In many parts of the country, the annual golf club storage ritual is here. 

As the key summer season ends, golf equipment manufacturers and retailers are tallying up their scorecards. Over the next few weeks we’ll learn how much of their discretionary income consumers were willing to allocate to the beloved sport in the face of rampant inflation.

Since golf enthusiasts often come from higher income households, pricey gas and groceries likely had little effect on industry spending. Still, it’ll be interesting to see if soft economic conditions took a slice out of golf-related earnings.

Interest in the sport exploded during the pandemic. The National Golf Federation estimates a record 3.2 million people took up the sport for the first time last year. Since then, greens fees, clubs, balls and apparel have only become more expensive — and alternative entertainment options have reopened.

In anticipation of some level of attrition, expectations are low for Q3 earnings. This could lead to some surprise birdies for golf stocks. 

Is Topgolf Callaway Brands Oversold? 

Topgolf Callaway Brands Corp. (NYSE: MODG) has an early tee time. When it reports after the close on October 26th, analysts will be looking for 11% revenue growth and earnings per share (EPS) of $0.18. The stock is down 55% from its post-Covid peak, so even a minor beat could spark a relief rally.

It's surprising to see the former Callaway Golf Company’s shares perform as they have. The company posted record second quarter results that reflected broad-based strength in the business. The equipment, clothing and Topgolf entertainment units each posted double-digit sales growth. This showed that consumers were more than willing to absorb price increases. Yet despite the performance and management’s full year guidance hike, the stock enters earnings at a 52-week low. 

Trading around $17 a share, Topgolf Callaway Brands may be a hole in one. This month a pair of sell-side firms issued buy ratings on the stock with price targets of $28 and $29. Yes, there are macro concerns that could hurt demand. It just hasn’t happened yet.

Is the Street Too Negative on Acushnet?

Wall Street is anticipating that Acushnet Holdings Corp. (NYSE: GOLF) will announce EPS of $0.58 on flat revenues when it reports November 3rd. Considering the maker of Titleist golf balls and FootJoy golf shoes has topped earnings expectations for eight straight quarters, a beat is almost certain here.

Last quarter, Acushnet beat EPS estimates by a long shot, another sign the market is underestimating the resilience of golf demand. It too raised its full-year outlook but maintained EBITDA estimates due to the strong dollar, increased freight costs and supply chain investments. The stock did gap higher on the report but ultimately succumbed to broad market weakness.

The Street has remained cautious on Acushnet since the spring. Last week, Roth Capital downgraded the name from buy to neutral. Others also see Acushnet suffering a pandemic hangover and languishing from a consumer slowdown. Price targets over the last 6 months range from $45 to $50, a far from bullish bogey for the $43 stock.

This makes Acushnet one of the most intriguing consumer sector reports yet to come. Management is optimistic there is more distance to the growth story, but the market isn’t convinced. 

Does Dick’s Sporting Goods Own Golf Galaxy?

DICK’S Sporting Goods, Inc. (NYSE: DKS) is a quasi-golf play because the golf category accounts for a significant chunk of revenue. Aside from its flagship sporting goods stores, the company operates the Golf Galaxy stores and website. Golf Galaxy and Dick’s golf section have been one of the biggest beneficiaries of the golf popularity rebound. 

The retailer’s stock has recovered well from its 2022 low and is almost back to par for the year. It is, however, 25% below last year’s record high — so plenty of fairway to run.

If there is a relatively safe retail name to own in this environment, it's Dick’s Sporting Goods. The company exceeds expectations quite regularly as it has in each of the last eight quarters.

On November 22nd, a third consecutive quarter of year-over-year sales and EPS declines is expected. Don’t mistake this for fundamental weakness though. After getting a big Covid-related boost from outdoor activities followed by the return of team sports, business conditions are normalizing. Exiting the hunting business has helped improve both brand image and margins.