Q1 Financial Reports: Callaway and Acushnet

Q1 Financial Reports: Callaway and Acushnet – Key Takeaways

Callaway Q1 sales top $1 Billion, with net profit of nearly $87 million Acushnet Q1 sales reach $606 Million, with $81 million net profit Callaway reaches record 22 percent market share in golf balls in March Titleist ball sales down for Q1 due to raw material shortages

The Callaway and Acushnet Q1 financial reports are out and, as always, the devil is in the details.

On the surface, you see Callaway leaving Acushnet in the dust as its quarterly sales topped the $1 BILLION dollar mark, compared to “just” $606 Million for Acushnet. Bit if you dive in a little deeper, which is what we like to do, you see two companies on divergent paths.

Callaway is morphing into a golf lifestyle and entertainment behemoth, while Acushnet continues to perfect its traditional golf business. The difference between golf’s two giants is as start as it is wide. But when one peels back the proverbial onion, one might just find the two companies are more similar than they are different.

But before we dive in, it’s time for our standard disclaimer. We are not, nor do we claim to be, financial experts or investment counselors. We’re folks who love golf – both the game and the business – and we like to read.

With that out of the way, let’s dive in.

Q1 Financial Reports: Callaway

Unless your name is Musk or Bezos, $1.04 BILLION in quarterly sales should rock your world. Callaway certainly seems pleased with it.

“I am pleased to report a very strong start to the year, with all three of our business segments contributing to our success,” says Callaway CEPO Chip Brewer. “Total revenue was…up 60 percent year over year.”

That 60 percent increase comes with a wee bit of an asterisk. Callaway merged with Topgolf on March 8th of last year, so the Q1 2021 numbers included less than one month of Topgolf revenue. This year, for the full quarter, Topgolf added $322 million to Callaway’s topline sales number.

Additionally, Callaway reports a nearly $87 million net profit for Q1. That’s a huge drop from last year’s Q1 profit of $272 million, but that number is inflated due to the non-cash addition of Topgolf. Taking the acquisition out of the equation, profits are still down by roughly $7 million compared to last year despite the higher sales. That drop is understandable, as supply chain issues and shipping costs continue to make life miserable for finance departments worldwide.

The Topgolf Effect

Last year’s Topgolf acquisition is putting Callaway into its own golf stratosphere. The company projects upwards of $1.56 BILLION in 2022 revenue from Topgolf alone, and that ain’t no alfalfa seed, friend. The $322 million in Q1 reflects a nice same venue increase over Topgolf’s pre-pandemic 2019 numbers, despite the fact that 2022 got off to a slow start due to the Omicron variant.

Callaway says walk-in traffic is getting healthier, as are special event and corporate bookings. Two new facilities opened in Q1, a Callaway-owned-and-operated center in Southern California and a franchise venue in Germany. Callaway expects to open 11 new facilities in the US this year, with five scheduled to open in Q4.

Additionally, Callaway expects to add Toptracer technology to at least 8,000 driving range bays this year.

Oddly, despite the big topline numbers, Topgolf profits were comparatively small. That $322 million in sales added only $6.5 million to the bottom line, for a profit margin of only two percent. No doubt capital costs for new venues as well as servicing the acquisition debt contributed to the relatively low margin.

Q1 Financial Report: Clubs, Balls and Apparel

Callaway sold more than $468 million worth of golf clubs and balls in Q1, a 24 percent year-over-year increase. Specifically, club sales reached $370 million (up 17 percent YOY), while golf ball sales hit nearly $98 million. That’s up 37 percent from last year. Additionally, Callaway is citing Golf Datatech figures showing it hit an all-time high in ball market share in March, at 22 percent.

And because you want to know, Callaway’s profit margin on golf equipment in Q1 stands at 21.5 percent. That’s down a full percentage point from Q1 of last year.

