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Why Callaway Golf Company Stock Lost 21% in February

By Demitri Kalogeropoulos - Mar 3, 2020 at 8:25AM

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Investors were spooked as the company predicted declining sales in 2020's first quarter.

What happened

Callaway Golf (ELY 0.00%) shareholders underperformed a historically weak market last month as the stock lost 21% compared to an 8% decline in the S&P 500, according to data provided by S&P Global Market Intelligence.

The drop left Callaway Golf stock down by over 20% so far in 2020 while the broader market is lower by roughly 7%.

A woman playing golf.

Image source: Getty Images.

So what

The golf equipment manufacturer released earnings results that, while strong, pointed to a sharp slowdown ahead for the business. Sales rose 27% in the fourth quarter after excluding the recently acquired Jack Wolfskin brand. The consumer specialist's revenue soared 73% including that new segment.

Operating earnings grew at an even faster rate thanks to a shift toward higher-margin products in Callaway Golf's portfolio. Management reported a 7% increase in its core golf business, translating into modest market share gains.

Now what

Yet investors were more concerned about the comments that CEO Chip Brewer and his team made about the COVID-19 coronavirus outbreak and its potential impact on the fiscal 2020 year. Sales this quarter will likely decline slightly due to reduced demand in China and other parts of the world. Its supply chain will be impacted, too. While the scale and timing of these disruptions isn't yet clear, executives are confident that they'll at least pose a temporary drag on operating results.

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