Callaway Tees Up a New Marketing Play

 | Dec 19, 2011 | 12:30 PM EST  | Comments
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From time to time, a story will hit the newswires that seems so bizarre on the surface, that you immediately check your calendar, just to make sure it isn't April Fool's Day. It seems there have been more of those instances than usual the past few years, and they typically bring bad news. But the headline that grabbed my attention late last week had to do with Callaway Golf (ELY), a company I've been a champion of for the past couple of years, and one that has been disappointing nearly every step of the way.

Last Thursday, the company announced that it has appointed Justin Timberlake to be the company's Creative Director, a position that was created specifically for him. Yes, that Justin Timberlake, the talented musician and entertainer who has won both Grammy and Emmy awards. His music certainly isn't my cup of tea, but the guy is extremely funny; if you've ever seen any of his Saturday Night Live appearances, you know what I mean. This guy has talent and I'm hoping that it extends to marketing golf clubs.

Timberlake's association with Callaway actually dates back a few years. In 2008, he became the first non-touring golfer to become part of the company's "Staff of Professionals." He is said to be an avid golfer, but this is quite a departure for Callaway. At first, this seemed like a "window dressing" role to me, but it sounds as though it's more than that. The company has described the role as follows: "Timberlake will engage in the development and execution of high-level concepts within Callaway's marketing activities and offer wide-ranging consultation on the visual representation of the Brand." In time we'll see exactly what that means, and it won't be long as one of his first tasks will be to support Callaway's 2012 RAZR line.

It's time for Callaway to pull out all of the stops. It has been an extremely frustrating couple of years as a shareholder, as the company's expected recovery is pushed farther and farther into the future. Shares are down 31% year to date, and last quarter was brutal. Revenue fell slightly, but the company's $0.37-per-share  loss was much greater than the expected $0.24-per-share estimate. The first and second quarters are the make or break quarters for the company, that's where the bulk of revenue is generated, so we'll see if Mr. Timberlake can help the company move some more golf clubs during those periods in 2012. It would be nice to see Callaway break the $ 1 billion revenue mark in 2012, which it has not done since 2008, but that will be a function of the economy, and consumer.

Callaway's balance sheet still looks decent; the company ended the third quarter with $64 million or about $1 per share in cash and no debt. The company is currently trading at 0.85x tangible book value per share, and 1.36 times net current asset value (NCAV). Unfortunately, it's had all the markings of a value trap in recent years, but for now, I'm patiently hanging on.Work your magic, Mr. Timberlake.

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