Callaway Golf lifted its outlook for earnings and sales for the year after reporting that first-quarter earnings came in well above guidance. Demand for its golf equipment and soft goods lines remained robust while Topgolf bounced back toward the end of the quarter after being impacted by Omicron spikes early on.
In the quarter ended March 31, sales jumped 59.6 percent to $1.04 billion, exceeding the firm’s guidance in the range of $1,005 million to $1,025 million provided on February 10 with the release of fourth-quarter results.
First-quarter 2022 adjusted EBITDA increased 32.9 percent to $169.8 million, far exceeding company guidance in the range of $130 million to $145 million.
“These results clearly show the continued momentum in our business and give us increasing confidence as we look out over the full year, and the long term,” said Chip Brewer, president and CEO, on a call with analysts.
Topgolf Achieves Sales Of $322 Million In First Quarter
Topgolf, acquired on March 8, 2021, had sales of $322.0 million in the first quarter against $92.6 million in the 23-days of ownership in the year-ago period.
“The Topgolf team put up another outstanding quarter,” said Brewer.
As noted with the report of fourth-quarter results, Topgolf’s venue business in February had been impacted by reduced traffic and a lighter events business due to Omicron; however, as the quarter progressed, this early softness was replaced by a resurgence in demand. In March, same venue sales versus 2019 were up approximately 10 percent, which drove the full quarter of same venue sales up 2 percent, beating Callaway’s February earnings call forecast of down slightly.
Venue openings remained on track with a new owned and operated venue opening in Ontario, CA as well as a franchise venue in Germany in the quarter, and a location opened in El Segundo, CA in mid-April. Said Brewer, “I’m happy to report that all of these locations are exceeding expectations as the venues team continues to impress and our brand appears to be building momentum.”
As a result of the improving trend, Callaway is increasing its same venue sales projections for Q2 and the balance of the year for Topgolf to up high-single-digits versus 2019, representing growth of mid-to high-single-digits for the full year.
Topgolf operating income reached $6.5 million, up from $4.0 million a year ago. Operating margins “remain healthy,” as Topgolf has taken price and driven both increased event business and overall venue efficiencies. Said Brewer, “This combination is allowing our overall margins to outpace any inflationary pressures, all while maintaining a superior guest experience.”
At its Toptracer golf technology business, 1,159 new bays were installed in Q1 and a total of 8,000 or more bays are on track to be installed this year. Said Brewer, “Feedback on the product and demand remains strong, plus we’re building resources to ramp our installations.”
Brewer said that in 2022, Topgolf will be Callaway’s largest segment by revenue and is expected to account for more than half of the company’s total adjusted EBITDA by 2025. Said Brewer, “Topgolf is the keystone of our modern golf thesis. It already is the dominant leader in the dynamic off-course golf industry, and we believe it will maintain this position given its significant growth prospects ahead.”
Golf Equipment Sales Climb 24 Percent
In the Golf Equipment segment, sales jumped 24.2 percent in the first quarter to $468.0 million, reflecting the continued high demand for golf clubs and golf balls, coupled with improved supply. Golf Equipment segment operating income increased 18.7 percent, to $100.8 million amid strong sales.
Brewer said Callaway continues to see the Golf Equipment expanding sales by 10 percent this year on top of strong gains over the pandemic.
“We continue to see strong demand globally for golf equipment, especially from avid golfers,” said Brewer.
He noted that according to Golf Datatech in the U.S., despite comparatively poor weather conditions this year, Q1 hard goods sell-through was down just 2.8 percent versus 2021 and remained up 44.5 percent over 2019. Outside the U.S. in key markets including Japan, Korea and Europe, Q1 hard goods sell-through grew year-over-year. Market share gains were seen for its 2022 products especially Rogue ST Drivers, Ferry Woods and Chrome Soft golf balls. For Q1, Callaway finished as the No. 1 hard goods brand in the U.S. and, in March, reached a new record U.S. golf ball market share of 22 percent.
Added Brewer, “On the manufacturing side, our supply chain is continuing to perform well. And although supply has not yet caught up to demand, we believe our strong partnerships, scale and regional diversification have provided and will continue to provide a competitive advantage in being able to deliver products to our customers.”
Apparel, Gear and Other Revenues Climb 37 Percent
In the Apparel, Gear and Other segment, sales surged 37.4 percent to $250.2 million, driven by a 45.2 percent increase in apparel sales and a 28.8 percent increase in gear and other sales. The strong apparel sales were driven primarily by TravisMathew and Callaway brands, while Jack Wolfskin performed relatively well given the macroeconomic situations in Europe and China.
Operating income for the Apparel, Gear and Other segment increased 30.2 percent year-over-year to $26.7 million.
“Callaway’s business has remained strong globally with our apparel business in Asia performing well, and our gear business, namely golf bags and gloves, delivering both market share and revenue increases,” Brewer said about the Callaway brand’s apparel and bag business.
TravisMathew continued its strong momentum across all channels with owned retail comps up 50 percent in Q1. In addition, the brand plans to launch its first dedicated women’s apparel collection. Brewer said, “While this first rollout is more of a preliminary collection and not a major source of revenue yet, with women accounting for over 25 percent of the purchases made through TravisMathew’s direct-to-consumer channels, we are both confident in, and excited about, the opportunity here. Throughout this year, we plan to continue to test and expand the offering, and we have a more robust launch plan for 2023.”
Brewer said Callaway continues to see the TravisMathew brand eclipsing $300 million in revenue and $50 million in adjusted EBITDA by the end of this year. Brewer added, “They have impressive momentum, and we see a clear path to continued growth ahead.”
Brewer said Jack Wolfskin “continues to make good progress. Being a European-based brand, they are dealing with a number of macro headwinds, but I’m pleased to report that their new branding campaign and products are being very well received, both based on sell-through of the current products and prebooks for the future.”
GAAP income from operations increased 23.9 percent to $94.3 million and non-GAAP income from operations increased 9.8 percent to $106.0 million, amid strong sales across all segments. Price increases, volume variances and efficiencies were generally able to offset pressures from changes in foreign currency rates, increased freight expense and other inflationary impacts.
First-quarter 2022 GAAP net income decreased 68.2 percent to $86.7 million, or 44 cents a share, primarily due to the $252.5 million non-cash Topgolf gain in the first quarter of 2021, partially offset by a favorable $65.4 million change in the company’s tax valuation allowance period over period. On a non-GAAP basis, which excludes, among other items, the Topgolf gain and the change in valuation allowance, non-GAAP net income was down 7.4 percent to $70.9 million, or 36 cents a share. The first quarter 2021 results do not include $27.8 million of pre-tax loss from Topgolf for January and February, which occurred prior to the closing of the merger.
For the current year, sales are now expected in the range of $3,935 million to $3,970 million, up from previous guidance in the range of $3,780 million to $3,820 million. Sales on a proforma basis were $3,276 million a year ago.
Adjusted EBITDA for 2022 is expected in the range of $535 million to $555 million, up from previous guidance in the range of $490 million to $515 million. In 2021, adjusted EBITDA on a proforma basis was $448 million.
Photos courtesy Callaway