What This Golf CEO Says Can Help Turnaround the Industry
Callaway Golf (ELY) CEO Chip Brewer is playing the long ball off the tee, looking past near-term hazards such as Wall Street’s quarterly estimates. He’s looking to rebuild the company’s stature and stock price.
The last public, pure-play golf gear maker missed some analysts estimates for its first quarter but it raised its full-year forecast.
Brewer says investors are discounting his company and what he sees as a turn in the golf business. Since he took over in March 2012, the company has regained a leadership position in golf club sales and the stock has run by some 25%.
The longtime golf gear executive shared his insights on Callaway’s health and the state of the game in a wide-ranging interview with Fortune for National Golf Day:
Fortune: There have been numerous stories proclaiming the death of golf the past few years. What’s the state of the game from your perspective?
Brewer: Clearly golf has had a rough patch starting with the great recession, which makes total sense. It re-sized after that and a lot of the talk has been too negative.
The industry and the game are strengthening; not every metric or every company is moving in that direction, but the vast majority of the metrics indicate they are becoming more and more positive.
Fortune: How does Callaway position itself in a difficult market?
Brewer: The market’s been difficult and we’ve bucked that trend. We’ve gained more than 50% market share over the past few years.
Now we’re the leader in the U.S. based on dollar sell-through of all clubs [for 2015].
Callaway is #1 in sales of irons, putters, fairway woods, and hybrids.
Our business and brand are healthier and in a stronger position than they were four years ago. We’re pretty bullish about the future of this company and we’re also comfortable with the direction of the game right now.
It’s not promotional like it was a few years ago.
There’s much more reason for optimism. It’s a reasoned optimism, we’re not talking double-digit growth yet, but we are talking a very stable, improved environment. The demise of golf is not a reasonable call at this point.
Fortune: Callaway’s stock seems to have stiff resistance just above $10/share. Is the market undervaluing Callaway’s potential given that you raised your sales and profit forecasts for this year?
Brewer: I absolutely believe the market undervalues Callaway’s potential, part of it is the negative sentiment around golf right now. There’s been so much press about the demise of golf and so much of it’s founded on bad data or sometimes, historical data. I think we’re showing our ability to grow this brand and be very strong operators and that is the kind of opportunity investors may enjoy finding—when trends change in industries or companies and they’re not fully appreciated because the other voices might be louder. Our record’s pretty good in this environment and I think the environment is underrated.
Fortune: What do you think about Adidas putting up for sale your rivals and neighbors in Carlsbad, California, TaylorMade, Ashworth, and Adams Golf—where you were CEO before Callaway?
Brewer: I think it’s an interesting strategic decision. They’re good brands, which I have a lot of respect for. Adidas clearly made a strategic decision they believe is in their best interest.
Fortune: Might there be some M&A in Callaway’s future?
Brewer: We don’t speculate on any hypotheticals, we look for the best options for shareholders.
We are looking at additions, some outside opportunities for growth. The company’s in great financial position, we have no debt and are in a wonderful position in a business that’s improving in a challenging industry.
Fortune: Callaway tour pros swept the first two Major tournaments–Danny Willett winning The Masters and Lydia Ko winning the LPGA’s ANA Inspiration with your clubs. How much does that help your business at retail?
Brewer: It has a nice, positive impact. We spend a lot (on the relationships) and hope for opportunities like that. Danny Willett’s win in the Masters was very good for our brand. We saw a little bit of a pickup in sell-through the week after that, but any one event is not impactful. It’s the convergence of multiple things. I like to talk about business as a symphony and all areas of the business have to combine in a harmonious manner to make beautiful music.
Fortune: Callaway’s collaboration with Boeing helped spawn the XR 16 Driver. How did Boeing help with design?
Brewer: The driver’s Speed Step Crown, one of the big breakthroughs, we learned how to put it on and where to put it on. A little too tall makes it worse, a little too far back makes it worse. It’s one of the cooler partnerships and the products, the XR 16 driver in particular, have been great. I know part of that success is because of the Boeing input.
Fortune: Where’s the biggest potential for near-term growth?
Brewer: The golf ball has the greatest absolute percentage growth potential. We made money in golf ball for the first time in 2013. Now we’re starting to see nice growth, we’re #2 in the category.
Fortune: Many people would say you’re pretty lucky, working in the golf industry. How often do you get out and how has your handicap faired since taking the reins at Callaway?
Brewer: I play almost every weekend, my son loves the game and we play. My vocation is also my passion; I’m very lucky that way. My current handicap is 2.5; it got worse when I started here but it’s getting a little better lately. It’s inversely correlated to our market share and the stock price. One goes down when the other goes up.