Callaway's Record Year
Callaway reported record revenue, but the stock dove 10% the following day.
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Hey Golfers -
Callaway reported full-year and quarterly earnings on Thursday, February 10th. The global golf and technology giant reported -$.19 earnings per share versus -$.28 earnings per share, a 32% beat on expectations. Top-line revenue was $711 million versus $703 million expected, a 1% beat on expectations.
Keep in mind bottom-line and top-line numbers reported are for Callaway’s 4th quarter. Even with Callaway beating both expectations, the stock price plummeted 9.6% on Friday. Callaway’s stock price is down 23% over the last 12 months. For reference, the S&P 500 is up 12% in this same period.
Here is a breakdown of Callaway's ($ELY) stock price over the last three years.
February 2020: $19.46
February 2021: $30.78
February 2022: $22.92
Callaway is arguably the most diversified golf brand in the world. Callaway has made strategic acquisitions since the mid-1990s. Below are the companies in Callaway’s portfolio.
Topgolf
Odyssey
Travis Matthew
Ogio
Jack Wolfskin
Over the weekend, I reviewed the investor slide deck and listened to the earnings call.
Let’s dive into Callaway’s annual and quarterly report with some quick bullet points.
Yearly revenue - $3.1 billion
Yearly EBITDA - $445 million
Topgolf revenue - $1.1 billion
Equipment revenue - $1.2 billion
Aparrel revenue - $817 million
Callaway completed its acquisition of Topgolf on March 1st, 2021, meaning they only recognized ten months of Topgolf revenue for their yearly report. It is fascinating that Topgolf represents 35% of revenue.
TravisMathew had a massive year. TravisMathew owned stores were up 67% versus 2020, and e-commerce sales were up 30% versus 2020. The growth TravisMathew is seeing is remarkable, considering the brand was founded in 2007. Callaway purchased TravisMathew in 2017 for $125.5 million.
Topgolf had better than expected fourth-quarter results, up 6% versus 2019. Callaway has ten new Topgolf facilities in the pipeline for 2022. Callaway will continue to leverage the Topgolf relationship with Callaway fitting bays in Topgolf facilities; I would expect this to continue to drive equipment sales. Equipment sales were up 25% in 2021.
Randy Konik from Jeffries had a fascinating question on the earnings call. I am paraphrasing to reduce the length of the question.
What is Callaway doing to leverage the existing ecosystem to cross-sell products?
Chip Brewer, CEO of Callaway, had an exciting response.
We will have a significant competitive advantage over the overall reach to golfers of all types. And it will take technology, consumer data platforms, other types of technologies and offerings that will fit very well within our ecosystems to unlock that.
Meaning Callaway is working on this opportunity and has a plan to optimize revenue for the future. I believe the Topgolf acquisition is incredibly competitive for Callaway, as they have a large target market to introduce golfers to Callaway products.
Maybe the craziest thing about Topgolf’s business is its Toptracer technology. Toptracer expects to install 8,000 bays in 2022, which aren’t installed only at Topgolf facilities. They will be installed in competitor facilities. As golf entertainment grows, Topgolf grows. Toptracer charges $190 per bay per month. A remarkable recurring revenue business.
As to why the stock price got crushed on Friday? It is likely the guidance Callaway provided for 2022 disappointed the analyst. Callaway expects to do $3.8 billion in revenue and $1.5 billion in revenue from Topgolf. However, the new Topgolf facilities will be added towards the end of 2022.
Callaway’s EBITDA to revenue multiple is 11.1. Below are other golf-related EBITDA multiples.
Acushnet - 9.1
Drive Shack - 9.7
Vista Outdoor - 3.3
Callaway is growing, equipment and apparel are growing, and Topgolf is growing — an excellent sign for golf. Acushnet and Drive Shack will report earnings in the coming weeks. I am interested to see their annual earnings.
Have yourself a great Monday. Talk to you next week!
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Top Golf was such a good acquisition!