Ladies and gentlemen, thank you for standing by, and welcome to the Acushnet Holdings Corp. 4Q 2019 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to turn the conference over to Ms.Sondra Lennon, vice president FP&A and investor relations. Please go ahead..

Good morning, everyone. Thank you for joining us today for Acushnet Holdings fourth quarter and full-year 2019 earnings conference call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Tom Pacheco, our Chief Financial Officer.

Before I turn the call over to David, I would like to remind everyone that 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 today's press release, the slides that accompany our presentation, and our filings with the U.S. 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 the schedules in today's press release, the slides that accompany this presentation, and in our filings with the U.S. Securities and Exchange Commission.

Please also note that when referring to segment and regional year-on-year sale increases and decreases, we are referring to sales in constant currency. And please also note that when referring to year-to-date or full-year results or comparisons, we are referring to the 12-month period ended December 31, 2019, as a comparable 12-month period.

With that, I'll turn the call over to David..

Thank you, Sondra, and good morning, everyone. We appreciate your time today. On this morning's call, we will present our fourth quarter and full-year results for 2019, outline Acushnet's strategic priorities for 2020 and discuss our current view of how we see the coronavirus impacting us over the coming months.

And I will begin by stating that 2019 was another strong year for Acushnet, defined by successful new product introductions, an organization wide commitment to operational excellence, the continued strengthening of our balance sheet, and an increased return of capital to shareholders.

As importantly, we continue to make key investments across our business as we seek to fortify our competitive advantages and strengthen our prospects for future growth. Now getting right to our results. Please turn to Slide 4. For the fourth quarter, Acushnet revenues increased 7.3%, or almost 8% on constant currency.

Adjusted EBITDA for the quarter was $44 million, representing a 23% increase for the period. And as I will talk about in a minute, this growth was led by double-digit gains in golf balls, with Pro V1 having an especially strong quarter in holiday season as well as healthy gains posted by FootJoy Golf Wear.

For the full year, sales of $1.68 billion were up almost 3% and 5% on constant currency. Full-year adjusted EBITDA increased 4% to just over $240 million, aided by an expansion in gross margin to 51.9%.

And as Tom will discuss in more detail, we returned over $70 million to shareholders through our dividend and share repurchase programs in 2019, representing an 84% increase versus 2018.

I am especially appreciative of the good work by my fellow Acushnet associates as their efforts and commitment to excellence are the foundation of our achievements and ongoing success. I must also thank our valued trade partners for their important support throughout the year. Now turning to Slide 5.

We will look at the performance of our core business segments. Starting with golf balls. The headline for 2019 was the strength and success of new Pro V1 and Pro V1x, which helped to deliver an 11% increase for the quarter and full-year gain of 7%. By just about every measure, 2019 was a terrific year for the Titleist Golf Ball business.

This success begins with our leading investment in golf ball R&D and our team's unwavering commitment to precision golf ball manufacturing. These competitive advantages are affirmed across golf's pyramid of influence with both professionals and amateurs alike.

In fact, in 2019, more top 100 gold-ranked golfers played a Pro V1 or Pro V1x golf ball than in any other year since the first Pro V1 was launched in the fall of 2000. We believe this is testimony to the performance and quality superiority of new Pro V1 and the unmatched ball-to-ball consistency that Titleist has long been known for.

As we have said before, the challenge in golf ball manufacturing lies not only in the ability to make one great golf ball, but also in the ability to make millions of golf balls that meet the highest standards for quality and consistency.

And rounding out our golf ball performance for the year, we achieved gains in all global markets led by strong growth in the U.S. and Japan. And we are also pleased with the fourth quarter test market of our experimental multilayer thermoplastic urethane or TPU-covered golf ball.

Test marketed as EXP-01, this product represents a multiyear investment to build upon our golf ball development and manufacturing capabilities, which we believe will help to open up new performance and construction opportunities in the years ahead.

