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  • With a record number of beginners teeing off in 2020, Callaway, the maker of golf balls,

  • clubs, bags and apparel, has been thriving.

  • Callaway had first quarter 2021 net revenue of $652 million

  • , a 47 percent increase from the year earlier, and a new record for the company.

  • On May 24, 2021, the stock closed at $34.86

  • , more than one hundred and thirty percent higher than the year earlier.

  • Callaway pre-Covid was already the number one brand in

  • sticks, I call it, which is putters, drivers and irons.

  • And you know, they were outpacing industry growth and then they were also number two in

  • balls behind Titleist.

  • So with Covid you saw an explosion of, let's say, new participants and those

  • new participants need new equipment.

  • Callaway has made moves off the fairway as well.

  • In March 2021, the company completed its merger with golf entertainment business, Top

  • golf, which blends technology with food and cocktails.

  • This is a transformative merger.

  • It creates an entity that doesn't really replicate anything that currently exists with

  • a leader in golf equipment merging with a leader in golf

  • entertainment.

  • In 2020, almost 37 million players teed off at a golf course or participated in

  • an off-course activity like a driving range.

  • Nearly a third of the U.S.

  • population watched, read about or played golf.

  • But with movie theaters, travel and concerts expected to rebound, will golf club makers like

  • Callaway and its rival, Acushnet, be able to maintain their momentum?

  • Callaway Golf Company got its start in 1982 under the name Hickory Stick

  • USA. In the Southern California town of Temecula, the tiny three person company

  • produced a revolutionary line of putters and wedges.

  • The following year, Ely Callaway, an entrepreneur and businessman with a background

  • in wine and textiles, bought a stake in the business.

  • By 1989, the renamed Callaway Golf Company had sales of $10

  • million and a spot as the number one driver on the senior PGA Tour.

  • In 1991, Callaway debuted on the New York Stock Exchange and introduced its

  • oversize metal driver named the Big Bertha Driver.

  • This product launch helped change the direction of the company and the game of golf for

  • millions

  • Big Bertha Driver represented the, you know, the advancement of golf, right?

  • It was the advancement of the new technology, an oversize head for the

  • driver, and that created, you know, a distance, further distance and power for the

  • golfer.

  • By 1995, Callaway's Golf drivers were the number one drivers in play on the world's

  • major professional tours.

  • And thanks to a booming economy, a surplus of new courses and a 21-year-old phenomenon

  • named Tiger Woods, the game of golf was also seeing a surge of new players.

  • He brought excitement and added diversity to the sport.

  • But I think he what he really did was added more youth.

  • In 1997, Woods claimed his first green jacket at the Masters.

  • The number of U.S. golfers had grown to 30 million by 2005.

  • In the two decades leading up to 2006, the number of courses nationwide

  • swelled by 44 percent.

  • But the 2008 financial crisis and an oversupply of courses led to a sudden drop in

  • demand for the sport.

  • Many of those golf courses were built as amenities to sell

  • real estate, and therefore they weren't thinking about the due

  • diligence of can this golf course survive and thrive

  • in this market?

  • In this trade area where there are already seven golf courses, they didn't

  • think about that because it wasn't part of their business plan.

  • By 2010, the number of golfers in the U.S.

  • had plunged to 26 million.

  • That decline impacted some of the biggest names in golf.

  • In 2016, Nike exited the golf business and announced it would stop making clubs,

  • balls and bags.

  • The following year, Adidas sold golf club maker, TaylorMade, to New York based equity firm

  • KPS Capital Partners.

  • Callaway was transitioning its business too, from a golf club manufacturer, to include

  • lifestyle products complementary to golf.

  • In 2017, Callaway bought backpack and golf club bag maker, Ogio,

  • and sports apparel brand Travis Mathew.

  • And in 2019 it added outdoor hiking apparel brand, Jack Wolfskin, to its roster.

  • As of June 3rd, 2021, Callaway had a market cap of $6.8

  • billion. In 2020, golf clubs made up 49 percent of net sales,

  • golf balls made up 12 percent, apparel made up 22 percent, and gear and

  • accessories, like golf bags, made up the remainder.

  • Callaway sells its products in over 120 countries.

  • With pro-games, college teams and even kids leagues impacted by the pandemic, many

  • sports enthusiasts in 2020 turned to golf.

  • It's wonderful that golf's intrinsic valuespeople

  • participating out in nature, people who are starved

  • for social interaction in a safe environment, that

  • golf fit perfectly into that situation.

  • There was a surge of people who came into the game who frankly

  • had nothing else to do.

  • Some of them were former players who hadn't been playing much.

  • You know, they played five times a year.

  • Suddenly they played every weekend.

  • They didn't have a kid's soccer game to go to.

  • They didn't have, they couldn't go to a concert.

  • They couldn't go to movies.

  • They didn't travel.

  • In 2020, golfers played almost 502 million rounds, thirteen percent more

  • than a year earlier.

