Q1 Monetary Stories: Acushnet and Callaway
Lost in this week's big TaylorMade news is the fact that the other two golf leaders released remarkably strong financial reports for the first quarter. Both Callaway and Acushnet blew COVID-infected Q1 2020 results. What makes it interesting is that both companies topped their pre-COVID 2019 numbers.
And not even a little.
Acushnet reports $ 581 million in revenue for the first quarter. That is 42 percent more than 2020 and 34 percent more than 2019. Callaway meanwhile says it hit $ 652 million in the first quarter. That's a new company record for the first quarter. This corresponds to an increase of 47 percent compared to the previous year and an increase of 26 percent compared to 2019.
In addition, both companies reported healthy net earnings.
There is no doubt about that. The golf business is hot right now.
Q1 Financial Reports: Acushnet
Acushnet ended 2020 by regaining its number 1 title in golf. It even made a COVID-reduced net income of $ 96 million for the year. The momentum in the second half of last year shows no signs of slowing.
"Acushnet is off to a promising start to 2021 as demand for all Acushnet product categories is strong and the game continues," said David Maher, President and CEO of Acushnet, in the company's first quarter financial report press release. "Revenue growth across all segments was driven by our product development teams and the excellent execution of our operations team, keeping pace with strong consumer demand."
Titleist clubs and balls went ahead. Club revenue rose 67 percent from the first quarter last year to $ 156 million. The new TSi Metalwoods and Scotty Cameron Phantom X putters caused a stir along with higher sales prices across all categories. However, Vokey wedge sales were down in the first quarter, largely due to the fact that the line is in year two.
Titleist golf ball sales increased nearly 50 percent from the first quarter of 2020 to $ 174 million. The new Pro V1 line triggered this increase.
In addition, Titleist Gear sales (bags, hats, accessories) were $ 53 million, up 22 percent year over year. FootJoy's sales were $ 159 million, which is also an increase of 22 percent.
Regionally, sales in the USA rose by 46 percent compared to the previous year. Sales in Japan and Korea rose 50 percent and 57 percent, respectively, and what Acushnet calls the rest of the world rose 61 percent.
However, Europe still spent the first quarter in various phases of lockdown. However, sales there had risen in the Q1 financial report just by eight percent.
Profits and specials
While the end result is impressive, the end result will make investors smile. Acushnet reports net income of $ 85 million for the first quarter. That's an insane 855 percent increase over earnings of $ 9 million in Q1 2020. It's an even crazier increase of 144 percent over earnings before COVID 2019 in the first quarter.
Acushnet's EBITDA for the first quarter (earnings before interest, taxes, depreciation, and amortization) was $ 135 million.percent Jump over 2020 and an increase of 111 percent compared to 2019.
Like any other OEM, Acushnet is riding the new wave of popularity in golf. Selling new metal timbers and balls will certainly help. And while numbers are difficult to be precise, the lack of a PGA merchandise show this year, as well as general travel restrictions, must have played a role in controlling costs. Acushnet's selling, general, and administrative expenses (including marketing, travel and entertainment, sales commissions, programming, and other overheads) were higher this year than last year. However, it was only a minuscule increase of $ 23,000, considering actual sales are up 42 percent.
Acushnet saw the writing on the wall last year and was preparing for the worst. At the end of the first quarter of 2020, the company made sure it was cashless in order to handle the impending lockdowns. Acushnet reports just over $ 113 million in cash this year (up from $ 151 million last year). In yet another sign of a recovering golf economy, demands have increased by more than 48 percent. That means retailers and accounts stock up on green grass.
With new irons on the horizon for 2021 and the US and eventually Europe emerging from COVID-related restrictions, there's no reason to believe that Acushnet can't beat its 2019 numbers.
Q1 Financial Reports: Callaway
As mentioned earlier, Callaway reports Record sales of $ 652 million in the first quarterThis is an increase of 47 percent over the first quarter of 2020. Callaway also reports net income of $ 272 million for the first quarter. However, this requires an asterisk that we get.
"Our golf equipment business continues to experience unprecedented demand as our soft goods and top golf businesses are recovering from the pandemic faster than expected," CEP Chip Brewer said in a prepared statement. "We believe that our three operating segments are well positioned both for the current environment and for our expectations for the next few years."
The Callaway and Topgolf merger officially became official in March, so Callaway's Q1 financial data includes four weeks of TopGolf earnings. This move prompted Callaway to create three specific businesses: Golf Equipment, Apparel & Equipment, and Topgolf. Golf equipment sales (clubs and balls) were over $ 377 million for the first quarter. Of that, club sales accounted for $ 316 million, up 26 percent from Q1 2020, while ball sales were nearly $ 61 million. Ball sales were up 50 percent year-over-year, but Callaway is still light years behind Titleist's quarterly numbers of $ 174 million.
