Callaway Golf Co. reported sales in the third quarter jumped 80 percent to $856 million, driven by a recovery in Topgolf’s sales and supported by continued demand for golf equipment and apparel. The company raised its sales and earnings guidance for the year.
“Callaway’s third-quarter performance highlights the significant growth and profitability embedded in our business, as all segments have recovered more quickly than we anticipated and are delivering results ahead of plan,” commented Chip Brewer, president and CEO, Callaway. “Our golf equipment and apparel businesses are benefiting from sustained enthusiasm for the sport of golf and outdoor exploration, while Topgolf’s fun, inclusive, social environment is in high demand among customers of all skill levels and ages. This powerful combination of off-course and on-course golf, entertainment, dining, and outdoor living is unlike any other company in the market today and is poised for long-term growth as we continue to execute our strategy. We are committed to driving value for our shareholders and believe our brands are well-positioned to deliver sustainable, long-term growth as we look ahead to 2022 and beyond.”
In the quarter ended September 30, sales rose 79.8 percent to $856 million from $476 million a year ago.
By segment, Topgolf’s sales were $334 million against no sales in the year-ago period. Topgolf was acquired in March 2021. Golf Equipment revenues climbed 8.6 percent to $290 million from $267 million. Apparel, Gear and Other sales rose 12.0 percent to $233 million from $208 million a year ago.
Income from operations improved 18.8 percent to $76 million from $64 million a year ago. Net income was a loss of $16 million, or 9 cents a share, from earnings of $52 million, or 54 cents a year ago. On an adjusted basis, operating income rose 21.4 percent to $85 million from $70 million a year ago. Adjusted net earnings fell 55.9 percent to $26 million, or 14 cents a share, from $59 million, or 61 cents, a year ago.
Adjusted EBITDA ran up 58.0 percent to $139 million from $88 million a year ago.
Non-GAAP earnings per diluted share were $0.14 in the third quarter topped Wall Street’s consensus estimate of 10 cents. Sales of $856 million exceeded Wall Street’s consensus estimate of $846 million.
Third Quarter 2021 Financial Highlights
- Net revenue increase was driven by Topgolf’s same venue sales, which were in line with third-quarter 2019 pre-pandemic levels, and higher-than-expected strength across both the Golf Equipment and Apparel, Gear and Other segments, as demand remained high for golf and outdoor activities.
- Non-GAAP income from operations increased $15 million year-over-year, led by the addition of $24 million in operating income from the Topgolf business and a $9 million increase in operating income from the Apparel, Gear and Other business, but partially offset by lower golf equipment operating income as spending levels returned to normal levels versus the lower levels seen in 2020.
- Non-GAAP other income/(expense), net decreased $(19) million to $(22) million, primarily due to a $16 million increase in interest expense related to the addition of Topgolf as well as lower hedge gains versus the prior-year period.
- Non-GAAP earnings per diluted share was $0.14 in the third quarter of 2021, compared to $0.61 per share in the third quarter of 2020. Fully diluted shares were 194 million shares of common stock in the third quarter of 2021, an increase of 97 million shares compared to 97 million shares in the third quarter of 2020. The increased share count is primarily related to the issuance of additional shares in connection with the Topgolf merger.
- The Adjusted EBITDA increase of $51 million was driven by a $59 million contribution from the Topgolf business and was partially offset by increased operating expenditures and the legacy business spending levels returned to normal levels.
- Subsequent to quarter-end, on November 1, 2021, Callaway announced a $30 million minority investment in Five Iron Golf, a privately-owned, urban indoor golf and entertainment company offering simulator rentals, golf lessons, custom club fittings, social events and food and beverage.
Business Outlook
Callaway now expects sales for the year in the range of $3,110 to $3,120 million, up from $3,065 to $3,095 million previously. Adjusted EBITDA is now projected in the range of $424 to $430 million, up from a range of $370 to $390 million previously.
Callaway said its outlook includes the estimated impact of certain factors, including the ongoing impact of COVID-19 on the supply chain, changes in foreign currency effects, which are estimated to have a positive full-year impact of $33 million on net sales and increased freight costs.
In addition, due to the timing of the Topgolf acquisition on March 8, 2021, Callaway’s reported full-year financial results will only include approximately 10 months of Topgolf results in 2021 and therefore will not include January and February results, which were in the aggregate $142.9 million in revenue and $2.3 million in Adjusted EBITDA.
The full-year 2021 net revenue estimate assumes Topgolf segment revenue for the 10 months beginning March 8, 2021 slightly above 2019 full year levels of $1,059 million and continued positive demand fundamentals for Callaway’s Golf Equipment and Apparel, Gear and Other segments, as well as improved supply in Golf Equipment in the fourth quarter. Full-year 2021 Adjusted EBITDA estimate assumes the Topgolf segment will deliver approximately $158 million in Adjusted EBITDA for the ten months beginning March 8, 2021, amid strong revenue flow-through.
Photo courtesy Calloway