We look forward to a late summer introduction of this new golf ball and will share products and launch details with you on our next call. We see this construction and cover technology strengthening our product line outside of Pro V1 and AVX in the $25 to $40 price range, which represents roughly 40% of the market opportunity. Now moving to clubs.

Our Titleist Golf Club business had a strong year in 2019, with sales off 2% for the quarter and 1% for the full year. As you know, the majority of our new product launch activity takes place in EBIT-numbered years. And as such, we are pleased with these results and the overall strength and momentum of the Titleist club business.

The Titleist TS Driver launched in late 2018 has quickly made its mark and was the number one driver on the PGA Tour in 2019. Titleist irons were No.1 across the U.S. and European PGA Tours, and Vokey wedges were No.1 across all worldwide tours.

Not to be outdone, Scotty Cameron putters, also a great year with our Cameron Newport model putter used by the winners of the masters, PGA championship and U.S. open championships. Titleist clubs benefited from the successful second half launch of new T-Series irons, and we expect this momentum to carry into the busy spring club fitting season.

Now turning to Slide 6, in Titleist Gear, sales were off 7% for the quarter, however, posted a 5% increase for the full year, led by gains in all product categories, club, spag, headwear and travel.

Gear growth was fueled by the launch of our successful new LinksMaster series bag and Titleist gloves strengthened their position as the definitive number 2 glove in golf behind only sister brand FootJoy, which has long-held the lead position in this category.

We are committed to the ongoing development of our gear business by investing in product creation and supply chain excellence. We expect this will lead to continued product advancements and drive future growth and profitability in this category.

In FootJoy, the number 1 shoe and glove in golf, finished the year strong with a 7% increase in the quarter and 3% gain for the year. New Flex and Fury models set the pace for footwear in 2019, and new performance outerwear propelled a double-digit increase in our global apparel business. FootJoy was especially strong in the U.S.

and Korea in 2019, and we believe is poised for a fast start in 2020, led by new footwear launches and a steady stream of new apparel and outerwear offerings throughout the year. I will now turn to Slide 7 for a regional view of our business.

The picture painted here is healthy gains in the U.S., EMEA and Korea, which were aided by favorable weather and increased rounds of play in each of these markets. In the U.S. and EMEA, our growth for the quarter was led by golf balls and shoes, while Korea's growth for the period comes mainly from FootJoy and Titleist clubs.

Japan, as you see, was off 23% in the quarter and down 9% for the year. This quarterly decline is mainly due to calendarization as we comped against last year's TS Driver launch, which occurred in Q4 in Japan and Q3 in all other markets. Golf ball sales were strong in Japan and posted double-digit increase for the year.

However, this was not enough to offset declines in golf clubs and FootJoy. We expect our business in Japan to stabilize in 2020 as channel inventories are improved, and this will benefit our early season launch plans. Now looking ahead to 2020, as outlined on Slide 8.

As you would expect, this outlook balances our internal enthusiasm over what we can control with caution in some degree of uncertainty about the coronavirus and how it may impact our business. We believe the golf industry is structurally healthy with rounds of play, consumer spending, and channel inventories all contributing to its overall stability.

The professional game is dynamic and captivating, with talented athletes taking the game to new levels, and we see the tours, new media rights programs as affirmation of the game's popularity and growing entertainment value.

Each of Acushnet's businesses carry strong momentum in the new year, and we are poised to launch a wide range of exciting new products across all categories throughout 2020.

While even years such as 2020 present challenging golf ball comps against odd year Pro V1 launches, we plan to continue to build golf ball momentum with the launches of new AVX, Tour Soft, and Velocity in the first quarter and our new multilayer TPU model scheduled for global release in late summer.

Titleist Golf Club introductions are weighted toward even-numbered years, and that is certainly the case in 2020 as we will launch new Vokey SM8 wedges and Cameron Special Select putters in Q1. Both of these franchises are in great shape, and early response to these new products has been excellent.

