Callaway Golf Co., President Chip Brewer said the company is monitoring supply chain disruption due to the resurgence of the Coronavirus Delta variant. The resurgence, Brewer said, has not had any negative demand in locations yet, but it has caused further supply disruptions from factories based in and around Southeast Asia, primarily Vietnam.
“The safety of the people working in these regions is top priority and we are working with suppliers to make sure operating conditions are and remain as safe as possible,” Brewer said.
“We have become accustomed to adapting to these circumstances over the last 18 months and thus were able to shift some portion of our production to other less impacted factories.
“Still, given how lean inventories are already, the fact that nearly all our factories are running at a 100 percent capacity, and that we will need to shift production shortly towards next year’s launches to protect that supply, these shutdowns will have an estimated $55 million negative impact on second half revenues primarily in our golf equipment segment and primarily in Q3.”
That’s the bad news.
The good news, as Brewer sees it, is that the disruption is a short-term issue, not one that will have a long-term impact on Callaway’s value or strategy.
“I recognize this is a glass half-full view, we now believe field inventory levels will almost certainly stay lower than expected through this year,” Brewer continued.
“In many ways, (that) is a healthy market dynamic that bodes well for 2022.”
Callaway Golf reported record Q2 revenue of $914 million and earnings of $92 million. Topgolf, in its first full quarter of reporting under the Callaway umbrella, accounted for $325 million of that revenue and $24 million in earnings.
For the first six months of this year, Callaway reported revenue of $1.5 billion and earnings of $364 million. The company is forecasting total revenue in 2021 to reach $3 billion.
In Q2 of 2021, Callaway reported equipment sales of $320 million and ball sales of $81 million, each up significantly from a pandemic burdened Q2 of 2020. For the six months, Callaway’s club sales were $636 million compared to $407 million the same period of 2020. Ball sales the first six months of 2021 were $141.8 million vs. $94 million the same period of 2020.
“We’ve been just delighted with the amount of demand that we’ve seen in the golf equipment segment, completely unprecedented growth over what has been a year period of time now and has been new entrants, as well as a return of our core segment and just a very healthy situation,” Brewer said.
“Demand has been up 40 percent to 50 percent over this period of time.”
Brewer, however, said that some slowing in the near future is a “rational” expectation.
“We haven’t seen that yet – and the pure demand has been matching the 2020 levels,” he said. “I think there is no question that demand is going to remain strong at this stage, I think in the second half of the year it’s going to be constrained by supply.
“We won’t really get a picture of demand, but without a doubt, the market is considerably larger than it was at the end of 2019 and during 2020. The engagement of golfers is much higher. So, in terms of sustainability of that, I think that it’s showing that it is sustainable.”