Topgolf Callaway Posts Wider Q4 Loss On Strong Double-Digit Growth

Topgolf Callaway Brands Corp. posted another strong quarter to end 2022, delivering a 19.6 percent increase in revenue to $851.3 million in Q4, reflecting growth in each operating segment, major product category and region. The fourth quarter revenue growth was achieved despite a $37.8 million negative foreign currency impact on fourth quarter 2022 revenue.

Topgolf segment revenue increased 21.9 percent to $409.5 million (+22.9 percent constant-currency) in Q4, compared to the prior-year quarter. Same venue sales grew approximately 11 percent compared to pre-pandemic sales in 2019, reflecting continued strong demand. Topgolf opened six new owned and operated Topgolf venues.

Golf Equipment segment revenue increased 17.7 percent, to $190.0 million (+25.3 percent constant-currency), driven by growth in the golf ball and golf club product categories.

Active Lifestyle segment revenue increased 17.4 percent to $251.8 million (+27.7 percent constant-currency), driven by growth in both the apparel and gear, accessories and other product categories.

Topgolf segment operating income decreased $3.6 million (or 59.0 percent) to $2.5 million, and segment Adjusted EBITDA decreased $2.8 million (or 6.1 percent) to $43.2 million, compared to 2021, both primarily due to planned increases in pre-opening costs and marketing expenditures, as well as extreme weather in late December.

Golf Equipment segment operating income increased $25.6 million (or 102.8 percent) to 0.7 million from a 24.9 million loss in the prior-year quarter, primarily due to volume and pricing benefits, which more than offset higher input costs and unfavorable foreign exchange rate impacts.

Active Lifestyle segment operating income increased $2.4 million (or 104.3 percent) from a loss of $2.3 million in the prior-year period, as continued momentum in the business more than offset unfavorable foreign exchange rate impacts and market-related challenges in Europe and China.

As a result of its continued strong revenue growth, the company reported a 36.6 percent improvement in its net operating loss, or 42.4 percent on a non-GAAP basis, in the fourth quarter. Due to the seasonality of the company’s business, the company has historically reported an operating loss in the fourth quarter.

The company’s total net loss for the fourth quarter of 2022 was $72.7 million, or $50.8 million on a non-GAAP basis, compared to a net loss of $26.2 million or $35.5 million on a non-GAAP basis for the same period in 2021. During the fourth quarter of 2021, the company benefited from significant favorable tax adjustments related to the Topgolf merger, which improved its reported net loss. Adjusted EBITDA, which excludes, the tax benefits from both periods, among other items, increased 155.9 percent to $36.6 million in the fourth quarter of 2022 compared to the same period in 2021.

Fourth quarter EPS loss was 39 cents a share, compared to 14 cents per share for Q4 2021.

Topgolf Callaway Brands said the strong fourth quarter results were the culmination of another record year for the company. For 2022, the company reported record revenue of $3.96 billion, an increase of 27.5 percent compared to 2021, despite a $148.1 negative impact from changes in foreign currency rates.

Topgolf segment revenue increased 42.4 percent to $1.55 billion (+43.3 percent constant-currency) compared to 2021, driven by continued successful new venue openings, and strong same venue sales growth of 7 percent compared to pre-pandemic sales in 2019, reflecting a balanced increase of traffic and price, and a successful corporate and social events business. Topgolf opened 11 new owned and operated Topgolf venues and two international franchise venues.

Golf Equipment segment revenue increased 14.4 percent to $1.41 billion (+19.6 percent constant-currency) for full-year 2022, driven by strong demand from the core golf consumer, additional supply capacity and inventory fill-in at retail.

Active Lifestyle segment revenue increased 27.4 percent to $1.04 billion (+36.5 percent constant-currency), driven by a 28.7 percent increase in apparel sales and a 25.4 percent increase in gear, accessories and other sales.

Topgolf segment operating income increased $18.6 million (or 32.0 percent) to $76.8 million, and segment Adjusted EBITDA increased $58.3 million (or 32.9 percent) to $235.4 million, compared to 2021, both due to the opening of new venues and increasing same venue sales during the period.

Golf Equipment segment operating income increased $47.5 million (or 23.3 percent), primarily due to volume and pricing benefits, which outpaced higher input and freight costs and unfavorable foreign exchange rate impacts.

Active Lifestyle segment operating income increased $8.9 million (or 13.0 percent), as continued momentum in the business outpaced unfavorable foreign exchange rate impacts and macroeconomic issues in Europe and China.

Net income was approximately $158 million on both a GAAP and non-GAAP basis, and on a non-GAAP basis represented a 14.7 percent increase compared to 2021 non-GAAP net income for the same period. Full year 2022 Adjusted EBITDA increased $112.7 million, or 25.3 percent, to $558.1 million compared to 2021.

The company’s full year 2021 GAAP other (expense) income, net includes the recognition of a $252.5 million one-time gain on the company’s pre-merger investment in Topgolf.

Full year EPS was 82 cents per share, compared to $1.82 per share for full-year 2021.

“I am pleased to report that 2022 was an outstanding year for Topgolf Callaway Brands, marked by record revenue and strong Adjusted EBITDA growth, driven by strength across all operating segments and global regions,” commented Chip Brewer, President and Chief Executive Officer of Topgolf Callaway Brands. “Our performance was driven by a combination of Topgolf new venue development and same venue sales growth, very strong consumer reception of our Rogue golf clubs and Chrome Soft golf balls, and continued brand momentum in the Active Lifestyle segment. Our global team continues to prove its ability to operate effectively at scale, delivering on our short-term goals and building toward the long-term growth targets introduced at our 2022 Investor Day.”

“From an industry perspective, interest in on-course and off-course golf continued to gain momentum throughout the year, with total golf participation in the U.S. exceeding 41 million people in 2022, up from 37.5 million in 2021, according to the National Golf Foundation,” continued Mr. Brewer. “And, for the first time, off-course participation surpassed on-course participation, a trend we believe will continue. For every 11 new Topgolf venues we deliver annually, we expect to add approximately three to four million unique visitors. With our venue development, we see a clear path to structural growth for the Modern Golf ecosystem, an attractive market in which Topgolf Callaway Brands is uniquely positioned to lead.”

Topgolf opened 11 new owned and operated venues in 2022, including 6 in Q4, and delivered same venue sales growth of 7 percent and 11 percent for the full year and Q4, respectively, compared to 2019.

Looking ahead, MODG sees revenue of $4.42 billion to $4.47 billion, representing growth of 10 percent to 12 percent compared to 2022. Adjusted EBITDA is estimated in the range of $620 million to $640 million, representing growth of 11 percent to 15 percent compared to 2022.

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