Callaway Releases Its 2019 Financials: $1.7 BILLION
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Callaway Releases Its 2019 Financials: $1.7 BILLION

Callaway Releases Its 2019 Financials: $1.7 BILLION

Press releases are interesting things, especially when they are about the financials. Callaway’s 2019 financial performance press release sure is interesting.

As in $1.7 billion worth of interesting.

Depending on how deeply you look, you could conclude Callaway had the type of boffo year that would make you want to jump on TD Ameritrade and buy a few shares of ELY on the NYSE. After all, Callaway set a new record with $1.7 BILLION in sales.

That’s a 37-percent jump over 2018’s record sales of $1.24 billion.

Operating income for the year was a record $133 million, a four-percent increase over 2018.

If you’re an investor, those are sexy headlines that look fantastic in our 240-character social media world. Dig a little deeper into the financial reports, though, and you’ll get a handle on what’s really going down. As always, there’s more to the story.

In this case, a lot more.

That’s the fact, Callaway Jack!

For those of you scoring at home, Acushnet was golf’s top dog in 2018, with sales hitting $1.63 billion. We’ll find out next month how the company fared in 2019 but Acushnet is not a company of extremes. Its growth is traditionally steady and consistent. A double-digit growth in sales would be way out of character.

Thirty-seven percent is otherworldly.

How did Cally do it? If you’re thinking it was all Epic Flash, you don’t know Jack.

That $1.7 billion is a $458-million net increase over the 2018 total and nearly 75 percent of it came from Callaway’s newest acquisition: Jack Wolfskin. Callaway finalized the purchase of the German company last January for $476 million. Jack Wolfskin is a premium European outdoor lifestyle, footwear and apparel brand popular among hikers, cyclists, skiers, and campers.

How popular? Callaway’s sales in Europe jumped more than 186 percent last year.

Thanks, Jack.

Want more jolly news? Every category for Callaway was up last year, as well. That includes a seven percent increase in golf club sales, a 43-percent increase in what Callaway calls Gear/Other Accessories and a 266-percent increase in apparel. Thanks again, Jack, and you, too, TravisMathew.

Oh yeah, golf ball sales were up nearly eight percent.

#Finditcutit Impact?

MyGolfSpy’s Ball Test and the subsequent #finditcutit campaign may have sped up Callaway’s decision to invest $50 million on its Chicopee ball plant. It is fair to ask, however, if that little hashtag impacted Callaway’s ball sales.

The answer is it did … and it didn’t.

Callaway reported a 7.8-percent increase in ball sales for 2019. In the press release, CEO Chip Brewer singled out the success of the ERC Soft Triple Track and the Supersoft golf balls as contributing factors while also citing the continued success of Chrome Soft. In a vacuum, a 7.8-percent  year-over-year increase is nothing to sneeze at, especially at Callaway’s $211-million sales volume.

However, 7.8 percent pales in comparison to the 20-percent growth Callaway saw in 2018. That’s a considerable loss of momentum and closer examination reveals some odd factoids.

Nearly half of Callaway’s 2019 ball sales dollar increase came in the fourth quarter, which is odd since Q4 typically isn’t a big mover and shaker for OEMs. In 2018 – Callaway’s big year – Q4 ball sales were up only slightly and, in 2017, Q4 ball sales were down. Callaway discounted Chrome Soft to $39.99 a bit earlier than expected late last year but bucking the typical Q4 trend without a major new release or big promotion is, well, odd.

Odder still is that big 20-percent sales growth in 2018 was an aberration. Callaway’s ball sales grew by 6.8 percent in 2017, 6.4 percent in 2016 and only four percent in 2015.

The rosy scenario tosses out the 2018 aberration and says the 2019 growth is actually better than the historical norm. A more realistic view, however, is the company clearly lost its 2018 ball mojo. Callaway is still No. 2 in market share but more than a few off-center cores on Instagram gave all the 2018 momentum a knuckle sandwich and hastened the Chicopee investment.

$50 mil isn’t chump change. You simply don’t drop that kind of cash to upgrade your ball plant unless there’s a problem you can’t ignore.

And that kind of investment has to show up somewhere.

