Avoiding the metaphorical sand traps of the COVID-19 lockdown economy, the golf industry has seen a surge in consumer interest and equipment sales – an opportunity Acushnet Holdings (NYSE: GOLF) grabbed with both hands. The maker and seller of “performance-driven golf products” including footwear, apparel, clubs, golf balls and other equipment recently released its second quarter results, not only surpassing last year but also 2019. While it faces a few supply chain issues and other issues, there are at least four reasons it could continue to grow in the coming quarters.
Acushnet surpassed the S&P 500 since March 2018, managing to outperform the index even during the COVID-19 crash in early 2020 despite a sharp drop in its stock value. By mid-August 2021, it had gained 197% in the past five years compared to the S&P 500’s 92.9% rise.
The growth posted in Q2 2021 not only exceeds the Q2 2020 pandemic results by 108.3%, but it also beats the pre-pandemic Q2 2019 by 35.2%. This is a key point as it shows growth is strong and long term rather than just a rebound from last year’s lows. Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, increased 68.8% from 2019 and 286.1% from 2020, while net profit also grew steadily. All of this has been done efficiently, with quarterly capital spending, or capital spending, dropping from $ 10 million in 2020 to just $ 12 million this year.
The golf equipment giant has not just been inactive on its profits, but directed them towards improving its financial health. It deleveraged from a leverage ratio of 2.3 in the second quarter of 2020 to a lean ratio of 0.7 at the end of the second quarter. It has reduced its debt by $ 177 million since last year, with total debt now standing at $ 346 million.
Adding value to shareholders, Acushnet also continues to pay its quarterly dividend of $ 0.165, with the next dividend due on September 17. It also repurchases shares rather than diluting its shares with additional issues. If the $ 40 million in buybacks expected for the whole of 2021 are rather modest, they still demonstrate a desire, and direct action, to improve the quality of shareholders’ investments.
2. International sales
While Acushnet’s sales in the United States were around 50.5% of the total in the second quarter, other regions of the world also saw significant growth. Year-on-year growth was 185.6% in Europe, 106.3% in Japan, 47.2% in Korea and 112.8% in the rest of the world. Many of these regions have experienced periodic closures and travel restrictions interfering with their golf tourism, making the growth even more notable.
According to a press release from Allied Market Research, the global golf apparel market is growing at a compound annual growth rate of 6% and is expected to continue this trend through 2030. Market size, an important market for Acushnet , has the potential to almost double that year, from $ 834.1 million last year to $ 1.55 billion in 2030.
Acushnet’s strong presence in important overseas golf markets gives it a broader revenue base and could also help it avoid the worst effects of any additional foreclosures governments may impose. Its presence in the markets of several countries means that the growth of golf tourism will be to its advantage, and local disruptions of any kind are less likely to have a serious impact on its overall performance.
3. Altering supply chain issues
Acushnet has managed to produce vigorous growth and expects its success to continue into the second half of 2021, despite the difficulties in the supply chain. Golf balls represent a significant portion of its business, with the Titleist golf ball line alone accounting for approximately $ 200 million in revenue in the second quarter. Some of the company’s golf ball factories in America have occasionally been closed. For example, bad weather in Texas resulted in temporary closures.
CEO David Maher said on the second quarter earnings conference call that Acushnet had cut production overseas, as “the glove and bale factories in Thailand are under pressure as the country grapples with escalating cases and low vaccination rates “. Raw materials for golf balls and golf clothing are also scarce, further limiting sales. Absent these pressures, the company could likely generate even greater revenue and profit growth than expected in the second half of 2021.
The biggest impact of supply chain issues is on stocks in the UK, which are down 10-20%. Delivery times have increased for equipment, gloves and footwear, but the company still manages to maximize sales given these constraints. It is even moving ahead with the introduction of new products including its T-Series irons, new models of wedges and putters, and precision-crafted Titleist Pro V1 golf balls, among others. This suggests that the company largely takes responsibility for the raw material and supply issues.
4. A favorable market
Golf has grown in popularity over the past year, apparently driven by the same desire for outdoor escape and alternative entertainment as the wave of recreational vehicles. According to the National Golf Foundation, 2020 saw the biggest increase in the number of American golfers in 17 years.
The foundation reports that the number of rounds played in June, the most recent month available, increased 0.4% year-over-year. However, tours jumped 45% in March, 81% in April and 18% in May. The slower rise in June corresponds to a huge spike in rounds played in June 2020. Part of the deceleration may also be due to the heavy rains in June, which caused rounds played to drop by more than 8% in the south and almost 5% at the southern end. from the east coast.
Golf has seen significant and persistent popularity gains in 2020 and 2021, which is helping to boost both revenue and bottom line for Acushnet and other golf equipment vendors. The question now is how long will the golf craze last, and if it can last until next year. Acushnet’s forecast calls for an increase in revenue of between 16.8% and 20.6%, to reach $ 1.93 billion to $ 1.99 billion. For comparison, full year 2019 revenue was $ 1.68 billion, indicating continued strong growth compared to pre-pandemic results in Acushnet’s expectations.
Looking to the future, Maher said on the results call that “the new entrants are getting younger and younger” and these new golfers are “addicted to the game”. Maher also noted that golf lessons are still high, suggesting that interest in the game is likely to continue in the medium to long term for many newcomers, leading to further equipment sales.
While the possibility of a post-pandemic decline in golf interest remains, and supply chain issues could potentially squeeze profits if they escalate, Acushnet Holdings’ situation makes it look like a bullish business among leisure stocks, supported by both effective business performance. and the world’s new and potentially lasting enthusiasm for golf.
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