“Well, We Are No Longer Waiting…”MODG Announces Q1 Earnings Ahead of National Golf Day

If you needed an excuse to beat the midweek blues to go hit the links, today is National Golf Day so, certainly your spouse or employer will understand. As fans and players alike ramp up for next weekend’s PGA Championship, it will be interesting to see if Callaway-sponsored, Jon Rahm can keep his #1 world ranking and how Justin Thomas fares defending his title as the 2022 PGA Championship winner.

Yesterday, some golf minded investors kept eyes on Topgolf Callaway Brands Corp (MODG) as they announced their Q1 earnings, after the close. The company’s first quarter numbers were on par as EPS reported was $0.17 vs Factset $0.15 and revenues were $1.17Bn vs Factset $1.14Bn. Just like a golfer who threw back too many John Dalys and has reached the turn at 3 under to play out the back 9, only to finish over par, MODG’s announcement also included a few bogies sending the stock tumbling, in Wednesday trade.

Guidance for Q2 revenues came in at $1.18 – $1.20Bn vs Factset $1.22Bn while adjusted EBITDA forecasted was $195 – $205M vs Factset $218.73. MODG’s FY 2023 EPS guidance landed in the bunker, and was lowered compared to previous report ($0.63-$0.69 vs prior guidance $0.70-$0.78). However, guidance for net revenues slightly increased ($4.420-$4.47B vs prior guidance $4.415-$4.470B).

Q2 guidance has raised some concern due to reported shipment timing and Y/Y Topgolf comparison impacted by demand tailwinds from Omnicon. However, MODG did report increased efficiency in Topgolf’s new digital reservation platform, potential for increased demand related to golf equipment as weather improves and a positive FCF projection which, can keep investors as hopeful as fans entering the annual Masters ticket lottery.

One other contributing factor that has shares rolling off the green, is the cited softness across the US, in Topgolf’s corporate business. MODG CEO Oliver Brewer stated,” Our corporate business was strong to start the quarter and is still expected to be at approximately 2019 levels for the full year. However, with the March banking crisis and what we believe is a trend towards many companies further reducing corporate spend, we view it as prudent to lower our balance of year corporate sales expectations versus our original budget.” This poses a concern as corporate events contribute to ~20% of revenues for the full year. However, it is typically the largest in Q4.

MODG cited the entire golf industry has seen sales of golf equipment slightly behind forecasts. However, product sales around retail, particularly the Callaway Paradym line, have surpassed expectations. But, when it comes to golf, almost as important as clubs, is “swag” and most would agree that it’s hard to not look good in a TravisMathew polo while sipping a transfusion, even with a 20 handicap. MODG seconded that logic as it reported revenues of $320M compared to consensus of $276M for its active lifestyle segment. Apparel revenues consisted of $176M vs $154M.

Today investors have called “Fore!” on the stock as its traded down around 17%. We will see if some decide to still find value here and play it where it lies…

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“Well, We Are No Longer Waiting…”MODG Announces Q1 Earnings Ahead of National Golf Day

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