Chip Brewer, the CEO of Callaway Golf Co., had a message earlier this month for doubters of the company’s 2021 acquisition of the eatertainment concept Topgolf.
Speaking to analysts on the Carlsbad, Calif.-based company’s second-quarter earnings call, Brewer highlighted Topgolf’s sales results. Same-store sales in the period were 8% above where they were in the same period in 2019. The company is also on track to open more new locations this year than any other year in its history, 11.
“If some investors initially looked at the Topgolf business as either risky or unproven,” Brewer said, according to a transcript on the financial services site Sentieo, “I believe the string of consistent results since our merger should soon begin to change perspectives and valuations.”
Almost as if the company were doubling down on the comments, Callaway this week announced plans to change its name to reflect just how important the 76-unit Topgolf is becoming to its overall revenues and earnings.
Callaway Golf Company will become Topgolf Callaway Brands Corp. The name change will be effective Sept. 6. The company’s ticker symbol on the New York Stock Exchange will change from ELY to MODG to “reflect the company’s leadership position in the Modern Golf ecosystem.”
“With the change, our new corporate identity will reinforce the opportunities that are anchored in our strong heritage business and at the same time build awareness for our strategic shift towards exciting new ventures in the Modern Golf and active lifestyle segments,” Brewer said in a statement.
Topgolf was an intriguing, high-growth food-and-golf concept that was notable for its large, driving-range-sized locations where customers compete with one another by driving balls either by distance or at targeted areas. It was considering an initial public offering before the pandemic changed things.
Callaway, which makes golf products, had first invested in the chain in 2006 and owned a 14% interest in the company when it agreed to acquire the rest of it in late 2020 at a $2.5 billion valuation. Yet it raised some eyebrows given its rare combination of an equipment maker with a hospitality business.
To Callaway, the merger gave the company in on that “Modern Golf” concept, which is taking the sport from vast green fields into more electronic and even indoor playing grounds, as electronic golf games have grown in popularity. Topgolf had businesses that sold tracing technology to driving ranges and also owned a mobile golf game.
Topgolf is not just an important part of Callaway’s business, it is increasingly becoming most of its business. Topgolf generated $403.7 million in revenue in the second quarter, up 24% from the previous period. The company said it generated a lot of revenue through corporate and social events. Operating income nearly doubled to $44.2 million despite inflationary challenges, which the company is offsetting with price increases Brewer said are having no impact on traffic.
Brewer said that Topgolf is on track to be the company’s largest segment by revenue, and it is on track to represent more than half the company’s overall EBITDA, or earnings before interest, taxes, depreciation and amortization, by 2025. As it is, the company said, Topgolf is expected to represent about 44% of the company’s overall EBITDA. Much of that growth is coming from new locations.
It operates 71 total company locations in the U.S., and franchisees or licensees operate another five outside the U.S. Topgolf is building another 11, with franchisees in Thailand and China planning to open units. Topgolf last year named former Pizza Hut chief Artie Starrs to be its CEO.
Apparently, operating a golf-centric eatertainment concept is a bigger growth business than selling golf equipment.
“We are confident Topgolf will be a significant source of long-term value creation,” Brewer said.
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