The Q1 financial reports for golf’s two top dogs are out. And if you’re adept at reading tea leaves, you’re going to have a field day. Both Acushnet and Topgolf Callaway are presenting investors with rosy scenarios and there are no real danger signs.

But both companies are hedging their bets for 2023.

Acushnet’s numbers are typical for the company, with one glaring outlier. Net sales for Q1 topped $686 million, up over 13 percent from last year. Net profits are up over 15 percent at $93 million for the quarter.

The Topgolf Callaway Q1 press release, however, didn’t even lead with sales or profit figures. The top-of-the-page bullet points only said Q1 revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) “exceeded expectations” and it got even less sexy from there.

Let’s break both Q1 financial reports down but first here’s our standard disclaimer:

We are not, nor do we claim to be, financial experts, investment counselors or Wall Street-level business analysts. We’re simply golf industry geeks who like to read.

With that out of the way, let’s get cracking.

Q1 Financial Reports: Topgolf Callaway

If there’s one thing you could usually say about Topgolf Callaway’s quarterly financial press releases, they can spin anything.

This time, not so much.

Not that the news is bad but the featured bullet points always cite big sales numbers and quarterly profits. But the Q1 2023 press release is, well, odd. The headlines tell us only that revenue and EBITDA exceeded expectations, that same-venue Topgolf sales grew 11 percent, that venue profitability and return metrics are improving and that the company has completed debt refinancing.

Sexy, right?

The “better than expected” results include net sales of $1.167 billion. That’s a 12-percent increase over Q1 of last year or a 15-percent increase in constant currency. When the U.S. dollar is strong, American companies with hefty overseas sales take a hit on foreign exchange rates. They use constant currency to normalize the dollar’s value to the previous year for a more accurate sales performance comparison.

Knowing that, constant currency can’t really dress up Topgolf Callaway’s Q1 profit picture. The company is reporting a $25-million profit, a 71-percent decrease compared to Q1 of last year.

According to the company, that’s still “better than expected” and “ahead of plan.”

What Happened?

So why the drop in quarterly profit? Well, that foreign currency exchange rate didn’t help, with a $30-million negative impact. Additionally, there were higher interest expenses of nearly $19 million related to new Topgolf venues and other costs. In March, Topgolf Callaway refinanced nearly $1 billion in loans and revolving credit.

For the quarter, Topgolf sales topped $403 million, up 25 percent from last year. Same-venue revenues were up 11 percent but net Topgolf profit dropped nearly 57 percent to $2.8 million. Topgolf Callaway says that’s due to planned investments in marketing and labor.

Golf equipment sales topped $443 million which is actually a five-percent decrease from Q1 2022 (1.5 percent in constant currency). The company says last year’s Q1 numbers were inflated due to COVID-related inventory catch-up at retail. In 2022, club sales hit $370 million (a 17-percent increase) and ball sales were up a crazy 64 percent at $98 million. That increase was likely due to, at least in part, to Titleist’s raw material shortages.

Q1 2023 golf equipment sales were “only” $351 million (down 5.3 percent) and ball sales reached $93 million (down five percent).

The Active Lifestyle segment sales for Q1 reached $320 million, up 28 percent from last year. Of that, $176 million was in apparel (driven by Jack Wolfskin and TravisMathew), and $144 million came from Gear, Accessories and Other.

What Does It Mean?

“Our first-quarter results exceeded expectations, driven primarily by the impressive performances of our new and existing Topgolf venues, and Paradym,” says Topgolf Callaway CEO Chip Brewer. “The modern golf consumer remains engaged and our brands continued to be well-positioned to benefit from the sustained momentum in off-course and on-course golf.”

Given Topgolf Callaway’s original outlook projections for 2023, “exceeded expectations” is probably pretty accurate. In its 2022 annual report, the company projected 2023 sales to reach $4.414 billion to $4.479 billion. After Q1, Topgolf Callaway is altering those projections slightly, to $4.42 billion to $4.479 billion, raising the floor slightly but leaving the ceiling the same.

As we’ll see when we look at Acushnet’s Q1 financial reports, post-COVID supply-chain blues are hitting different companies in different ways. Last year’s Q1 results were buffeted by “retail inventory catchup,” most likely due to filling open orders that couldn’t be filled in 2021. Despite the drop in equipment sales, Topgolf Callaway still posted a 12-percent sales increase due to all of its other segments, with Topgolf once again proving to be a revenue machine.

Topgolf Callaway has spent the past 10 years “equipment-proofing” its portfolio for exactly this reason. It certainly appears golf equipment sales will slow this year but, with all three business segments expected to reach $1 billion in sales once again (Topgolf is expected to approach $2 billion), the company can deal with a few speed bumps.  

Q1 Financial Reports: Acushnet

As a corporate entity, Acushnet is playing a different game than Topgolf Callaway. Q1 sales topped $686 million, a 13-percent increase over last year (17 percent in constant currency). Quarterly profits topped $93 million.

