Callaway closes Q4 on high; outlook positive for 2022

Company's acquisition of Topgolf earlier in 2021 continues to bolster company's revenue growth and profitability

Callaway Golf (NYSE: ELY) found success in non-traditional businesses and saw a decline in profits for the equipment business, nonetheless resulting in a successful fourth quarter and 2021. The market did not respond positively on Friday, with Callaway stock price dropping 9.5% to $22.92 on the NYSE.

Callaway released its financial results for the fourth quarter on Feb. 10 and saw an increase of $337 million in net revenue from last quarter. Callaway also reported a large, consolidated net revenue of $3.1 billion, up over $1.5 billion from 2020. Callaway attributes the strong performance to the acquisition of Topgolf on March 8, 2021. Despite the prevalence of the Omicron variant, Callaway recognized a large uptick in walk ins and event bookings for the popular golf entertainment facility.

Callaway president and CEO Chip Brewer said: “The combination of Topgolf and Callaway early in the year was transformational and we have been thrilled by the strong revenue growth and profitability, with both exceeding our initial expectations.”

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Callaway Jaws Wedges
Callaway Golf's Q4 report shows that revenues decreased 24.5% year over year in the golf equipment category.

As proof of the successful acquisition, the Topgolf segment reported $336 million in revenue for the fourth quarter, representing 35% of Callaway’s net revenues for 2021. This is a good omen for the year to come, as Brewer expressed excitement and optimism for the expansion of its Toptracer technology, confident that it will provide long-term value to the shareholders. The technology, created in 2006 by Daniel Forsgren and purchased by Topgolf in 2016, works by fitting cameras above driving range bays to track the ball and provides results to the golfer on screen.

Second behind Topgolf contributions to revenue, are apparel, gear and other goods. Callaway reports that the soft good segment contributed $215 million in net revenue, up $54 million from Q4 2020. The company saw a 39.8% increase in apparel sales and a 19.3% increase in gear and other sales across all Callaway brands. Brewer noted the extraordinary performance of the apparel and gear category, and he believes that the invigorated brand momentum will launch them into a successful 2022.

With a new product release on the horizon, Callaway shifted resources and finance from equipment manufacturing to focus on operations for the 2022 launch. The original product categories the brand built its reputation on in hard goods ended the year with significant weakness as revenues decreased 24.5% year over year in the golf equipment category. The segments’ operating income also dropped by $29 million, credited to the re-allocation of time and money.

A few months ago, Callaway’s board of directors authorized a new share repurchase program and have repurchased 946,637 shares at an average price of $26.41 in 2021. Non-GAAP loss per share was $0.19 in Q4, an increase of $0.14 from 2020’s fourth quarter. The increased share count seems to be ultimately connected to the Topgolf merger.

Callaway’s shift in brand focus, its acquisition of Topgolf and growing popularity of the sport contributed heavily toward a positive but non-traditional revenue year in 2021. In November, Callaway completed a $30 million minority investment in Five Iron Golf, a privately-owned, urban indoor golf and entertainment company that offers simulator rentals, golf lessons, custom club fittings and social events. Callaway is accounting for the investment on a cost basis.

For the future, Callaway projects another successful year and estimates an increased revenue of $353 million from Q1 2021 to Q1 2022. Its outlook considers the impacts of the continued pandemic, changes in foreign currency and increased freight costs. Despite foreseen obstacles in the year ahead, Callaway is expected to continue to bolster its company revenues with product releases and openings of more Topgolf venues.

Topgolf is scheduled to open another venue in Knoxville, Tenn., this summer and more locations are expected to open across the country. Topgolf also plans to open international locations in Australia, Mexico and Canada. The expansion of domestic and international venues is sure to boost 2022 revenues and Callaway brand notoriety around the world.