Topgolf Callaway Brands Shares Fall on Lower Full-Year Guidance

Topgolf Callaway Brands Corp. saw net revenues grow 5.3 percent, or 4.6 percent on a constant-currency basis, to $1.04 billion in the third quarter, driven by continued growth at Topgolf and momentum in the Active Lifestyle segment.

MODG shares fell more than 20 percent overnight after losing nearly 5 percent of their value during the day on Wednesday. The company cut its full-year guidance on weaker-than-expected Topgolf same-venue sales growth.

Topgolf
Topgolf segment revenue increased 8.2 percent (+7.9 percent cc) to $447.7 million in Q3, reportedly driven by new venues, partially offset by lower-than-expected same-venue sales which declined 3 percent, primarily due to a post-Covid surge in the corporate events business last year.

Segment operating income increased $15.3 million to $38.9 million and Segment Adjusted EBITDA increased $26.7 million, or 41.6 percent, to $90.9 million in Q3 due to increased revenues and improved operational efficiencies in the venues.

Golf Equipment
Golf Equipment segment revenue decreased 1.1 percent (-1.5 percent cc) to $293.4 million, primarily due to an expected shift in the timing of golf club launches from Q3 2023 to Q4 2023 as well as a decrease in golf ball sales due to a post-Covid inventory fill-in at retail in Q3 2022 and was partially offset by an increase in pricing.

Segment operating income decreased $14.4 million, or 29.0 percent, due to fewer product launches in Q3, a return to more normalized promotional levels and lower unit volumes resulting in unfavorable cost absorption.

Active Lifestyle
Active Lifestyle segment revenue increased 7.7 percent, or 6.2 percent on a constant-currency basis, to $299.5 million, primarily due to strong double-digit growth at TravisMathew, including new store openings, as well as growth at Jack Wolfskin.

Segment operating income increased $11.9 million, or 42.3 percent, driven by increases in revenue and gross margin, related to a higher mix of direct-to-consumer business and lower freight costs.

Consolidated income from operations increased 8.2 percent on a GAAP basis to $73.8 million in Q3. On a non-GAAP basis income from operations increased 5.1 percent, or 1.0 percent on a constant currency basis, to $85.2 million in the quarter.

Net income decreased 22.9 percent on a GAAP basis to $29.7 million in the quarter, compared to $38.5 million in the prior-year corresponding quarter, while non-GAAP basis net income decreased 14.3 percent to $38.2 million for the 2023 Q3 period. This reportedly includes a $17.2 million increase in interest expense related to higher interest rates, additional term loan debt and increased venue financing interest.

Adjusted EBITDA grew 13.1 percent, or 10.8 percent on a constant-currency basis, to $163.5 million, driven primarily by increased revenues and operational efficiencies at Topgolf.

“This quarter our team once again delivered solid operating results across all segments of our business. Both Golf Equipment and Active Lifestyle had strong quarters while Topgolf, despite same venue sales that were lower than expected, was able to expand venue margins, an impressive accomplishment in a challenging quarter, and remains on track to successfully open 11 new venues in 2023,” commented Chip Brewer, president and CEO of Topgolf Callaway Brands. “With current same-venue sales trends and foreign exchange rates, we are lowering our forward guidance and taking decisive action to lower both costs as well as capital expenditures and to drive additional synergies across our business. All of this is aimed at de-risking future performance while maintaining our strong growth prospects. We remain on plan to deliver positive free cash flow for the total Company and Topgolf this year and we are confident that we will continue to profitably grow our business this year and going forward.”

Looking ahead, Topgolf Callaway Brands is now estimating that consolidated net revenues will be in the range of $4.24 billion to $4.26 billion, up from $4.00 billion in 2022, but below the previous estimate of a range between $4.42 billion and $4.47 billion.

Photo courtesy Topgolf