So much for Callaway’s venture into the eatertainment business.
Topgolf Callaway Brands on Wednesday said that it is spinning off Topgolf, just four years after the golf equipment maker Callaway acquired the golf-centric eatertainment concept and three years after renaming the company to feature both brand names.
The Carlsbad, California-based Topgolf Callaway said that it will most likely spin off Topgolf to its shareholders as a stand-alone public company. But it also said that it would “continue to evaluate other options for separation to maximize shareholder value.”
Topgolf would become a stand-alone company again, though it will not have Toptracer, the ball-tracking technology that it invented. That business will remain with Callaway. Callaway expects to keep a limited ownership in Topgolf, less than 20%, for a period of time.
“We remain convinced that Topgolf is a high-quality, free-cash-flow generating business with a significant future value creation opportunity,” Chip Brewer, CEO of Topgolf Callaway, said in a statement.
“At the same time,” he added, “Topgolf has a different operating model, capital structure and investment thesis than Callaway, and as a result, the board has determined that separating Topgolf will best position Topgolf and Callaway for success and maximize shareholder value.”
Company executives told analysts on a conference call Wednesday that a spinoff is the “most likely” option, but suggested that Topgolf could be sold if an attractive enough deal comes along.
“Our primary and most likely path is the spin,” Brewer told investors at a conference call. “We are both open to considering and will explore other strategic options.”
Topgolf Callaway said that the move would improve strategic focus for both brands, simplify the operating structure, improve capital allocation and ensure both companies have a “distinct investment thesis.”
Selling golf clubs and golf balls is different from operating a chain that combines restaurants with a game focused on golf.
Topgolf thrived coming out of the pandemic, as consumers eager for entertainment flocked to its venues after they left quarantine. Its success helped spawn an entire generation of chains that combine games or sports with casual-dining restaurants, including those focused on bowling, puzzles, baseball and pickleball.
But Topgolf’s sales have struggled more recently, including an 8.2% decline last quarter. Those sales worsened in July.
“We view these trends as largely cyclical,” Brewer said. He blamed the problem mostly on the decline in corporate events. “Returning to same-venue sales growth will take time,” he added, noting that the brand has a history of improving profitability when it does generate same-store sales growth.
The company is having a particular problem with its events business, which was down 27% on a two-year basis last quarter.
Topgolf said last month that it was conducting a strategic review of the business for a potential spinoff.
Topgolf generated $1.8 billion in revenue over the past 12 months through the second quarter, the company said. Its portfolio features 100 venues in the U.S. and internationally. The company will enter the spinoff with “no financial debt,” but the company will slow its development next year.
Management is still developing detailed plans on the separation, which is expected to be complete by the second half of next year.
Assuming the company is spun off to shareholders, Topgolf Callaway shareholders will get shares in the separate Topgolf company, which is expected to trade on the New York Stock Exchange.
UPDATE: This story has been updated to add information from the analyst call Wednesday.
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