There was only a hint of caution in Wall Street’s assessment of Callaway Golf Co.’s decision to market a nonconforming driver in the United States.
A gauge of the investment community’s reaction was John Weiss, who tracks Callaway for Thomas Weisel Partners of San Francisco: “I think it’s a brilliant marketing decision. I think it’s going to be one of the great marketing efforts in recent years in the whole consumer products area.”
Weiss said he expects the nonconforming ERC II to help Callaway (NYSE: ELY) continue growing sales and earnings. (Net sales increased 19 percent to $495.6 million through June vs. the year-earlier period, and net income increased 63 percent to $61.2 million.)
“We’ve called retailers in Europe who tell us half of their sales of the original ERC are to Americans,” said Weiss. “The evidence is overwhelming that there will be demand for the product in the United States.”
Defying the U.S. Golf Association by launching a nonconforming club in the U.S. market presents little risk to the company, said Tim Conder of St. Louis-based A.G. Edwards & Co., who also expects Callaway’s new drivers to boost earnings. Conder agrees with company chairman Ely Callaway’s position that recreational golfers don’t play strictly by the rules anyway.
“And he has Arnold Palmer in his court,” said Conder, noting Palmer’s endorsement of the ERC II.
Not everyone in the investment community was as enthusiastic, however. Joseph Teklits of Baltimore-based Ferris Baker Watts said it’s too early to get excited about Callaway Golf’s prospects.
“I’m still questioning whether or not avid golfers who account for most of the spending on premium equipment in this industry will embrace an illegal club,” said Teklits. “And I just don’t know. I talk to a lot of different people inside and outside the industry, and everybody has a different view. I think there truly is uncertainty here.”
Meanwhile, investors themselves seem to have taken little note of the news. Callaway’s stock rose more than 1 point the day of the announcement, reaching 15.38, then closed the week at 15.25.