Callaway Golf Co Q1 FY2026 earnings call

• Strong start to the year due to demand for 2026 product lines and healthy market conditions. • Completed sales of Jack Wolfskin and 60% interest in Topgolf, repaid $1 billion in term debt and launched $200 million share repurchase program. • Q1 revenue $688 million, up 9% y-o-y; adjusted EBITDA $164 million, up 31% y-o-y. • Gross margin improved 260 basis points despite tariff expense. • Golf equipment market in U.S. had low to mid-single digit sell-through growth, rounds played up 5%, major OEM shipments up ~2%. Asia market down slightly, U.K. and Europe had low single digit sell-through growth. • Callaway holds leading position in global golf equipment market, #2 market share in clubs and balls in U.S., leads in consumer innovation rating, #1 brand for new and female golfers. • TravisMathew's direct-to-consumer business strong, with growth in women's and men's offerings due to strategic merchandising shifts.

Golf Equipment: Revenue up 10% driven by strong new product lineup and healthy golf season start. Golf ball revenues up 2% in Q1, with strong consumer reaction to Chrome Tour lineup and Supersoft franchise. U.S. golf ball market share in March up 350 basis points to 23.9%. Club side: Quantum family of woods and irons well received, with Quantum Driver's Tri-Force Face showcasing innovation. Apparel and Gear: TravisMathew's direct-to-consumer business strong, with growth in women's offering and strategic shift in men's merchandising strategy showing positive consumer reaction. Revenue contribution: Golf Equipment and Soft Goods segments contributed to the overall 9% revenue growth.

• Full year 2026 net sales increased to $2.015 billion to $2.070 billion, up ~$28 million at midpoint. • Adjusted EBITDA increased to $211 million to $233 million, up $40 million at midpoint. $25 million of increase related to lower tariff expense, $15 million related to flow-through of net sales increase and gross margin initiatives. • Q2 net sales forecast $585 million to $610 million, adjusted EBITDA $98 million to $108 million. • Back half of 2026 net sales impacted by less new product launches, shifting iron launch to early next year, and rationalizing lower-margin categories and channels. • Lower dividend income in back half due to using excess cash and proceeds from Topgolf sale to pay down debt.

• Tariff situation remains dynamic with temporary tariffs expiring in July and uncertainty on reversion to previous rates. • Broader geopolitical volatility leading to cost pressure from increased commodities and strategic metals (e.g., tungsten up 8x over last year) and petrochemical-based costs due to Middle East conflict, impacting energy and raw materials costs. • Second half and next year could see greater impact from increased oil prices if they remain high.

Q: Congrats on a nice quarter. Could you elaborate on first quarter outperformance relative to plan, 9% revenue growth, nearly tripled the midpoint of your outlook for the first quarter. Any way to break apart timing relative to underlying demand across the portfolio? And have you changed any of your underlying revenue growth assumptions as we look over the balance of the year, second to fourth quarter?

A: Sure, Matt. Yes. So if you look at it broadly, and there's always a number of puts and takes, right? We beat the midpoint of our guidance by $38 million. We're raising the full year by $28 million. So there was roughly $28 million more demand than we had expected in the quarter, and the $10 million is basically timing between the quarters where our supply chain team outperformed and we shipped what we expected to ship in Q2 a little bit earlier. And we were really pleased with the demand for the product, particularly new product around quantum and also feedback on the golf ball. As you know, we raised some pricing in some of these product lines, and that was received well equally. So positive upside there that we saw in the quarter. And we're continuing to see the market hold in very strongly. So we feel good about our expectations for the market and for balance of the year.

Q: First, Chip, can you talk about sell-through? I assume the good trends also mean sell-through, the ability to replenish and then meet all the demand? And do you have a sense now of how big this driver in Quantum line could look like?

A: Simeon, absolutely. So very good market reaction to our new products, Quantum, the Chrome Tour product and some of the changes in the new product to Travis, all were well received by the marketplace. And we're in good inventory positions, both in the field and in our inventory as the season opens up. And we've obviously incorporated all that into our guidance, but we're in a good spot with good reaction in a healthy market.

Q: This is Arpine. As I think about the lower end of your guidance range for revenue and upper end, what's the degree of variability there and pockets of surprises now that a meaningful shipment season is sort of behind you, and you have a clearer picture on Tri-Force and what that could do for you? I'm trying to understand really just what's the degree of variability in that guidance that you provided today?

A: Arpine, the -- there's always still -- we're going into season right now. We have a fairly good signal from the marketplace and a lot of experience on this. And we obviously feel very good about where we are, we wouldn't be raising guidance. Having said that, there is uncertainty out there in the world right now. The geopolitical events are well understood. Consumer sentiment is lower than what it has historically been. As we've mentioned, we have not seen any negative reaction from our consumer even in the face of these uncertainties, and that matches what we've seen historically that our consumer is not sensitive to mild economic movements, even mild recessions. But there's certainly more risk in a wider range of outcomes that are in the possibility range in the second half of the year and the comps are a little bit harder in the second half of the year. We feel good about where we are, confident in the direction of our business. We also, Arpine, are well versed in these types of environments, and we'll be ready to react and respond if indeed something did change. But our base case is for a good year, both for the industry and for the company at this stage.