Later this summer, we plan to add to our momentum with the launch of new TS Metals scheduled for September. Titleist Gear will continue to build upon our successful Linksmaster bag line by expanding the popular caddie collection and adding a new series, a classic canvas model.

And Footjoy has a full pipeline of new products queued up for launch in 2020, with a heightened focus on footwear and continued enhancements to our apparel line. New Pro|SL CARBON and Tour X models highlight a busy first half for FootJoy and will help to strengthen their long-standing leadership position as the number one shoe in golf.

We expect our newest business, KJUS, to continue its rapid progress within golf and benefit from the launch of our new Gemini rainwear technology. Gemini has a reversible rain jacket, which provides golfers with the option for both warm and cold weather protection and is a great example of the technical innovation which KJUS is capable of.

There's a lot of talent within the KJUS organization, we are pleased with how the team is positioning the business for the future and the investments we are making to prepare KJUS for long-term growth. The Acushnet team is excited about the year ahead and has done a great job planning for what will be an especially busy first half.

At the same time, we, of course, share concerns about the coronavirus global health crisis, and we offer our thoughts and support to all who have been affected by this outbreak.

As you would expect, the situation is rapidly changing, and we are updating our internal projections weekly as we regularly access new information around our supply chain and consumer demand.

Our latest projections, which assume existing disruptions continue through the second quarter, reflect that the coronavirus is likely to have an estimated $40 million impact on revenues and $18 million effect on adjusted EBITDA.

Most of this impact is traceable to the slowing retail traffic and demand we have seen unfold in the past seven to ten days in Korea, where concerns have rapidly escalated. Greater China and Southeast Asia have been impacted similarly, and Japan to a lesser extent.

And while our supply chain has held up well during the past month, our reduction does reflect some level availability-related disruption to our apparel, gear and club businesses.

To date, there has been no effect on our golf ball production capabilities as our company-owned golf ball facilities are based in the U.S.and Thailand, and our dependence on China source raw materials is both limited and manageable.

While headwinds are stronger than they have been in several years, the Acushnet team is resilient and focused on executing our 2020 plans while, at the same time, staying agile and responsive to the changing inputs associated with the coronavirus. And as we navigate these near-term uncertainties, our long-term outlook remains positive.

Affirming this outlook, and as a sign of Acushnet's financial strength and the Board's confidence in our ability to execute over the long term, I am pleased to announce that the Acushnet board approved an increase to our quarterly dividend by 11% to $0.155 per share or $0.62 per year.

Additionally, the board has recently approved an increase to our share repurchase authorization in support of our efforts to return capital to shareholders and augment our dividend strategy. As we look to 2020 and beyond, we expect new product innovation will remain the engine of revenue growth and share gains with the game's dedicated golfer.

These golfers represent 70% of the industry's purchasing power, remain an attractive demographic, and are the focal point of Acushnet's product development and go-to-market strategies. Each of our business segments is prepared for a full calendar of new product introductions, which bring enthusiasm to both golfers and our trade partners.

We're investing both in our associates and in technologies to advance the performance and benefits of our products while pursuing efficiencies throughout our organization as we seek to achieve operating leverage over the long term.

In closing, the Acushnet team has a proven track record of executing, and we are confident in our ability to continue delivering favorable returns to our shareholders. I appreciate your time and attention this morning and will now pass the call over to Tom, who will provide an overview of our financial performance and outlook..

Thanks, David, and good morning, everyone. I would also like to thank our associates and trade partners for their contributions to what was a strong performance in 2019. Starting with our Q4 results on Slide 10.

Consolidated net sales in the quarter were $368 million, up 7% year over year and up 8% in constant currency, driven primarily by increased sales of Pro V1 and Pro V1x golf balls and the impact of shoes, which we acquired in July of 2019.

Q4 gross profit was $187 million, up $12 million, and gross margin was 50.7%, down 20 basis points from the prior year. Tariffs negatively impacted our Q4 gross margins by 40 basis points. SG&A was $143 million, up $3 million or 2%.