On the other hand…

Weeding through financial statements isn’t the most exciting thing in the world. It’s easy to just read the headlines and the first few paragraphs and then spread the good news to all on Twitter. But the devil is in the details and the more you read, the more you learn all is not sunshine and rainbows.

In the headlines, Callaway tells you it set a record for Operating (Pre-Tax) Income at nearly $133 million. However, listed along with all the appropriate taxes is nearly $37 million in Other Expenses. That little line item takes a healthy chunk out of 2019’s bottom line.

Callaway cleared $104,740 million after taxes in 2018. The 2019 number is $79,408 million, a decrease of more than $25 million. Callaway’s Cash Flow statement shows nearly $55 million in capital expenditures and nearly $18 million in investments in golf-related ventures – we’re guessing TopGolf, et al. Both represent sizable increases over 2018 expenditures. It’s safe to assume that somewhere in that accounting mumbo-jumbo is the money invested to upgrade the Chicopee ball plant.

You can forgive Callaway for not putting a 24-percent decrease in net income in the press release headline. It just doesn’t give investors the warm fuzzies, even though across-the-board sales were up and the bottom-line ink is still a deep, dark black.

And because we know you want to know, Callaway spent more than $50 million on R&D in 2019, a 25-percent increase over 2018 and a steady three percent of sales. Callaway’s selling expense was just over $438 million for the year. That includes salaries, commissions, bonuses, and marketing – including what it pays Phil and the gang. That’s nearly 26 percent of the total sales figure, which is consistent with previous years’ percentages.

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Equipment-proofing the business

You can call Callaway a lot of things but dumb isn’t one of them. This is a smart company doing smart things. Fixing the ball plant may be long overdue but it’s being done, and that’s smart. But maybe the smartest thing Callaway has done over the past several years is equipment-proof its business. Yes, equipment is Callaway’s main entrée but high-margin side dishes like OGIO, TravisMathew and now Jack Wolfskin are obviously whetting appetites now and into the future.

Do you remember Callaway’s Five Year War? Everyone took it to mean Callaway was declaring war on TaylorMade – and it was – but Callaway also declared war on itself, challenging itself as a business entity. It started talking about becoming the first truly modern golf company and everything from its approach to the PGA TOUR, its product release cadence and its discounting strategies (it basically doesn’t discount anymore) evolved. Harry Arnett,  Senior Vice-President of Product and Brand Marketing at the time, talked about maximizing Callaway’s sphere of influence – basically, a big company interacting with and influencing its customers as a small company would. You saw everything from podcasts to one-on-one social media interaction. It became your buddy, the golf company.

It worked.

So yeah, Callaway is a golf company. And with its heavy investment in Artificial Intelligence, you can also say it’s a tech company. But as Callaway evolves, you can reasonably project that the modern golf company of tomorrow might not be a golf company at all but a huge product/lifestyle machine that happens to sell a buttload of golf stuff.

Callaway sold $768 million worth of golf clubs last year. That’s an awful lot and when you add nearly $211 million in golf balls, you get close to $1 billion worth of stuff you actually play the game with. But Callaway also sold nearly $722 million worth of other stuff. If you truly believe the golf equipment apocalypse is coming, Callaway is clearly ready.

We tend to think of Titleist as a pure golf company but Acushnet itself is a juggernaut. Its FootJoy business is huge and its half-billion-dollar ball business has achieved annuity status. We’ll see in a couple of weeks whether the Callaway juggernaut has zipped past Acushnet for lead-dog status but the betting here is it will be close.

And if we had to guess, we’d say Callaway is still in acquisition mode. Many golf purists scratched their heads when Callaway bought Jack Wolfskin but it’s pretty clear now why they did it. The deal paid off big time in year one. While Jack Wolfskin remains primarily a European brand, Callaway does have the ability to bring that brand to Asia and North America. It’s easy to envision a day when non-golf gear sales equal or even exceed gear sales.

Wonder what ol’ Ely would think of that?

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John Barba

John Barba

John Barba

John is an aging, yet avid golfer, writer, 6-point-something handicapper living back home in New England after a 22-year exile in Minnesota. He loves telling stories, writing about golf and golf travel, and enjoys classic golf equipment. “The only thing a golfer needs is more daylight.” - BenHogan

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      Dave C

      5 years ago

      Hi John, great article. Good job digging into the drivers of YoY changes.

