QUOTE AND NEWS
CNNMoney.com  Jun 11  Comment 
Small-cap stocks wouldn't stand a chance in a popularity contest against sexier names like Facebook and Google.
SeekingAlpha  May 28  Comment 
By Shaun Currie, CFA: On Tuesday, Dick's Sporting Goods (DKS) missed earnings estimates and reduced guidance for the full year, mostly due to an 18% decline in golf sales. When looking through the numbers, we see this as the biggest negative...
SeekingAlpha  May 28  Comment 
Top Idea: ELY - Callaway Golf by Lord Baltimore: Long / Sporting Goods / Small-Cap / Value / Unjustified Sell-Off / Turnaround Top Idea: ELY - Callaway Golf by Shaun Currie, CFA: Short / Sporting Goods / Small-Cap / Value / Secular Decline Top...
SeekingAlpha  May 28  Comment 
By Lord Baltimore: Callaway Golf (ELY) is in the midst of a significant turnaround, which began when new management, led by Chip Brewer, joined the floundering golf equipment company on March 5, 2012. From that date, the stock outperformed the S&P...
SeekingAlpha  May 21  Comment 
By Paulo Santos: Callaway Golf (ELY) is a pure play stock. It's a pure play on golf. According to Yahoo Finance, It: Designs, manufactures, and sells golf clubs and balls. It offers drivers, fairway woods, hybrids, irons, wedges, and putters....
TheStreet.com  May 20  Comment 
NEW YORK (TheStreet) -- Callaway Golf was falling -6.7% to $7.80 Tuesday following the poor performance of the golf category at Dick's Sport Good in the first quarter. Same-store sales fell 10.4% at Golf Galaxy, Dick's Sporting Good's golf...
Benzinga  May 1  Comment 
On Thursday, Imperial Capital's Equity and Industry Analysis team presented a list of Best Ideas in Equity Research with companies representing an average upside of 32 percent. Imperial Capital included Callaway Golf (NYSE: ELY) on it's list, as...
SeekingAlpha  Apr 24  Comment 
Callaway Golf Company (ELY) Q1 2014 Earnings Conference Call April 23, 2014, 5:00 PM ET Executives Brad Holiday - Senior Executive Vice President and Chief Financial Officer Chip Brewer - President and CEO Analysts Scott...
CNNMoney.com  Apr 10  Comment 
Read full story for latest details.
Benzinga  Apr 3  Comment 
Below are the sporting goods stocks on the NYSE and the NASDAQ in terms of revenue. The trailing-twelve-month revenue at Pool (NASDAQ: POOL) is $2.08 billion. Pool's ROE for the same period is 34.28%. The trailing-twelve-month revenue at...




 

Callaway Golf Company (NYSE: ELY) makes golf equipment, including woods, irons, putters, balls, and other accessories.[1] Callaways sales have historically been tied to the spending power of consumers overall, and thus was adversely affected by the global downturn.[2]

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.[3] The number of golfers in the U.S. has is on a steadily declining trend.[3] Furthermore, the amount of golfers that play at least 25 times a year has dropped about 33% since 2000.[3] 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.[4]

Callaway depends on continual new product launches for its success, as customers come back to buy the latest technology.

Business Overview

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.[5] 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.[6]

Business Segments

The company's business segments are organized into the Golf Clubs segment and the Golf Balls segment.

Golf Clubs Segment (80% of sales, 95.1% of operating income)[7]

  • Irons (27.6% of sales): The company sells irons and wedges under the Callaway Golf, Top-Flite, and Ben Hogan names. The company attributes several new successful product launches, including the X-20 series irons, for the rise in sales.
  • Drivers and Fairway Woods (24% of sales): Callaway designs and sells drivers and fairway woods under the Callaway Golf, Top-Flite, and Ben Hogan brand names.[8]
  • Accessories and Other (17% of Revenue): This segment includes Callaway's sales of golf-related accessories like golf bags, footwear, gloves and umbrellas as well as royalties earned through licensing of the company's logo on apparel, watches, and travel gear.

