At its Investor Day, Callaway Golf Company set an aggressive growth plan to expand sales by 10-to-12 percent from fiscal 2021 through 2025, led by its Topgolf segment. Officials were optimistic that demand for golf would not experience a significant pullback post-pandemic.

“We understand that concern, and we believe for golf it’s likely overblown,” said Chip Brewer, president and CEO, Callaway, during its Investor Day,  held on April 26 at Topgolf in El Segundo, CA. “We believe any short-term pullback, if it happens at all, would be modest.”

Brewer added, “We can confidently tell you that we continue to experience demand levels that are extremely high and that we’re confident the industry will sustain demand at significantly higher levels than in 2019. This is due to the momentum of the game, its addictive nature, how well it fits with today’s world, as well as the long-term lifestyle changes such as hybrid work environments, which are positively impacting it.”

Brewer pointed to several favorable trends supporting golf participation. He noted that on-course participation had seen a positive trend pre-pandemic but the pandemic accelerated the growth rate.

“The last few years have been phenomenal,” said Brewer. “Rounds played last year were up to 20 percent versus 2019. It’s been hard to get a tee time, for goodness sake. And private clubs have gone from discounted memberships to long waiting lists. Equipment sales have grown nicely, even out-stretching our capacity. And new entrants, especially young and female new entrants, have surged to more than 5 million per year.” He added, “It’s great to be in golf right now. We’re certainly benefiting accordingly.”

However, Brewer believes golf’s long-term growth rate will be higher than it was pre-pandemic due to the growing influence of off-course golf, which is being led by Topgolf. Said Brewer, “If you spend any time in our venues, you can’t help but come away knowing what a positive influence it is for the game of golf.”

He said Top Golf benefits more broadly from “the movement towards an experience-oriented culture, especially among young people.”

Overall, the growth of 10-to-12 percent projected from fiscal 2021 through 2025 is expected to be led by more than 18 percent growth at Topgolf. Growth in the high-single-digits is projected over the five-year period in its non-Topgolf businesses, including golf equipment, apparel, gear and other, and corporate and includes the flagship Callaway Golf brand, TravisMathew and Jack Wolfskin brands.

Adjusted EBITDA annual growth from fiscal 2021 through 2025 is expected in the range of 15-to-18 percent, with gains over 25 percent at Topgolf and increases of more than 10 percent in the non-Topgolf businesses. The adjusted EBITDA margin is projected to improve to mid-teens with margins in the mid- to high-teens at Topgolf and in the low- to mid-teens in the non-Topgolf businesses.

By fiscal 2025, approximately 73 percent of the company’s revenue is expected to come from Topgolf and the company’s apparel segments and more than half of adjusted EBITDA is projected to be generated by Topgolf alone. As recently as 2016, golf equipment had made up 84 percent of company revenues and was 38 percent of revenues last year

During its Investor Day, Callaway’s executive leadership team updated business performance and growth strategy, including its golf equipment technology and innovation, domestic and international expansion of Topgolf and Toptracer, sustainable and attractive lifestyle brand momentum, and integrated supply chain capabilities. The team also highlighted Callaway’s ability to capitalize on digital revenue and cross-segment synergies and its drive toward long-term value creation.

“We’ve transformed this company over the last several years from a leader in golf equipment to a leader in what we call ‘modern golf’ with a strong, active lifestyle presence,” said Brewer. The company defines modern golf as combining on-course, traditional golf with the “high-energy, high-growth” off-course golf segments.

Brewer said, “Currently, off-course golf is about the same size as on-course golf, but it’s growing faster. About one-half of traditional or on-course golf participants also play in off-course golf. Similarly, about one-half of off-course golfers play on-course golf. The two combined create a dynamic modern golf ecosystem, unlike anything Old Tom Morris or Bobby Jones could have ever imagined.”

Brewer highlighted that with the March 2021 acquisition of Topgolf, Callaway Golf now has “unparalleled reach” to off-course golfers, with 20 million unique visitors a year visiting Topgolf venues and over 7 billion balls hit across Topgolf’s ecosystem.