      In the quote “ Callaway cleared $104,740 million after taxes in 2018. The 2019 number is $79,408 million”, did you intend on saying $104.740 billion and $79.408 billion, respectively, or should the billion be million?

      Reply

      Mike T

      5 years ago

      I watch a lot of skiing see the Jack Wolfskin banners all over the mountain…I didn’t know about Callaway’s buy until this article…nor did I know of their stake in Topgolf. Good article and informative. I use Callaway clubs; not their balls any longer because of your article. I do like OnCore DTC balls…keep it up

      Reply

      Bob

      5 years ago

      Now, as one who enjoys reading MGS, I understand that Callaway is not an advertiser on the site.

      That said, I think I get OMFS88’s point. As with other news outlets, when there’s an article whose main subject has some kind of relationship with the outlet or the outlet’s parent, there is usually a disclosure, such as, “X manufacturer is a subsidiary our of our parent corporation.”

      I don’t think it’s too much to ask when, for example, a story comes out about Tommy Armour, there’s a preface or an afterword: “Full disclosure, Dick’s Sporting Goods is an advertiser on this site.”

      If anything, it only adds more credibility and integrity to MGS’s work, not less.

      Reply

      KP

      5 years ago

      Last Callaway club I bought was a War Bird 5 wood. Once that left the bag I haven’t bought a single Callaway ever again. And never will. Demo’ed some stuff but they will never replace my MP-32’s or my Ping G400 SFT driver or the ProV1. EVER. In the immortal words of Stan Lee “NUFF SAID”

      Reply

      Thomas Alcott

      5 years ago

      After writing my comment, I went to your core beliefs page. It clearly states you don’t take money from the big golf companies. My apologies on questioning your ethics. For the record, I’m a big fan. Keep up the good work!

      Reply

      Dan Corun

      5 years ago

      This article sure lit a fire under the MGS members. I don’t believe that Adam has or ever will take a dime from any golf manufacturer. I trust their reviews because I usually try some of the equipment they test. I switched to the Srixon Z-Star because of their ball review. Keep up the good work guys.

      Reply

      Andrew Han

      5 years ago

      They take ad money from small to medium size businesses., so the $10-50 mm in revenue range. I think their latest ad/product placement was Precision Pro. It was guess the yardage on a golf course.

      Reply

      mike clemens

      5 years ago

      I live just outside Callaway golf ball plant local news says that color balls are the thing and investment was part if not all of money spent, anyway I can not get my brain around hitting anything other than a white ball just saying.. Clem.

      Reply

      Berniez40

      5 years ago

      It is interesting enough to me to ask the participants in the school yard tantrum to please stop and go back to your 3rd grade classrooms. As for me–I am interested in this because it points to how sporting goods companies really do make their bread—and trust me—it ain’t balls and clubs.
      Just ask Nike who quit the ball and club business, but remain firmly planted within the golf business. . Hey Adidas felt the need to spin off TaylorMade after their toxic business model cost them and Dick’s Sporting Goods a small fortune. Callaway is simply trying to increase their revenues as soft goods have a much higher profit margin. I’d love to more about how Top Golf and it’s eventual Public Offering added to their bottom line. Titlesist–the slow and steady money makerof Acushnet fame used to be part of the “Fortune Brands” Umbrella. Stand alone golf companies need revenue streams beyond balls and clubs, otherwise they go the way of MacGregor, Nickent, Orlimar, and other great brands.
      As always, My Golf Spy did a great job of pointing this out.

      Reply

      Mark

      5 years ago

      Anyone who works in the retail golf industry has seen a drastic change from titleist since they went public. Margin increases, although slight, Margin enhancements to the sales guys who sell it, that never happened before, a plethora of pro v1 skus, super game improvement irons, price drops on drivers within 1 full year. All these things are because the every other year model they have used in the past doesn’t raise stock prices, year over year growth does.

