Topgolf's $1.45 Billion Headache for Callaway; 2025 Picture Not Exactly Rosy

For another quarter, disappointing sentiment in relation to Topgolf dominated the Topgolf Callaway Brands stock exchange filings and earnings call.

After eight months in which approximately 60% of its stock market value was wiped out, things didn’t exactly take a turn for the better for one of the world’s biggest golf companies, Topgolf Callaway Brands, in its latest stock exchange filings and earnings release on Monday.

Those stock market challenges in recent months — from $16.50 per share as recently as July to a low of $6.70 at close on Monday — were influenced, at least in part, by the news that the company would be spinning off Topgolf as a standalone company, less than three years after the high-profile $2 billion acquisition was heralded as the beginning of “Modern Golf”, an ecosystem that would include both on-course and off-course play.

Disquietingly, the whole company’s market cap of $1.5 billion is now much less than the stated cost of that Topgolf investment in 2021.

And the Topgolf performance was again the headline information in the Q4 2024 and full-year earnings call and investor relations releases, which came late Monday afternoon (February 24th).

A massive $1.45 billion impairment charge related to the Topgolf business — effectively a non-cash write-down of the goodwill and intangible assets of the golf-as-entertainment venues — in effect delivered 100% of the damage in the full-year net loss of $1.44 billion in GAAP terms (or “Generally Accepted Accounting Principles”, a standardized measure of a company's profits or losses).

In some ways, this could be seen as an admission that the company significantly overpaid for Topgolf, or that the business has fundamentally underperformed expectations since the 2021 merger, or perhaps both.

While the release pointed to the falling share price as a major contributor to the massive reduction of the goodwill and intangible assets value, this is in effect a “vicious circle”, as there seems to be little doubt that recurring question-marks over the Topgolf business model also play a large part here.

This massive balance sheet impairment wasn't the only troubling sign for the entertainment venue business.

Despite adding seven new Topgolf venues in 2024 (bringing the total now to 100), same venue sales declined 9% for the full year. In simpler terms, this suggests that Topgolf locations which have been open for at least 24 months saw nearly one-tenth less business compared to the previous year.

One potential recent bright spot is that Q4 2024 brought “record Q4 venue-level margins” for Topgolf, suggesting that perhaps recent on-the-ground changes are beginning to have a positive impact on venue profit margins at least.

However, if there were hopes that the full-year revenue challenges might be a temporary blip, those hopes don’t seem to be well-founded. Page 1 of the 19-page release admits that the 2025 outlook for Topgolf venues projects a further performance that’s "down mid-single digits" in same venue sales. This is despite the fact that management expressly points out that “improving same venue sales at Topgolf is a top priority for us.”

Perhaps it’s true that the pent-up demand for real-life experiences and entertainment created a surge in interest in Topgolf in the years immediately following the pandemic — which coincided with the acquisition — a significant dip in same-venue sales continuing for two straight years is surely signs of deeper problems afoot.

It all suggests the company is still searching for answers to reverse the decline in either customer traffic or spending at existing venues, or both, even as it continues to add more Topgolf venues to the overall portfolio.

Topgolf $65+ Million Separation Costs

Perhaps most telling about the Topgolf troubles is the company's plan to separate the business entirely, which it first announced in September 2024.

While firm details about that spin-off are still sparse, the latest earnings release confirms the company is pursuing a separation of the Topgolf business, with expected one-time costs of approximately $50 million to make that happen, with that cash likely going towards things such as legal and advisory fees, regulatory filings, rebranding, marketing ad communications materials and the separation of IT systems.

In addition to this one-off cost, the 2025 guidance also includes “an estimated incremental $15 million in operating expense at Topgolf for standalone public company costs”, which could go towards establishing a separate board of directors, investor relations team, executive positions and compliance departments required for Topgolf to become its own publicly-traded company.

There was no specific timeline or structure for the separation offered by the company in its releases, but it seems to be a case of “the sooner, the better”.

The original merger, completed in March 2021, had been held up as a move to create an unrivaled golf and entertainment business that would capitalize on the growing "Modern Golf" ecosystem.

