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Exclusive: Callaway Golf CFO Talks Nike's Exit And Its Impact On The Business

Exclusive: Callaway Golf CFO Talks Nike's Exit And Its Impact On The Business - Callaway Golf Company NYSE:ELY, Nike, Inc. NYSE:NKE

The news of Nike Inc's NKE 0.13% departure from golf shook the industry. Nike Golf's exit has investors and golf fans alike wondering what companies will stand to benefit.

Callaway Golf Co ELY, the only pure golf play in the market, hit new highs after news of Nike's exit. It appears Callaway is ripe to benefit from Nike's $700 million golf segment. From this figure, around $175 million represented golf equipment, which Nike announced they would stop making.

Nike will continue to make golf apparel and shoes, which remains a strong business. Some analysts speculated Under Armour Inc UA 1.49% might follow in the footsteps of its competitor and build a golf brand around new star Jordan Spieth.

"Nike has looked at Under Armour and taken a page from their book. If you're a company that makes your bread and butter from apparel, it's best to stick with that strategy," Callaway CFO Robert Julian told Benzinga. "It validates the fact that golf equipment is best left for the experts."

Nike Impact

Nike Golf was never a particularly influential brand from an equipment standpoint; the clubs lacked the technology and innovation.

"Nike never had higher than a single digit market share," said Julian. "It was never a successful venture for them. They wanted to sell apparel, footwear and headwear."

The company believes it will be the single biggest beneficiary from Nike's departure.

"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 Julian.

Ball Is Key To Success

Callaway has also been making serious headway in the golf ball business. The company is now No. 2 in the industry (behind Titleist), with a 15 percent market share. Golf balls are an important segment for any brand because they're considered consumable goods and need to be replaced often. This may be why Titleist announced an upcoming IPO.

"I think it will be interesting to have another golf company in the public domain," said Julian. "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."


The sentiment about golf as whole has been negative recently. Many suggest millennials aren't interested in golf and that the sport isn't growing with Tiger Woods absent from the game.

A bright spot for bringing in new golfers has been new golf entertainment venue, Topgolf, a private company worth a reported $1.3 billion. Callaway now has a key 15 percent stake worth an approximate $212 million in implied value. With Topgolf, Callaway has diversified itself from simply a product manufacturer.

Callaway recently sold a 3.5 percent stake in Topgolf to Providence Capital Partners and got back nearly half of its initial $54 million investment.


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

"There has been some headwinds that have masked the performance and improvement in regards to international currency. Once the company gets some wind at its back, those results will be reflected in our performance," said Julian.

© 2016 Benzinga does not provide investment advice. All rights reserved.