Exclusive: Callaway Golf CFO Speaks with Leverage Equity

Leverage Equity Research was able to talk to Callaway Golf (NYSE:ELY) CFO Robert Julian today about the future of the golf industry.  With Nike’s recent exit from the golf business, Callaway has become a clear choice as a beneficiary of Nike Golf’s departure.  Callaway’s stock climbed over 10% since the news broke in early August.


Nike Looks to Under Armour for Golf Strategy

Callaway is ripe to benefit from Nike’s $700+ Million golf segment.   This figure is a bit misleading however, around $175M of Nike Golf represented Golf Equipment, which Nike announced they would stop making.

Nike will continue to make golf apparel and shoes, which remains a strong business. Golf apparel is a fashion staple that is relevant to not only golfers, making apparel an important segment for any golf brand. While we have speculated that Under Armour Inc </b>(NYSE:UA) might follow in the footsteps of their competitor and build a golf brand around their new star Jordan Spieth, the opposite has happened.

“Nike has looked at Under Armour and taken a page from their book, if you are a company that makes your bread and butter from apparel its best to stick with that strategy. It validates the fact that golf equipment is best lefts for the experts” Callaway Golf CFO Robert Julian told Leverage Equity Research in an exclusive interview.


Nike Golf was never a particularly influential brand from an equipment standpoint; the clubs lacked the technology and innovation to be a viable golf equipment brand. Golfers are particularly astute when it comes to equipment and are not easily fooled.

“Golfers are sophisticated, they know the difference between good product and bad product. Nike never had higher than a single digit market share. It was never a successful venture for them. They wanted to sell apparel, footwear, and headwear” said Julian.

As the global leader in golf equipment, Callaway is well positioned to take Nike’s Golf Business.

“From a golf equipment sales perspective, we have the largest market share, we have tremendous momentum. We feel we should get more than our fair share of Nike’s business” Added Callaway CFO Robert Julian.

Golf Ball is the Key to Success


Callaway has also been making some serious headway in the golf ball business. The company is now the clear #2 in the industry, with a 15% market share. Golf balls are an important segment for any golf brand because they are considered consumable goods and need to be replaced often. It is likely for this reason that clear golf ball market leader Titleist has announced an upcoming IPO.

“I think it will be interesting to have another golf company in the public domain, we are not surprised that their gross margins and operating income is better than ours because of their mix of product. Our highest margin of business is golf ball; their business is heavily skewed to golf ball. “ Said Julian

Callaway’s Chromesoft ball has been a major factor in its rise as a viable competitor to Titleist near monopoly on the #1 spot, with its revolutionary Pro V1 product.




 The sentiment about golf as whole has been quite negative recently. Many reports suggest that millennials are not interested in golf and that the sport is not growing since Tiger Woods absence from the game.

New golf entertainment venue Topgolf has played a key role in exposing new players to the game however. ““The majority of people that go to top golf, are not golfers, and that’s great” said Julian.

Callaway now has a key 15% stake worth an approximate $212M in implied value. With Topgolf Callaway has diversified itself from simply a product manufacturer.

Topgolf has already produced impressive returns for Callaway, over 400%, and is set to experience more growth in the future. Callaway recently sold a 3.5% stake in TopGolf to Providence Capital Partners and got back nearly half of its initial $54 Million Investment.

Topgolf plans to open 10 new venues per year and is planning an international expansion in Asia, Europe, and Australia.   Topgolf is a private company worth a reported $1.3B.

In regards to Topgolf’s valuation, “when a company like Providence Capital Partners getting into the business, they don’t think that is the starting value ($1.3B) that is the end value “ said Robert Julian.

With the big names Nike and Under Armour taking no interest in the golf equipment, it poses the question if golf equipment remains a viable business.

Callaway remains optimistic about the future of the golf and believes that the company has made some gains that have yet to be reflected in the company’s results.

“There is certainly a good viable business in the equipment business, there has been some head winds that have masked the performance and improvement in regards to international currency. One the company gets some wind at its back, those results will be reflected in our performance” said Julian.