  • That same year, three million golfers in the U.S.

  • hit the links for the first time, a record number of beginners, according to the National

  • Golf Foundation. Those trends impacted some of the biggest golf equipment companies in the

  • U.S., including privately held companies like Ping and TaylorMade and publicly traded

  • companies like Acushnet, the maker of Titleist golf balls, and of course, Callaway.

  • In 2020, Acushnet had net sales of $1.6 billion, a four percent

  • decrease from the year prior due to the pandemic and government ordered shutdowns.

  • But with increased demand around golf related products, the company saw first quarter 2021

  • net sales surge 42 percent from the previous year to $580

  • million.

  • When the pandemic really started being a dominant

  • factor in America in March and April, where you had a significant

  • number of businesses of all kinds shutting down to help control the

  • virus, roughly 50 percent of U.S.

  • golf courses were shut down during that two month period.

  • Callaway faced similar challenges and it may have also seen even bigger gains.

  • In 2020, Callaway had net sales of $1.5 billion, down six

  • percent from a year earlier.

  • While golf club sales in 2020 increased 2.4 percent, the company saw a decline of

  • seven percent in its golf ball business and a 16 percent drop in its apparel and gear

  • segment. Both with employees working from home and families having few travel options in the

  • first quarter of 2021, Callaway said net sales surged to $652

  • million, a 47 percent increase from a year earlier.

  • The company saw a 26 percent growth in golf club sales on a year-over-year basis, a

  • 50 percent increase in golf ball sales and a 23 percent uptick in the sale

  • of apparel. While the company did face additional charges in 2020, like a 13

  • million dollar increase in shipping costs, it also benefited in recent years from golfers

  • moving away from buying clubs off the rack towards custom fittings.

  • People are getting made-to-order clubs, which means higher price point clubs, and it means

  • really good things for working capital.

  • So the sport is also the way the products are bought within the sport

  • are really improving.

  • And that's really good for margins going forward for the all industry participants,

  • including Callaway as well.

  • CNBC reached out to Callaway, but they declined our request for an interview.

  • There were more than 16,000 golf courses in the U.S.

  • at the end of 2020.

  • About 20 percent to 25 percent of golf courses in the U.S.

  • are private clubs.

  • Golf needs to do something to kind of fight that misperception that it's an

  • elitist sport that costs a lot of money.

  • Yes, it can cost a lot of money.

  • And yes, there are some elitist in it.

  • However, there are a lot of regular people as well.

  • While almost 25 million people played on a golf course in 2020.

  • Another 12 million people played on either a simulator, at a driving range or at a golf

  • entertainment center. Callaway has positioned itself to take advantage of that trend.

  • In March 2021, Callaway merged with golf entertainment business, Topgolf.

  • I think this is going to more than double our growth prospects, right.

  • And, you know, being able to take advantage of that

  • opportunity from a position of strength like we can right now, because, you know,

  • our business is flat out killing it.

  • Topgolf got its start in Watford, England in 2000 and opened its first U.S.

  • venue in Alexandria, Virginia, in 2005.

  • As of March 2021, it had over 60 locations and its four-level flagship

  • venue in Las Vegas features over 120 climate-controlled hitting bays, five

  • separate bars and a 900-person concert venue

  • Before the merger, if we were talking about Callaway, we were just talking about roughly

  • ten, their participation in a roughly $10 billion market of golf

  • equipment. And that's it.

  • But with the Topgolf merger, what that does is it opens up, it

  • widens the aperture of opportunity for Callaway Topgolf combined, where they

  • can attack a near $100 billion opportunity of stuff

  • related to golf.

  • According to Konik, Callaway's merger with Topgolf presents the company with big

  • opportunities.

  • Whether it's food and beverage, whether it's venue entertainment, whether it's

  • technology, software services, that's what really the merger does for the Callaway

  • entity combined. And it just opens up a huge revenue stream opportunity going

  • forward over the long term.

  • Topgolf had revenue in 2019 of $1.1 billion dollars.

  • The combined company will have a revenue mix of 30 percent golf equipment, 46 percent

  • , Topgolf and 24 percent soft goods like its apparel line.

  • And Konik thinks with fewer people expected to return to the office full-time and with

  • Americans getting older, the golf equipment industry, Callaway included, could see even

  • bigger gains in the future

  • In the United States, remember, there's a ton of baby boomers that are about to retire.

  • And those baby boomers, they're not probably playing soccer or running all over the place.

  • They're going to probably play a lot of golf and there's going to be a ton of new

  • participants to the sport.

  • As a result,

  • The game isn't for everybody.

  • It's really for people who, on one level, who don't need

  • immediate satisfaction, who don't, who are willing to work a little bit

  • to try and get to a level where they can enjoy the game.

With a record number of beginners teeing off in 2020, Callaway, the maker of golf balls,

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    joey joey posted on 2021/06/05
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