CALY

Transformation and Capital Structure

• Completed the sale of Jack Wolfskin in May 2025 and the sale of 60% of Topgolf in January 2026, transitioning Callaway to a focused pure-play golf company with a strong net cash balance sheet.
• Executed on a $200 million authorized share repurchase program, repurchasing $42 million in Q1 and $42 million in Q2 2026, with approximately $120 million of authorization remaining as of Q2 end.
• Paid off $1.4 billion in total debt in the first half of 2026, including the full $1.2 billion term loan and $258 million convertible notes, ending the quarter with $278 million in cash and just $74 million in outstanding debt.

Operational Highlights

• Gross margin expanded 460 basis points year-over-year to 48.5% in Q2, with broad-based expansion across both segments, driven by price increases, cost reductions, and low-margin business rationalization.
• In golf equipment, the new Quantum line of woods and irons received positive market feedback, with U.S. year-to-date driver share at ~25% (up 110 basis points) and total wood share up 120 basis points year-over-year. A new line of mini spinner high-lofted fairway clubs was announced and will ship in late July 2026.
• For TravisMathew, the women's apparel line continues to receive positive consumer response, and the revised men's product merchandising strategy has driven growth in both direct-to-consumer and wholesale channels. Four underperforming TravisMathew retail stores will close in Q4 2026, with closure charges already recorded in Q2 2026, leaving 61 profitable stores going into 2027.
• Tariff refunds from prior IEPA tariffs have begun: full Phase 1 refunds have been received, and $7 million of Phase 2 refunds have been received to date, with total expected aggregate refunds of just under $50 million.

Market Conditions

• Global golf participation remains positive: U.S. rounds played are up 4% year-to-date through Q2. Golf equipment sell-through at major accounts is up low-to-mid single digits in North America and Europe, and up low-to-mid single digits in Japan. The Korean market is down ~10% year-over-year.
• Callaway outperformed the overall golf equipment market in all major regions year-to-date, demonstrating the resilience of golf consumer demand even amid low macro consumer confidence and rising input costs.

• Full year 2026 net sales guidance is updated to $2.045 billion to $2.070 billion, representing a $15 million increase at the midpoint compared to prior guidance. The increase reflects the full Q2 revenue beat, a $5 million organic increase to the second half outlook, partially offset by a $5 million negative FX adjustment.
• Full year 2026 adjusted EBITDA guidance is updated to $246 million to $260 billion, representing a $31 million increase at the midpoint. The increase is driven by $21 million from Q2 non-tariff EBITDA outperformance, $3 million from organic second half revenue growth, and $7 million from improved full year tariff estimates, which are now expected to total $43 million, $7 million lower than prior guidance.
• Q3 2026 guidance is set at $415 million to $435 million in net sales, and $10 million to $20 million in adjusted EBITDA. Year-over-year adjusted EBITDA decline is expected due to lower revenue from the shifted launch cadence, lower dividend income from reduced cash holdings, and inflationary cost increases, partially offset by gross margin improvements and lower tariffs.
• Management expects gross margin improvement to continue year-over-year, but the rate of improvement will slow in the second half due to lower volume from the adjusted product launch cadence, seasonality, and reduced overhead absorption. Full year corporate overhead is expected to decrease year-over-year, but second half overhead will increase due to cost of living and inflationary pressures.
• 2026 capital expenditures are expected to total approximately $40 million.

Consolidated net sales for Q2 2026 were $612 million, up 2% year-over-year. Adjusted EBITDA was $125 million, up 36% year-over-year.

• Golf Equipment: Net sales increased 4% year-over-year, driven by strength across both clubs and golf balls. Golf ball revenue grew 15% in Q2 (8% for the first half) even after eliminating low-margin SKUs, with U.S. market share reaching a record 23% (up 250 basis points year-over-year). Golf Equipment contributed approximately 73% of total Q2 revenue.
• Apparel and Gear (Soft Goods): Net sales decreased 4% year-over-year overall, primarily due to shipment timing and FX headwinds in Asia. The Callaway brand performed in line with expectations, while TravisMathew grew slightly and outperformed expectations. This segment contributed approximately 27% of total Q2 revenue.

• Dynamic global macroeconomic and political conditions create increased volatility for consumer demand and input costs, leading to a wider than normal range of potential outcomes for the second half of 2026.
• Ongoing geopolitical conflict has driven higher costs for key inputs: tungsten prices have increased multiple times over 2025 levels, and petrochemical/energy prices (key for golf ball production) have risen due to Middle East tensions, with oil prices remaining volatile.
• The tariff environment remains uncertain: while the newly implemented Section 301 forced labor tariffs are lower than previously expected, additional tariffs may be implemented in the future with unknown impacts on costs.
• Foreign exchange rate volatility creates headwinds for international revenue, reducing full year guidance by $5 million in the updated forecast.
• The Korean golf market remains weak, down approximately 10% year-over-year, creating regional performance pressure.

Q: Why is Callaway extending product life cycles and changing launch cadence, and how does this align with broader industry trends? / A: Management extended product life cycles (specifically in the iron category, with a major launch pushed from 2026 to 2027) specifically to increase long-term product profitability. Management notes that other competitors are making similar changes, which they believe will be positive for the overall industry long-term, balancing the market demand for new innovation with the operational efficiency of longer product cycles.

Q: What is driving the 15% year-over-year growth in golf ball revenue, and are there any onetime factors behind the strong quarter? / A: There are no material onetime factors impacting golf ball growth, only minor timing variation in shipments to green grass channels. The sustained growth is the result of multi-year investments in product development, manufacturing capabilities, and green grass distribution that have driven market share gains to a new record high in the U.S.

Q: Where does Callaway stand in the process of structural gross margin improvement, and how much more upside is available? / A: Management noted that margin improvement has progressed faster than expected in the first half of 2026, and Callaway is already near pre-pandemic gross margin highs from 2017-2019, achieved despite less favorable FX and higher tariffs today. Management will continue to prioritize margin improvement, but declined to provide specific long-term margin guidance at this time.

Q: What explains the larger-than-Q2-beat increase in full year adjusted EBITDA guidance, and what upside/downside risks exist? / A: The $31 million midpoint EBITDA increase breaks down to $21 million from the Q2 EBITDA beat, $3 million from organic second half revenue growth, and $7 million from lower-than-expected tariff costs after the implementation of new Section 301 tariffs. Management stated the guidance is balanced between upside and downside risk, as the current volatile macro environment creates a wider range of potential outcomes than usual, but Callaway is well-positioned to manage current challenges.