Apparel and equipment sales were $ 182 million for the first quarter, an increase of 21 percent. That was an almost even division between garments (Callaway brand, TravisMathew and Jack Wolfskin) at $ 95 million and gear (bags, gloves, and accessories) at $ 87 million.
Regionally, sales in the USA rose year-on-year by a whopping 78 percent to $ 388 million. Unlike Acushnet, Callaway sales actually dropped in Japan by seven percent. As with Acushnet, sales in Europe were sluggish but made it to grow by 12 percent. Sales in Callaway as Rest of the World rose 64 percent.
Profits and specials
Remember the asterisk attached to Callaway's reported net income of $ 272 million in the first quarter that we mentioned a few paragraphs ago? Thanks to some necessary accounting maneuvers, this is really a win on paper. Callaway's Q1 profit from operations is not-too-shoddy $ 76 million. The rest is due to the merger of Topgolf. Callaway already owned 14 percent of Topgolf, and the merger deal itself was worth nearly $ 2.5 billion when Callaway thought it would all Topgolf's debts.
As a result of the transaction, Callaway's 14 percent stake increased in value by $ 253 million and had to be included in a valuation statement. This is shown as a non-cash profit in the Q1 report. So yes it is a on paper Profit, but Callaway is still paying tax on it.
In terms of the segment, Golf Equipment posted a profit of nearly $ 85 million in the first quarter. That's 45 percent more than last year and 20 percent more than Callaway's pre-COVID 2019 profits. Apparel, gear and miscellaneous profits totaled nearly $ 20.5 million. This corresponds to a decrease of seven percent compared to 2019, an increase of almost 640 percent compared to the previous year.
Four months of Topgolf ownership resulted in more than $ 92 million in income and nearly $ 4 million in profit.
It all adds up to more than $ 109 million. This is offset by various costs, including the liquidation of assets related to the acquisitions of Jack Wolfskin and OGIO and transactions totaling $ 17 million costs in connection with the TopGolf merger.
Callaway reported an adjusted EBITDA of $ 128 millionThis corresponds to an increase of 115 percent compared to the previous year.
Q1 Financial Reports: What Does It All Mean?
That the golf equipment business is booming may be the biggest moron Statement that you will read all week. Golf Datatech reports that equipment sales across the industry increased 72 percent from the first quarter of last year and up 49 percent from 2019. This made the past quarter the highest Q1 in its history and the third quarter in a row with record sales.
Both Callaway and Acushnet (and presumably everyone else) are way ahead of their pre-COVID sales pace in 2019. As the old saying goes, you make your hay while the sun is shining and right now the sun is as bright as it has been since the tiger boom.
Acushnet and Callaway do not offer investment advice, but both appear optimistic on 2021. Acushnet expects full year revenue between $ 1.8 billion and $ 1.87 billion. Callaway doesn't offer specific forecasts, but the company anticipates sales and EBIDTA for its legacy businesses (excluding Topgolf) will exceed 2019 levels. The company also expects the new Topgolf business area.
And only In the event Callaway has a shipload of cash and $ 713 million in credit available.
Global problems in the supply chain lurk for both companies. According to Acushnet, supply chain disruptions caused bottlenecks in various raw materials and increased freight costs in the first quarter. Callaway says supply chain, logistics and workforce challenges remain. However, the company believes it is poised to meet anticipated demand.
And the share prices of both companies reflect the strong market. Callaway stock opened this morning at $ 32.58 per share. A year in front, it was at $ 11.50. Acushnet shares opened today at $51.35 per share. Last year around that time it was $ 27.12.
Some top golf tidbits
Obviously, the Topgolf merger is the big story for Callaway this year. As mentioned earlier, Topgolf raised $ 92 million in just four weeks. Topgolf's Top Line has grown steadily over the past five years and is almost 20 percent annually. Oddly enough, the end result was a little more stubborn. SEC filings show that Topgolf actually doesn't need to make a profit just yet.
This is not necessarily a sign of impending doom as the company has been in a state of constant expansion and reinvestment during this period. In fact, two new venues opened in the first quarter (Lake Mark, Florida, and Albuquerque, New Mexico) and three more opened that quarter (San Jose, California, Waco, Texas, and Buford, Georgia). Eight more are planned to open this year.
Despite COVID, all Topgolf venues worldwide are now open, although many have limited capacity. Callaway reports that walk-in traffic continues to be strong, attracting the small to medium-sized events business.
By and large, Topgolf puts Callaway in a whole new corporate stratosphere. Topgolf's projected annual revenue slightly exceeds $ 1 billion. Callaway alone was over $ 1.7 billion in 2019, and it's not hard to imagine that the new Callaway could generate $ 3 billion in sales, if not this year then certainly by next year.
Acushnet was number 1 in golf for years. It lost the title to Callaway in 2019, only to regain it in 2020. With the addition of Topgolf, no one will be able to challenge Callaway for the foreseeable future unless it involves a major change or key takeover.