Q2 Financial Reports: Callaway and Acushnet

Q2 Financial Reports: Callaway and Acushnet – Key Takeaways

Callaway’s net sales for Q2 top $1.1 billion with $105 million in net profit. Callaway expects to approach $4 billion in sales this year. Acushnet’s Q2 sales reach $658 million with $66.6 million in net profit. Acushnet’s net profits are down 18 percent from Q2 2021.

The second-quarter financial reports for Callaway and Acushnet have been out for about a week and that’s given us some time to digest what both reports are telling us. As you’d expect, Callaway continues its juggernaut pace in sales and profitability. Meanwhile, on the surface, it appears some puzzling things are going on at Acushnet. But once you dive into the details, you’ll find the big picture tells a slightly different story.

And since “diving in” is one of the things we love doing, let’s get at it.

Here’s 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.

Q2 Financial Reports: Callaway Strikes Again

In May, Callaway reported an unprecedented $1.04 billion in first-quarter sales.

So what does Callaway do for an encore?

Hit $1.1 billion, that’s what. That’s a slight jump from Q1 and what’s more interesting is it’s a huge jump over Q2 of 2021.

“Our second-quarter revenues increased 22 percent, reflecting increases in all major product categories, in all major regions and in all operating segments,” Callaway CEO Chip Brewer said in a statement.

Callaway’s $1.1 billion in sales is a $202-million increase over Q2 of last year. Additionally, the company’s $105 million in net profit represents a 15-percent increase over last year.

Year-to-date sales sit at $2.15 billion compared to $1.56 billion last year, largely due to a full six months with Topgolf on the books. The Callaway/Topgolf merger was finalized in early March of 2021, so last year’s results reflected only four months of Topgolf revenue.

Year-to-date profit is $192 million. To put that into perspective, Callaway’s profit so far this year is more than OEMs outside of the Big Five sell in an entire year.

What’s curious is that Callaway is posting considerably lower profits than it did in Q2 of 2021. But last year’s $364 million reported profit was a bookkeeping procedure adding the value of Topgolf to Callaway’s stable of brands.

A more accurate indicator is income from operations. When you take the Topgolf valuation out, Callaway’s year-to-date profit from operations is up nearly $40 million over last year.

 

Q2 Numbers by Segment

Once again, it’s time for a handwritten “thank you” note to Topgolf. Segment sales hit $404 million in Q2 compared to $325 million last year. That’s a 24-percent increase. Additionally, Topgolf operations turned a $44.2 million profit in Q2. That’s nearly double last year’s Q2 profit and represents an 11-percent profit margin.

Year-to-date Topgolf sales stand at $726 million. Callaway expects Topgolf to hit $1.56 billion in sales by year-end.

And, while it gets closer each quarter, golf equipment is still Callaway’s top seller and earner. Equipment sales hit $452 million in Q2, a nearly 13-percent jump from 2021. Year-to-date equipment sales stand at $920 million, an 18-percent increase over the first six months of last year.

And that $452 million in sales earned Callaway $100 million in profit, a 22-percent profit margin. That sounds like a lot—and it is. But it’s only a $2-million increase in profits compared to Q2 of 2021 despite a $50-million increase in sales. We’ll discuss why that happened in a bit.

The Active Lifestyle segment is the new name for Apparel, Gear and Accessories. Sales topped $260 million in Q2 and $510 million year-to-date. Specifically, the TravisMathew, Jack Wolfskin, OGIO and Callaway brands all saw double-digit growth in Q2. Segment profitability increased 43 percent compared to 2021.

Some Interesting Specifics

Callaway club sales hit nearly $368 million in Q2 (up 15 percent over last year) and $738 million year-to-date. And while Callaway is reporting a modest 3.4-percent increase in Q2 golf ball sales, its year-to-date sales of $182 million are up 28 percent from last year. The company says the most recent Golf Datatech numbers put Callaway at a 21-percent market share.

Callaway’s U.S. sales jumped 25 percent in Q2 but it’s the year-to-date numbers that are staggering. According to the report, U.S. sales for the first six months of 2022 stand at $1.5 billion. That’s a 46.5-percent jump over the same period in 2021. Golf Datatech reports Callaway is still the No. 1 brand in hard goods and it would appear that it’s not by a little.

As you’d expect, however, the report focuses heavily on Topgolf. Callaway has opened five new Topgolf centers this year, including facilities in El Segundo, Calif., and Seattle, Wash., in Q2. The Seattle venue is interesting in that will serve as a model for select markets moving forward. It features golf simulators in a larger, more open lobby and includes a Callaway fitting studio. Seven more Topgolf venues are slated to open this year.

It’s obvious the Topgolf and Golf Equipment segments will both fly past the $1-billion mark in sales this year. What’s new is that Callaway is also expecting the Active Lifestyle segment to reach $1 billion.

As a result, Callaway has shifted its 2022 sales projection up to $3.97 billion.

