Topgolf Callaway Brands (MODG) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenues decreased 2% year-over-year to $1.144 billion, in line with Q1 guidance [14] - Adjusted EBITDA increased 2% year-over-year to$ 161 million, exceeding the high end of guidance due to strong venue margins and timing of operating expenses [27][28] - Non-GAAP first quarter net income decreased approximately $17 million compared to last year, largely due to increased depreciation and amortization and interest expense [27] - Inventory decreased by$ 227 million, or 24%, from $930 million in Q1 2023 to$ 703 million in Q1 2024 [121] Business Segment Performance Changes - Topgolf's same venue sales decreased 7% in Q1, stabilizing after January weather normalized [5][7] - Active lifestyle segment revenue decreased 15% year-over-year, primarily due to lapping a significant corporate channel sell-in from the previous year [11][14] - Golf equipment operating income increased 1% year-over-year to $82 million, driven by increased revenue [15][16] Market Data and Key Metrics Changes - Callaway held the number one US market share in drivers, fairway woods, and hybrids, with a record 16% share in golf gloves [10][22] - The Japan market was down in real terms due to currency trends and lower sell-in volumes [23] - Jack Wolfskin faced challenges in Europe, leading to lowered full-year revenue expectations for the brand [24][51] Company Strategy and Development Direction - The company remains on track for organic revenue growth targets and is confident in achieving a 35% EBITDA margin for the full year [8][12] - Plans to open approximately 10 new venues per year remain intact, with a total addressable market of 250 venues in the US [9] - The company is focusing on enhancing digital experiences and value offerings to drive sales at Topgolf [129] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to transition back to positive same venue sales in the second half of the year [112][132] - The company is optimistic about the strength of its core brands and market conditions despite challenges in certain segments [108][138] - Management highlighted the importance of upcoming marketing and consumer programs to drive sales growth [112][132] Other Important Information - The company successfully repriced its term loan B, reducing the interest rate by 60 basis points, resulting in annualized savings of approximately$ 7 million [13][120] - Free cash flow is expected to improve by approximately $60 million due to working capital improvements and lower cash interest [32] - The company repurchased one million shares of stock since the last earnings call [120] Q&A Session Summary Question: What are the drivers of the April softness in Topgolf's performance? - Management noted that the softness was due to less spring break time available prior to Easter, impacting same venue sales significantly [58] Question: Can you elaborate on the changes in revenue guidance? - Management explained that the revenue guidance was lowered by$ 80 million due to $45 million from Jack Wolfskin and$ 35 million from currency headwinds [104] Question: How is the Jack Wolfskin business expected to perform? - Management indicated that Jack Wolfskin is facing challenging market conditions in Europe, but they expect positive EBITDA growth for the brand in 2024 [24][51] Question: What is the impact of the new labor model on margins? - Management confirmed that the new labor model has positively impacted margins, contributing to improved operating efficiencies [94] Question: How is the company managing costs in light of revenue challenges? - Management stated that they are managing costs across all businesses and driving operational efficiencies to offset revenue challenges [44][49]