we transition from third-party supply chain dependency to a point where we control the design, the material spec brief and finished goods quality assurance. The endgame is to ensure were that all Titleist branded gear products represent the gold standard of their respective segment.

And finally, I will note that while gross margins in the gear categories are less than the higher-margin performance equipment categories, the net margins after direct expenses make this segment equally attractive.

We conclude our segment commentary with FootJoy, the golf industry's most authentic golf wear brand, which had a strong opening quarter. Net sales for the period of $142 million were off 1.7% versus last year or 0.4% on constant currency. This decline is solely attributable to the US retail door contraction.

While footwear sales were down for the period, FootJoy gained share in most markets led by the very successful Pro SL golf shoe. FootJoy gloves posted a quarterly sales gain as did FootJoy apparel as our team continues to effectively build out and refine the performance apparel business globally.

I will next provide an overview of first-quarter revenues across the various geographies. Our Q1 revenue in the United States was down 3% year-over-year and, as indicated previously, was largely the result of the reduced off course retail store base. To date, pipeline filling with our green grass and golf specialty partners is healthy heading into the start of the golf season.

And I would also note that we've managed our field inventories well over what was a challenging US retail backdrop over the past two to three quarters. The US market will continue to comp against higher door counts into the middle of Q3 and this has been reflected into our planning.

Looking at the results in our major ex-US markets, EMEA revenue in Q1 was down 7.2% versus last year and up almost 1% on a constant currency basis. On a reported basis, the 7.2% decline is almost solely due to the weakening of the pound sterling post Brexit. More importantly, we view the constant currency increase as a very solid result as we were comping against last year's first quarter, which was one of our strongest ever in EMEA.

Quarterly revenue in Japan was down 9.5% year-over-year and down 10.6% on a constant currency basis. This was largely anticipated due to the comparison to Q1 2016 where in Japan in even numbered years our club business is typically quite strong, reflecting the introductions of new wedges, irons and the Japan specific VG3 product line.

Q1 revenue in South Korea was up 29.4% year-over-year, up 24.1% on a constant currency basis, an outstanding performance by our Korea team with sales gains across all product categories aided by strong operational controls over field inventories in anticipation of the Q1 2017 product launches.

In summary, we are pleased with our Q1 performance. And as you would expect, we continue to monitor near-term market headwinds, which include the Q2 comps associated with Golfsmith closings, Japan market traction, competitive club spending and golf ball promotional activities, and of course mother nature.

We believe that the initial acceptance of our new products, our team's execution and our trade partner's readiness to expertly fit and recommend Titleist and FootJoy products to dedicated golfers position us well and we remain on track to meet our 2017 goals. Bill will now provide some further commentary on our financial results for the quarter.

Thanks, David, and good morning, everyone. As Wally noted, consolidated revenue in the quarter was $434 million, down 1.4% year-over-year and down 0.8% in constant currency. Q1 gross profit was $226.4 million, up slightly from last year, and gross margin was 52.2%, up 90 basis points year-over-year. The increase in gross margin was primarily driven by the favorable mix shift to the Pro V1 franchise as we launched the new golf balls worldwide.

Just a few comments on margins. As you know, we've chosen not to provide short-term guidance on gross margin. However, we do as a rule strive to achieve gross margin in the 50% or above range over the long-term. All this will ebb and flow with both seasonality and with our product launch cycles; sustaining gross margin at this level over time is very important to us.

We feel that is a global Company and a business that is highly dependent on both innovation and product education and fitting, it provides us with the required resources to invest in R&D and consumer connection initiatives, both necessary to sustain and reinforce our performance advantage with a dedicated golfer.

Looking at operating expenses, SG&A of $148 million was down 4.7% versus last year. This decline was primarily due to the absence of a one-time executive bonus and IPO transaction costs that took place in Q1 of 2016. In Q1, research and development expense of $12.5 million was up $1.4 million over last year and approximately [33%] of sales. This increase was primarily driven by employee related costs including share-based compensation.

Q1 interest expense of $2.9 million decreased by $10.9 million from last year primarily due to lower total debt as a result of the conversion of the previously outstanding convertible notes and 7.5% bonds at or prior to the IPO in October of last year.

