2002: One setback after another

How tough have the last 12 months been for U.S. golf equipment manufacturers and retailers?

Ron Drapeau, CEO of Callaway Golf, seems to speak for most of the industry when he says: “Every time we caught our breath after one shock wave, we got hit with another.”

First there was the economy, which was staggering through a recession, and inclement weather that put a serious damper on rounds played. Then take into consideration the fiscal and emotional trauma of Sept. 11 and the regulatory flip-flops by golf’s governing bodies that injected confusion into the market.

Acushnet Co. chief executive Wally Uihlein believes the past year has been one of his most challenging. And when Gilford Securities analyst Casey Alexander surveys retail sales from that period, he says “they look like the EKG of a dead man.”

But Alexander is quick to add that things are not quite as bad as they often appear. In fact, he asserts the industry has much to be positive about after weathering this longest year.

Consider, for example, the numbers from Golf Datatech LLC, the Kissim-mee, Fla., research and consulting firm, that show on- and off-course unit sales for golf balls the first six months of 2002 about equal to what they were for the same period a year before. And sales of woods are up slightly on a unit basis.

“Looking at things that way, you realize it hasn’t been that bad a year,” says Tom Stine, the company co-founder.

Barney Adams, chairman of Adams Golf, agrees.

“The golf industry is about where it was a year ago, which is not horrible considering all that has gone on,” he says. “If I had to rate it on a scale of 1 to 10 a year ago, I would have given it a 4. And that is the same rating I would give it today. The bad news is that we are still struggling as an industry. But the good news is that we held our own through some very difficult times.”

Golf was able to do that for a number of reasons. To begin with, the equipment business has been mired in a slump since 1998, so the past 12 months have not been that great a shock to the system.

“As a rule, lean times make companies stronger, and golf has been going through more than its share of lean times,” says Scott Hennessy, chief executive officer of True Temper Sports.

“I think it has also been a question of how the industry has responded to things since last September,” says Alexander. “It responded very quickly with price cuts, for example, which helped keep sales and inventories moving at fairly critical times.”

Those sales, however, have not been moving up much, at least not in the United States.

“Overall, our company has been doing well, and our top line business should grow about 10 percent this year while our bottom line rises even higher,” says Mark King, CEO of TaylorMade-Adidas Golf. “But that is coming from foreign markets, because our U.S. business has been flat.”

In addition, the price cuts have served to crimp profits. According to Stine, on- and off-course sales of golf balls, when measured in dollars for the first six months of 2002, fell from $256 million to $250 million, while the cost per dozen also fell, from $25.88 to $25.42. Woods also have dropped slightly from a dollar standpoint, which partly explains why unit sales have climbed.

“We have seen a lot of margin compression, and that is a universal issue in golf,” says Acushnet’s Uihlein. “The average price for Titleist woods or balls are a bargain compared to two years ago, and what that means is that it is a very good time to be a consumer in this industry.”

Further evidence of how the industry has suffered since last September can be found in recent bankruptcy filings by a pair of retail chains. First came Golf Augusta, which at one time operated as many as 26 stores but had to go Chapter 7 in late July. Then Golf America, a mall-based retail enterprise with 35 stores in 18 states, opted for protection under Chapter 11 laws in early August, saying it owed creditors more than $10 million.

Industry watchers believe it is important to note that those chains probably would have gone belly-up anyway, as that segment of the business continues to consolidate.

The outlook for the golf business the rest of this year is hardly rosy, and it seems that every second-quarter earnings report released this summer was accompanied with warnings about softness in the latter half of 2002.

But industry executives still take solace in having gotten through some rocky months. And some believe the future looks better than it has for a while.

“In spite all that has gone on, there have really been some positives for our business,” says True Temper’s Hennessy. “Look at the strong TV ratings for the PGA Championship, and all the talk about Tiger and his quest for a Grand Slam. There has been some well-received equipment out there, like the 2-Ball putter from Callaway and the new clubs from Nike. Acushnet had a good first half of the year, and the drop in price points has to help. After all, it’s easier to replace a $299 driver than one that sells for $499.”

“My sense is that we have hit bottom, and we are not that bad off in spite of all we have been through.”










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