EXEC: Callaway Golf Hikes Guidance as golf swing picks up

Callaway Golf raised its earnings and sales outlook for the year after announcing that first-quarter earnings were well above expectations. Demand for its golf equipment and soft product lines remained robust as Topgolf rebounded towards the end of the quarter after being impacted by early Omicron spikes.

In the quarter ended March 31, sales jumped 59.6% to $1.04 billion, beating the company’s forecast of between $1,005 and $1,025 million provided on February 10 during the publication of fourth quarter results.

First quarter 2022 adjusted EBITDA increased 32.9% to $169.8 million, far exceeding company guidance in the $130-145 million range.

“These results clearly show the continued momentum of our business and give us growing confidence as we look to the full year and the long term,” said Chip Brewer, president and chief executive officer, on a call with officials. analysts.

Topgolf achieves sales of $322 million in the first quarter
Topgolf, acquired on March 8, 2021, had sales of $322.0 million in the first quarter compared to $92.6 million in the 23 days of ownership a year earlier.

“Team Topgolf had another outstanding quarter,” said Brewer.

As noted in the fourth quarter earnings report, Topgolf venue activity in February was impacted by reduced traffic and lighter event activity due to Omicron; however, as the quarter progressed, this early weakness was replaced by a recovery in demand. Same-site sales in March were up about 10% from 2019, pushing full-quarter same-site sales up 2%, slightly beating Callaway’s February earnings call forecast. .

Site openings remained on track with the opening of a new owned-and-operated site in Ontario, California, as well as a franchise site in Germany during the quarter, and a site opened in El Segundo, in California, in mid-April. Said Brewer, “I am pleased to report that all of these venues are exceeding expectations as the venues team continues to impress and our brand appears to be gaining momentum.”

Due to the improving trend, Callaway is increasing its same-site sales projections for the second quarter and the remainder of the year for Topgolf to high single digits from 2019, representing growth at a medium to high figure for the whole year.

Topgolf’s operating profit reached $6.5 million, compared to $4.0 million a year ago. Operating margins “remain healthy” as Topgolf took the prize and drove both increased event business and overall venue efficiency. Says Brewer, “This combination allows our overall margins to overcome all inflationary pressures, while maintaining a superior customer experience.”

At its golf technology business Toptracer, 1,159 new bays were installed in the first quarter and a total of 8,000 or more bays are on track to be installed this year. Says Brewer, “Feedback on product and demand remains strong, and we are building resources to accelerate our installations.”

Brewer said that in 2022, Topgolf will be Callaway’s largest segment by revenue and is expected to represent more than half of the company’s total adjusted EBITDA by 2025. According to Brewer, “ Topgolf is the keystone of our modern golf thesis. It is already the dominant leader in the dynamic off-course golf industry, and we believe it will maintain that position given its significant growth prospects ahead.

Golf equipment sales jump 24%
In the golf equipment segment, sales jumped 24.2% in the first quarter to $468.0 million, reflecting continued strong demand for golf clubs and golf balls coupled with improved ‘offer. Golf Equipment operating profit increased 18.7% to $100.8 million amid strong sales.

Brewer said Callaway continues to see golf equipment sales increase 10% this year on top of strong gains during the pandemic.

“We continue to see strong global demand for golf equipment, particularly from avid golfers,” Brewer said.

He noted that according to Golf Datatech in the United States, despite relatively bad weather this year, sales of durable goods in the first quarter fell only 2.8% compared to 2021 and remained up 44 .5% compared to 2019. Outside of the United States, in key markets such as Japan, Korea and in Europe, sales of durable goods in the first quarter increased year-over-year. Market share gains were seen for its 2022 products, particularly Rogue ST Drivers, Ferry Woods and Chrome Soft golf balls. For the first quarter, Callaway finished as the No. 1 durable goods brand in the United States, and in March achieved a new US golf ball market share record of 22%.

Brewer added, “On the manufacturing side, our supply chain continues to function well. And although supply has yet to catch up with demand, we believe that our strong partnerships, scale and regional diversification have provided and will continue to provide a competitive advantage in being able to deliver products to our customers.

37% increase in clothing, equipment and other income
In the Apparel, Equipment and Others segment, sales jumped 37.4% to $250.2 million, driven by a 45.2% increase in apparel sales and a 28.8% increase in sales equipment and others. Strong apparel sales were driven primarily by the TravisMathew and Callaway brands, while Jack Wolfskin performed relatively well given the macroeconomic situations in Europe and China.

Apparel, Equipment and Others operating profit increased 30.2% year-on-year to $26.7 million.

“Callaway’s business remained strong globally, with our Asia apparel business performing well and our equipment business, namely golf bags and gloves, driving both market share and revenue. revenue increases,” Brewer said of the Callaway brand’s apparel and bags business.

TravisMathew continued its strong momentum across all channels with owned retail sales up 50% in the first quarter. In addition, the brand plans to launch its first collection dedicated to women’s ready-to-wear. Brewer said: “While this first rollout is more of a preliminary collection and not yet a major source of revenue, with women representing over 25% of purchases made through TravisMathew’s direct-to-consumer channels, we are both confident and excited about the opportunity here. Throughout this year, we plan to continue testing and expanding the offering, and we have a stronger launch plan for 2023.”

Brewer said Callaway continues to see the TravisMathew brand eclipse $300 million in revenue and $50 million in adjusted EBITDA by the end of this year. Brewer added: “They have impressive momentum and we see a clear path to continued growth ahead.”

Brewer said Jack Wolfskin “continues to make good progress. As a European-based brand, they face a number of macro headwinds, but I’m happy to report that their new brand campaign and products are very well received, both based on sales of current products and pre-books for the future.”

GAAP operating income increased by 23.9% to $94.3 million and non-GAAP operating income increased by 9.8% to $106.0 million, in an environment strong sales in all segments. Price increases, volume differentials and efficiencies have generally been able to offset the pressures exerted by exchange rate fluctuations, increased transportation costs and other inflationary effects.

First-quarter 2022 GAAP net income decreased 68.2% to $86.7 million, or 44 cents per share, primarily due to the $252.5 million non-cash gain on Topgolf in first quarter of 2021, partially offset by a $65.4 million favorable change in corporate taxes. valuation allowance from period to period. On a non-GAAP basis, which excludes, among other things, the Topgolf gain and the change in valuation allowance, non-GAAP net income decreased 7.4% to $70.9 million , or 36 cents per share. The first quarter 2021 results do not include Topgolf’s $27.8 million pre-tax loss for January and February, which occurred before the merger closed.

Elevated outlook
For the current year, sales are now expected to be between $3,935 million and $3,970 million, up from the previous forecast of $3,780 million to $3,820 million. Sales on a proforma basis were $3,276 million a year ago.

Adjusted EBITDA for 2022 is expected to be in the range of $535-555 million, up from previous guidance in the range of $490-515 million. In 2021, adjusted EBITDA on a pro forma basis was $448 million.

Photos courtesy of Callaway

Michael C. Ford