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Home Daily Golf Briefs Daily Pulse for December 3, 2018

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Web Street Golf Daily Pulse
VOLUME 8, NUMBER 234                                                       
Monday, December 3, 2018

ANY IDEA WHO SAID THIS? “I’m always in a hurry. The faster, the better. It’s my personality. I like to get a lot of things done during the day, so standing around on a golf course doesn’t suit me.”

BRAIN TEASER: He was given the PGA of America Distinguished Service Award in 1997, the USGA’s 2008 Bob Jones Award and the PGA TOUR Lifetime Achievement Award in 2009. In 1996, he served as honorary chairman of The Presidents Cup and attended every one of the biennial competitions through 2009. He was also an honorary member of the PGA and honorary chair of the USGA Museum and Archives President’s council. He was indicted into the Wolf Golf Hall of Fame in 2011. Who is he?

THANK YOU: Due to the upcoming holiday season, the Daily Pulse’s final issue for 2018 is today. Publishing will resume again on January 7, 2018. In the event anything of significance happens in the golf world during this typically quiet period, it will be reported in a standalone email. Thank you to everyone who has supported the Daily Pulse and helped to make it a success. Happy Holidays and a very happy and healthy 2018 to one and all.

CALLAWAY MAKES ANOTHER DEAL: Callaway Golf surprised many when it announced a strategic acquisition that is outside of golf. The company has agreed to purchase Jack Wolfskin for approximately $476 million. For those unfamiliar with Jack Wolfskin, it is a premium outdoor apparel company based in Germany. This marks the third  (TravisMathew and Ogio) and largest acquisition by Callaway since 2017. The manufacturer of Big Bertha is financing 100% of the acquisition.

Assuming a 1.140 Euro to US Dollar conversion rate, Jack Wolfskin had net sales of $380 million in the fiscal year ended September 30, 2018, based on preliminary unaudited results provided. Wolfskin provides over 3,000 points of sale globally, including wholesale, company-owned retail and franchised retail stores. It has sales in 40 countries and on 5 continents with a balanced mix of ~70% wholesale and ~30% direct to consumer. According to the company, 52% of annual sales are derived from the DACH region (Germany, Austria & Switzerland) where it is the #1 market position. 21% of its revenues come from China, where it has a top 3 market position. In terms of product mix, 77% of Jack Wolfskin’s annual sales are from apparel, 13% form footwear and 10% from equipment. It has very little in terms of sales in North America.

Post transaction, Jack Wolfskin will continue to operate out of its headquarters located in Idstein, Germany. The $476 million purchase price values Jack Wolfskin at a multiple of approximately 12 times its fiscal 2018 adjusted EBITDA of $40 million.

Callaway, by virtue of this deal, will be competing in the active outdoor sector through ski, snow sports, hiking, trekking and cycling. All of Wolfskin’s products are German-engineered and designed & developed in-house. The marriage between the companies represents complementary geographies and seasons respective to each business’ core competencies. For example, North America represents potential to leverage Callaway’s operational infrastructure to expand into new markets for Wolfskin. Conversely, in China where Wolfskin is considered a Top 3 brand with over 580 points of sale, it offers Callaway addition distribution potential in a market that is under served in. “There is two types of synergies here,” Chip Brewer, Callaway Golf’s CEO reported. “One on the revenue side, where we believe we’re going to be able to drive faster and more efficient revenue growth and utilizing our infrastructure, DCs, embroidery operations, et cetera, that exist in the key markets and utilizes in their key markets. And the second on the cost side, a little bit on the distribution and potentially logistics. And then, we think there are potential scale advantages as well. We have baked those into our numbers as presented at this point. But we’re sure, we’re going to learn more as we get into it. So perhaps, there will be a new learnings and I’m sure there will be. But we’ve got what we’re currently projecting is all were comfortable committing to at this point. The numbers are not highly dependent on synergies in order to hit these numbers. And we’ll be looking for a further upside as we get into it. Jack Wolfskin has been in China for sometime in 2015. They bought back their distribution. So they own their business there. Others are going through a similar transition. Now, this is what we think of structurally attractive strategy and that they’re well ahead off.” 