Incremental SG&A expense from KJUS was partially offset by lower advertising and promotion and share-based compensation expense. Income from operations in the quarter was $29 million, up $9 million or 45%. Q4 interest expense was $5 million, and our Q4 effective tax rate was 18.2%.

Net income attributable to Acushnet Holdings was $18 million, and adjusted EBITDA was $44 million, up $8 million from the prior-year period. There is a reconciliation of net income to adjusted EBITDA for Q4 and full-year 2019 in our earnings release as well as in the slide presentation.

Moving to our results for the full-year 2019, consolidated net sales were $1.7 billion, up 3% from last year and up 5% in constant currency. This increase was driven primarily by sales of new Pro V1 and Pro V1x golf balls, growth in FootJoy apparel and in all products within Titleist Golf Gear.

Sales were also positively impacted by the sales of KJUS and PG Golf, which we acquired in the fourth quarter of 2018. Gross profit was $872 million, up $30 million from 2018. The growth in gross profit came from all segments, except for golf clubs, which was expected in an odd numbered year.

Gross margin for the full year was 51.9%, up 30 basis points versus 2018. SG&A expense was $628 million, up $16 million or 3%. This increase was primarily due to higher selling expenses across all segments, acquisition-related transaction fees, higher advertising and promotion spend, and the impact of KJUS.

The increase was partially offset by a decrease in share-based compensation. Full-year income from operations was $186 million, up $13 million from 2018. Interest expense was $20 million, and our full year effective tax rate was 24.6% compared to 31.4% in 2018. We expect our 2020 effective tax rate to be about 26%.

2019 net income attributable to Acushnet Holdings was $121 million, up $21 million, and adjusted EBITDA finished at $240 million, up $9 million or 4% from last year. Moving to Slide 11, I will discuss some key balance sheet and cash flow items.

At the end of 2019, we had $32 million of unrestricted cash on hand, total debt outstanding was approximately $404 million, and we had $339 million of available borrowings under our revolving credit facility. As a reminder, in December, we amended and restated our senior secured credit facility.

Our new credit facility provides for a $350 million term loan and a $400 million revolving line of credit, both of which mature in December of 2024. The terms of our new credit facility are generally more favorable when compared to our previous credit facility.

Consolidated accounts receivable at the end of 2019 was $215 million compared to $186 million at the end of 2018. This increase was primarily attributable to significantly higher second-half sales compared to 2018, the accounts receivable of KJUS, and the timing of collections at the end of the year.

Our day sales outstanding were 60 days, which are flat compared to 2018. Consolidated inventories were $398 million at the end of the year compared to $361 million last year, an increase of 10%. The increase was primarily driven by higher ball and club inventories to support the upcoming product launches and the addition of KJUS.

We expect our inventory levels to come down in 2020 compared to 2019. Overall, we are comfortable with the quality of our accounts receivable and the amount and composition of our inventory. Cash flow from operations for 2019 was $134 million compared to $164 million in 2018.

The decrease is primarily from higher accounts receivable and inventory at the end of 2019 that I just discussed. We expect both accounts receivable and inventory levels to come down in 2020 and that cash flow from operations will return to more normal levels.

Looking to capital expenditures, we spent $33 million in 2019, which was lower than our original $36 million estimate and is about flat to 2018. The largest area of spending in 2019 was for golf ball manufacturing equipment and to maintain and upgrade our facilities and IT infrastructure.

For 2020, we expect capital spending to be about $38 million, as some projects shifted into 2020. Turning to Slide 12. Our capital allocation priorities have not changed. We continue to make investments in the business with a focus on product innovation, golfer connection, and operational efficiency.

And we will continue to be opportunistic with selective acquisitions that align with our focus on premium performance products that appeal to dedicated golfers. We believe that such investments support our long-term strategies and drive growth at a favorable return.