Our Q1 effective tax rate was 36.2% compared to 40% for the same period last year. This was due to the absence in Q1 2017 of nondeductible transaction costs as well as fair value losses on previously outstanding common stock warrants, both of which are not tax affected. As I stated earlier, the warrants no longer exist as they were fully exercised to retire the outstanding 7.5% bonds prior to the IPO.

As a result our Q1 net income attributable to Acushnet Holdings of $38.1 million improved by $14.4 million from Q1 of last year as a result of both lower interest expense and higher operating income.

We continue to use adjusted EBITDA as our primary operating performance measure. Adjusted EBITDA for Q1 was $78.5 million, down about 1% from last year. Over the course of the last several years our financial results have been impacted by a number of items, some of which arising from the 2011 acquisition of our Company and the resulting capital structure, as well as expenses incurred in the process of becoming a public Company, making year-on-year earnings comparisons difficult.

To assist in analyzing various items year-on-year we provided a detailed reconciliation of adjusted EBITDA. I would note that our first-quarter adjusted EBITDA reconciliation schedule will be helpful for your analysis of our business this quarter and moving through the rest of 2017. Q1 of 2017 is the first quarter where a number of these one-time discrete items were not incurred and the remaining adjustments are on a more normalized run rate.

Items such as depreciation and amortization and share-based compensation are at their general run rates, the latter of which however can potentially fluctuate depending on Company performance. Interest expense is also becoming more normalized and in the second quarter will reflect the full quarter impact of the delayed draw on the term loan A that took place in March.

Also, as referred to earlier, our current estimated tax rate of approximately 36% reflects a more normal run rate given our forecast of jurisdictional earnings at present, this in the absence of any one time discrete items that may arise or a significant shift in those jurisdictional earnings.

Looking to the balance sheet, we had $69.5 million of unrestricted cash on hand as of March 31, 2017. As I mentioned, we executed the planned $100 million delayed draw on our term loan A in the first quarter to assist in funding our scheduled equity appreciation rights payout under the plan that concluded on 12/31/16.

In addition, we utilize a revolver to fund our working capital needs as we enter the golf season and are pipelining inventory with our trade partners. As a result, total debt outstanding as of March 31 was approximately $630 million, which would represent near our peak level for the year or approximately 2.8X LTM adjusted EBITDA. Reducing our debt is a capital allocation priority for us and over the next two years it is our goal to achieve an LTM total debt to EBITDA ratio of 2X or less.

CapEx in the quarter was $3.7 million. Bear in mind however that capital spending is typically low in the first quarter of any fiscal year as our facility production and distribution requirements in Q1 generally have us initiating more capital projects later in the year. At present, we are still forecasting total year CapEx in the $26 million range.

In summary, we are off to a solid start for 2017. Our proven strategy, global business model and great team continue to produce the consistency and reliability of our financial results over the long-term. With that I will now turn the call over to Tony for Q&A.

Thanks, Bill. Krista, can we open up the lines for questions now, please?

(Operator Instructions). Simeon Siegel, Nomura Securities.

So really nice gross margins. Can you help quantify how much came from mix shift and the new launch? How were those golf ball gross margins this quarter? Maybe how to think about those going forward? And then just within the golf balls, can you parse out how much the new launch added and maybe help us understand the trajectory there?

Just recognizing the two-year cycle, the balls look slightly lower than where they were in Q1 2015. Obviously some of that might be FX, but maybe just help us think through where that opportunity -- where do you see that opportunity going from here? Thanks.

Well, first us on the margins itself, the 90 basis points was almost solely due to the Pro V1 mix, and it was a strong Pro V1 mix in the quarter. As we go out -- we finish the pipelining of Pro V1 in the first quarter, we're going to now start normalizing with more performance models throughout the year. So I wouldn't look at that as a proxy for where the year would be at close.

And typically in the first quarter margins are high because you're loading the tray with premium product and there is not a lot of close out product out there. But again, I would go back to say that it's primarily due to the mix shift of Pro V1.

Great, thanks. And then just in terms of thinking through the sales?

Yes, help me clarify that one, Simeon -- your question?

So I know the two-year cycle, so I just looked back two years, it looked like the golf balls -- the sales are slightly lower I think than they were in 1Q 2015. So just want to think through how you view that -- and again, some of that might just be FX distortion, but just the right way to think through where the golf ball opportunities are when we think about golf ball growth longer-term.

