Despite COVID, Callaway Golf Shows Profitable Business Plan

Chip Brewer, the CEO of Callaway Golf. (Photo: Callway Golf)

Callaway Golf CEO Chip Brewer yesterday evening gave Wall Street analysts a behind the scenes look at one of the more overlooked aspects of operations – that is the expense and timing incurred getting products shipped from Asia to the U.S. Most golf companies ship their component parts, such as shafts and club heads and even balls, from manufacturing plants in China and other Asia/Far East countries.

The Covid-19 pandemic has had what Brewer calls, “supply restraint,” on Callaway’s inventory capacity. In fact, Brewer said, the entire golf industry has been impacted by supply restraint as companies try to chase inventory levels to keep up with the strong late-third quarter and fourth quarter sales in a post-lockdown world.

“Inventory in the field for the entire clubs – this is (Golf) Datatech data, last year – had 5.2 months of inventory in the field at the end of December,” Brewer said.

“They have 2.2 months at the end of December for clubs in the industry. And the entire industry will be in chase mode. And our inventory in the field is slightly below that 2.2 in the same club category. So, it is not specific to a golf ball or a club or a bag, but a reflection on what is really unprecedented demand.”

To dig a bit deeper, Brewer said, a container to ship from Asia to the U.S. traditionally has been approximately $1,300 for Callaway.

“Those spiked in Q4 and currently could be $10,000,” Brewer continued.

Callaway is absorbing those increased costs that will be mostly through the first half of the year and not a long-term issue.

“This is a simple supply/demand equation and the fact that the surge in exports — it’s across all industries,” Brewer said. “It is not a golf-specific issue. Our big customers are experiencing the same thing. It is just an effect of the Covid environment.

“You’re seeing related things, in terms of the logistics and transportation networks, across the globe struggle as the Covid situation unfolds. The ports in California are backed up. There are 30-some ships lined up outside of Long Beach trying to unload. The efficiencies of unloading are slower.

“We can’t staff our DCs (distribution centers) as efficiently because we don’t know when the product is going to show up. But we have to have the people there. Our factories are having issues with regard to staffing levels in various parts of the plant calling in with Covid or restrictions in terms of how we operate the plant.”

Callaway Golf, Brewer said, is working through all of those issues:

“All of those are what I believe just short-term issues. If you go post-Covid, they go away. But they are a related party of some of this long — strong surge and the unique environment we’re in right now, and it will impact the business in the short term.”

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