What the Disappointing Q2 Might Mean for Acushnet

“When the going gets tough, the tough get going.” Q2 was tough for Titleist. The question for Acushnet is, what will it take to get things going again?

The numbers aren’t pretty. Acushnet’s Q2 Net Sales are down about 8% on a year-over-year basis. The YOY breakdown looks like this:

• Golf Ball sales down 6.6%
• Golf Club sales down 21.2%
• FootJoy (apparel and footwear) down 5.8%

If you’re looking for growth, the Golf Gear category, which includes golf bags, headwear, golf gloves, and travel gear was up 6.3%.
To put all of this in perspective, it’s important to understand more about the Titleist brand.

For The Better Player

The dedicated golfer has been Acushnet’s primary focus and our proven strategy to address their needs is the key to our ongoing success. – Acushnet President & CEO, Wally Uihlein

Titleist has historically positioned itself as a brand for the better player. It’s strongly focused on the dedicated golfer. We’d define that as the type of golfer that doesn’t leave anything to chance. He’s more likely than the average golfer to invest both time and money in his game. He takes lessons and relies on golf professionals to recommend the right equipment and fit him into it.

That focus, along with a Tour-driven approach to marketing (and sometimes higher pricing) has provided the Titleist brand with an aspirational quality. In consumer marketing, an “aspirational brand” would attract a large segment of the audience that wishes to own their products but for economic reasons cannot. In Titleist’s case, this would also include the fact that its clubs are designed for the better player. That’s not a group all golfers fall into, but it is one most aspire to join one day. The brand strength its position provides has given Titleist the ability to largely ignore the highest handicap segment of the market.

With the emergence of brands like PXG, however, some of Titleist’s price-driven aspirational quality has faded, and with competitive ball offerings cutting into the bottom line, one wonders if it might be time for Titleist to expand its focus, its product offerings, and in turn, its reach in the marketplace.

2^nd Quarter Results for Acushnet

The ball category is Titleist’s bread and butter, so with the March release of a new generation of ProV1 and ProV1x golf balls, most would have expected to see a surge in Q2 ball sales. The numbers indicate that this didn’t happen. The golf ball category was down 5.6% year-over-year, despite an aggressive buy 3 dozen get 1 free promotion almost right out of the gate.

With many of its competitors rolling out high-performance Tour balls at lower price points, there’s reason to believe that consumers are starting to consider whether or not paying upwards of $50.00 per dozen makes sense. The TaylorMade TP5 ($44.99), Callaway Chrome Soft ($39.99), Kirkland Signature (2 dozen/$29.99), along with direct to consumer brands like Snell and Vice have made an impact. No one questions the performance of the category-leading Pro V1, but with similarly high performance available at a lower price, golfers are beginning to question if the cost difference is justified.

If this proves to be the new normal, Titleist will need to find a viable response. The company already outspends its competitors on R&D, and with USGA regulations being what they are, developing another industry-changing ball that’s irrefutably better than what its competitors are putting on shelves seems unlikely. While a price drop on the Pro V1 is possible, it runs counter to the prestige the franchise carries with it. A lower cost Tour offering might make sense for the market, but crafting a narrative that doesn’t infringe on the Pro V1s performance storyline would be challenging to say the least.

Golf Clubs

On the golf club side of the business, sales were down 20.3% year-over-year in the 2^nd quarter. For those of you that don’t know, Titleist practices a 2-year product cycle. Clubs, with few if any exceptions, sell best during their first year on the market. While we applaud Titleist for sticking with 2-year product cycles, we do wonder if it will prove sustainable in a changing market.

In its report, Acushnet states:

Drivers were challenged due to competitive activity, aggressive ad spending and poor weather, which limited fittings.

There’s no doubt that Callaway’s Epic Driver had a massive impact on the market. Titleist’s 917 is far from alone in taking a hit. Like TaylorMade, Callaway is a marketing machine and “aggressive ad spending” is arguably a subtle description, but it’s aggressive because it works, and so it’s unreasonable to expect Titleist can bounce back on the strength of less aggressive marketing from its competitors.
The reality is that Titleist’s club share is perpetually at risk because the company spends the bulk of its marketing budget on the golf ball. While promotions like Titleist Thursdays hint that the company might spend a bit more than usual to ensure the success of its new iron franchise, increased pressure in the ball market could force the company to shift focus and dollars from its club business.

Whether or not “poor weather” actually contributed to the lackluster 2^nd quarter numbers is certainly up for debate. Callaway, for example, had an outstanding 2^nd quarter.

The validity of the weather argument can be traced back to the brands’ focus on the better player. Compared with the rest of the industry, Titleist does a greater percentage of its business on-course – and that includes fittings. If the weather is keeping golfers away from the course, then it stands to reason that Titleist would be disproportionally impacted. Also consider that Titleist has less of a presence in big box stores, and unlike Callaway and TaylorMade, has, to date, refrained from selling its clubs direct to the consumer. All of this speaks to a brand that’s heavily invested in green grass, and as a result, more vulnerable to the impact of sustained inclement weather.

