Callaway Golf: An Emerging Moat

Todd Sullivan presented his in-depth investment thesis on Callaway Golf (ELY) at Wide-Moat Investing Summit 2015.

Callaway Golf: The golf industry is essentially a duopoly. Taylor-Made (Adidas) and Callaway dominate the industry. With its purchase of Adams Golf, Taylor-Made took control of the industry from 2008-2013. In 2013, Callaway made some moves that reversed that trend and possibly began a fundamental shift in the golf business. (Callaway once dominated the golf industry until a series of missteps in the early 2000s caused it to yield that title to Taylor-Made. Two key problems were the elimination of the popular “Big Bertha” driver and the purchase of Titleist golf balls.) In 2012 Callaway hired Chip Brewer who had just finished the turnaround of Adams Golf (later acquired by Taylor-Made). Brewer is widely thought of as the #1 CEO in the golf industry. Since his hire, ELY sales increased 14% in 2013 and 5% in 2014. Taylor-Made saw sales increase 3% in 2013 and crater 28% in 2014 (Nike golf was flat). Brewer brought back the Big Bertha driver and expanded the brand into irons. In both 2013 and 2014 ELY began capturing significant market share. ELY currently trades at 0.85x revenue (if we include the 2015 TG revenue of 20%*$250 million, that drops to 0.73x).

About the instructor:

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. Todd’s blog at www.valueplays.net features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and CBNC. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”, the idea, Audiovoxx, was the top performing name over the following year. Todd also invests in start-up projects and is an angel investor in @Estimize , @milehiorganics and is a backer of “Follow Friday the Film” and “Money for Nothing: Inside the Federal Reserve.”

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