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Nike Follows Adidas, Millennials Away From Golf, Time For Callaway To Worry?
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Nike Inc. (NKE - Free Report) , the world’s largest maker of sporting goods, will stop selling gold equipment, striking another blow to the sport of golf. The company will shift away from the golf clubs, balls, and bags that became popular during Tiger Woods’ reign atop the sport, but will continue selling footwear and apparel for the sport, according to a statement from Nike Wednesday. Sales at the Nike Golf division fell 8.2% to $706 million in Nike’s most recent fiscal year that ended in May.
While the company is committed to continuing to innovate in apparel and shoes, but it is unclear what the move means for Nike’s star-studded list of golfers, which includes Tiger Woods, Rory McIlroy, and Michelle Wie.
The move from Nike follows a similar one from Adidas (ADDYY - Free Report) , who put the bulk of its golf unit up for sale earlier this year. The company has had its golf unit for nearly 20 years, but said it has been a drag on profitability. Adidas said it was planning to sell its Taylormade brand, as well as Adams golf clubs, Ashworth polos and cardigans. It will keep its Adidas-branded golf shoes and clothing, which makes up about 40% of the company’s golf unit.
Both Nike and Adidas have seen profits from their golf units sink in recent quarters, mostly because the pastime has become less popular, especially with millennials. Participation rates have steeply declined, and its hurting the sport as well as the retailers that sell apparel and gear. The number of people playing gold in the United States, which accounts for about half the global golf market, has shrunk from nearly 30 million in 2000 to an estimated 23 million.
With Nike pulling out of much of their skin in the golf game, and Adidas searching for a buyer for their golf unit, one stock that could benefit, and has seen a jump today, is Callaway Golf . ELY has popped more than 6% today, likely on investors thinking that the company could see an increase in sales, as well as possibly a few new sponsorships of high profile golfers.
Callaway recently released its second quarter fiscal 2016 results, posting a 6.5% increase in net sales, as well as a 140% increase in earnings per share compared to the same period for 2015. The company cited its continued brand strength, additional hard goods market share gains, increased gross margins, and an $0.18 per share gain from the sale of a portion of its investment in Topgolf International Inc. Callaway also reaffirmed its full-year financial outlook for 2016, as well as increased guidance for the third quarter.
Bottom Line
Nike’s move out of golf was somewhat surprising, though its golf unit was its worst performing segment in the most recent quarter. Declining participation rates have hurt not only the sport but the retailers involved with it as well, which caused both Nike and Adidias’s move away from their golf units. Callaway had a very strong second quarter, and had positive projections for the current quarter and the rest of the year, but it will be something to watch whether they will benefit further from Nike’s move out of the space, or whether declining participation rates and interest in the sport will hurt the company like it has others.
Nike is currently a Zacks Rank #4 (Sell), Adidas is currently a Zacks Rank #1 (Strong Buy), and Callaway currently is a Zacks Rank #3 (Hold) stock. Shares of Nike are down nearly 12% year-to-date, where Adidas has seen a major gain of over 66%, and Callaway has gained more than 19%.
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Nike Follows Adidas, Millennials Away From Golf, Time For Callaway To Worry?
Nike Inc. (NKE - Free Report) , the world’s largest maker of sporting goods, will stop selling gold equipment, striking another blow to the sport of golf. The company will shift away from the golf clubs, balls, and bags that became popular during Tiger Woods’ reign atop the sport, but will continue selling footwear and apparel for the sport, according to a statement from Nike Wednesday. Sales at the Nike Golf division fell 8.2% to $706 million in Nike’s most recent fiscal year that ended in May.
While the company is committed to continuing to innovate in apparel and shoes, but it is unclear what the move means for Nike’s star-studded list of golfers, which includes Tiger Woods, Rory McIlroy, and Michelle Wie.
The move from Nike follows a similar one from Adidas (ADDYY - Free Report) , who put the bulk of its golf unit up for sale earlier this year. The company has had its golf unit for nearly 20 years, but said it has been a drag on profitability. Adidas said it was planning to sell its Taylormade brand, as well as Adams golf clubs, Ashworth polos and cardigans. It will keep its Adidas-branded golf shoes and clothing, which makes up about 40% of the company’s golf unit.
Both Nike and Adidas have seen profits from their golf units sink in recent quarters, mostly because the pastime has become less popular, especially with millennials. Participation rates have steeply declined, and its hurting the sport as well as the retailers that sell apparel and gear. The number of people playing gold in the United States, which accounts for about half the global golf market, has shrunk from nearly 30 million in 2000 to an estimated 23 million.
With Nike pulling out of much of their skin in the golf game, and Adidas searching for a buyer for their golf unit, one stock that could benefit, and has seen a jump today, is Callaway Golf . ELY has popped more than 6% today, likely on investors thinking that the company could see an increase in sales, as well as possibly a few new sponsorships of high profile golfers.
Callaway recently released its second quarter fiscal 2016 results, posting a 6.5% increase in net sales, as well as a 140% increase in earnings per share compared to the same period for 2015. The company cited its continued brand strength, additional hard goods market share gains, increased gross margins, and an $0.18 per share gain from the sale of a portion of its investment in Topgolf International Inc. Callaway also reaffirmed its full-year financial outlook for 2016, as well as increased guidance for the third quarter.
Bottom Line
Nike’s move out of golf was somewhat surprising, though its golf unit was its worst performing segment in the most recent quarter. Declining participation rates have hurt not only the sport but the retailers involved with it as well, which caused both Nike and Adidias’s move away from their golf units. Callaway had a very strong second quarter, and had positive projections for the current quarter and the rest of the year, but it will be something to watch whether they will benefit further from Nike’s move out of the space, or whether declining participation rates and interest in the sport will hurt the company like it has others.
Nike is currently a Zacks Rank #4 (Sell), Adidas is currently a Zacks Rank #1 (Strong Buy), and Callaway currently is a Zacks Rank #3 (Hold) stock. Shares of Nike are down nearly 12% year-to-date, where Adidas has seen a major gain of over 66%, and Callaway has gained more than 19%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>