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On Tuesday, June 29th, after finishing up a round of golf at the TaylorMade-adidas Golf Pro-Am Tournament in Herzogenaurach, Germany, adidas AG (OTCPK:ADDDF) CEO Herbert Hainer announced a milestone in the company’s history:

We are proud to announce that our golf division (TaylorMade-adidas Golf) has achieved global market leadership and is now the biggest golf company worldwide.

While the jump into a leadership position is largely due to the fact that former #1 Fortune Brands (FO) (which owns Titelist) sold of their Cobra Golf division to Puma (OTC:PMMAF) in March, TaylorMade-adidas has been on a tear as of late, consistently outperforming competitors. In fiscal year 2009, for example, adidas had revenues of 860 million Euros, or $1.05 billion, nearly 14% of all sales in the $7.5 billion market. For the most recent quarter, they managed to increase currency neutral sales 16%, which included double digit increases in metal woods, footwear, and irons. They also grew sales of golf balls more than 50%, doubling their market share to just shy of 10%.

Compare this to Nike (NYSE:NKE) Golf, which saw revenues fall 2% to $638 million in FY 2009, or Callaway Golf (NYSE:ELY), which saw 2009 revenues fall 15% to $951 million. In Callaway’s defense, their fiscal year ended December 31, which means their fiscal year 2009 results had the golf season (first six months of the year usually command 60-65% of full year sales) from 2009 factored in, which was an overall more difficult market in an industry that has been absolutely killed by the economy (consumer purchases of golf equipment fell 19% in 2009). Nike and adidas, on the other hand, had the 2010 golf season factored in to their full year results; while the last 6 months were far from clear skies, the industry has seen better results in aggregate when compared to the first six months of last year.

While the jump to first has boosted morale, TaylorMade-adidas still has their eyes set on much larger goals for their golf business in the future. The company has opened an analysis center near their headquarters in Herzogenaurach where players can come have their swing analyzed with high speed cameras to fit them for personalized clubs, and plans to expand this business model throughout the world in the future. “Customers respond to our innovativeness, which helped us to become the global market leader in golf,” said Mark King, the head of the company’s golf business.

The company also plans to boost sales in its Ashworth apparel business, which they acquired in 2008, and has pushed them to become #1 in sales of golf apparel. Mr. King has high expectations for the brand, with hopes for sales to growth from $60 million to $250 million within the next six years, suggesting a compounded annual growth rate greater than 25%. The company has suggested to investors that they remain open to acquisitions, and could look to expand their operations through acquiring companies that are strong in women’s and senior markets, a niche component of the business that is currently being explored by other companies in the industry that expect profitable growth in these areas from the global push in the game of golf.

In my opinion, I believe that TaylorMade-adidas has hit the nail on the head with their recent push towards customization. When the company introduced its Movable Weight Technology with the r7 Quad driver in 2004, they were focused on consumer preferences, and have been on the cutting edge of innovation ever since. Nike and Titelist have also stayed focused on their customers, but not to the extent that TaylorMade in the past five years. And Callaway, which in my opinion has superior innovation to any other company in the industry (recently won 15 medals in the Golf Digest Annual Hot List, #1 out of all companies and 3 better than their nearest competitor), has been hurt by the fact that they are a stand-alone company with limited financial resources. Having the best product is important, but convincing people that you have the best product (and value) is even more important; TaylorMade caught the industry by surprise and created a whole new type of club through weight adjustment technology; they have convinced millions of golfers that it is what they need to take their game to the next level, a competitive position that Callaway, Titelist, and Nike have been trying to mitigate ever since.

While the outlook for the industry for the next ten years looks much better than the previous ten years have been (due to the global growth from the addition to the 2016 Olympics), the next 18 months will begin to set in stone which companies will be on top of the industry when growth returns from the emerging golf markets around the globe. TaylorMade-adidas has shown they are ready for the challenge; will anybody else stand up and deliver, or will they walk up to the tee box and slice one into the trees? Only time will tell…

Disclosure: Author is long ELY

Source: TaylorMade-adidas: The Green Jacket for Innovation