Golf Balls (20% of sales, 4.9% of operating income [7])

Callaway earns 20% of its revenue from sales of golf balls under the Callaway Golf and Top-Flite brand names.[1]

  • Putters (9.1% of Revenue)[1]:

Callaway also sells putters under the Odyssey, Callaway Golf, Top-Flite, and Ben Hogan brand names.

Key Trends and Forces

Declining Golf Industry Challenges Callaway's Sales

The number of golf rounds played in the US and the overall number of golf players has steadily declined in the last decade.[9] 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.[10]

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.[11]

Callaway's brand equity depends on the performance of its endorsed players

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 [12]

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

Due to the general trend of short product life cycles, Callaway's new releases must drive its revenue

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.[13] 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:

 Callaway's Annual Research and Development Expenses
Callaway's Annual Research and Development Expenses [14]
Popular Callaway Products [15]
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
Game-Improvement Irons X-20 $700
Super Game-Improvement Irons Big Bertha $800
Putters Odyssey Black Series 1, Odyssey White Hot Tour $270, $160
Balls Tour/iTour iX $45/dozen

Seasonal fluctuations impact golf rounds played and Callaway’s sales

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.

Competition

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.[16]

Callaway's competitors include:

  • Fortune Brands (FO): The Acushnet Company is Fortune Brand's golf division and runs the following companies: Titleist, Cobra Golf clubs, Pinnacle balls, FootJoy gear, and Scotty Cameron putters. Acushnet is the top U.S. selling golf product in balls (Titleist) and shoes (FootJoy).
  • TaylorMade/adidas golf : Bought out by Adidas in 1997, TaylorMade manufactures golf clubs, balls, and accessories, while Adidas deals with apparel. Although it is ranked second in world club distribution, more PGA Tour professionals play with TaylorMade drivers than Callaway, Cleveland, Cobra, Nike, and Ping combined.[17][18]
  • Nike (NKE): Nike competes in all departments of the golfing market: clubs, balls, and gear. Always a leader in athletic innovations, Nike's golf equipment is used by Tiger Woods.
  • Cleveland Golf: SRI Sports Limited, a Japan-based sporting goods company that sells tennis and golf equipment through their Dunlop and Srixon licenses, acquired Cleveland Golf in December of 2007. Their golf brands are number one in club sells and number two in ball sells in Japan.[19] The company sells drivers through wedges and produces putters under their brand, Never Compromise.
  • Ping Golf: Ping has proven to be a competitor in all categories of golf clubs. Their new products won awards in Golf Digest's Hot List for game-improvement irons and putters.[20]



Notes

  1. 1.0 1.1 1.2 ELY 2008 10-K, Item 7 "Management's Discussion," page 37
  2. Callaway Q4 Results
  3. 3.0 3.1 3.2 The New York Times, "More Americans Are Giving Up Golf," 2/21/2008
  4. The Stock Masters: Is There Any Growth Left in Golf?
  5. ELY 2006 10K, Item 1:Business, pg. 1
  6. 7.0 7.1 ELY 2008 10-K, Item 7 "Management's Discussion," page 39
  7. ELY 2007 10-K, Item 1, pg. 2
  8. JS Online
  9. "Callaway Swings to Quarterly Loss, Backs '08 View" Reuters.com 10/30/2008
  10. CNBC: Callaway to be helped by new products, Olympics
  11. Callaway Golf: Pro Tour
  12. ELY 2006: 10k, Item 1:Risk Factors, pg.9
  13. ELY 2006 10k, Item 6:Selected Financial Data, pg. 22
  14. Golf Digest:Hot List 2008
  15. Hoovers: TaylorMade-adidas Golf Company Overview
  16. Hoovers: TaylorMade-adidas Golf Company Overview
  17. TaylorMade: TaylorMade on Tour
  18. Cleveland Golf: About us
  19. Golf Digest: Hot List 2008
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