Callaway Q3 Financial Report

Callaway Q3 Financial Report – Key Takeaways

• Callaway reports a record third quarter, with $476 million in sales worldwide.
• Golf equipment fueled the quarter with a 27-percent increase over Q3 of last year.
• Growth is almost entirely homegrown,  with U.S. sales outpacing the rest of the globe.
• TopGolf merger positions Callaway to top $3 billion in sales by 2022.

The golf industry’s giddiness continues. The Callaway Q3 financial report shows a record quarter for the company with sales totaling $476 million. That represents a 12-percent ($50-million) increase over Q3 of 2019.

What’s more, the report shows a quarterly $52-million net profit, a whopping 69-percent increase over Q3 of last year.

While the numbers aren’t quite in line with Acushnet’s Q3 performance, there’s still a lot of information to unpack, so let’s get to it.

Callaway Q3 Financial Report – Riding the Industry Wave

The entire golf equipment industry set a sales record in Q3 according to Golf Datatech, with sales up 42 percent compared to last year’s third quarter. In addition, the National Golf Foundation is reporting a 25-percent increase in rounds played in September. On top of that, rounds played for the year are up compared to last year, even with two months’ worth of shutdown.

Yup, people want to play golf, and they need the tools of the trade to do so.

“The world is embracing golf in a way that has led to a record quarter for the industry and the company,” says Callaway CEO Chip Brewer in a prepared statement. “Our golf business is now experiencing unprecedented demand and our soft goods business is recovering significantly more quickly than we expected.”

So yeah, Callaway set a Q3 sales record at $476 million. But it still lags behind Acushnet’s Q3 tally of $483 million. There are some reasons for that.

Q3 Sales Specifics

Callaway’s record quarter is almost completely homegrown. Q3 U.S. sales were up 33 percent ($215 million versus $162 million last year). Japan, however, was down 12 percent versus last year, while sales in Europe were virtually even. Callaway’s Rest of World was up only slightly.

Golf equipment drove the increase. The Callaway Q3 financial report shows a 27-percent increase in overall equipment sales for the quarter. Golf club sales reached $209 million. That’s a 25-percent increase over Q3 2019 ($158 million). Golf ball sales were up 36 percent at $58 million (versus $42 million in Q3 2019).

Although Brewer touted that soft goods were recovering, Callaway is behind last year. Specifically, apparel sales were down 10 percent versus Q3 2019 ($126 million versus $140 million). Additionally, sales for Gear and Other (gloves, bags, accessories) were down nine percent ($76 million versus $83 million).

The golf club sales figure is most interesting. We reported Friday that despite Acushnet’s big Q3, Titleist club sales were down nearly five percent worldwide, at only $121 million. Callaway, however, was up 27 percent at $209 million. Callaway’s gear is more beginner-friendly, obviously, and it also had more “new stuff” in the lineup. Mavrik metal woods and irons are still current and the Big Bertha B-21 and Big Bertha Reva irons and metals hit the stores in early September.

Titleist, meanwhile, had nothing new to sell in Q3. New Vokey wedges came out early in the year but TS metal woods were being discounted.

On the other hand, Titleist ball sales jumped 41 percent to $170 million. Titleist gear sales (hats, gloves, bags, etc.) were also up ($44 million) as were FootJoy sales ($116 million) for the quarter.

Callaway Q3 Financial Report – Year-To-Date Numbers

Overall, Callaway sales are down 13 percent Year to Date, which should come as no surprise. The Callaway Q3 financial report tells us equipment sales are down seven percent Year to Date, while Apparel, Gear, and Other is down 21 percent.

By product segment, club sales for the year are down six percent ($617 million versus $653 million). Ball sales are down 12 percent ($152 million versus $173 million). Apparel by itself is down 23 percent, while Gear and Other is down 18 percent.

By region, the U.S. is again saving Callaway’s bacon. Year to Date U.S. sales are down by only eight percent ($604 million versus $658 million). By contrast, Year to Date sales in both Europe and Japan are down 18 percent and the Rest of the World is down 13 percent.

Profits are Down, But…

Callaway posted a $168-million net loss in Q2 but it was a paper loss, not a cash loss. The biggest ingredient was a pre-tax non-cash goodwill impairment charge related to the Jack Wolfskin acquisition. It’s an accounting procedure used when an acquisition’s book value drops below what a company paid for it.

Callaway was in a solid enough cash position to do it all at once, considering it was a down quarter in the middle of a worldwide pandemic, anyway. The announced net loss had little impact on stock prices when it was announced in early August.

Two weeks ago, Callaway announced its merger with TopGolf. Callaway already owned 14 percent of TopGolf and the $1.986-billion-dollar deal included 90 million shares of Callaway common stock. Callaway also assumed TopGolf’s $555-million worth of debt, which pushed the deal to $2.5 billion.

TopGolf has 63 locations worldwide and served more than 23 million guests in 2019. More than half identified themselves as non-golfers.

The deal also includes Toptracer ball-tracking technology. You see Toptracer on TV and it’s in use in more than 7,500 driving range bays. Revenue has grown 233 percent over the last three years. And then there’s World Golf Tour – that online game where you can play major championship venues for fun or in competitions. World Golf Tour has 28 million members, many of whom pay to play.

In addition, Callaway is in an enviable cash position, with more than $630 million in available cash and revolving credit. At the start of the pandemic, Callaway aggressively went into cost control mode. Its upper management decided to go without pay. There were also layoffs, furloughs and long-term pay cuts. There’s no word on when, or if, those salaries will be restored.

Final Thoughts

Callaway continues to diversify. The company reported $1.7 billion in sales in 2019, but it surely won’t hit that number in 2020. The Callaway Q3 financial report says Year to Date sales stand at $1.2 billion. That’s still a lot but it’s $174 million behind last year.

TopGolf helps Callaway in two ways. First, TopGolf immediately becomes Callaway’s top earner. Once the merger is complete, 46 percent of Callaway’s revenue will come from TopGolf, 30 percent from golf equipment and 24 percent from soft goods. Callaway predicts the new formula will hit $3.2 billion in sales by 2022, with anticipated growth of 10 percent per year after that. At that point, Acushnet will just keep getting smaller in the rearview mirror.

The TopGolf-Callaway partnership has endless possibilities. How about a full bag fitting at any TopGolf location? Or a Callaway-Travis Mathew-Ogio-Jack Wolfskin pro shop at every facility? Retail without the middleman can be quite profitable.

We can safely say Callaway is no longer just a golf equipment company. By equipment-proofing itself, Callaway has recast itself as a multibillion-dollar active lifestyle and entertainment company, with a focus on golf.

In a pure business sense, both Callaway and Acushnet are playing chess (although in Callaway’s case, it might be 3D chess), while the rest of the Big Five are playing checkers. The rest of the golf industry is playing the business equivalent of Candyland.