Callaway (ELY) could profit from the coming golfing boom

I come to you bearing news of Callaway (ELY), a stock that most of you probably don’t have your eye on. It isn’t big tech, it isn’t a massive short squeeze opportunity, it’s golf. Now, given that the majority of you likely haven’t seen the sun in the last 3-4 years, you might be wondering “who actually goes golfing?”.

Well, according to The National Golf Foundation a lot of people are golfing recently. While major airlines, restaurants, and Mickey Mouse’s kingdom burned to the ground during 2020 lockdowns, golfing took off like a rocket. The golfing boom wasn’t just isolated to the U.S., even countries like South Korea were having trouble keeping up with golfing demand.

With the times booked out across the world and equipment sales through the roof, things must look pretty good for Callaway, the largest golf manufacturing company in the U.S.?

A brand we’re all vaguely familiar with because our fathers refused to accept that we weren’t the next Tiger Woods.

Well, Callaway is no longer just Callaway. The company has been snatching up valuable assets left and right and building itself into a diversified, cash-printing behemoth. Callaway now owns the Jack Wolfskin and Travis Matthew apparel brands, but most importantly TopGolf (more on this in a bit).

Last quarter, Callaway pulled in an EPS of 0.62 from its golf equipment and apparel business ALONE. This shattered analyst EPS estimates by over 400% and caused the stock to jump almost 20% in the following trading days.

Here are just a few highlights from that Q1 earnings report:

  • Golf equipment continues to experience unprecedented demand and our supply chain was able to capture more of that demand than we projected • 29% revenue growth vs. 2020, +$85M
  • Jack Wolfskin showed impressive resiliency despite European lockdowns, led by a 108% increase in e-commerce sales in Q1 2023 versus Q1 2020 and we feel increasingly confident in the future of this brand
  • TravisMathew continues to impress and presents an even bigger opportunity than originally anticipated, led by a 145% increase in e-commerce sales in Q1 2023 versus Q1 2020 and a further strengthening across all channels
  • US retail sales of golf equipment were up 72% compared to Q1 2020 and up 49% compared to Q1 2019, the highest Q1 on record and the third consecutive quarter of record sales*.*

Needless to say, guidance was great and these acquisitions were smart moves by Callaway’s team, but that all pales in comparison to Callaway’s newest addition, TopGolf.

In March of this year, Callaway committed highway robbery and finalized its acquisition of TopGolf for $2.6 billion in stock. I say highway robbery because prior to the pandemic, TopGolf had explored the idea of going public with numerous valuations north of $4 billion. After the pandemic hit, TopGolf took a nosedive and needed a quick exit strategy. Callaway swooped in and acquired them for pennies on the dollar.

If you’ve ever had the pleasure of visiting a TopGolf you’ll understand why this acquisition was a brilliant move, but for the uninitiated here are some quick facts:

  • TopGolf generated revenues of 1.1 billion dollars in 2019 alone
  • Pro forma revenue of approximately $2.8 billion based on fiscal year 2019 results that is expected to grow to approximately $3.2 billion by 2023 and at approximately 10% per year in the years following
  • Pro forma adjusted EBITDAS of $270 million based on fiscal year 2019 results that is expected to grow to approximately $360 million by 2023 and at mid-to-high teens per year in the years following
  • TopGolf has been growing at an annual Compound Growth Rate of roughly 30%
  • Getting piss drunk with your friends and smashing balls into giant RGB rings is WAY too much fun

Bottom line is Golf is booming worldwide, Callaway acquired TopGolf for an absolute steal, Q2 earnings call on 8/9 will be the first quarter they include TopGolf revenue.

This article was written by u/-redeemed.