To put that into perspective, last year’s Q1 sales were up only 4.3 percent over 2021 and net income was actually down nearly five percent.

“Our double-digit top-line growth in the quarter reflects the overall health of the Titleist, FootJoy and KJUS brands and the strength of our global supply chain,” said Acushnet CEO David Maher in a statement. “We are well-positioned to meet the continued demand for our products and are encouraged by the resilience and engagement of Acushnet’s core consumer, the game’s dedicated golfer.”

Q1 EBITDA was an impressive $146.8 million, up 22 percent over last year.

Sounds like a honey of a Q1 for Acushnet, and it is.  But as with anything these days, the results do require a deep breath.

Segment Specifics

Acushnet’s Q1 sales represent a nice rebound over last year’s performance. Globally, Titleist golf ball sales reached $192 million, up more than 17 percent over last year (21 percent in constant currency). Q1 2022 balls sales were up only 3.2 percent over the previous year as Acushnet struggled with raw material availability.

Titleist golf club sales were nearly $181 million in Q1, up more than 12 percent over 2022 (16 percent in constant currency). The new TSR metalwoods were the key driver, although Vokey sales dropped slightly in the second year of their life cycle. Last year’s Q1 club sales were actually down nearly six percent from 2021.

FootJoy, on the other hand, had a bit of a down quarter with global sales up just under four percent (eight percent in constant currency). Q1 of 2022 was a smoke show for FootJoy, as sales grew 24 percent over Q1 of 2021.

The most impressive rebound might be in Titleist golf gear. Sales hit $67 million in Q1, a 52-percent increase over Q1 of 2022 (57 percent in constant currency). Acushnet consistently cited global supply-chain challenges for bags, hats, gloves and other gear in 2022. This rebound is no doubt good news but needs to be taken with a grain of salt, as we’ll discuss in a bit.

The Global Picture

Acushnet’s U.S. sales in Q1 were nearly $370 million, a 25-percent increase over last year. By comparison, Q1 sales last year were up only 4.3 percent over the banner first quarter of 2021. Supply-chain and raw materials issues saw ball and gear sales decrease.

Both issues appear to be fixed as U.S. ball sales were up 23 percent, led by the new Pro V1 models.  Titleist golf gear, featuring the newly acquired Club Glove brand, was up 66 percent. Additionally, FootJoy sales were up over 21 percent and Titleist golf club sales were up nearly 20 percent.

Outside the U.S., there was double-digit constant currency growth in Japan, Korea and the Rest of World. European sales, however, were essentially flat compared to Q1 last year.

Areas of Concern

Businesses don’t scoff at 13-percent sales increases or 15-percent net profits increases. But given Topgolf Callaway’s performance and the tea leaves Acushnet is reading, it’s best to temper enthusiasm.

That huge – and unprecedented – jump in Titleist golf gear sales is a warning flag. Yeah, Q1 sales were up a ridiculous 52 percent over Q1 2022. But do we really think the world suddenly demanded 52 percent more Titleist hats, gloves and bags? Was the Club Glove acquisition a bigger deal than we thought?

Doubtful.

It’s more likely Acushnet was able to clear up a massive backlog of orders placed in 2022 but couldn’t be filled due in 2022 due to supply-chain issues. It will be interesting to see what happens to the segment in Q2.

Acushnet originally projected 2023 sales to be relatively flat. After $2.27 billion in sales last year, the company estimated 2023 revenue of $2.33 billion to $2.38 billion. But following what appears to be a successful and profitable Q1, Acushnet is downgrading its 2023 projection to $2.325 billion to $2.375 billion. And despite a 22-percent increase in Adjusted Q1 EBITDA, Acushnet isn’t changing its 2023 projection, holding steady at $345 million to $365 million.

This can mean many things but it does lend credence to a couple of theories. First, a plentiful supply of new Pro V1s and hot new metalwoods did their job in Q1. Second, there must have been a sizable backlog of gear orders that were finally filled.

Historically, club sales fall off after Q1, sometimes drastically, but ball sales should remain strong. And with gear backorders filled, it’s reasonable to presume sales will drop off in Q2, also perhaps drastically.

Q1 Financial Reports: Final Thoughts

Topgolf Callaway and Acushnet are playing different games, even before the Topgolf merger. However, if you take Topgolf’s $403 million in revenues out of the Topgolf Callaway Q1 numbers, the two companies are closer than you’d think. Acushnet’s $686 million in sales isn’t that far off from Callaway’s sans Topgolf sales of $764 million.

But you can’t take Topgolf out of the picture. And while Topgolf Callaway’s topline numbers are hard to wrap your head around, it’s fueling growth (11 new Topgolf venues are expected in 2023) and refinancing debt at the expense of bottom-line profit. A 70-percent quarterly drop in profit may sound troubling but it’s clear neither mismanagement, declining sales nor other negative forces are at play.

It’s exceeding expectations.

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