High level, we feel real good about our quarter up 3% in a marketplace with -- certainly you've seen 500 to 600 fewer doors in 2017 than you had in 2016 or 2015. So, the first point we make is just that. We like our position given the corrected and contracted retail marketplace. Certainly you benefited from, as Bill said, the pipeline of new products, the pipeline of premium products.

As we think about the year, I do think -- and back to the correction point as we think about the year, Q2 will be more a function of demand than it will be a function of pipeline opportunity. So we are going to have to live with the realities of a marketplace that's just down 500 to 600 doors. But coming out of the blocks we feel great about Pro V1, the rest of our line in year two. Always have to work hard in year two and we intend to do that.

Thanks a lot, guys. Best of luck for the rest of the year.

Matthew Boss, JPMorgan.

Good morning, this is Steve (inaudible) on for Matt today. Thanks for taking our question. I'm just following up on the previous question there. Can you elaborate on what you saw in the golf ball market during the first quarter? You mentioned an unusual golf ball promotion and this was also cited by one of your competitors.

Just trying to understand what happened there. Have you really seen any changes in the competitive landscape? And then thinking about your market share category. And then along those same lines, have you seen any improvement in the promotional landscape as you look here in the second quarter?

Steve, I think the best way to frame that is we didn't see anything in the first quarter that we haven't seen before, but what we did see is activity typically you'd see in the second and third quarters transpire in the first quarter. And Examples of that would be just a bit more prior generation product to the marketplace, a bit more free dozen with purchase of multiples.

And then the final piece was there's still a decent amount of Nike inventory in the marketplace as they move through that product in retail channels. So when we speak of promotional activity in the quarter that's really what we are seeing. Again, nothing we haven't seen before, but what was unique and unusual is that it happened as early in the season as it did.

From a share standpoint, again, I will echo we feel great about Pro V1 and its start. We took a step forward there. When you look at our total shares around the world, to echo my previous point, we certainly have work to do on our performance models in Pinnacle. Again, they are in year two. We got an uplift last year and we've seen some share give back this year. So that's certainly a priority of ours going forward.

Okay great. And then just to follow up, has the promotional landscape improved here in the second quarter? And then it would be great to just understand how have early sell-through trends been in the US thus far.

Yes, it has somewhat normalized, and again it's albeit a bit early from a promotional standpoint. So as we sit here today, again I'll echo we're not seeing anything we haven't seen before, but in mid-May it's a bit more than we would've expected. So point one.

And point two, early sell-through shares, everybody is trying to make sense -- to your question about the US, everybody's trying to make sense and model this US market in light of the fact that we're just -- we're down a whole lot of doors. So, a lot of what's happening is hypothetical modeling of the market. From our vantage point is those left standing are doing better. It doesn't fully offset the fact that you've got a whole lot of doors that are doing nothing.

So net-net, we see total sell-through down a bit, as you would expect and as we anticipated, but it's a tale of two cities. It's the survivors are doing a little bit better, but not enough to offset the ramifications of that door count. And that's true with -- our position all along is that not 100% of this volume will find a home and we are reluctant to put a number on the percentage of the volume that will find a home.

Okay, great. Thanks very much.

Kimberly Greenberger, Morgan Stanley.

Great, thank you. Good morning. I'm wondering if you can talk about any sales shift you might be seeing out of the first quarter into the second quarter just given the reduction in playable days we saw because of unfavorable weather particularly in March I think.

And then I'm wondering if you can talk about what you are seeing in the marketplace in terms of market share dynamics and how they are playing out with the exit of some of the other players. I guess I was a little surprised to hear there's still let's say a lot of Nike ball inventory out there. Maybe you can just talk about how you expect that to play out this year and where you see in particular your market share opportunities. Thanks so much.

So, Kimberly, your first question really about the first quarter and weather, I think the way we look at the first quarter, we see a couple of positives. First off good weather in Florida prompted rounds up 6%. That's obviously very good news. You look at the West and you see California down 10%-plus due to weather.

They needed the rain so long-term that's a good sign; short-term, obviously you feel the pain of a 10% decline. But again, they needed the rain. Then you look at other open markets, Arizona, Texas, etc., they are by and large normalized. They are running plus or minus 1% or 2%.