We also remain focused on being responsible stewards of shareholder capital and expect to not only invest in the business, but also to return capital to shareholders. We paid a $0.14 per share dividend during the fourth quarter of 2019 for a total cash outflow of $10.5 million. For the full year, total dividends paid were $43 million.

As David mentioned, our Board of Directors today declared a cash dividend of $0.155 per share payable on March 27 to shareholders of record on March 13, 2020. This represents an 11% increase in our dividend and an expected Q1 cash outflow of approximately $11.5 million.

And finally, during the fourth quarter, we repurchased approximately 708,000 shares for a total of $18.9 million, including 172,000 shares on the open market and 536,000 shares from our majority shareholder. This increased the amount of share repurchases in 2019 to 1,128,000 shares or $29.4 million.

Our board of directors recently increased our share repurchase authorization by $50 million to a total of $100 million.We expect to purchase up to $50 million worth of shares in 2020.

We continue to believe our capital allocation strategy is a foundational element of Acushnet's value proposition, which we believe creates a compelling long-term total return for our shareholders. Moving to our outlook for 2020 on Slide 13. There are two factors that are impacting our outlook that you need to be aware of.

As David mentioned, we have made our best estimate of the impact of the coronavirus on our 2020 expected results and accordingly have adjusted our 2020 sales outlook down by $40 million, which is mostly from a declining retail demand in Asia. We have also decreased our adjusted EBITDA outlook down by a corresponding $18 million.

And we have lowered our 2020 adjusted EBITDA outlook by $5 million for the impact of unmitigated tariffs. Taking these factors into consideration, we expect full-year 2020 reported consolidated net sales will be in the range of $1.665 billion to $1.705 billion.

On a constant currency basis, we expect the range of net sales of down 0.5% to up 1.9% compared to 2019, and we expect our adjusted EBITDA for 2020 to be $220 million to $240 million.

If you add back the $18 million impact of the coronavirus and the $5 million impact of tariffs, the midpoint of our expected adjusted EBITDA range would be $253 million, up 5.4% versus 2019.

Of course, this guidance has been significantly influenced by our estimate of the impact of the coronavirus on our business which will depend heavily on the severity and duration of the outbreak.

We will be closely monitoring this rapidly changing situation and adjusting our estimates as required and will provide you with our updated view during our Q1 earnings call in early May. As is generally the case, our product launch cadence will impact the quarterly progression of our business during the year.

With 2020 being an even-numbered year, we have several major product launches in the first half, including new AVX, Tour Soft, and Velocity golf balls, Vokey SM8 wedges, and Cameron Special Select putters. The first half will also benefit from the continued momentum of the Titleist T-Series irons, which we launched in the third quarter of 2019.

In the second half, we will launch new TS Metals and our new thermoplastic polyurethane-covered balls. Taking into account the size and timing of these launches and our current estimate of the impact of the coronavirus, we expect sales in the first half of 2020 to be approximately 52% to 53% of the full year.

And we expect sales in the second quarter to be slightly larger than the first quarter. We expect adjusted EBITDA to follow a similar pattern. However, we expect second quarter EBITDA to be an even larger percentage of the first half than sales. In closing, 2019 was another solid year for Acushnet.

Despite some challenges from the coronavirus and tariffs, we are confident in our ability to meet our full-year 2020 financial goals, and we believe we are well-positioned to execute our long-term strategies and to deliver a solid, long-term total return for our shareholders. With that, I will now turn the call over to Sondra for Q&A..

Thanks, Tom.

Operator, could we now open up the lines for questions?.

[Operator Instructions] First question comes from Daniel Imbro with Stephens Inc..

I wanted to start on the golf ball category. Really impressive momentum there in the fourth quarter, north of 10% growth.

Can you talk about how much of that was maybe driven by company-specific drivers or holiday promotions, or it was maybe just the broader industry pickup we saw in rounds played during the fourth quarter?.

