Source: chispita_666 on Flickr.
The golf industry appears out of the rough and well inside the greens moving into 2014. Revenue per round of golf was up by 5.6% last August and by 11% in May, says PGA PerformanceTrak. For 2012, the National Golf Foundation estimated that close to 500 million rounds of golf were played, a 5.7% increase from 2011.
There's a good omen too from the housing sector, to which the golf industry's fortunes have been closely linked. The housing market recovery is expected to continue pushing the economy toward 2.5% to 3% growth in 2014, better by over half a percentage point than the gain expected for 2013.
Gains in selling homes and golf
Bonita Springs, Fla.-based WCI Communities (WCIC) appears to be reaping rewards both from the golf industry's recovery and the resurgent home market. Membership dues and operating revenues from WCI clubs rose about 11% during the 2013 third quarter.
Moreover, I believe the amenities of WCI's golf and country clubs enhanced the marketability, sales volume, and value of the company's 12 master planned communities in Florida. For the third quarter, the company's revenues from homes delivered amounted to $60.5 million, up year over year by 84%, while adjusted EBITDA rose by roughly 100% to $11.3 million.
Further WCI gains can be expected. Last May, it added an eighth club to the portfolio of Florida golf courses it owns and manages with its purchase of the Sarasota National in Venice. Besides the golf course, this acquisition also added 1,525 home sites to WCI's pipeline of buildable lots.
The company is also addressing changing home buyer preferences, particularly those of retiring baby boomers who look beyond golf and sedate senior living. Thus, what WCI Communities is now creating are active lifestyle master developments with more amenities for sports, recreation, and socials.
Golf privileges plus more
Golf's rebound has another potential winner in ClubCorp Holdings (MYCC).Based in Dallas, Texas. This company owns and operates over 150 golf and country clubs in 25 states and the District of Columbia. Driven mainly by gains in same-store membership dues and golf operations, ClubCorp's 2013 third-quarter revenue from its golf and country clubs rose 8.3% to $12 million.
For the 2013 full year, the company set an adjusted EBITDA guidance range of $174.5 million to $176.5 million, an increase of about 7% from 2012. Continuing growth in membership counts and improved private party bookings were seen as the drivers of the foreseen gain.
The company projects further gains in its club membership trailing the current rise in home sales. It also expects to continue drawing strength from rising disposable incomes and the improving consumer and business outlook. The company's club clustering strategy in major metro areas, such as Dallas-Forth Worth, likewise portends growth with its enticing value proposition on expanded club membership privileges. Like WCI, ClubCorp's growth strategy includes reinventing its clubs in response to changing market preferences for more social venues, fitness facilities, and resort-like water features.
Tops in woods and irons
The resurgence of the golf industry is also evident from recent results of golf equipment maker Callaway (MODG -0.87%). The company's third quarter net sales rose to $178 million from $148 million, and gross profit increased to $60 million from $31 million. It also raised its full-year 2013 net sales guidance to $836 million and non-GAAP pre-tax income to between $2 million and $7 million.
Market leadership and continuing product innovation bode well for Callaway's future growth. In one recent ranking, this Carlsbad, Calif.-based company led in the top 10 golf club brands. The company's recent reintroduction of its iconic Big Bertha driver and a new golf ball line are also viewed as potential earnings catalysts.
Holing out
To recap, the prospects of a more robust economic recovery paced by housing's sustained gains provide tailwinds for the golf industry and growth opportunities for WCI, ClubCorp, and Callaway. Given their recent strong results, this threesome appears as custodians of systems and strategies that can effectively tap gains from the resurgent interest in the royal and ancient game. Keeping these companies on the leaderboard of possible stock picks looks a sound investment idea for 2014.