The deal diversifies Callaway’s hard goods exposure and international presence. For example in 2017, metal woods sales represented 29% of Callaway’s annual sales. With the integration of Wolfskin, it becomes 20%. Gear, Accessories and Other was 23% of Callaway 2017 annual sales. It now expands by 20% to 43% with Wolfskin on board. The global outdoor market growth rates are expected to exceed both the economy in general, Callaway stated and by extension the expected trends in the golf equipment business. This belief is based on a continued focus on healthy living and increased connection to the outdoors in the foreseeable future.

“Clearly this enhances our growth as has TravisMathew and OGIO and the Japan apparel joint venture. So many of the strategic moves that you’ve seen us successfully implemented over the last three years or so, are aimed at enhancing our growth. We enjoy and love the golf equipment businesses. It’s a something we have great passion for, but the other, we also are successful in these other businesses. In fact, I would venture to a position that this is not outside of our core anymore. Apparel in soft goods are core businesses for Callaway. That has transitioned over the last several years. It is fair to say this is outside of golf, but I don’t believe it’s outside our core and outside of businesses that we have proven ourselves to be successful,” explained Brewer.

STRONG INTEREST: There are different ways to measure demand. Sadly, the women’s game doesn’t get the same level of respect as the men’s both in terms of financial support let along coverage. Yet, the following indicates there is an opportunity many might not have recognized.

More than 1,900 people have registered for the volunteer program at next year’s Solheim Cup at Gleneagles. In excess of 1,900 applications were received from 27 countries worldwide for volunteer positions through the official portal. In turn 900 volunteers will be selected for the opportunity to help welcome 100,000 people to the Perthshire venue next Autumn.

Liz Taylor, Head Volunteer for the 2019 Solheim Cup, stated, “The response has been amazing, both locally and internationally. I feel like the response we’ve had is representative of the energy and passion that is running through the whole event and as the event draws closer and we grow our team, this can only escalate. I would urge anyone who applied to be a volunteer to keep an eye on the email they used during the application process and if they have been offered a position to respond to use as soon as possible.”

WEB GEMS:

RUN AWAY WIN: Two months after beating Tiger Woods at the Ryder Cup, Jon Rahm won his hero’s tournament on Sunday, surging to a four-stroke win at the Hero World Challenge in the Bahamas. READ MORE>>>

AUSSIE, AUSSIE, AUSSIE! Cameron Smith has tamed the early nerves before ousting good mate Marc Leishman to defend his Australian PGA Championship, immediately setting his sights on the world’s top 20. READ MORE>>>

THE KIND OF PROBLEMS WE ALL WOULD LIKE TO HAVE: Tiger Woods finished the Hero World Challenge on Sunday and headed to Australia to promote the Presidents Cup as the U.S. captain. It’s the same schedule he faces next year, with one big difference. Woods will have 12 players with him, and he could be a playing captain. It leads to a messy schedule that could affect two tournaments — his unofficial Hero World Challenge, an 18-man field of players from the top 50 in the world, and the Australian Open, which was hopeful of a strong field a week before the Presidents Cup at Royal Melbourne. READ MORE>>>

ANSWERS:  “I’m always in a hurry. The faster, the better. It’s my personality. I like to get a lot of things done during the day, so standing around on a golf course doesn’t suit me.”--George H. W. Bush.

George H. W. Bush was given the PGA of America Distinguished Service Award in 1997, the USGA’s 2008 Bob Jones Award and the PGA TOUR Lifetime Achievement Award in 2009. In 1996, he served as honorary chairman of The Presidents Cup and attended every one of the biennial competitions through 2009. He was also an honorary member of the PGA and honorary chair of the USGA Museum and Archives President’s council. He was indicted into the Wolf Golf Hall of Fame in 2011. His father, Prescott Bush, was another avid golfer and also a president of the USGA before becoming a U.S. senator in 1952. His grandfather, George Herbert Walker, was president of the USGA in 1920. During his time at the helm, he created the Walker Cup, a biannual competition between amateur stars from the U.S. and United Kingdom.

THE INFORMATION CONTAINED IS BELIEVED TO BE RELIABLE, BUT IT IS NOT GUARANTEED. THE OPINION EXPRESSED IS THAT OF TERRY MCANDREW AND SHOULD NOT BE CONSIDERED A SOLICITATION TO BUY OR SELL SECURITIES IN ANY OF THE COMPANIES DISCUSSED WITHIN THIS NEWSLETTER. CONTENTS OF THIS NEWSLETTER MAY NOT BE REPRINTED OR REBROADCAST WITHOUT THE EXPRESSED WRITTEN CONSENT OF TMAC GOLF