Apparel, Gear and Other (bags, gloves, accessories) added another $250 million in sales to the top line, at a nearly 11 percent profit margin. Apparel sales were up 45 percent, while Gear and Other were up 29 percent. Those figures include a $4 million hit after Callaway suspended Jack Wolfskin retail operations in Russia due to the Russia-Ukraine War.

Callaway does expect this segment to reach $1 billion in sales in 2022.

And also because you want to know, Callaway spent $17.5 million on R&D in Q1, or roughly 1.6 percent of sales. Selling, General and Administrative costs – stuff like fixed and variable overhead, commissions, salaries, shipping and marketing – reached $243 million, or 23 percent of sales.

Q1 Financial Reports: Acushnet

True to its history, Acushnet never publishes grandiose headlines in its financial reports. Acushnet’s Q1 sales topped $606 million, which is a small 4.3 percent increase over last year.

Additionally, Acushnet says its quarterly net income of $81 million is down nearly five percent year-over-year. On top of that, US sales are down 4.4 percent due to a drop in ball sales and a drop in bag, hat and other gear sales.

Call it the scourge of the Supply Chain.

Specifically, Titleist ball sales are down 5.6 percent globally (roughly $10.6 million) due to raw material shortages. Gear sales fell off by nearly $5 million, again due to supply chain issues.

Based on the two reports, and Callaway’s 37 percent increase in ball sales, it’s fair to say Callaway has done a better job managing its supply chain.

Segment Specifics

Titleist club sales reached $161 million in Q1, a slight 3.2 percent increase. The jump was driven by the new Vokey SM9 wedges released in Q1 along with the new T-Series irons launched in Q4 last year. Metal wood sales were down as the current models enter their second year, while Acushnet says shipping delays and supply chain shortages also contributed.

As mentioned, ball sales were down 5.6 percent compared to Q1 of last year, reaching $164 million.

Supply chain challenges also led to a 17 percent drop in Golf Gear sales, specifically in bags and hats. That drop was partially offset by higher selling prices.

The news isn’t all bad, however. FootJoy has a smoking Q1, with sales topping $197 million. That’s a 24 percent hike over last year. Acushnet cites both higher volumes and higher selling prices for the increase, along with a very strong showing in the European market.

Regionally, US sales reached $295 million (down 4.4 percent), while European sales were up nearly 40 percent, at $112 million. Japan was down 19 percent, while the Korean and Rest of World markets increased by eight and 19 percent, respectively.

And because you want to know, Acushnet spent $14 million in Q1 on R&D, or roughly 2.3 percent of sales. Selling, General and Administrative costs topped $196 million, or 32 percent of sales.

What Does It All Mean?

You might look at Acushnet’s numbers and think things aren’t looking so hot. That’s not entirely true, and it’s not entirely false, either. Yeah, raw material shortages and supply chain challenges appear to be more of a problem for Acushnet than for Callaway. And yeah, going backward in ball sales always sucks.  But $606 million is still $606 million, and $81 million in profits in the face of rising shipping costs and other challenges certainly makes it sting a little less.

In their 2021 Annual Reports, both companies projected relatively modest gains for 2022. Callaway is feeling a little more bullish after Q1, and is not projecting sales to be in the $3.9 billion range. Acushnet, on the other hand, is holding steady on its 2022 projection of roughly $2.2 billion. Neither company is anticipating a worsening of the pandemic or supply chain disruptions.

The top line says Callaway is running a one-man race and is leaving Acushnet in the dust. That’s true, but if you remove non-traditional golf business from the equation – i.e. Topgolf and Jack Wolfskin – the two companies are closer than you think. Without Topgolf, Callaway’s Q1 sales are roughly $611 million. It’s impossible to determine Jack Wolfskin’s quarterly sales, but if you take that out of the equation, the companies would be in a virtual dead heat. Callaway is the clear leader in club sales. Acushnet, despite the down quarter, still owns the ball market.

But in reality, you can’t take Topgolf out of the equation. And, as a result, Callaway is playing a completely different game.

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