“Earlier this year, there was a lot of concern about a reversion in golf consumption,” said Brewer. “Perhaps a small reversion will come at some point and perhaps it will not. And if there is a reversion, I for one would expect it to be modest.”

Q2 Financial Reports: Acushnet Stays Steady*

As always, Callaway’s reports are designed to generate headlines. Acushnet, just as true to its own DNA, is a bit more reserved. And its numbers are smaller than Callaway’s but, then again, we are talking about billions.

Acushnet reports Q2 sales of $658 million, a 5.4-percent increase over last year*. Year-to-date sales stand at $1.254 billion*, nearly a full billion dollars behind Callaway but still impressive as hell.

Acushnet is still posting healthy profits: $66.5 million* for Q2 and $147.5 million* year-to-date. However, the Q2 profits are down 18 percent from last year while year-to-date profits are down 11 percent. And, unlike Callaway, there’s no artificially high profit number from last year to explain it away.

The answer can be found in all those asterisks.

First of all, Acushnet, much more so than Callaway, seems to have been struggling with supply chain issues, particularly with materials needed for its golf balls. Additionally, currency exchange rates have caused more havoc with Acushnet’s numbers than Callaway’s.

Constant Currency

In its Q2 financial reports, Acushnet presents its numbers in two ways. The first is in Generally Accepted Accounting Principles, which is straight dollar figures. The second is in what’s called Constant Currency. That’s a reporting technique used by corporations to eliminate the effect of foreign exchange rates on financial performance. Specifically, the U.S. dollar has been strong compared to foreign currencies so far this year. That’s good if you’re an American traveling abroad but it devalues sales for a U.S. company with significant sales overseas.

Acushnet CEO David Maher aptly calls it “currency headwinds.”

For example, Acushnet posted a 0.5-percent decrease in Q2 ball sales. However, when adjusted for Constant Currency (meaning currency values are considered to be the same as last year), ball sales actually grew just over three percent. For the quarter, ball sales topped $201 million, compared to Callaway’s Q2 ball sales of $84 million.

Additionally, Acushnet is reporting a 7.5-percent increase in club sales in Q2 (over 12 percent in Constant Currency), due to the new T-Series irons, SM9 wedges and Phantom X putters. Titleist Golf Gear and Accessories sales were up 6.3 percent in Q2 (12 percent in Constant Currency) due to higher volumes in everything but bags, as supply chain issues continue to dog the bag business.

FootJoy continues its excellent run with sales up eight percent in Q2 (nearly 14 percent in Constant Currency)

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Year-To-Date Performance

Acushnet says sales for the first half of the year are up nearly five percent or 9.1 percent in Constant Currency. Of concern is a 3.4-percent decrease in U.S. ball sales and a 2.9-percent drop in global ball sales. Again, Acushnet has struggled with raw material shortages.

Net sales outside the U.S. are up 6.3 percent year-to-date (15 percent in Constant Currency), although Titleist Gear Sales are essentially flat due to those supply chain issues. Globally, FootJoy sales are up nearly 16 percent (21 percent in Constant Currency).

As mentioned, Acushnet’s Q2 and year-to-date profit numbers have those asterisks attached. Q2 profit of $66.5 million, while healthy, is down 18 percent from Q2 of last year. And the year-to-date profit of $147.5 million is down 11 percent from 2021. Constant Currency certainly plays a role but a closer examination shows the reality of international business in 2022.

On Acushnet’s income statement we find that, while Q2 sales increased nearly $34 million over last year, the Cost of Goods Sold (material and component costs plus direct labor) increased disproportionally, by $24.5 million. That number no doubt reflects higher costs for materials and shipping, both of which will give your gross profits a knuckle sandwich. Add to that a nearly $29-million increase in Selling, General and Administrative costs, and you wind up with a drop in the quarterly net profit compared to last year.

Q2 Financial Reports: What Does It All Mean?

Is it fair to say that so far in 2022 Callaway is cruising while Acushnet is on cruise control? Well, that’s a yes—but with yet another asterisk. It was clear as early as last year that Callaway was better prepared for the global supply chain crunch and its sales reflect that. And it shouldn’t be a surprise that a worldwide urethane shortage would hit the golf industry’s largest user of urethane the hardest.

Still, Acushnet is projecting that 2022 sales will wind up higher than it originally expected, to between $2.2 billion and $2.25 billion, up from the previous estimate of $2.17 billion to $2.22 billion.

Struggling? We’re talking about sales over $2 billion in sales with a still healthy profit. The situation may not be ideal but anyone in manufacturing in 2022 would probably take it.

Unless, of course, you’re Callaway. Then you take your own numbers.

Callaway predicts it will approach $4 billion in sales this year, and that all three of its business segments will top the $1 billion mark. If we do slide into a recession, Callaway is confident it can ride it out.

“A recession-driven pullback in consumer spending is an ongoing risk,” Brewer told investors last week, “but we have strong momentum in our business segments and, based on the historical data we have, our segments overall are not highly sensitive to a mild recession.”

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