Less than four years later, that strategy now appears to have unraveled rapidly.

Whether that means the original vision was flawed, or that execution in the three years since then has fallen short, it’s probably fair to say that neither — lack of vision, or lack of execution — ultimately reflects well on those in charge.

If there is a bright point on the horizon, it might be this:

The Callaway company has been a successful publicly traded company for more than three decades now, and if it believes that its two flagship public-facing brands — Callaway and Topgolf — will perform better apart than together, then maybe they deserve some degree of faith in making that happen, even if it majorly conflicts with its stated vision at the time of the Topgolf acquisition.

Either way, it’s going to be an interesting case of “watch this space” for Callaway and Topgolf in the rest of 2025 and beyond.

Other Challenges Across the Callaway Portfolio

While Topgolf's difficulties dominate, there were a number of concerning elements across other segments of the business as well.

1. Geographic Disparities Reveal Market Challenges

According to the release, the company's performance varied dramatically across regions.

In Q4, Asia showed strong year-on-year growth of 9.8% to $123.9 million, in stark contrast with America and Europe, which grew just 1.7% and 1.4% respectively.

Despite that low growth rate, the US remains by far the healthiest market in terms of raw revenue — its $657 million in Q4 dwarfing the total revenue across Europe, Asia and the rest of the world of just short of $266 million — but flatlining growth in its top market will surely be keeping executives awake into the small hours.

2. Active Lifestyle Takes a Tumble

The Active Lifestyle segment, which includes brands like TravisMathew and Jack Wolfskin, saw revenue decrease by 7.8% to $1.048 billion for the full year, a decline of $88 million.

Even more concerning, perhaps, was the drop in operating income, which fell by almost 30% in 2024 (down from $117 million in 2023 to $82.4 million).

While there were explanations for this — much of the decline was attributed to, firstly, “lower European wholesale revenue at Jack Wolfskin” and secondly, “lower corporate channel revenue at TravisMathew resulting from a channel fill-in which occurred in 2023 and did not repeat in 2024” — the figures still don’t make for pleasant reading.

Based presumably on these trends, the company highlighted that it begun “right-sizing” initiatives at Jack Wolfskin, explicitly pointing out that these cost-saving measures contributed to increased operating income of $3.4 million for Q4 2024.

Golf Equipment Silver Linings

Despite the abundant challenges elsewhere, Callaway’s core Golf Equipment segment showed good resilience, particularly in Q4 where revenue increased 12.7% to $224.8 million.

The company maintained its #1 position in US market share for total golf clubs for the third consecutive year — and ninth time in the past 10 years — and also achieved record US market share in golf balls.

Its Chrome family of balls and new Ai-One Square 2 Square Odyssey putters were specifically called out as positive drivers of this performance.

Outlook for 2025

If 2024 was hard, the outlook for 2025 doesn't suggest an immediate turnaround. The company is projecting:

• Revenue of $4-$4.185 billion (down from $4.238 billion in 2024)

• Adjusted EBITDA of $415-$505 million (down from $588 million)

These downgraded expectations are based on multiple headwinds, including:

• $60 million in unfavorable foreign currency impacts on its core equipment business

• $45 million in headwinds from the sale of its Topgolf World Golf Tour mobile gaming business and calendar reporting changes at Topgolf, which will see it lose three reporting days of financial results in 2025

• An expected increase in tariffs

The Bottom Line

Overall, these 2024 full-year results and outlook for 2025 paint a picture of a company at a strategic crossroads.

The massive impairment charge, declining same venue sales at Topgolf, and planned separation of the business suggest the ambitious "Modern Golf" vision is already getting a serious rethink.

As the company navigates these challenges, investors and industry observers will be watching closely to see if, first, the planned separation delivers the intended benefits, second, whether management at the new standalone Topgolf can successfully address its issues, and third, executives at other brands within the portfolio, including Jack Wolfskin and TravisMathew, can strengthen their own performance.

Time, as always, will tell.

Thanks for reading.