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Tuesday, May 21, 2024

Topgolf Callaway’s Q1 Above Par

GOLF: CEO Says ‘Major Indicators Solid’

Teeing off into uncertain economic headwinds, Topgolf Callaway Brands’ Q1 2023 earnings came in above par, with the Carlsbad-based company posting revenues of $1.17 billion – $130 million more than Q1 2022.

Chip Brewer
President & CEO
Topgolf Callaway Brands Corp.

“Our business is off to a strong start with first quarter revenue and adjusted EBITDA coming in ahead of our expectations,” CEO Chip Brewer told investors during the May 9 earnings call. “The outperformance was driven largely by continued operational momentum at the Topgolf venues, as well as a strong launch of our Paradym family of clubs.”

Topgolf Callaway’s Q1 ER marked the sixth consecutive quarter of same venue sales growth at the company’s Topgolf entertainment venues. Topgolf Callaway  defines same venue sales for its Topgolf business as sales for the comparable venue base, which is defined as the number of company-operated venues with at least 24 full fiscal months of operations in the year of comparison.

Topgolf’s same venue sales grew 11% in Q1 2023 compared to Q1 2022. Brewer said the Topgolf segment exceeded expectations in revenue and profitability due to “more operational efficiency.”

Although Topgolf Callaway expects Topgolf sales to continue to grow, the company lowered its full year expectations for the popular social venue due to “corporate events trending lower starting late in Q1,” mostly due to the banking crisis causing corporate spending to trend lower, Brewer said. He added that the company views the trend as “near term volatility” and not a “long term concern” for the viability of corporate sales.

“Looking forward, there’s certainly some macroeconomic uncertainty around the world. However, across all of our business segments, our core consumers remain engaged,” Brewer said, and pointed to Topgolf Callaway’s strategy to leverage its “leadership position” in on- and off-course golf, “what we like to call ‘modern golf.’”

Brewer added that the “key point” for investors is that Topgolf’s brand momentum makes the company “increasingly confident” in its ability to drive “long-term same venue growth” leading to higher venue profitability expectations from an estimated “three to four million off-course golf participants each year.”

Despite earnings that beat expectations, investors did not share Topgolf Callaway’s confidence. In the week following the Q1 report, MODG shares fell roughly 23%, fueled by lowered expectations for Topgolf’s corporate business and speculation that interest in golf in general is ebbing post-pandemic.

That speculation also fueled a sell off of shares in Peer Acushnet, parent company of the Titleist brand, despite the company also reporting Q1 net sales that exceeded Wall Street expectations.

According to Bloomberg, most analysts who cover Topgolf Callaway still recommend buying shares.

‘Brand Heat’

During the earnings call, Brewer offered his own assessment of the game of golf’s health, saying “all major indicators continue to be solid.” He pointed out that rounds of golf played in March were still above 2019 levels and that interest in the sport remains high as indicated by viewership of this year’s Masters tournament.

“For those out there that have been looking for a post-COVID reversion in golf participation, I think that we would all have to agree that there is no sign of one in the current data as the game continues to be top of mind for what appears to be a sustainably larger audience with the resulting play levels remaining elevated,” he said.

Interest in golf as a lifestyle brand also remained elevated, with TopGolf Callaway reporting an increase of $70 million in revenue from its lifestyle segment, driven by strong momentum at both its TravisMathew and Jack Wolfskin brands.

Topgolf Callaway Brands Corp. (formerly Callaway Golf Company)

Founded: 1982
Headquarters: Carlsbad
CEO: Chip Brewer
Business: Golf equipment, apparel and entertainment
Stock: MODG (NYSE)
Revenue: $3.99 billion (FY 2022)
Notable: Topgolf Callaway-sponsored John Rahm was the winner of the 2023 Masters Tournament at Augusta National in April.


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