Really, all of the above. And you look at rounds play environment around the world. It was a year where we saw rounds increases in every market and rarely is mother nature that kind or consistent. Part two is, as I said in my remarks, we had a very strong year with Pro V1, from start to finish. And it finished as strong as it started.

And then the retail season played out a little bit better than we expected, without any unusual promotional or discount activity. So, I think it is largely a function of healthy rounds environment, strength and success and momentum behind Pro V1 and a nice retail season.

But it is consistent with the performance we saw with Pro V1 throughout the entire year..

And maybe as a follow-up on the golf ball side of the house. Maybe one on Union Green. Just surprised to see you guys launch a DTC golf ball brand. Dave, would kind of love to hear your thoughts.

Is that a new part of the market, or how that fits into the Acushnet portfolio and strategy going forward?.

I wouldn't call it a D2C play. It, if you look back in our history in 1980, 40 years ago, we launched the Pinnacle golf ball, and it was designed to compete in the price segment and serve value-conscious golfers.

Pinnacle did a nice job complementing Titleist positioning and it allowed us to meet evolving needs of golfers without having to stretch the brand in products and price points that would ultimately diminish our premium positioning of Titleist. I think fair to think of Union Green as a modern version of this strategy.

It's designed to appeal to consumers who purchase golf balls and the performance and price segments of the market, really under $30 retail. They do tend to be less traditional about golf, and the brand reflects this.

Like Pinnacle, over the past 40 years, Union Green will have a unique identity and reason for being and, we think, complements Titleist's position in the market. Over time, this also helps provide operational and overhead efficiencies. And again, to my point about distribution, it's being test piloted at just under 100 golf shops in the U.S.

and, of course, is available online. So, we don't package this as a D2C play as much as an interesting opportunity for an emerging segment of the golf ball marketplace..

That's really helpful. And then last one for me, and I'll hop back in the queue. Obviously, I think last week, Dave, your report, your response to the USGA's report came out.

I know, historically, Huawei and the Company have been vocal on the case for unification, but curious how conversations with the USGA and R&A are going? And any kind of updated thoughts you can provide us on how you think this put out for the industry?.

Well, I'll start by saying we have had and continue to have ongoing and positive and productive discussions with the USGA and R&A and have a great respect for what they're attempting to do. We responded because we felt a couple of themes needed to be inserted into the discussion.

And notably, that innovation, and I will add, regulated equipment innovation, has been a critically important contributor to the game's success and growth over the last 10, 20, 50, 100 years, and this must not be over, undervalued or overlooked as we look ahead.

And we also believe that it was important to note that the ability to combine distance with accuracy and all other components of the game required to shoot low scores is very much a special and rare skill that requires great athleticism and talent. And this is one of the reasons why the professional game is so dynamic and entertaining.

We do believe, and we said this in our response, we do believe that existing equipment regulations are effectively governing the game. And we made the point that average driving distance on the PGA Tour has decreased in 6 of the past 13 season.

We believe this is an indicator or affirmation that regulations implemented, many regulations implemented over the last 20 years are, in fact, working. And finally, Daniel, to your point about unification, we believe unification, one set of rules followed by all players, pros, and amateurs alike, is part of the game's magic.

And conversely, we believe that breaking apart this rule's unification would complicate the game and take away from its global understanding consistency and appeal. At this point, to say if or how this may impact the business is really too soon.

And I would just say, regardless of circumstances or outcome, we see our mission not changing, and that is to be the performance and quality leader in every category in which we compete. And again, this doesn't change.

But as you would imagine, and as outlined in their report, they've announced an intention to work closely with stakeholders, of which, manufacturers are certainly an important part of that, over the next year to address their observations and findings.

So, at this point, we're really in a phase of a year of discussions and inputs around what the next steps might be. And at this point, I think too soon to speculate on what those steps could be..

Perfect. Really helpful. Thanks so much..

Thanks, Daniel..

