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What is Callaway Doing Right?

It seems that everywhere you look, golf retailing stinks. Pure plays like Golf Galaxy and Golfsmith are sucking wind big time with no end in sight. Yet, Callaway, the venerable equipment leader, is doing quite well thank you very much. Why?

Unlike Golf Galaxy and Golfsmith who are only located in the United States market, Callaway is an international brand and can shift their marketing focus to countries that are growing like Korea, Japan and China. They can also benefit from currency exchange rates. Things don’t seem to be looking up for Golf Galaxy and Golfsmith, but it does for Callaway. Here are the most recent quarterly results (April/May) for each company:

Dicks/Golf Galaxy — Comparable store sales for Golf Galaxy on a 13-week to 13-week proforma basis decreased 8.8 percent, or 9.8 percent after adjusting for the shifted retail calendar. In contrast, the parent, Pittsburgh-based retailer Dicks Sporting Goods reported net sales of $3.89 billion, up 25 percent from $3.11 billion the previous year. Net income increased to $155 million compared with $112.6 million a year ago.

Golfsmith — For the quarter ended March 29, the company lost $5.4 million , or 34 cents per share, compared with a loss of $4.9 million, or 31 cents per share, a year ago. Revenue grew 2 percent to $79.2 million from $77.7 million, in the year-ago period. Golfsmith said its results came in below its expectations due in part to a decline in rounds played and the challenging economic environment.

Callaway Golf — Callaway Golf posted quarterly earnings that beat Wall Street estimates and said it now sees full-year profits at the low end of its previously forecast range. The company, which has been cutting costs and making its operations more efficient, said first-quarter net income grew to $39.7 million, or 61 cents per share, from $32.8 million, or 48 cents per share, a year earlier. Revenue for the quarter was $366.5 million, up nearly 10 percent. Among other things, Callaway said revenue got a boost from foreign currency exchange rates.

Golfsmith Expands its Virtual Footprint

Golfsmith, the leading golf equipment retailer is now providing the underpinnings of the EPSN.com website. They will be the official golf and tennis supplier of EPSN.com and will provide all the marketing, sales, fulfillment and administrative support as well as 30,000 golf and tennis products to the site’s 18 million monthly visitors. This is part of an ongoing effort by EPSN.com to capture more of their site visitors’ retail spending.

What I found interesting was that Golfsmith, without the need to open a new bricks and mortar store, can expand its online footprint. Like Amazon.com, which provides content and infrastructure and fulfillment to other websites like Borders.com and Target.com, Golfsmith is re-purposing its entire inventory to another audience, thus growing its incremental sales without having to make a huge investment. Likewise, ESPN.com can offer more “value”, in this case an online retail store, to its site visitors with little financial investment.

According to Alexa.com, the site ranking website, ESPN.com is the 38th most visited site on the web, while Golfsmith.com is at 15,559th. In comparison, GolfGalaxy.com is 96,559th and Dick’s Sporting Goods leads the pack at 7,127th.

Generally, online deals of this nature have a payout to a site like ESPN.com of 10-20% of gross sales. This seems like a win-win for both players in a slow growth market and another arena that a Golf Galaxy or a Dick’s Sporting Good should be playing in.

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