When Callaway and Acushnet release their quarterly financial reports, we usually discuss sales, earnings, and which segments are under or over-performing.
However, since news broke that Topgolf and Callaway will split into separate companies next year, the numbers and trends get a little more interesting. both Acushnet AND Topgolf Callaway released their third quarter financial reports last week and the contrast is fascinating. What we’re finding is one company riding a rollercoaster of ups and downs, profits and losses, while the other keeps moving forward, neither rising too high nor too low.
With that, here are five things to know about the Acushnet and Topgolf Callaway Q3 financial reports.
#1: Acushnet is a very stable company
Acushnet is reporting $620.5 million in sales for the third quarter. This is almost five percent compared to last year. Year-to-date (YTD) sales for the first nine months total just over $2 billion, up nearly three percent from last year.
Additionally, Titleist’s parent company almost always reports a quarterly net profit, and this pass is no different. Q3 earnings are just over $56 million while YTD earnings are $215 million. Both are down slightly from last year, but in a year projected to be mostly flat, any gain is good gain.
Acushnet’s quarterly EBITDA (Earnings before interest, taxes, depreciation and amortization) increased nearly nine percent during the third quarter of 2023 while YTD EBITDA increased nearly four percent. This is important as EBITDA reflects actual sales and profit from operations before the finance department is involved. Investors like it when EBITDA increases.
#2: Acushnet may have a FootJoy problem
However, another quarterly report shows that FootJoy’s sales are either declining or remaining static. Third quarter financials show FootJoy’s sales decreased 2.5 percent for the quarter and three percent YTD with higher selling prices partially offsetting lower sales volumes.
FootJoy is still a force with YTD sales pushing $483 million. Its relative stagnation is likely a result of increased competition in the footwear and apparel spaces. It’s not just FootJoy. Topgolf Callaway’s Active Lifestyle business segment is also struggling, with sales down 11 percent in the third quarter. Year-to-date sales are $787 million, down 10 percent from 2023. The Jack Wolfskin brand continues to struggle in Europe even as the company says a brand rebuilding program is underway.
Acushnet’s other markers are strong. Club-titled sales rose over 18 percent in the third quarter, driven by the new line of GT and highway drivers. Sales of Golf Gear (bags, gloves, accessories) increased over eight percent for the quarter. Growth was driven by major increases in travel gear as the acquisition of Club Glove is now fully integrated into the Acushnet family.
Surprisingly, sales of golf balls fell slightly for the quarter, but are still up four percent for the year to $646 million. The new Pro V1 line is slated for release in January.
#3: Top Golf/The Callaway split can’t get here soon enough
In September, Topgolf Callaway announced would be split into two separate entities. After looking at the company Q3 and YTD financialsthe breakup couldn’t have come at a better time. Topgolf Callaway is reporting third quarter sales of just over $1 billion. I don’t care who you are, that’s too much.
However, this is a three percent drop from last year’s performance. Additionally, the company is posting a net loss of $3.6 million for the quarter. In the big picture, that’s not much, but it’s a big change from last year’s quarterly profit of nearly $30 million.
Year-to-date sales totaled $3.3 billion, down two percent from last year. YTD earnings are also down, at $65 million versus $172 million last year. That’s a 62 percent drop. Topgolf’s sales are up for the quarter and YTD, but the company again credits sales of new locations for the growth. Same-country sales were down 11 percent for the quarter, and Topgolf Callaway expects same-country sales to end the year in either the high single digits or low double digits.
Golf club sales increased in the third quarter by nearly two percent thanks to the recent introduction of Apex irons. YTD, however, club sales are down two percent to a still-strong $882 million. Golf ball sales fell for the quarter but rose slightly for the year to $275 million. The company says it has achieved an all-time high percentage of golf balls at 22 percent.
#4: Wall Street is unhappy with Topgolf Callaway’s full-year outlook
Each quarter, publicly traded companies provide investors with a status check on where they expect to end the year. How this outlook changes over the course of the year can affect stock prices in a big way.
In its third-quarter financials, Topgolf Callaway said it expects 2024 revenue to reach $4.2 billion. While that’s a lot, it’s a slight wobble from its second-quarter estimate of $4.2 billion to $4.26 billion. It’s also down from the final 2023 sales figure of $4.28 billion.
The company expects Topgolf’s revenue to hold steady at $1.79 billion for the year, even with same-store sales down “in the low double digits.” This prediction did not change. Expected EBITDA, however, was projected to be lower.
As you might expect, Wall Street hasn’t been thrilled. Shares of Topgolf Callaway were trading at just over $10 a share on Tuesday. It fell below $9 in yesterday’s trading. CEO Chip Brewer told investors that its third-quarter results beat expectations, which makes one wonder what those expectations were.
Like Acushnet, Topgolf Callaway has a problem with the active lifestyle. TravisMathew is typically a strong performer, and despite an 11 percent sales decline, TravisMathew has opened 10 new retail locations this year. The real problem is Jack Wolfskin, which has not underperformed for several quarters. The company has begun a turnaround effort for the brand in Europe and says the brand is performing better in China.
#5: It’s a division, not a dump
The plan is to split Topgolf Callaway into two separate companies in the second half of next year. When the split was announced, the company said the capital investment and operational needs of the two entities were incompatible and an amicable divorce was simply in the best interest of investors.
It is important to note that Callaway is not “dumping” Topgolf, nor is it selling Topgolf. What is happening is an actual split of the company into two entities with the shareholders taking an equal share in each new company. That means if you own 200 shares of Topgolf Callaway stock when the split occurs, you’ll end up with 200 shares of Callaway stock and 200 shares of Topgolf stock.
Although self-proclaimed “real players” tend to scoff at Topgolf, the fact remains that the Topgolf business segment will end the year with nearly $1.8 billion in sales and a healthy net profit. Topgolf was not, is not, and never will be a “practice facility.” It’s definitely a golf-centric bar/restaurant/entertainment center. According to the company, about 10 percent of new players say Topgolf first exposed them to the game. The new Topgolf store is the company’s attempt to take advantage of those new players and make it easier for them to purchase their first set of golf clubs.
However, it is clear that the current growth trend fueled only by new countries is unsustainable. This is the driving force behind the split, but it is also clear that the individual benefit of the venue is increasing. How Topgolf ultimately drives growth beyond new locations will be interesting to watch.
Final thoughts
Not surprisingly, both companies’ third-quarter financials indicate that FootJoy and Callway’s Active Lifestyle segments are struggling somewhat. Topgolf Callaway says Golf Datatech is reporting that US golf tee sales are down nine percent. Regardless, the trends for both companies’ apparel divisions are troubling. Apparel tends to be a high-volume, low-capital business (compared to clubs).
Now that Callaway is on its way to becoming gear-focused again after the split happens, it’s interesting to compare it directly to Acushnet. Removing Topgolf from the year-to-date numbers, we see Callaway’s sales for the first nine months of 2024 totaling $1.945 billion. This compares to Acushnet’s YTD sales of just more than $2 billion.
Callaway expects to end 2024 peaks in golf club sales for the third year in a row and nine of the last 10 years. Acushnet makes up for it by dominating golf ball sales. The two companies are also somewhat involved in sales of clothing and accessories.
It’s also important to note that while being the biggest is a prize for those of us who watch for a living, growth and profitability remain the objective for those who actually run those companies. In this regard, the Callaway-Topgolf split is critical for Callaway as it turns into a golf-centric brand.
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