Thank you, Daniel. Next question, please..

Your next question comes from Kimberly Greenberger with Morgan Stanley..

Hi. This is Javi Garrao, on for Kimberly Greenberger. Thanks for taking my question.

So, my first question would be in terms of the tariffs, when should we expect the impact of tariffs to hit the income statement?.

The impacts of tariffs are already hitting the income statement, so we certainly had an impact of tariffs in Q4, primarily in our gear business and in our clubs business.

And the tariffs are fully in place, and we expect them to continue to hit those businesses and to hit our FootJoy footwear business in the areas of, primarily, footwear and apparel right away. So, they're already impacting us now..

Great. Thank you.

And in terms of the stock buybacks, are you planning to buy back the full $50 million authorization in 2020, like you did in 2019?.

So, in 2019, we purchased roughly $30 million worth of shares on our original $50 million authorization. Coming out of '19, there was $20 million left in that authorization. As David and I both mentioned, our board recently increased that authorization to $100 million.

And so, for the total year, we anticipate purchasing up to an additional $50 million..

Great. Thank you so much..

You're welcome..

Thank you, Javi..

Next question comes from Joe Altobello with Raymond James..

Hey, good morning, guys. This is Adam, on for Joe. I appreciate you guys giving some color on coronavirus. But if I could, I was curious, and obviously, this is quite dynamic.But I was curious on what you guys were thinking in terms of anticipation on when it may peak or maybe a range of potential outcomes, if at all possible.

And then also, you guys gave some good color on margin in terms of tariffs being a 40 basis-point headwind in the quarter. But any additional color on the puts and takes there would be very helpful. Thank you..

Okay. Thanks, Adam. I'll answer the first, and Tom will hit your second question. Obviously, we, like everybody is paying close attention to what's happening to our business, and it is changing quite rapidly. Weeks ago, this was initially a supply chain disruption.

And admittedly, for Acushnet, we saw this as a relatively manageable situation as we're in a pretty good shape, one, to support our various early season launches. And two, if you look at our business, golf balls, as I said in my earlier remarks, a little bit no impact here. We have limited exposure to China source raw materials.

We make most of our product in the United States and the balance in Thailand. So, we felt the largest segment of our business was, in some regard, isolated from supply chain disruptions. There was a modest impact on clubs. And really, our disruption focused on apparel, gear, and footwear.

And we thought this would impact late second quarter, early third quarter. What we've seen happen in terms of our supply chain is as our partners have ramped up production, we've seen information flow give us even more confidence that there's some stability around the supply chain.

And while you took initial hit from a loss to anywhere from two to four weeks of production output. In the last week or two, that's stabilized. As I noted earlier, the more meaningful impact that we're seeing really started 7 to 10 days ago, when we saw a slowdown in Korea, in Southeast Asia in terms of retail activity. And this is really the driver.

And our assumptions are that, this condition, we've sort of run it out through the end of the second quarter. But we've made no assumptions or projections beyond that. This is simply too dynamic and, I think at this point, would be premature to speculate beyond that point in time. So the key inputs really are.

We've made some adjustments to our sales forecasts, again, notably Korea followed by Southeast Asia, China, and to a lesser extent, Japan..

In terms of Q4 gross margins, they were down 20 basis points compared to the prior year. That was really driven by a decline in volume in golf clubs in Japan, which was comping against a Metals launch in Q4 of 2018 in Japan. So that was certainly a significant contributor.

In addition, the tariff impact they mentioned negatively impacted us by about 40 basis points. Golf ball margins were seasonably normal but up from 2018. And footwear margins were up nicely year over year, primarily on strong results in the U.S. and in Korea..

And then if I could ask one follow-up here, and I understand if you guys don't want to provide quantification on it, but you mentioned comping some challenges in Japan for this quarter, but you discussed expecting some potential stabilization next year.

Any way we can kind of quantify what that stabilization would entail for Japan?.

