Topgolf tees up earnings guidance rise for Callaway after strong Q1

Callaway Golf raised annual guidance after a strong first quarter, driven by its Topgolf driving range venues, where sales surged on pre-Covid pandemic levels after a slow start due to the Omicron variant and strong performances from its other segments. Revenue for the three months to March 31 rose 59.6 percent to $1.04 billion (€990m). Adjusted Ebitda was up 32.9 percent to $169.8 million (€161m). Net revenues were also helped by a $229.4 million (€217m) increase in the Topgolf business, which was included for a full quarter in 2022 compared to one month last year due to the timing of the merger with Callaway. The segment’s total revenue for the period was $322 million (€305m). Foreign exchange headwinds had a negative $21.2 million (€20m) year-on-year impact on net revenue.

The company increased its 2022 net revenue guidance to $3.93 billion-$3.97 billion (€3.72bn-€3.76bn) from $3.7 billion-$3.8 billion and adjusted Ebitda to $535 million-$555 million (€507m-€526m) from $490 million-$515 million.

Topgolf, which allows golfers to use balls that electronically track data, saw healthy walk-in traffic and increased event bookings. Improved sales, operating efficiencies and pricing in the venues continued to outpace any labor or input cost pressures. “As we look out over the next few years, we believe Topgolf will be a significant source of long-term value creation,” said chief executive Chip Brewer. Calling the segment “the keystone of our Modern Golf thesis,” Brewer said Topgolf was already earmarked to be Callaway’s largest segment by revenue and expected to account for more than half of total adjusted Ebitda by 2025.

In other segments, golf equipment net revenue increased 24 percent year on year to $468 million (€443m), reflecting the continued high demand for golf clubs and golf balls, coupled with improved supply. In the apparel, gear and other segment, net revenue rose 37.4 percent to $250 million (€237m), driven by a 45.2 percent increase in apparel sales and a 28.8 percent improvement in gear and other sales. Apparel sales were driven primarily by TravisMathew and Callaway brands, and Jack Wolfskin performed relatively well given the macroeconomic situations in Europe and China, Callaway said.

Chief financial officer Brian Lynch said that increased freight costs affected gross margins as fees ramped up during 2021. He added that the company also shipped more by air in the first quarter to compensate for supply chain disruptions at the end of last year but expected cost improvement as the year progressed. “We have made relatively modest use of price so far this year. And while our margins are all trending positively, we believe there is an opportunity for additional price increase should we need to offset costs further in the future,” he said.