Let’s look at three different ways to participate in the industry as an investor: a golf equipment company on the comeback trail; a huge sportswear and equipment company that sells across many sports, including golf; and an aggressive and innovative sports-equipment retailer.
Is Callaway still deep in the rough?
Callaway Golf Co (NYSE:ELY) reported improved results in the first quarter of 2013 compared to the previous year. Sales and gross margin percentage both rose, while operating expenses declined. More than half of its sales now come from outside the U.S., reflecting the rapid growth of the sport in places like Asia. Net sales for the quarter were $288 million compared to $285 million in 2012. This appears to be a miniscule increase, but currency rate fluctuations had a significant negative impact on sales. In addition, Callaway Golf Co (NYSE:ELY) sold two of its golf equipment brands in 2012, Top-Flite and Ben Hogan, so the company had to make up for those lost sales by stepping up its game with the brands it is focusing on now. In early 2013, Callaway’s sales were buoyed by the successful introduction of two new lines, the X Hot Woods and Versa putters. Callaway Golf Co (NYSE:ELY)’s gross margin showed a healthy increase, from 43.6% to 45.3%. The company seemed especially proud of the success of its cost-reduction initiatives. If you’re wondering what a cost-reduction initiative is, just ask your neighbor down the street who was laid off two years ago and still hasn’t found a job. In total, Callaway slashed operating expenses by $6.2 million.
Net sales of its products in the U.S. were up a brisk 7% year over year. Golf ball sales increased just slightly from $42.5 million to $43.0 million. I would imagine this is due to high handicap golfers hitting fewer than expected balls into water hazards (wouldn’t it be fun if companies included reasons like this in their analysis of results?). Net income was up nearly $10 million. Yes, Callaway Golf Co (NYSE:ELY) is out of the rough, but it’s not exactly on the green putting for eagle with one of its popular new Versa putters.
Mighty, mighty Nike
NIKE, Inc. (NYSE:NKE) offers products that span many sports and are marketed to appeal to customers who want to play these sports better, want to improve their health and fitness, and want to look good – wearing the sportiest sports fashions – while doing it. This company’s fiscal year ends May 31, In April it announced excellent third-quarter results. Revenues rose 9% compared to the same quarter last year, topping $6 billion. That’s right $6 billion. If you’re thinking that’s a heck of a lot of shoes, you’d would also be correct – NIKE, Inc. (NYSE:NKE)’s footwear segment had revenues of $3.7 billion. To me, one of this company’s signature accomplishments in golf was bringing flair to golf footwear. Just because you play badly doesn’t mean you shouldn’t try to look good. Being known as a snappy, trendy dresser on the links can actually help distract your opponents from noticing you have a really, really awful swing.
Nike certainly had snappy profits in the third quarter. Net income from continuing operations rose 16% compared to the previous year. Roughly 60% of the company’s revenues came from footwear and 25% from apparel. The star performer in year to year revenue growth was their equipment segment, which rose 23% — but still only accounted for about 5% of total sales.
The remaining 10% of its sales came from a category called “other.” When analyzing potential investments, I always look for companies whose “other” category is performing well. No matter what the economic conditions, “other” offers an opportunity for growth that should not be underestimated.
America’s favorite sport: Shopping
What would you say about a retail company that was able to expand from 355 stores at the end of 2007 to 518 in 2012 – a 46 percent increase? It would be that rare corporation whose executives take a long-term view rather than cowering in the face of the Great Recession. A management team with guts, in other words. Dicks Sporting Goods Inc (NYSE:DKS) clearly earned that distinction. In its 10-K filed March 22, the company says the potential for significantly more growth is there – to 1,100 stores in the U.S. It intends to open 40 more stores in 2013. It also plans to spend more than $250 million on capital projects this year, with particular emphasis on upgrading existing stores to provide a more exciting shopping experience.
