Callaway Golf Company (NYSE: ELY) makes golf equipment, including woods, irons, putters, balls, and other accessories. Callaways sales have historically been tied to the spending power of consumers overall, and thus was adversely affected by the global downturn.
Callaway faces pressures from a shrinking market. As the Baby Boomer generation that fueled the sport's popularity ages and a younger, less active generation finds its entertainment elsewhere, fewer people are playing fewer rounds of golf. The number of golfers in the U.S. has is on a steadily declining trend. Furthermore, the amount of golfers that play at least 25 times a year has dropped about 33% since 2000. However, experts predict that the golf club market will see a growth rate of over 25% annually in China and India as golf continues to expand worldwide, a trend that benefits Callaway.
Callaway depends on continual new product launches for its success, as customers come back to buy the latest technology.
Callaway manufactures clubs, including drivers, woods, irons, wedges, and putters, under their brands Callaway and Ben Hogan, while developing golf balls under the names Callaway, Ben Hogan, and Top Flite. In addition, the company produces putters through their Callaway and Odyssey lines, and retail apparel (hats to shoes) and accessories (bags, umbrellas, other forms of gear) primarily through its Callaway logo. Callaway, Ben Hogan, Top Flite, and Odyssey are all well known to the golfing community because of endorsements by top professional golfers, like Phil Mickelson, Arnold Palmer, and Annika Sorenstam. The company retails goods worldwide, with roughly half of its sales coming from abroad.
The company's business segments are organized into the Golf Clubs segment and the Golf Balls segment.
Callaway earns 20% of its revenue from sales of golf balls under the Callaway Golf and Top-Flite brand names.
Callaway also sells putters under the Odyssey, Callaway Golf, Top-Flite, and Ben Hogan brand names.
The number of golf rounds played in the US and the overall number of golf players has steadily declined in the last decade. Economic downturns also reduce demand for ELY's products as many consumers forgo purchases on luxury items like new drivers. ELY has cited softening worldwide sales following the 2007 Credit Crunch and subprime lending crisis.
One interesting factor that will help golf's popularity (along with Callaway's business) is the announcement that golf will make its return to the Olympic games in 2016, which will increase its exposure to the world and introduce it to a new generation of people.
The performances of the professional golfers sponsored by Callaway strongly relates to sales. When a pro golfer uses certain equipment to win a tournament, that company experiences tremendous exposure to the media and receives praise from its peers. Amateur golfers of all levels generally want to play with the same types of equipment (clubs, balls, gear) the successful professionals trust. Callaway equipment is represented well on major tours:
Callaway Endorsement Players 
|PGA Tour||European Tour||Champions Tour||LPGA Tour||Legends|
|Phil Mickelson||Thomas Bjorn||Bruce Fleisher||Annika Sorenstam||Arnold Palmer|
|Ernie Els||Michael Campbell||Jim Colbert||Morgan Pressel||Gary Player|
|Nick Flanagan||Nick Dougherty||Eduardo Romero||Julieta Granada||Johnny Miller|
|Olin Browne||Niclas Fasth||Mark McNulty||Leta Lindley||David Leadbetter|
New Callaway products have an average life of two years, with most of its sales occurring in the first, and generate about 55% of the company's annual sales. As a result, Callaway faces the challenge of having to release fresh products every year to accommodate its consumers. The company's struggles with inventing novel clubs can be seen by the decline in research and development expenses since 2004:
|Golf Digest "Hot List" Category||Club||Price|
|Drivers||FT-5, FT-i, Hyper X||$430, $500, $299|
|Fairway Woods||FT, X||$250, $200|
|Player's Irons||X-20 Tour||$800|
|Super Game-Improvement Irons||Big Bertha||$800|
|Putters||Odyssey Black Series 1, Odyssey White Hot Tour||$270, $160|
Warm weather is the ideal condition for golf, and consequently Callaway generates approximately 65% of its revenue during the spring and summer. In addition, golf companies experience financial success when their players perform particularly well in the Majors (Masters in April, U.S. Open in June, British Open in July, PGA Championship in August)), which coincides with prime golf season in America. An abundant quantity of golfers hang their clubs during the cold months of fall and winter, resulting in a decrease of rounds played in the second half of the year.
Callaway encounters fierce competition in each of its departments, but has climbed its way to become one of the top retailers in four of the main golf equipment categories.
Callaway's competitors include: