Last year’s pandemic was particularly devastating to the athletic industry, as social distancing guidelines and other restrictions brought many major sports to a standstill, notes Mike Cintolo, editor of Cabot Top Ten Trader.
But golf proved fairly immune to the slump, and according to the National Golf Foundation, the number of rounds played in the U.S. last year increased 14% from 2019, with that figure up 24% year to date.
Callaway Golf (ELY) is a global sports equipment maker specializing in golf clubs and balls, as well as accessories such as bags, gloves and caps.
Underscoring golf’s resilience was Callaway’s recent eye-popping Q1 earnings beat (a reason for the strength), which blasted past expectations and sent analysts scurrying to upgrade their outlook.
Total sales of $652 million increased 47% in the quarter (15% above consensus), while per-share earnings of 62 cents nearly doubled from a year ago.
Golf equipment segment revenue rose 44%, while apparel and gear revenue rose 21%. The company indicated that its legacy golf equipment business is seeing “unprecedented demand” while its apparel segment and Topgolf entertainment unit (acquired earlier this year) have recovered from the pandemic faster than expected.
Moreover, analysts believe Topgolf could become a top revenue producer for Callaway down the line. (We believe it—if you haven’t been to one it’s good fun.)
The company provided loose guidance for 2021 revenue to exceed 2019’s (healthy) levels, while analysts are forecasting eye-watering top-line growth of 76% for the full year.
Looking ahead, management said it expects to leave the pandemic period with a much bigger addressable market and anticipates last year’s strong momentum will persist this year and next. We like it.
Technically, the recovery from ELY’s slump following the halcyon years of the late Nineties was long and slow; topping at $38 back in 1997, shares ground lower for years until finally bottoming at $5 in 2009 — a level that has been hit, but not broken, three times since then (most recently at last year’s pandemic bottom).
ELY gradually rebounded from last year’s low, suffered a setback October, then broke sharply higher in November when economic reopening hopes picked up. Better yet, shares took three months to rest starting in February, but the recent big-volume, earnings-induced pop bodes well. We’re OK buying here.
