Rising Short Base in Sports Supply Cos

Callaway Golf (ELY) recently announced that it was cutting its second quarter dividend by 85%, looking to improve its liquidity. The company also just completed a $140 million offering of preferred stock. The issue of preferred stock may have created arbitrage opportunities requiring a stock borrow.

Adding insult to injury, Callaway reported that second quarter earnings would be similar to those of the first quarter (12 cents per share compared to the Street’s 23 cent estimate). Its shares have tumbled more than 25% since last Tuesday after the news.

The utilization (the measure of supply and demand in the securities lending market) of golf equipment maker Callaway Golf has tripled over the past week, increasing from 11% to 33%. This jump was the 5th largest in the Russell 2000. Other sporting goods retails have seen increases in short interest recently as well, with Dick’s Sporting Goods’ (DKS) utilization up 25% over the past month (currently just below 30%) and Hibbett Sports’ (HIBB) utilization is up 30% on the month (currently at 56%).

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Comments

[Stone Fox C...:]

So whats the implications for DKS? The drop in price recently is a function of rising shorts? Is this sector any different then the rest of retail?

Jun 18 06:29 PM