Topgolf Callaway Brands Corp (MODG) Q1 2025 Earnings Call Highlights: Navigating Challenges ...

GuruFocus News

Tue, May 13, 2025, 1:10 AM 4 min read

Consolidated Revenue: $1.09 billion, decreased 5% year-over-year.
Adjusted EBITDA: $167 million, increased 4% year-over-year.
Topgolf Revenue: Decreased 7% year-over-year.
Topgolf Operating Income: Decreased $15 million to a $12 million loss.
Topgolf Adjusted EBITDA: Decreased $16 million to $44 million.
Golf Equipment Revenue: $444 million, decreased 1% year-over-year.
Golf Equipment Operating Income: Increased 24% to $102 million.
Active Lifestyle Revenue: Decreased $17 million to $255 million.
Active Lifestyle Operating Income: Increased $6 million to $31 million.
Net Debt: $2.74 billion, including $258 million in convertible debt.
Available Liquidity: $805 million, increased $85 million year-over-year.
Inventory Balance: Decreased $49 million to $654 million.
Full Year Revenue Guidance: $4.0 billion to $4.185 billion.
Full Year Adjusted EBITDA Guidance: $415 million to $505 million.
Topgolf Same Venue Sales Guidance: Revised to down 6% to 12%.
Topgolf Revenue Guidance: $1.680 billion to $1.790 billion.
Topgolf Adjusted EBITDA Guidance: $240 million to $300 million.

Warning! GuruFocus has detected 7 Warning Signs with MODG.

Release Date: May 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Topgolf Callaway Brands Corp (NYSE:MODG) met or exceeded expectations in all business segments for Q1 2025.
The company announced an agreement to sell Jack Wolfskin to ANTA Sports, which will enhance business focus and financial flexibility.
Golf Equipment segment saw both revenues and operating margins ahead of expectations, with strong product feedback.
Topgolf initiatives like Sunday Funday and Topgolf Nights showed positive results, driving traffic improvements.
The company maintained its full-year EBITDA guidance for Topgolf despite economic challenges, indicating confidence in cost management and strategic initiatives.

Negative Points

The impact of tariffs is expected to be approximately $25 million, an increase from previous estimates.
Topgolf's same venue sales were down approximately 12% for the quarter, with corporate events particularly affected.
The Active Lifestyle segment faced challenging market conditions, with revenues down due to lower sales at Jack Wolfskin Europe.
Topgolf is perceived as relatively expensive in a slowing consumer environment, which could impact long-term sales.
The company revised its Topgolf revenue and same venue sales guidance downward due to economic uncertainty and a slow start to the year.

Q & A Highlights

Q: Can you provide an update on the core Golf Equipment business and any changes in the industry backdrop? A: Oliver Brewer, President and CEO, stated that there have been no significant changes in the industry backdrop. The golf consumer remains strong, markets are solid, and the outlook is positive with no material change.

Q: Regarding the value reset at Topgolf, how much of the softening is due to macroeconomic factors versus competition? A: Arthur Starrs, CEO of Topgolf, noted that the macroeconomic environment, particularly corporate spending pressure, has impacted the events side. The consumer is price-sensitive, but the immediate positive response to value initiatives like Sunday Funday and Topgolf Nights is encouraging.

Q: How do you plan to manage the venue level cost structure at Topgolf, given the near-term margin pressures? A: Arthur Starrs explained that they remain confident in long-term EBITDAR margin growth, targeting over 35%. They are investing in value to acquire customers and improve venue efficiency, with ongoing iterations of their labor model to adapt to changing demand patterns.

Q: Could you elaborate on the cost savings initiatives that have allowed you to maintain guidance despite tariffs and reduced Topgolf revenue? A: Oliver Brewer highlighted that proactive cost and efficiency improvements were initiated last year and accelerated this year. These efforts span corporate overhead reductions and operational efficiencies across all business areas.

Q: How are you approaching the capital structure for Topgolf in light of the potential spin-off or sale? A: Brian Lynch, CFO, mentioned that they are reassessing the capital structure due to changes in the environment. They now expect to provide less cash and possibly a modest amount of debt to Topgolf, ensuring both companies are well-capitalized post-separation.

Q: What is driving the reduction in Topgolf's same venue sales guidance, and what factors could influence hitting the top or bottom end of the guidance range? A: Arthur Starrs attributed the reduction primarily to the events business, with improved traffic trends in the 1- to 2-Bay business. The guidance range reflects current trends, with the lower end influenced by potential further declines in 3+ Bay events.

Q: How are you addressing the value proposition for the 3+ Bay events business at Topgolf? A: Arthur Starrs stated that they are offering more flexibility in the direct sales channel to win sales, while maintaining the premium nature of the product. The events business is less sensitive to price and more affected by corporate spending trends.

Q: Can you discuss the drivers behind the margin improvement in the Golf Equipment segment? A: Oliver Brewer noted that margin improvement was driven by better gross margins and OpEx reductions. Initiatives to improve yields, freight, and operating efficiency have started to manifest, although tariff impacts will increase throughout the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info