“Topgolf clearly has a first-mover advantage in its space, a position that we believe would be extremely difficult and expensive for a competitor to recreate,” said Brewer. “We have a world-class real estate team leading the charge on site selection. We also have a proven ability to open and operate venues.”

He stressed that Topgolf continues to see widespread success, including across regions in the U.S. and internationally and with smaller or larger venues. Brewer said, “The proven nature of those venues is a key takeaway and an investment thesis that I hope you come away with today. Top Golf also has strong brand momentum and significant whitespace ahead.”

He further noted that the Topgolf team would continue to explore emerging concepts in the off-course segment, such as Five Iron, which it acquired a minority investment in last fall.

On the equipment side, Callaway has consistently ranked as the leader in overall brand rating by outside rating agencies.

“We also have a leadership position in technology and innovation,” said Brewer. “Over an extended period, we’ve earned the number one position in market share for clubs and the number two position for golf balls. Ensuring that our products in the golf equipment space are the best in the game is one of our core competencies. And it’s also the keystone of our golf equipment strategy. It’s supported by our culture and a long history of reinvestment in and excellence from both R&D and operations teams.”

In its apparel business, Travis Matthew and Jack Wolfskin both have “strong momentum and are now in or entering the stage where they deliver very attractive profitability and cash flows.”

Both businesses have benefited from favorable trends in the marketplace. Said Brewer, “In the active lifestyle space, even before the pandemic, we saw a strong shift to people wanting to spend more time outdoors. They want to explore and experience nature and be more aligned with environmental brands and eco-friendly products. We’ve also seen an increasing trend toward more casual or lifestyle apparel in all facets of one’s life, including the office now, a trend that fits extremely well with all of our brands but especially the Travis Matthew one.”

Across the board, Callaway’s business is expected to benefit from a “mega-trend” toward more hybrid work environments, creating more flexible schedules with increased free time.

According to a recent McKinsey survey, Brewer noted that 99 percent of executives expect employees to be at work in an office at least 80 percent of the time pre-pandemic. Now, 10 percent feel the same, with the vast majority of executives expecting employees to be working in an office only 28 percent of the time.

“That’s a big change,” said Brewer. “I’m sure it’s probably consistent with what you’ve been hearing and see and maybe experiencing, and this megatrend supports all of our businesses. With all this, we believe that we have a clear path to sustainable growth and are uniquely positioned to deliver incremental shareholder value.”

Brewer said Callaway plans to grow by focusing on four key areas:

  • Maintaining its leadership position in golf equipment and drive further market share gains. Said Brewer, “We believe we’ll be able to leverage both our scale and our long history of reinvestments to help us accomplish this.”
  • Continue to expand Topgolf both domestically and internationally. Said Brewer, “And at the same time, drive same venue sales growth, expand Toptracer range installations and grow our media business.”
  • Sustain its active lifestyle brand momentum while at the same time increasing both Jack Wolfskin and Travis Matthew’s direct-to-consumer presence, thereby expanding margins.
  • Continue to take advantage of its global operations and supply expertise.

Brewer said, “Each of these pillars is going to be amplified by strong synergy opportunities that we see across our business segments.”

Callaway also updated its first-quarter guidance:

  • Consolidated net revenue of $1.04 billion, $15 million higher than the top end of the company’s guidance range;
  • Topgolf’s net revenue exceeded the company’s expectations, with first-quarter same venue sales up 2 percent when compared to the same period in 2019;
  • Improved supply in Q1 in the Golf Equipment segment and continued high demand;
  • TravisMathew shows strong performance in apparel, gear, and other segments; and
  • Repurchased $25 million shares in the period.

Based on its first-quarter performance, for the remainder of the full year 2022, the company now expects golf equipment net revenue to increase approximately 10 percent from the prior year and apparel, gear and other net revenue to increase to approximately $1 billion.

Photo courtesy Calloway/Topgolf