Deep Dive: Callaway
What do they do? Callaway is a golf equipment and apparel manufacturer in the United States. It also just acquired Topgolf, the mega-driving range company that also owns Toptracer.
History? Callaway was founded in 1982 and actually went public all the way back in 1992. The founder was named Ely Callaway Jr. which is why Callaway’s ticker symbol is ELY.
Industry? The golf club market is around $3.66 billion, while golf balls are around $1.11 billion. The driving range industry is surprisingly large, at over $10 billion. Callaway’s number-one competitor is Taylor Made, but Titleist and Ping also are in the mix.
Management? Oliver “Chip” Brewer is the CEO. He has been leading the charge for many years and was a Director at Topgolf international. The whole team has tons of experience at the company.
Valuation? (As of recording) Post-merger market cap of $5.4 billion, P/S of about 2 but other than that valuation metrics were hard to use with a bunch of one-time adjustments in 2020 and the integration of Topgolf messing everything up.
Earnings? $1.6 billion in 2020 sales, down 6.5%. Topgolf not included in that, which does north of $1 billion in annual sales. Q4 sales were actually up 20% YoY.
Balance Sheet? $366 million in cash, over $650 million in long-term debt.
Potential Competitive Advantages? Size and scale, plus using Topgolf as a funnel for selling their other products.
Potential Future Growth Opportunities? Topgolf, Topgolf, Topgolf was what we had here.
Highlights? Management team, and the potential of the Topgolf merger.
Lowlights? Golf clubs and balls are semi-commodities, and their apparel brands are not top-notch. Golf is a limited market.
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Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.