Yes. I think the main, the conditions of 2019, for the most part, carry over into 2020. I think the big difference we'll see in regard to channel inventories. Japan typically runs heavy, and that's the case again this year. And that's just a function of their retail dynamic.

But we did see an upsized impact last year to footwear because channel inventories of footwear were especially heavy. And the byproduct of that is, we saw a disproportionate mix in the closeout or discounted off-price part of the line. So, in terms of Japan, we felt again similar conditions to last year but with a better inventory profile.

Obviously, that changes a bit as we layer in some of the impacts of coronavirus..

Thank you, Adam. Operator, I think we have time for one more question, please..

We have a question from Tim Conder with Wells Fargo Securities..

Hey, it's actually Joe Lachky, on for Tim. So, I just wanted to just quickly follow up on the coronavirus. Thank you for the clarity there. It sounds like you are seeing more impact, obviously, in Korea, not as much in Japan. And obviously, I understand like the retail traffic issues.

I mean, have you seen sales maybe shift to any of channels, like e-commerce or such? I mean, it may be too early to tell. And, or have there been any broader impacts on rounds played. Obviously, with the caveat that is the off season, you might not have that visibility quite yet.

And then along the lines of the supply chain impacts of the coronavirus, you have a lot riding on the momentum for your clubs business, and you've got the Metals launch coming in September.

Has there been any sort of supply chain issues related to club specifically? Or has that pretty much cleared through at this point?.

Thanks, Joe. So, you're right. It is very early. We're working off and the shift of retail and consumer behavior in Korea really has played out in the last seven to ten days. We have seen some themes and trends, but frankly, we're being cautious about projecting these out to too far. Rounds of play, you saw some cancellations.

Retail activity certainly slowed. I, one of the data points that we're hearing is that the broader mall department store traffic is down more so than the single-store traffic. Again, that's a data set of one week. We have seen rounds canceled.

You know, the sense and sentiment is that golf will endure and stabilize as it is a healthy activity, healthy outdoor activity. But frankly, too early to speculate as to where that goes. As to supply chain, again, based on what we know today, we feel pretty good about our back-half-of-the-year launches.

And again, that's all subject to change, but we're watching it very carefully, very closely. As I mentioned a moment ago, our first half, largely, at least through April and into May, our launch plans, we're in good shape. That inventory is in various regions. So we're in good shape there.

But in terms of your question about clubs, again, what we know today is, gives us a pretty good amount of confidence. Again, we're going to have to update you in the coming weeks..

And then just one question on balls specifically. I know you don't give guidance by segment. But maybe if you could talk about the puts and takes there? Obviously, you're lapping the Pro V1 launch.

But you've got a lot of other launches coming, which, so I was curious if like your AVX, Union Green and other launch later on in the year, could potentially those new launches more than offset the second year of the Pro V1? And maybe can we expect, in a best-case scenario, some modest growth for that segment?.

So, I'll start with just the size and significance of a Pro V1 launch in an odd year. And our years are not like-for-like. We do a lot of meaningful launch activity in even years, which you'll see, and that's Tour Soft and Velocity early, that's AVX early, and this new product late in the year.

But I will say that we look at the ball category and realize it's not a, over a couple of years, we take a step forward, but it's not an even-cadence event. Obviously, we do everything we can to build and manage momentum. We're excited about the year ahead but short of giving guidance on the ball segment.

We're going to leave it at that and just say, hey, we're excited about the momentum we're creating with the products outside of Pro V1, but we also acknowledge, Pro V1 years are tough to comp against, number one. And we had a really strong Pro V1 year in 2019, which we also think continues into 2020.

We just don't benefit from some of the meaningful launch and pipeline activities that happened in the first quarter of last year..

Great. Thanks for the detail..

Well, thank you everybody. We certainly appreciate your time and attention this morning and look forward to getting back to you in a couple of months with our updates. So, thanks again..

This concludes today's conference call. You may now disconnect..