While it’s unlikely the 917 will regain momentum, the company sees the release of the new 718 iron family and 818 hybrids as cause for optimism. We will circle back to this later.

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Golf Gear

The bright spot in the Acushnet’s Q2 report was in the Golf Gear category where sales were up 6.3%. With the Titleist brand being synonymous with the better player, is that the reason why amateurs are buying up Titleist hats by the dozen? Is there a segment of golfers that hopes to be perceived as being a better player, even if they don’t necessarily have any Titleist clubs in their bag?

The growing strength of the FootJoy Pro/SL golf shoes are great examples of how we continue to fortify our positions on multiple fronts as we work closely with our trade partners to deliver value added products to dedicated golfers. – Acushnet COO, David Maher

Footwear and Apparel

Despite a strong launch and continued success of its Pro/SL shoe, FootJoy (which produces the bulk of Acushnet’s footwear and apparel offerings) saw revenue down 4.1%. This drop was pinned on a reduction in retail store count, in addition to being impacted by US weather. Golfsmith went bankrupt last year and closed 60 stores nationwide before Dick’s bought out the rest. With no small degree of the brand’s success being dependent on brick and mortar, those closures often have the biggest impact on the market leader.

Looking at the larger picture, the retail landscape has, and will continue to change. Those stores aren’t coming back, which was likely a factor in the launch of FootJoy’s online store last year. Moving forward, direct to consumer availability across the entire FootJoy lineup will likely benefit the bottom line.

Success Across the Worldwide Tours

Let’s take a moment to review the current facts as stated in the report. Titleist golf ball usage across the Worldwide Tours is at 72% year-to-date. The FootJoy shoe count across the Worldwide Tours is at 62% year-to-date. Titleist golf balls have won 68% of the events year-to-date across the Worldwide Tours, which was highlighted by Jordan Spieth’s victory at Royal Birkdale with the new ProV1x and 14 Titleist golf clubs in the bag. Justin Thomas has since added a PGA Championship and a win at the Dell Technologies. Titleist can also lay claim to having the #1 Iron, #1 Hybrid, and #1 Wedge on the PGA Tour. This is unequivocal domination at the professional level.

That’s all well and good, but success and usage across the Worldwide Tours doesn’t necessarily equate to dollars earned. While the Pro V1 may still be the ‘#1 ball on Tour’, Tour players aren’t paying for their golf balls or clubs. It does speak to their trust in the Titleist product to earn their living, but at retail, consumers are paying the bill.

Is the current trend just a blip, or does Tour success not translate at the consumer level as it has in the past?

Looking Ahead to the 718 Irons & 818 Hybrids Release

Titleist is through the Prototype and Tour Seeding phase, and its 718 irons and 818 hybrids are ready for retail on September 29^th. This might be the most comprehensive iron launch ever by Titleist. The 718 series includes a strong game-improvement offering in the AP1, a players distance iron in the new AP3, a modern Tour iron in the classic AP2, a technical distance muscleback iron in the T-MB, a small cavity back iron in the CB, and a traditional muscleback blade in the MB. One of these iron models should suit almost any golfer from the beginner and high handicapper to a scratch or plus handicap golfer. Additionally, the price points and affordability vary from an MSRP of $140 per iron in the AP1 to an MSRP of $280 per iron in the T-MB. This is a step in the right direction for the brand; one that reflects its commitment to the better player, while also offering a great selection for its Tour staff and, perhaps quietly, the higher handicap golfer as well. End to end, it’s a lineup that has the potential to do well at retail, but it certainly won’t go unchallenged. Titleist needs a strong launch and plenty of momentum heading into winter if it hopes to bounce back from Q2.

What’s Next for Titleist

We are excited about our upcoming new product introductions and we are looking forward to building upon our brand momentum in the back half of the year.” – Acushnet COO, David Maher

Time will tell what is truly next for the brand, but there are reasons to believe in a rebound in the back half of the year and moving on from there. Again, there is no denying that Titleist and FootJoy make great products, but the market may have evolved to a point where a shift in strategy, or at a minimum, a small change in the status quo is necessary. This might include a move away from the 2-year product cycle on some products, new products at new price points, or perhaps augmenting its better player-driven marketing strategy with something that appeals to the recreational golfer. How does Acushnet do any of that without infringing on its brand identity? It’s no small challenge.

As we said before this journey, while painful at times, as we deal with 450 fewer Golf Balls distribution points and 100 fewer full product line doors reflects the necessary correction of the market that had too much retail square footage, too many golf courses and arguably too many OEMs. We are confident that the U.S. market is approaching a healthier state. – Acushnet COO, David Maher

With Maher’s discussion of fewer golf ball distribution points and fewer full product line doors, it is clear that there has been a necessary correction in the market. OEM’s are going to have to make the most of what’s left, because as I said, those stores aren’t coming back.

The market isn’t growing, so the name of the game is taking up more slices of the pie. As with most businesses, success often boils down to the ability to adapt to a new reality. Just ask Blockbuster what happens when you can’t.

Titleist and FootJoy are well-equipped to address the changing demand in the marketplace, but it remains to be seen if it can fully regain its stride during these changing times.