So, that's how we assess the first quarter of the year. Big declines in the Northeast and Midwest, which frankly we don't worry too much about. Those are winter rounds which typically don't come with a lot of revenue attached to them. So that's our assessment of weather.

I will add that in the West the weather seems to have normalized and the rains have slowed and stopped and business as usual there. But as you would expect when you lose rounds in the first quarter, tough to make him back in a subsequent quarter. And then the next question about market share dynamics, I assume that's a ball question Kimberly?

Yes, balls and also I'm sure you're seeing some player -- well, particularly Nike was present obviously in the hard goods side as well. So just who's exiting? Where do you see market share opportunities? And is there still product out there from those OEMs that are exiting?

Yes, there is and it really is a Nike story. There is some Nike inventory largely at off course retail and it's moving its way through. And we don't think it will last a whole lot longer, but it's probably going to linger through the end of the second quarter.

As we think of share opportunities, here we are on the front end of a Pro V1 launch campaign, our charge here number one in the first quarter is to put it in the market and get it ready for the season. We have done that.

Our charge in quarter two is to activate our trade network and our trade partners, activate our fitting network, both balls and clubs, to tell our story. And to work directly with golfers and help our trade partners convince golfers that, hey, product we brought to market is improved from our prior version. It's better than competitive models and it will help them play their best golf. So we are reeling in sell-through activation mode right now.

Terrific, thanks so much.

Dan Wewer, Raymond James.

Dave, on the loyalty promotion that you run each year, is the number of days in 2017 the promotion was running the same as last year?

Same as 2016, Dan. We have a quick Sun Belt window and then it's the same window leading up to the Masters, end of March into April. But it's the exact same as it was last year.

So was it just Bridgestone that has changed the promotional cadence in the industry? I can't find any other brand that has changed, but was it just Bridgestone?

I'd rather not comment on competitive activities. I think in years past we've seen many players emulate the loyalty program; that was the case this year as well. But again, as I mentioned, we've seen the Nike activity and a few other players get a bit more active in free dozen with multiple purchase.

One other question related to the golf club category. You talked about the competitive pressure on the 917. I guess we should expect that to continue through the balance of the year. And then also if you could comment on the ultra-premium offering.

I don't think you talked about the JP wedges in your prepared comments, but it sounds like that, along with the expanded production of the C16 irons, it sounds like you're getting more serious about that ultra-premium end of the market, if that's true or not?

I will handle the first part of that and Wally will tackle the second. But first off, our club business, we run it in four segments -- irons, wedges, putters, metals. Pleased to report the iron business, the wedge business, the putter business really on track to our expectation, so we feel good about that.

As mentioned in my opening remarks, we are seeing -- we saw the first quarter a whole lot of ad noise, advertising noise from our competitors who have some good products. Our response to that is really activate the fitting network in the second and third quarter. But to your question, fair to say that the noise of the first quarter will continue into the second and third quarters and we are anticipating that it will.

Dan, it's a good question on JP. As you might understand, for competitive reasons, I'm not going to disclose anything more than what's available on the website, but the industry has a long history of craftsman incubation -- there's not enough time in the call for me to name all of them -- over the last 30 or 40 years.

We're always on the lookout for talented specialists and JP is one of those guys. He spent time with Hot Stix and Cool Clubs, was on his own for a while. But he's actually been with us since 2013 and his wedges will feature some interesting construction and exotic materials wrapped up in a custom fit, custom build experience.

And anticipating the Vokey [JP] juxtaposition question. I would liken it to Ford in the 1960s. They were selling a lot of Mustangs and those are our Vokey's and JP is like our Carroll Shelby putting a Ford V-8 engine into an AC Cobra chassis. So different markets.

Is there a chance that -- or are you expecting that the JP brand will have some cannibalization of Vokey?

No, they're different markets. The JP experience is more competing with today short game schools where for $1,000 to $2,000 all you get is education. But in this particular experience you also get three wedges.

Got you.

And Dan, your C16 question, as you know, we had a limited run in 2016 and that went great; heavy, heavy concentration on the fitting process with that product. We have re-released it, albeit in a small batch, in the US and in markets outside the US. Last year it was US only. So we are introducing that concept to markets around the world with the caveat that it's as much about introducing the product as it is introducing the high-level fitting that goes along with it.

