Callaway ‘Disappointed’ With Topgolf, Exploring Spin-Off

Callaway, one of the top golf-club makers, is reviewing its ownership of Topgolf, the series of indoor and outdoor driving range social spots.

Callaway already owned an 18% stake in Topgolf when the companies announced in late 2020 that they would fully merge to form Topgolf Callaway Brands. The deal was finalized in March 2021, just as in-person venues began making a post-COVID-19 comeback.

Apparently, the post-pandemic comeback hasn’t sufficiently extended to social driving ranges. 

As part of its second-quarter earnings results, released Wednesday, the company announced a full strategic review of its Topgolf business to look at how to “return Topgolf to profitable same-venue sales growth.” But the company is also exploring “inorganic alternatives” for growth, “including a potential spin of Topgolf.” 

“We believe [Topgolf] will deliver substantial growth and financial returns over time,” said Topgolf Callaway Brands president and CEO Chip Brewer. “At the same time, we have been disappointed in our stock performance for some time, as well as the more recent same-venue sales performance.” (Topgolf Callaway uses the “same-venue sales” metric to track the performance of Topgolf sites that have been operating for at least two years.)

The Q2 earnings report showed that Topgolf accounted for $494.4 million of the company’s second-quarter revenue, compared to $413.8 million for its golf equipment and $249.6 million for its active lifestyle brands (including Jack Wolfskin outdoor gear and Ogio bags and luggage). The total revenue represents a 1.9% decline year over year, prompting the company to adjust its revenue and earnings projections downward for the year.

Why Topgolf is Under Scrutiny

While the company cites an 8.2% decrease in golf equipment revenue as the primary culprit of lost revenue—and even notes a 5% increase in Topgolf revenue—it’s Topgolf that nonetheless causes concern.

That’s because the decline in equipment revenue can be explained by a shift in when the company releases new product lines; in the earnings call, Brewer teased a coming announcement for the release of its newest Apex irons, which he believes will fuel future driver sales. 

Topgolf, however, has been relying on new venues—it’s already added three this year and has four more under construction—to goose revenue. Same-venue sales were actually down 8%, meaning existing sites are performing significantly worse than they did during Q2 of 2023. 

Still, Brewer reassured shareholders on the earnings call that he views Topgolf’s troubles as part of a “short-term” economic cycle, potentially related to “post-COVID normalization” for onsite sales. He also noted that four more Topgolf venues are currently under construction.

The company did not say when its strategic review would be completed.