Q: First question on the tariffs. I think you said $18 million in the first quarter, and I guess the incremental guide for this year is $16 million. So maybe could you go over your assumptions one more time? What new tariffs are you assuming once the 122s expire? And are you impacted by any changes to the 301 tariffs?

A: So Joe, we assume that the temporary tariffs that are currently in place will expire in July as they reach their expiration date. We're also assuming that for the second half of the year that after that, that the tariffs revert back to the pre Supreme Court ruling rates, which for us was approximately 20% overall.

Q: Not to beat the dead horse, but I guess on the tariff piece in terms of the, I guess, $25 million reduction, is the right way to think about that as that being kind of related to the 122 period given you kind of expect to revert back to the IEEPA rate? And then on the gross margin guide now projected to be up year-over-year, how much of that is related to kind of maybe better flow-through from improvements on the gross margin line versus the tariff piece?

A: On the first question on the tariffs, there was, yes, the answer to your question is yes. It was related to the decrease that we've seen during this period, I think you called it the Section 122 period. So it relates to that going down to 10% that is the cost savings adjustment of the 25%. And then again, it reverts back to -- we're assuming it reverts back to the 20% after that. And then something on gross margins.

Q: First, really impressive gains in green grass over the past few years plus. Maybe wondering if you could share what that mix stands today? And do you see further opportunity to expand that mix ahead?

A: Yes, Anna, thank you. And the mix -- green grass is our largest channel. Other than that, I'm not going to break down the magnitude of the various channels, but that has moved to our largest channel and most strategic channel. That has been a decade of great work by the team. And it is something that we're quite proud of and a good competitive position for us to be in the marketplace because it has influence on the other channels. So nice progress there. And you can see such as in golf ball, we regularly have higher share at the green grass channel than sometimes at the retail channel, and we're pleased with how that has been trending.

Q: Chip, had to try. On the supply chain that came in better than expected in the first quarter, was that concentrated to any one particular product category?

A: It was really around the new product. So the launches around and being able to catch up with that increased demand irons and drivers in the Quantum family. And then a little bit of good productivity on the ball side as well.

Q: Not to beat the dead horse, but I guess on the tariff piece in terms of the, I guess, $25 million reduction, is the right way to think about that as that being kind of related to the 122 period given you kind of expect to revert back to the IEEPA rate? And then on the gross margin guide now projected to be up year-over-year, how much of that is related to kind of maybe better flow-through from improvements on the gross margin line versus the tariff piece?

A: On the first question on the tariffs, there was, yes, the answer to your question is yes. It was related to the decrease that we've seen during this period, I think你叫它第122段。所以它与下降到10%有关，这是25%的成本节约调整。然后又回到了——我们假设在那之后它会恢复到20%左右。然后是关于毛利率的一些情况。Q: 不，你想重复一下毛利率吗？A: 是的，他想知道。Q: 毛利率指引上调，我想知道这在多大程度上与利润率改善举措有关，而不是关税部分？A: 这主要是关税，因为关税是我们指南预测中4000万美元增长的2500万美元。而且——但整个过程中都有毛利率的改善，同时也被一些新的成本压力所抵消，比如石油价格和相关材料受到的影响。Q: 首先，就澄清一下新闻稿中关于我们在毛利率和成本节约举措方面取得良好进展的评论。你能给我们更新一下成本节约举措吗，我们现在处于哪个阶段？到2026年及以后还有多少机会？以及那里最有机会的地方在哪里？A: 就公司方面而言，如果你说的是公司成本，你看到我们在第一季度节省了500万美元。这始于去年下半年。所以你不会——所以今年下半年，这种差距会有点大。但我们已经取得了很好的进展。我们继续取得进展。仍然有一点噪音——再次，我们在过渡时期支持Jack Wolfskin和Topgolf。随着这一阶段的结束，我认为有机会实现更多的成本节约。但到目前为止，团队已经做得很好，继续管理成本将是我们的优先事项。Q: 这可能与最后一点有关，Chip。但当我们考虑你提到的资本支出指引时，你能分解一下那个数字包含什么吗？我想更重要的问题是，你方杠杆目标的保守性质，是否是因为你们有机会在未来一年进行几个大型资本支出项目，从而真正提高毛利率？这是否在考虑范围内？A: 我们真的没有任何大型资本支出项目计划。很多这只是我们用来运营业务的东西，而且总是有一些资本支出你必须投资回你的业务。但我想说的是，并没有真正的大型项目计划。Q: 嗯，谢谢大家收听。我们感谢您的时间。别忘了我关于本周末母亲节礼物的推荐。高尔夫应该是有趣的，妈妈们非常重要。感谢收听。我们期待在八月再次向您更新。A: