What happened 

Shares of Callaway Golf Company (NYSE:ELY) fell 10.8% in February, according to data provided by S&P Global Market Intelligence, as financial results improved but not as quickly as investors hoped. 

So what 

Fourth-quarter net sales rose $11 million to $164 million as the company gained market share in the hardware market. But adjusted net income, which was adjusted for a one-time tax benefit, was still $0.17 million, or $0.18 per share. That was an improvement from a $30 million loss a year ago but earnings per share fell short of Wall Street's expectations by a penny. 

Man teeing off on golf course at sunrise.

Image source: Getty Images.

What shouldn't be lost is that full-year revenue rose 3% to $871 million and Callaway had net income of $49 million, or $0.51 per share on a non-GAAP basis. Profitability may have fallen slightly below expectations last quarter, but the long-term trends for the business are strong. 

Now what 

Callaway is benefiting from momentum in its own strategy, but will also be helped by Nike exiting the golf club market. Nike was a big player in the market and pushed advertising spending to a new level that Callaway had a hard time competing with. The hole in the market should allow the company to expand market share, increase margins, and lower marketing costs. That trend is also starting to appear on the financial statements. 

The one concern is guidance for $0.17 to $0.23 per share in GAAP earnings next year when there are tailwinds behind the business. Management needs to keep operating costs under control to increase earnings or shares won't benefit from the positive sales or margin trends. That's where investors should keep their eyes on Callaway in 2017. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.