Topgolf Callaway Brands Corp (MODG) Q1 2024 Earnings Call Transcript Highlights: Strategic ...
Revenue: Q1 revenue of $1.14 billion, in line with guidance.
Net Income: Non-GAAP net income decreased by approximately $17 million compared to last year.
Earnings Per Share (EPS): Reported at $0.09 for Q1; full year EPS forecast increased by $0.05 per share.
Free Cash Flow: Improved by approximately $60 million; embedded free cash flow improved by $40 million.
Gross Margin: Venue-level EBITDAR margin increased by 180 basis points year-over-year.
Same-Store Sales: Topgolf same venue sales down 7% in Q1, in line with expectations.
Store Locations: 92 owned and operated venues in the U.S., 4 internationally-owned venues, and over 100 globally including franchisees.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Reported strong Q1 results with revenue of $1.14 billion in line with guidance and improved EBITDA of $161 million.
Achieved market share gains in Golf Equipment due to successful product launches.
Implemented effective currency hedging programs and operating efficiencies, leading to better-than-expected cash flow and EPS.
Continued expansion with new Topgolf venues and advancements in digital and experience enhancements to drive sales.
Strengthened inventory management and reduced costs, leading to a decrease in consolidated inventory by $227 million from Q1 last year.
Negative Points
Lowered full year revenue expectations by $80 million due to challenging market conditions in the Jack Wolfskin European business and additional currency headwinds.
Experienced a 7% decline in Q1 same venue sales, influenced by post-COVID surge in 2023 and extreme weather conditions.
Faced softness in the Active Lifestyle segment, particularly with the Jack Wolfskin brand in Europe.
Encountered delays in venue openings, pushing the expected opening in New Braunfels, Texas, from Q4 2024 to 2025.
Experienced a slower start in April for Q2, impacting the pace towards full year same venue sales targets.
Q & A Highlights
Q: Could you elaborate on market share gains that you cited, customer response and maybe wholesale feedback from your Ai Smoke and Chrome Tour ball launches? Just any change in the growth assumptions for Golf equipment this year outside of foreign exchange? A: Oliver G. Brewer (President, CEO & Director) - The market share gains for Ai Smoke and the strength of the brand remains quite strong. In the U.S., market share was up 210 basis points in the hard goods segment, which combines clubs and ball. We were up 230 basis points in clubs and up 120 basis points in ball with a record market share in the premium category. We have a very robust and strong second half product pipeline and plan.
Q: Could you just elaborate on the choppy conditions that you're seeing or maybe just drivers of the April softness between traffic or price? And then just how best to rank the initiatives in place as the year progresses to return to positive comps in the back half? A: Oliver G. Brewer (President, CEO & Director) - We've had 2 periods of marked volatility this year in our same venue sales results, one in January due to extremely cold weather, and the first 3 weeks of April, timed with Easter and spring break. We have a lot coming in terms of initiatives, including a new ad campaign, a new game, and other new energy we're bringing throughout the summer. We're really building our focus and capability around this same venue sales.
Q: How should we think about the corporate events business versus walk-in, in 2Q and for the rest of the year, especially given the events comps get much easier in the second quarter? A: Oliver G. Brewer (President, CEO & Director) - The events business is clearly stabilizing and gliding towards flat. After we get it to flat, we're going to grow it. The 1- to 2-Bay, we have had those 2 periods of volatility that I called out. Other than that, flat to slightly up with a number of initiatives that we're calling out and working on to continue to drive improvement, and we're confident in the direction of same venue sales.
Q: Is there any way to quantify the Jack Wolfskin and FX impact to EBITDA? You did maintain the guide for EBITDA. I think Topgolf was unchanged. So is there -- is Golf Equipment, is the expectation in that business a little bit better to offset the headwinds from Jack Wolfskin and FX from an EBITDA perspective? A: Brian P. Lynch (Executive VP, Chief Legal Officer & CFO) - The change in the revenue guide is $35 million related to changes in foreign currency and $45 million related to the Jack Wolfskin business. On the foreign currency piece, we have a hedging program that will minimize the impact of the change in FX on the bottom line. Not completely, but to a large extent. And then the Jack Wolfskin business is taking actions to manage costs as they go through -- as Chip mentioned, they were going through new management team, going through the whole business. They'll manage cost in light of the drop in revenue.
Q: We wanted to ask first about the impact of the new labor model to your margins. Is there a way to quantify how much it impacted Q1? And how should we think about its contribution throughout the rest of the year? A: Oliver G. Brewer (President, CEO & Director) - You've seen us have a steady trend of driving improved operating margins at Topgolf, right? We were up 180 basis points year-over-year. And during all of last year, you heard about us talking about implementing PIE. We got PIE fully implemented in Q4. That digital reservation system drives and allows us to improve overall operating efficiencies, and you're just continuing to see us realize the fruits of that labor, and it will continue.
Q: I'm trying to understand a little bit better about the Chrome Tour launch. Is that an 11% premium glove market share? Is that Chrome Tour and Chrome Soft combined? Or to what extent is Chrome Tour cannibalizing Chrome Soft? Can you give us a little more granularity around that? A: Oliver G. Brewer (President, CEO & Director) - Yes. It is both of those combined, Casey. So it is, for all intents and purposes, urethane ball market share. And it's the premium price points, $50 and higher, or $55 a dozen is our MAP price. And the 11% is all of those products, which includes Chrome Soft to Chrome Tour, Chrome Tour X.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
