CARLSBAD – Golf club manufacturer Topgolf Callaway Brands Corp. (NYSE: MODG) is considering spinning off its chain of Topgolf driving ranges in response to declining sales revenue.
CEO Chip Brewer discussed the possible spinoff on Aug. 7 while presenting the company’s financial results for the second quarter, which ended June 30.
The company’s stock dropped about 22% following the announcement, which showed an almost 2% decline in revenue.
CEO
Topgolf Callaway Brands
“We remain convinced that Topgolf is a high-quality business with significant future opportunity,” Brewer said during the Aug. 7 conference call and webcast. “It is transforming the game of golf, and we believe it will deliver substantial growth and financial returns over time.
“At the same time, we have been disappointed in our stock performance for some time, as well as the more recent same-venue sales performance,” he continued.
Topgolf accounted for $494.4 million of the company’s $1.2 billion second-quarter net revenue, a 5% increase over last year’s second quarter.
Topgolf venues that are at least two years old, however, saw revenue below expectations and down 8%, prompting concerns about the brand’s future.
The 2Q report showed a 1.9% decline in total year-over-year revenue, leading the company to adjust its revenue and earnings projections downward for the year.
Golf equipment revenue was $413.8 million for the quarter, down 8.2%, and revenue from active lifestyle, which includes Jack Wolfskin outdoor gear, TravisMathew apparel and Ogio bags and luggage, was $249.6 million, down 3.2%.
The drop in equipment revenue could be explained by the timing of new releases, and the decline in active lifestyle sales was expected and primarily due to inventory issues and changes in foreign currency rates, Brewer said.
Callaway acquired Dallas-based Topgolf Entertainment Group in 2021 for $2.66 billion. The attractions are in 80 locations internationally and feature a driving range, sports bar and digital entertainment.
Changes Since Acquisition
Topgolf USA has announced plans to open its first entertainment center in San Diego sometime next year.
The company has opened three new venues this year and has four more under construction, and Brewer said Topgolf USA is performing well in venue margins and new venue development, two of its three key performance drivers.
CFO
Topgolf Callaway Brands
“On the same-venue sales front, results have been below our expectations, and we are committed to improving here,” he said, referring to venues that have been open at least two years.
Brewer suggested the downturn could be attributed to belt-tightening because of inflation.
“I believe that the vast majority of what we are seeing is an economic cycle and/or a post-COVID normalization in the events portion of our business,” he said.
Positive Future Signs
While the company saw a decrease in golf equipment revenue, Brewer said the drop was consistent with expectations and is primarily due to the timing of product launches, and he expects sales revenue will be up for the full year.
On Monday, Callaway Golf released its new line of Apex irons with the Apex Ai200 and Ai300, which the company referred to as its “most complete forged game-improvement iron.”
“This is our most premium line of irons, and the product is both beautiful and innovative,” Brewer said on the call.
Brian Lynch, chief financial officer and chief legal officer, said despite the almost 2% decrease in revenue, the non-GAAP new income of $83 million, adjusted earnings before interest, taxes, depreciation, and amortization of $206 million and a 42 cent increases per share were all ahead of expectations.
The company is lowering its full-year 2024 revenue guidance range by $225 million, or about 5%, he said.
Plans to improve Topgolf’s revenue include new digital games, concerts and live DJs.
“From this point forward, on a national basis, we will be delivering exciting and fun new reasons to visit at least three to four times per year,” Brewer said, adding that the company has hired a new chief operating officer who had worked in the casino business.
“You know, and I’m excited about our direction,” he said. “ I believe we’re going to come out of this period of volatility significantly stronger and our efforts will pay dividends in the long run.”
Topgolf Callaway Brands
FOUNDED: 1982
FOUNDER: Ely Callaway Jr.
CEO: Chip Brewer
HEADQUARTERS: Carlsbad
BUSINESS: Sports/Leisure
REVENUE: $4.28 billion (2023)
STOCK: NYSE: MODG
EMPLOYEES: 30,000+
WEBSITE: www.topgolfcallawaybrands.com
CONTACT: 877-723-5218
SOCIAL IMPACT: In 2019, the company launched a global sustainability program to increase awareness and structure to its social and environmental sustainability efforts.
NOTABLE: Callaway is the world’s largest manufacturer of golf clubs and was founded by a former Burlington Industries textile president Eli Callaway Jr., and is said to have first sold clubs out of his car.