      Callaway knew they had a problem with the quality of golf ball, would love to know the exact numbers, we cut open 24 chrome soft/chrome soft x, along with many other manufacturers, those 24 cut, we had 0 with crazy off center cores, in fact only 1 golf ball out of about 100 cut open had something that the naked eye could really see. They didn’t just invest 50 million on new machines, the day the article came out, those machines were in the pipeline long before, in fact when I toured the plant last year one of the executives I have knows for 17 years told me about the new xray machines they were going to be getting. Love how “all the sudden” find it cut made some huge change supposedly. Just let out a dirty little secret that anyone who has been in the biz as long as I have knew all about, and that is from many manufacturers. Strata tour ultimate was by far the worst with the tungsten bb core. To expect the same growth as 2018 was a pipe dream, 7% after a huge percentage the previous year is actual pretty good.

      Reply

      Art

      5 years ago

      Mark, did you float test those balls before you cut them open? If you find the heavy and light points on the golf ball and then cut through those points, you will see the opposite–about 99 out of 100 balls have off-center cores. EVERY Callaway I’ve cut open has been poorly manufactured. And I too never found that “crazy off-center” ball, but I gave up pretty quickly. The quality between manufacturers is so ridiculously obvious after a dozen or two (float test/cut), that I don’t bother with the crappy balls anymore.

      Mark

      5 years ago

      No we did not float test, we used to do that back in the day when the Wilson True came out and claimed they were the only perfectly balanced balls. Watching Wilson at that pga show with a putting machine and showing how pro v1’s missed most of the time when they put the heavy side to the outside on a 10 foot putt was very comical. That ball sold terrible because people just don’t care. Chrome soft was still number 1 sku at my retail store, and callaway was number 1 overall. So I still don’t think people care. Maybe on this message board. I played the chrome soft x all year, 105 mph club head speed, tested on my track man here at work and I was not 20 yards short with any ball, I was within about 5-10 with all tour balls. Tour soft from Titleist was the shortest for me. Sometimes I wonder what is going through consumers minds when they purchase.

      AJW

      5 years ago

      Some relief.. I remember in the 90s walking by this booth at the PGA Merchandise Show that had steel-core, hickory-wrapped shafted golf clubs and thinking, they will NEVER make it. I was $1.7B wrong on that one..

      Reply

      Bill Wise

      5 years ago

      I still love the Callaway Chrome Soft. Feels better and I don’t notice a performance negative. There is no perfect golf ball.

      Reply

      Jon H.

      5 years ago

      Well done! The click bait age has been frustrating because the information is rarely useful. I like how you identified the significant element in the financial report and avoided using over-reaching assumptions.

      Reply

      TxRedMan

      5 years ago

      I still will not buy a Callaway ball, nor will I advise parents of kids I teach or players I loop for. #finditcutit proved to be an intuition that was uncomfortable but correct.

      I practice and play with Bridgestone and V1x only and after getting my hands on the left dash and left dot V1/V1x’s, I see the biggest leap in performance coming from the ball. If I had access to Snell in the way I do Titleist and Bridgestone (perk, very nice perk) I would play it, even consider switching.

      Reply

      John

      5 years ago

      It’s ironic how you rave about this company. I don’t doubt your love of golf but this I question your ability to valuate this company. 2 days prior to your article release, q4 earning showed missed earnings, greater operating expense leading to a 15% decline in stock price.

      Reply

      Jeremy

      5 years ago

      Likewise. Used to play the Chrome X, haven’t bought a Callaway ball since the MGS report.

      Reply

      Greg

      5 years ago

      I’m in the golf business and am hopefull the the purchase of Jack Wolfskin will help with Callaway soft-goods sales. At my club, we can’t sell Callaway shirts, shoes or outerware because people just don’t like their styles. We do sell their equipment/balls but stopped carrying their soft-goods.
      Maybe the influence of the Jack Wolfskin brand will bleed over to the USA and improve the Callaway product.

      Reply

      MIKE

      5 years ago

      As the article says, there’s a lot more to a P&L than just revenues (go ask many of the internet start-ups 1999-2001). No doubt Callaway had a winner in the Epic Flash line & their balls have captured a large market share than a few years ago. What I’m surprised about is the rate that people still buy new drivers, even with the price going thru the roof. We sure do love our toys!

      Reply

      Jesse V

      5 years ago

      I still won’t buy a Callawy Ball. Srixon or Bridgestone for me

      Reply

      Kevin

      5 years ago

      The depth of this financial analysis exceeded the headlines. The integration of the European business was well stated. Titleist golf balls an “annuity”….. great !