Okay, great. Thank you.

Mike Swartz, SunTrust.

I just wanted to touch on perhaps what you are seeing out of the different channels, be it on course, off course, understanding off course we've had a number of doors close. So my question is really focused on the sell-through aspect of it. Are you seeing any material differences, and again I know it's early in the year, but between on course and off course?

I think as we comment on the first quarter, it's really difficult for us to make meaningful observations about the on course channel in the first quarter because so much of it is shut down in months of January, February, March. Again, back to our original premise, we think the displaced volume is going to migrate. Some is going to end on, some is going to end off, some is going to end on e-commerce, etc. It's going to take us time.

So sitting here in mid-May, we don't have any pearls of wisdom to share with you other than it's moving in the directions we anticipated. A couple of added thoughts to that, however, and points we've made in the past, good news from a marketplace standpoint.

While the on course channel inventories tend to be static and stable, off course certainly we are seeing greater inventories per door. But very good news is the total inventory portfolio in the marketplace is down from where it's been and that's an important point to make.

What results from that is less closeout activity and I think when you look at sell-through numbers right now you see ASPs are on the rise and that's a good thing. And I think that's as much born of fewer products sold at discount sold from the bottom, if you will, as a result of that.

That's helpful. And it's a great segue into my next question, which is -- just at a really high level, the industry -- any industry growth we've seen globally over the past call it two to three years has been driven by pricing as we've lapped out some of that promotional closeout activity. Are we now at a point where we can start to see volume growth as demand, as participation stabilize if not grow?

I hate to keep bringing it back to the correction reality, but that's the world we are living in right now. And within our segment with dedicated golfers where we are really laser focused on, we certainly see opportunity to grow and get a greater share of their bags in all categories. But in terms of commentary on the total market, there's just this very real drag and effect of the correction that's playing out before our eyes.

Okay, great. That's it for me. Thanks.

Randy Konik, Jefferies.

I guess my first question is back on the door count. You talked about the 600 doors. What's your thought process on -- beyond the third quarter going forward over let's say the four quarters after that in terms of just thinking about supply in the market? Do you think we are kind of near the eighth-inning of door count reduction? Just kind of -- just thinking through how you are thinking about the next couple of years for supply of door count. Thanks.

As we look at this year, we are certainly going to comp against a higher door count into the third quarter and that's reflected in our plans and projections. Longer-term -- and really a couple of answers, there's a US answer and a rest of world answer.

In the US, you've got some quality, stable players in the marketplace today who are left standing and fair to say they are going to do okay as volume moves around. You get too far out my crystal ball gets a little bit fuzzy in terms of where volume will go and who will be left standing. But certainly today as we stand here we are left with as stable an environment as we've seen in the last 10-plus years from a retail standpoint.

Around the world, really market dependent, but fair to say that the conditions and the supply/demand realities and imbalance that we dealt with in the US were far less prevalent in markets around the world.

Got you. And then I guess my question, if I look at the dynamics of the ball business versus the dynamics of the sticks business, in the ball business I think you commented that you saw some earlier promotions out there in the marketplace, but the ball business held up extremely well, products [or sets] extremely strong, etc.

On the driver side it seems like there was less commentary in the marketplace about promotions, just more about other players having more aggressive maybe marketing campaigns and getting some momentum around those marketing campaigns with their new products.

So just want to get some perspective on how you see that difference in the driver business and the impact there. And I think you talked about response with the -- to activate the fitting network. Would there also be potentially some price response or -- just trying to get some color on how you think about improving the trajectory of that driver business sequentially going forward. Thanks.

Randy, you framed it well. The ball business, again, if there's a commentary about the market it's that promotion happened a little bit earlier than we typically would see it. If there's a commentary about specifically drivers, it's about a whole lot of spending, a whole lot of noise and some good products.

And again, we respond through our network of fitters, we respond through product excellence and so on and so forth. So we play our hand the way we play our hand understanding that our competitors are going to play a different hand. But again, high level, I think you summed it up well. The ball business and club business had very different vibes during the first quarter.

Got it. Just to lastly elaborate on this driver business. If you think about where the driver business is today versus expectations relative to the great -- sounds like everything is very much on track at putters, wedges, irons, etc.

