Topgolf Callaway Brands Corp. reported sales were in line and earnings topped expectations in the first quarter as strength at Topgolf and in the Golf Equipment segment offset double-digit declines in its Active Lifestyle. Full-year guidance was maintained for adjusted earnings but lowered for sales due to currency headwinds and weakness at Jack Wolfskin.

The Active Lifestyle segment includes the operations of the company’s soft goods business marketed under the Callaway, TravisMathew, Jack Wolfskin and Ogio brand names.

“We are pleased with our overall first quarter results with consolidated revenue and Topgolf same venue sales being in line with our guidance and our achieving better than expected net income, Adjusted EBITDA, EPS and cash performance,” commented Chip Brewer, president and chief executive officer of Topgolf Callaway Brands. “We are particularly pleased with Topgolf’s continued operational improvements as well as our performance in Golf Equipment where we gained market share with our new Ai Smoke clubs achieving the #1 market share in Driver, Fairway Woods and Irons and our new Chrome Tour balls driving our highest market share ever in the premium golf ball category. Finally, we continued our digital transformation with the recent launch of our new cross-brand consumer data platform, which will help unlock further synergies between our brands. Despite strong performance in our core businesses, we are lowering our annual revenue guidance by $80 million to a range of $4,435 to $4,475 million reflecting significant currency volatility and weaker trends at our Jack Wolfskin business. That said, we remain confident in our ability to drive bottom line and cash improvements and are reaffirming our adjusted EBITDA guidance and increasing our EPS and cash flow expectations, as well as paying off $50 million of term loan debt.”

Consolidated Results Commentary
(all comparisons to prior periods are calculated on a year-over-year basis, unless otherwise noted)

The company’s net revenue of $1,144.2 million was in line with expectations and decreased 2.0 percent year-over-year, due to a 15.2 percent decrease in the Active Lifestyle segment, which offset a 4.8 percent and 1.4 percent increase in the Topgolf and Golf Equipment segments, respectively.

Income from operations decreased $13.6 million on a GAAP basis and $16.6 million on a non-GAAP basis. The decrease was largely driven by a $12.6 million decrease in Active Lifestyle operating income, partially offset by increases in Golf Equipment and Topgolf operating income.

Net income decreased $18.5 million on a GAAP basis and $17.4 million on a non-GAAP basis compared to the same period in the prior year. This decrease was primarily attributable to the decrease in operating income previously mentioned.

Adjusted EBITDA of $160.9 million grew 2.3 percent, driven primarily by an $11.7 million increase at Topgolf.

First Quarter 2024 Segment Commentary
(all comparisons to prior periods are calculated on a year-over-year basis, unless otherwise noted)

Topgolf
Segment revenue increased $19.3 million or 4.8 percent, to $422.8 million, driven primarily by new venues. Same venue sales of negative 7 percent was in line with expectations and reflects lapping a post-COVID surge in the corporate events business in Q1 2023 and, separately, extreme weather during January 2024.

Segment operating income increased $0.1 million to $2.9 million and Segment Adjusted EBITDA increased $11.7 million, or 24.3 percent, to $59.8 million primarily due to increased revenue from new venues and improved venue level margins.

Golf Equipment
Segment revenue increased $6.2 million or 1.4 percent to $449.9 million, primarily due to strong sales from our recent Chrome Tour ball launches as well as the strength of its new Ai Smoke golf clubs. Segment operating income increased $0.5 million, primarily due to increased operating efficiencies.

Active Lifestyle
Segment revenue decreased $48.7 million or 15.2 percent to $271.5 million resulting primarily from lower wholesale revenue at Jack Wolfskin driven primarily by a soft macro backdrop in Europe as well as a corporate channel sell-in at TravisMathew which occurred during the first quarter of 2023 and did not recur in Q1 2024, as expected. Segment operating income decreased $12.6 million due to the decrease in revenue.

2024 Balance Sheet Highlights

  • Inventory decreased $226.9 million year-over-year to $702.9 million.
  • The company repriced its Term Loan B, reducing its interest rate by 60 basis points, which is expected to result in annualized interest expense savings of approximately $7 million based upon current outstanding principal amounts.
  • Since its last earnings call, the company has repurchased one million shares of its common stock for a total cost of $16.1 million.
  • The company announced plans to accelerate the repayment of the outstanding principal of its Term Loan B with a $50 million partial prepayment at the end of May.

Business Outlook
The company’s updated outlook reflects increased foreign currency headwinds, and higher levels of inventory at retail and softer market conditions in Europe negatively impacting the Jack Wolfskin business. Despite these headwinds, the company is maintaining its Adjusted EBITDA outlook. The company is also increasing its earnings per share expectations by $0.05 cents per share to reflect the repricing of its term loan, planned repayment of $50 million in term loan debt and improved cash flow. The 2024 projections set forth below are based on the company’s best estimates at this time.

The updated 2024 outlook calls for:

  • Sales between $4,435 million to $4,475 million versus $4,515 to $4,555 previously. In 2023, sales were $4,285 million.
  • Topgolf revenue to be approximately $1,960 million, the same as previous guidance. In 2023, Topgolf’s sales were $1,761 million.
  • Topgolf same venue sales growth to be slightly positive to down low single digits. Previously, same-venue growth was expected to be approximately flat. In 2023, same-venue growth was up 1 percent.
  • Consolidated adjusted EBITDA between $620 million and $640 million, the same as previous guidance. In 2023, consolidated adjusted EBITDA was $597 million.
  • Topgolf’s adjusted EBITDA to be approximately $350 million, the same as previous guidance. In 2023, Topgolf’s adjusted EBITDA was $304 million.
  • Non-GAAP diluted EPS in the range of 31 cents to 39 cents, versus guidance in the range of 26 cents to 34 cents previously. In 2023, earnings were 49 cents a share.

For the second quarter, sales are expected in the range of $1,180 million and $1,200 million compared with $1,180 million in the same period a year ago. Consolidated adjusted EBITDA is expected in the range of $191 to $201 million, down from $206 million a year ago.

Image courtesy Topgolf