      Nice job, and great article!

      Reply

      Daniel Troxell

      5 years ago

      Good article. I firmly believe that your “find it, cut it” impacted the timing of Callaway’s addressing quality issues. Haven’t tried the new Mavrik driver but the AI hype is interesting and will result in Callaway being in the mix for a new driver in 2020 to replace my G30…… not a slam dunk as I will take my current driver to set the bar for comparison. Thanks and keep up the great work!

      Reply

      Jeremy

      5 years ago

      Don’t feed too much into the ‘AI’ hype. Pragmatically speaking, their use of the term ‘AI’ is all kinds of misleading. In a perfect world, and PERFECT strike, it’s all good and dandy. If you start considering off-center hits at different angles across different portions of the clubface, all that AI buzzword crap goes out the window. The variables are way too extreme for a ‘one-face-fits-all’ AI approach.

      Now if they customized an AI-face for each golfer, individuals would begin to see some benefit….. Hey Callaway, if you can make my clubface COR the highest right between the center and low/toe area, I’ll buy a set of Maverick’s right now.

      Reply

      Eric

      5 years ago

      They are working on making driver faces that you can switch in and out.

      egj28

      5 years ago

      Sign me up to the list of not caring at all if Calloway is making or not making money..

      Reply

      OMFS88

      5 years ago

      While digging into these financials, with their endless disclosures, did you guys ever feel inclined to begin disclosing, within the article, when you are writing about a paid sponsor of MGS?

      Reply

      Tony Covey

      5 years ago

      Did you, at any point while writing your comment, feel inclined to question whether or not you know what you’re talking about?

      Callaway is not a sponsor. Never has been. Has never paid us so much as a single penny. Have you not been keeping up with our conversation around Chrome Soft?

      Wow.

      Reply

      Taylor Baum

      5 years ago

      And boom goes the dynamite. Love it, Tony.

      Jeremy

      5 years ago

      Ouch.

      Great article, great response. I hope someone brought you a coffee after that Tony.

      G

      5 years ago

      Boom! Roasted!

      Well stated, Tony.

      Ant

      5 years ago

      Surely Calli paid MGS to start the #FindItCutIt campaign to boost the sales of ERC Triple Track and hence the Triple Track Putters will be a big earner in 2020. …..And man didn’t go to the moon.

      BD

      5 years ago

      https://giphy.com/gifs/reaction-loop-Aff4ryYiacUO4
      Reaction to Tony’s commment!!

      OMFS88

      5 years ago

      Did you, at any point, actually address my comment with that reply?

      I know you don’t take money from Callaway but I nonetheless thought it was a good time to ask if you had reconsidered your, rather troubling, position of not disclosing when you ARE writing about a paid sponsor of MGS.

      But keep talking in circles, with venom, it’s a solid look on you.

      ryebread

      5 years ago

      I’m guessing the original poster (likely someone in some way affiliated with Callaway) wonders about OEMs like Tour Edge.

      I think a list of who MGS takes advertising dollars from would help with this sort of rumbling. I say this as a HUGE MGS fan who has been here for a long time.

      BC

      5 years ago

      Wow. Some people. SMH

      Reply

      snapjack

      5 years ago

      What is your problem? Do you know nothing about MGS? You probably think the moon landings happened in Hollywood!

      Reply

      Rob W.

      5 years ago

      These comments are getting old.
      If anything, MGS coverage skews toward lower cost manufacturers like Tour Edge and DTC balls (snell, vice, cut).
      To me the value proposition is not as important as performance/quality, so I tend to eliminate it from the analysis.
      However, the impact of MGS on false advertising claims of extra distance is indisputable. No manufacturer claims 10-15 extra yards over their previous offering.
      And if you deny the shakeup caused by the 2019 ball test, you’re a fool.
      Keep up the great work Tony & the rest of the team.
      You have become the Consumer Reports for the golf industry, and most of us appreciate your dedication.

      Reply

      OMFS88

      5 years ago

      They skew coverage towards the Inesis, Snell’s of the world FROM WHOM THEY TAKE MONEY and do not disclose the relationship within the article about the Inesis, Snell’s of the world.

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