Are you thinking about -- to improve that sell-through rate or the growth of the driver business, do you think about in terms of that activation of the fitting network, is that more of a different response than what you would have taken in the past? I'm just curious on how you are thinking about that category, either the same or different from things you've seen in the past.

What's different is as we become more and more laser focused on fitting we are putting more and more of our resources into Q2 and Q3 than we have in the past. As I mentioned in my opening remarks, we've got a whole lot of events planned and prepared. We intend to do a whole lot of fittings in the second and third quarter.

We know that's the engine to our business. And again, admittedly a little bit different than how our competitors approach it, but for us that is the engine to the club business -- is we need to get out there and get with golfers and fit them and prove to them how our products can help them play their best golf.

And then -- just on inventory of drivers and the challenges, that means you feel comfortable with the inventory in the channel?

On our drivers?

Yes.

Yes, because we're so fitting centric, I think the inventory issue is a different discussion for us than it may be for some other companies. But because we are so fitting centric we rarely, if ever, get caught with too much inventory in the marketplace. We have got a lot of fitting tools in the marketplace but tend to not have inventory issues in the market.

Very helpful.

Tim Conder, Wells Fargo Securities.

Just wanted to -- you talked about in the preamble here regarding Japan impacted by weather and then some Chinese tourists. As it relates to South Korea have you seen any impact from the Chinese travel restrictions on some retail sales there that could be realized from Chinese tourists also?

Yes, it's a good question, Tim. In all fairness, we think Japan and Tokyo has been more solicitous of the affluent traveling Chinese golfer than Seoul in South Korea. And so the answer would be no. We see more of a consequence with the -- the position China has taken on just travel and limited number of visas in general, that influenced more the Chinese golfer traveling to Japan; haven't seen as much impact in South Korea.

Okay. And then again, any additional things you can comment on relating to the closure of the or announcement of the sale of TaylorMade, the competitor here? Any thoughts at this point how the new owner may position the brand? And then also given the signing of a couple of well-known players there and how that may play into, Wally, your outlook for the next 18 to 24 months? You're saying the industry correction has to finish. Is that predominantly the uncertainty related to TaylorMade?

Yes, I think, as in the past, Tim, we always respect your desire to ask those questions and we hope you respect our position of taking a pass on answering. We are thrilled for the TaylorMade associates. They've got resolution of their capital structure. We wish them well and life goes on. But no, we're not going to comment on the ebb and flow of the industry, the capital structure and competitive player signings.

Okay. Would you be able to just say would that be -- given the uncertainty there, would that be still probably the biggest thing in the 18 to 24 months remaining of the industry finishing the normalization process?

We think the resolution of any capital structure, and we've been through it twice in six years. We think the resolution of any competitive capital structure is good for the stabilization of the industry.

Okay, great. Thank you, gentlemen.

Casey Alexander, Compass Point.

Yes, my questions were asked and answered. Thank you.

Dave King, ROTH Capital Partners.

I guess I just have a quick follow-up to two earlier questions. I guess regarding the on course channel for the ball business in particular, my understanding is a lot of that business is sell-through and not necessarily sell-in oriented. Anything you can share about April/May ordering in that segment, maybe in the earlier markets like Florida, Texas, California to kind of give us a sense of how that sell-through is trending?

I think the best place to point is mother nature and weather. Really when you think about where we are in the Northeast here, we are just getting rolling. So we filled the shops, it's in many markets too soon to think about fill-ins. That will happen in the next two, three, four, five, six weeks. We filled in the shops.

Conversely, Sun Belt markets at this stage of the year tend to be on inventory work down mode. But again, I think the best place to point you is just broader weather trends, because it seems as we look at rounds of play, which drives golf ball consumption, you can't overlook the real impact of weather because that seems to be the most impactful. Certainly as you look at Q1 you see the trends around the country all have a strong, strong connection to weather patterns.

Yes, absolutely. All right, thanks for taking my question and good luck with the year.

We will have a few concluding comments from Wally.

Okay, we want to thank everyone for joining us on the call this week. We hope people are planning on getting out to play some golf. And remember when you watch the PLAYERS Championship this weekend, over 8,000 dozen golf balls are retrieved each year from the water hazard which guards the famous island 17th green and obviously a large number of them are Titleist. So thank you and we look forward to talking again in three months.

And this concludes today's conference call. You may now disconnect.