Topgolf Callaway Brands Corp. reported better-than-expected financial results for the first quarter, finishing the quarter ahead of plan. First quarter net revenues grew 12.2 percent, or 15.1 percent on a constant-currency basis, to $1.17 billion, including 11 percent Topgolf same-venue sales growth and a 28.0 percent increase in Active Lifestyle revenue. The company achieved this result despite a $29.4 million negative impact from changes in foreign currency rates.
The company’s operating performance was also ahead of plan during the first quarter. Income from operations decreased 14.6 percent to $91.0 million, but non-GAAP income from operations increased 2.2 percent on a constant-currency basis.
“Our first quarter results exceeded expectations, driven primarily by the impressive performance of our new and existing Topgolf venues and Paradym, our latest innovation in golf club design,” commented Chip Brewer, president and CEO, Topgolf Callaway Brands. “The Modern Golf consumer remains engaged and our brands continue to be well-positioned to benefit from the sustained momentum in off-course and on-course golf. Investing in our unique and attractive portfolio of leading brands continues to be our priority, and we have even more conviction in the long-term growth prospects for the business, announcing today increased Topgolf venue profitability and return targets. We remain on track to be free cash flow positive for Topgolf and the total Company in 2023, and we are committed to meeting or exceeding our long-term financial targets.”
Topgolf segment revenue increased 25.3 percent (+25.9 percent constant-currency) to $403.5 million in Q1 and same venue sales grew approximately 11 percent, reflecting the brand’s “strong resonance with the Modern Golf consumer.” Segment operating income decreased 56.9 percent to $2.8 million in the quarter, due to planned investments in marketing and labor. Operating margins exceeded the company’s expectations driven by increased efficiencies within the venues. Segment Adjusted EBITDA increased or 15.9 percent to $48.1 million due to improved operational efficiencies at existing venues and the contribution from newly opened venues, which performed very well in the quarter.
Golf Equipment segment revenue decreased 5.2 percent (-1.5 percent constant-currency) to $443.7 million, primarily due to the inventory catch-up at retail in Q1 2022 that did not recur in Q1 2023 and foreign currency headwinds versus last year. Segment operating income “slightly exceeded the company’s expectations” due to the successful Paradym launch, decreasing or 19.0 percent to $81.6 million due to foreign exchange rate impacts. Segment gross margin improved 140 basis points on a constant-currency basis with freight and price more than offsetting inflation.
Active Lifestyle segment revenue increased 28.0 percent (+32.1 percent constant-currency) to $320.2 million, driven by strong brand momentum at both TravisMathew and Jack Wolfskin. Segment operating income increased 39.7 percent to $37.3 million, as continued momentum in the business and favorable freight costs more than offset unfavorable foreign exchange rate impacts.
Overall net income decreased 53.2 percent, or $37.7 million on a non-GAAP basis, to $33.2 million in the quarter, which exceeded expectations. The non-GAAP decrease includes an $18.6 million increase in interest expense related to higher interest rates and increased interest related to new Topgolf venues, $17.3 million negative foreign currency translation impact on operating income, and a $7.2 million decrease in other income net hedge gains.
Earnings per share were 17 per diluted share for the quarter, compared to 36 cents a share in the year-ago quarter. Adjusted EBITDA decreased 7.4 percent $157.3 million, or increased by 2.8 percent on a constant-currency basis.
Topgolf Callaway Brands released the following 2023 full-year and second quarter projections based on the company’s best estimates at this time.
