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Jacob Maslow
Jacob Maslow
Articles (168)  | Author's Website |

Callaway Golf Down Over 12% in December; Should Investors Be Worried?

Recent purchase of Jack Wolfskin and strong 3rd-quarter financials should ease investor concerns

December 21, 2018 | About:

Shares of Callaway Golf Co. (NYSE:ELY), a sports equipment company, have tumbled 12.66% between since the start of December to Dec. 19.

The stock is down since announcing the $476 million acquisition of Jack Wolfskin, a German active wear brand. But the acquisition, made as part of a plan to help the company expand, is not the reason for the stock’s plunge in December. Rather, it has gone the direction of the broader markets, which have been steadily declining all month, marking the worst December showing since the Great Recession.

Callaway’s stock has performed well overall despite its December slump, rising over 10.94% year to date. Last quarter's financials also support the idea that the company’s slump is due more to market conditions than the company’s business. Third-quarter net sales have increased 8% to $263 million, and income from operations hit $11 million, up 77% compared to the same quarter a year prior. The golf company experienced sales increases from gear and accessories, which rose 29%, putters which rose 28% and balls which rose 14%.

Full-year guidance was also raised from a range between $1.21 billion and $1.225 billion to a range of $1.23 billion to $1.24 billion.

Better-than-expected results and an updated guidance are hopeful signs that the company will continue to grow despite its steady decline since November. Jack Wolfskin should help the company increase sales further, after the deal closes in the first quarter of 2019. Callaway has been successful in its acquisition of TravisMathew and Ogio in 2017, and management is hopeful that Jack Wolfskin will be a positive addition to the company.

Wolfskin had net sales of $380 million in the fiscal 2018 year ended Sept. 30. Ebitda is expected to be $33 million, with estimates of growth to $50 million in the next three to four years.

Callaway’s acquisitions have helped the company position itself as a leader in the industry, and investors shouldn’t be concerned about the recent slump in its stock price.

Moody’s reinforced this sentiment when the credit agency assigned a Ba3 and Ba3-PD rating for the company, showing a stable outlook even with the recent acquisition. Investors will want to focus on Callaway’s apparel business, which has the highest risk of volatility going into 2019. Moody’s is likely to upgrade the company’s rating if the apparel business is able to demonstrate that they can produce successful financials.

Disclosure: The author has no stake in the listed equities.

About the author:

Jacob Maslow

Jacob Maslow is a writer who began his career as a payroll manager. The same affinity for numbers that originally led him to an early career in accounting now comes in handy when it comes to understanding and working with marketing analytics.

A native of New York, Maslow is now based in the Middle East, where he lives with his wife and five children and provides high-quality services to clients in a variety of industries, including the legal, medical and financial sectors.

In addition to his marketing and consulting work, Maslow has founded a variety of news websites, including Legal Scoops. He is a frequent contributor to a variety of publications including business.com and business2community.com.

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