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Topgolf Callaway Reports Positive Growth Margins

SPORTS EQUIPMENT: $1.14B Q1 Revenue, Increases FY EPS Outlook

CARLSBAD – Topgolf Callaway Brands Corp. (NYSE: MODG) is staying the course, offering investors a Q1 report that reaffirmed the company’s full year guidance with adjusted earnings ahead of expectations.

The company reported positive growth margins as it released its first quarter 2024 financial results to shareholders on May 8 for the first quarter ending March 31.

Chip Brewer
CEO
Topgolf Callaway Brands

“Our company continues to grow and strengthen,” said Topgolf Callaway Brands president and CEO Chip Brewer. “We have a strong track record of EBITDA growth and one that we expect to continue. Last year we transitioned to positive cash flow — that was a major goal of ours. That cash flow is now increasing and our run rate or embedded cash flow is expected to ramp up over the next few years. That’s an important transition and one I hope doesn’t get lost in the daily noise.”

Brewer said continued brand strength across the company’s portfolio and improving operating efficiencies were driving high confidence in a full-year EBITDA forecast and higher estimates for both EPS and cash flow.

Topgolf Callaway also increased full year earnings per share and cash generation outlook.

The company reported Q1 revenue of $1.14 billion, in line with expectations, Brewer said. Brewer and Topgolf Callaway COO Brian Lynch reported that non-GAAP Net Income of $16 million and adjusted EBITDA of $161 million were ahead of expectations.

Brian Lynch
COO
Topgolf Callaway Brands

The company also announced it had successfully completed term loan repricing, repurchased an additional 1 million shares of common stock and announced plans to pay down $50 million of term loan debt.

Topgolf Callaway, a tech-enabled golf company headquartered in Carlsbad, is focused on leading golf equipment, apparel and entertainment. It includes in its portfolio of global brands Topgolf, Callaway Golf, TravisMathew, Toptracer, Odyssey, OGIO, Jack Wolfskin and the World Golf Tour.

Founded in 1982, Callaway Golf Company merged with Topgolf International, Inc., in October 2020, completing the deal in March 2021. The merger valued Topgolf at around $2 billion, with Callaway issuing nearly 90 million shares of its common stock to Topgolf shareholders. (Callaway first invested in Topgolf in 2006 and had already owned nearly 14% of Topgolf’s outstanding shares before the merger.)

New Lines of Golf Balls, Clubs

In January of this year, Topgolf Callaway, an industry leader in equipment design, performance and innovation, announced a new line of Chrome Tour, Chrome Tour X and Chrome Soft golf balls.

Also in January, the company unveiled its latest Paradym Ai Smoke Drivers, Fairway Woods, Irons and Hybrids. The clubs feature innovative technology called Ai Smart Face, which is guided by real player data. The Ai tech strategically places multiple sweet spots across the entire face, unlocking enhanced distance for golfers.

Its new Ai Smoke clubs achieved the No. 1 U.S. market share in driver, fairway woods and irons. The company’s new Chrome Tour golf balls drove record 11% market share in the premium ball category, Brewer said.

“We delivered U.S. market share growth in clubs and golf balls and also a record new share in premium golf balls,” Brewer said. “We’re in a healthy and growing industry and we have robust plans for the second half of this year and expectations of revenue and profit growth for the year.”

Brewer said the company remains confident in its future and ability to create value for shareholders through growth with cash flow and “a uniquely strong strategic position.”

Lynch said Topgolf Callaway successfully completed term loan repricing, repurchased an additional 1 million shares of common stock and announced plans to pay down $50 million of term loan debt.

The news followed in line with Topgolf Callaway’s fourth quarter results from 2023, which included consolidated full year revenue growth of 7% and revenue growth in each of its operating segments, almost doubling its adjusted EBITDA.

New Venues, But Not (Yet) in San Diego

Topgolf earlier this year opened two venues, one in North Carolina in April, the other in Montebello earlier this month. It now has 100 global locations.

Brewer said the company planned to open seven new Topgolf venues in 2024, down from a previously planned eight — intentionally pulling back to accelerate cash flow. He said that the company’s plans remain focused on opening 10 new spots annually for the foreseeable future.

“We also remain confident in (a total) of 250 venues in the U.S. with a similar number available internationally,” Brewer said.

There has been no ETA on when San Diego will be getting a spot but Katina Metzidakis, vice president of investor relations and corporate communications for Topgolf Callaway said the company is “excited” about bringing Topgolf to the region, but had no updates to share.

More Experiences with Block Party!

Topgolf Callaway also continues to uncover new ways to improve the player experience and offer more curated products.

During Q1 Topgolf introduced “Block Party!” — its first new game since its video golf version of “Angry Birds,” which launched in 2020. “Block Party!” helps level the playing field since the whole outfield is scorable, meaning first-timers have an excellent shot at beating more seasoned players.

“One of the great aspects of this new game is that it’s fun for all player skill levels as you score points by hitting the ball literally anywhere in the outfield,” Brewer said. “Player response has been extremely positive so far and we intend to invest… to support greater awareness as we enter our peak summer months.”

Active Lifestyle Segment a Concern

The company said one of its concerns was its Jack Wolfskin product, which had been showing a decline in revenues due to challenging market conditions in its European business as well as additional currency headwinds.

Its Active Lifestyle segment revenue decreased $48.7 million or 15.2% year over year to $271.5 million resulting primarily from lower wholesale revenue at Jack Wolfskin.

That was 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, the company reported. The active lifestyle segment operating income decreased $12.6 million YOY.

Jack Wolfskin is a German outdoor apparel brand that sells clothing, footwear, equipment and gear, which was acquired by then-Callaway Golf Company in 2019.

But Lynch said Topgolf Callaway was in a good position overall.

“Despite some unfavorable foreign currency rates and some revenue softness in our Jack Wolfskin business, we had a strong start to the year,” Lynch said.

“Overall, we had better than expected adjusted EBITDA and EPS on inline revenue. Our cash used in operations improved by $79 million compared to Q1 last year.”

Topgolf Callaway Brands Corp.
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.

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