Callaway Golf Company 2026 Q2 Earnings Call

Please go ahead. Good afternoon and welcome to Callaway Golf Company's second quarter earnings conference call.

I'm Patrick Burke, Senior Vice President of Investor Relations and Treasury. Joining me on today's call are Chip Brewer, our President and Chief Executive Officer, and Brian Lynch, our Chief Financial Officer and Chief Legal Officer. Earlier today, the company issued a press release announcing its second quarter 2026 financial results. Our earnings presentation, as well as the earnings press release, are both available on our investor relations website under the Financial Results tab. Aside from revenue, the financial numbers reported and discussed on today's call are non-GAAP measures. We identify these non-GAAP measures in the presentation and reconcile the measures to the corresponding GAAP measures in accordance with Regulation G. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.

Please review the safe harbor statements contained in the presentation and the press release for a more complete description. With that, I would like to turn the call over to Chip.

Thank you, Patrick. Good afternoon, everyone, and thank you for joining our call today. I'm pleased to report that our company delivered a strong second quarter and a very solid first half. These results show that we are building momentum as a focused, pure-play golf company, and our performance reflects healthy market conditions, strong product acceptance, meaningful gross margin improvement, and disciplined execution across the business. I want to thank our teams for their continued focus and contributions. These teams are executing well in a dynamic environment and managing the business with the right balance of confidence, agility, and discipline. I'd also like to remind everyone of the significant transformation our company has accomplished over the last year. In late May of last year, we completed the sale of Jack Wolfskin, and then in January of this year, we completed the sale of a 60% interest in Topgolf.

Since the beginning of this year, we announced a new $200 million share repurchase program and then repurchased approximately $42 million worth of our stock in both Q1 and Q2. We also paid off in full our $1.2 billion of Term Loan B debt and our $258 million of convertible notes. These moves returned us to a cash-generating, pure-play golf company with a terrific balance sheet and a clear capital allocation strategy aimed at steadily returning capital to shareholders. We are now only six months into this renewed journey as a pure play, but we're showing clear progress strengthening the business and delivering against our stated financial and capital allocation goals. Based on the strengths of our business and our history of performance in this space, this is a journey that we are confident in going forward.

Turning to our results, Q2 revenue was $612 million, up 2% year-over-year, and adjusted EBITDA was $125 million, up 36% versus the prior year. Both of these results were ahead of expectations as we exceeded the midpoint of our Q2 guidance by approximately $15 million in revenue and $22 million in adjusted EBITDA. The revenue upside was driven by healthy market conditions as well as continued strength in the equipment segment, especially in golf balls. The adjusted EBITDA upside reflected the flow-through from the revenue beat as well as continued progress on our gross margin initiatives. For the first half, revenue increased 6% and adjusted EBITDA increased 33%, highlighting the operating leverage and execution benefits of our more focused golf platform. We believe this performance was better than the broader market across both the Callaway and TravisMathew brands.

Gross margin expanded 460 basis points in Q2 and 360 basis points in the first half. This reflects continued progress against our margin initiatives and the benefits of portfolio actions designed to improve the long-term quality of our revenue and earnings. This gross margin improvement is a step in the right direction and a testament to the cost management and margin improvement projects that we have been focused on over the last year and that will continue to be a focus for us going forward. Turning to market conditions, healthy golf participation and sell-through data continues to be supported by a committed and enthusiastic player base. Consumer interest in the game and overall participation trends remain positive, just as they have been for several years now. In the U.S., rounds played through Q2 are up approximately 4% year-to-date.

Similarly, we estimate that golf equipment sell-through at key accounts was up low- to mid-single digits for both the quarter and year-to-date. In the U.K. and Europe, we estimate that our trade partners' sell-through is up low- to mid-single digits year-to-date, but the rounds played are down simply due to unfavorable weather year-over-year. In Japan, the market was up low- to mid-single digits in Q2 and is now up slightly for the full year, while market conditions in Korea remain down approximately 10%. Using this data as the backdrop, for the year-to-date, we appear to have grown our golf equipment revenue faster than the market in all major regions.

As you step back and think more deeply about this data, in the face of dynamic global macroeconomic and political conditions, low consumer confidence readings, increased gas prices, increased golf equipment pricing, and the World Cup, one can't help but be impressed by the resilience of the golf consumer. Now turning to look at our business by segment. In golf equipment, the portfolio continues to show strength across several important categories. In golf ball, the Chrome Tour family and Supersoft franchises continue to resonate with consumers, and our share progress continues to validate the investments we've made in product performance, manufacturing capabilities, and green grass distribution. Our Q2 golf ball revenue was up 15%, with our first half up 8%, even with intentionally reducing volume via the elimination of low-margin SKUs to support improved efficiency.

Our June 2026 U.S. market share established another record high for us, up 250 basis points year-over-year to just over 23% overall, and with on-course share just over 24%. In clubs, the Quantum family of woods and irons has continued to receive positive market feedback. The Quantum driver with Tri-Force technology demonstrates the strength of our product engine, and its performance has been encouraging. In the U.S., both our year-to-date driver and total wood share is approximately 25%, up 110 basis points and 120 basis points respectively. Within the woods category, high-lofted fairways have been a particularly strong area for the industry overall and for Callaway. Building on this and leveraging our tradition of innovation, last Friday, we announced the addition of a new approach to high-lofted fairways we call Mini Spinners.

Available in a 7, 9, and 11 wood, these clubs are easier to hit and, for many consumers, a more effective approach to high-lofted fairways. They will be shipping to retail later this month, and we anticipate a positive reaction. In the putter segment, MyGolfSpy recently named the Odyssey Ai Dual S2S #7 the Best Overall Zero Torque Putter of 2026, as well as the Best Zero Torque Putter for Long Putts. Recognition like this is another proof point of our ability to develop and bring differentiated technology to market. Turning to the apparel and gear segment. The Callaway brand performed roughly in line with expectations, while TravisMathew maintained its strong start to the year and performed slightly ahead of expectations.

At TravisMathew, consumer response to the women's offering remains positive, and the brand continues to gain ground in the important men's golf category, supported by clearer product pillars, more focused marketing, and exciting new products. We are in the early innings of this men's product merchandising strategy shift, but based on the consumer reaction thus far, I'm optimistic regarding its potential. Accordingly, in the first half of this year, the TravisMathew business grew in its direct-to-consumer business and also had strong performance with key wholesale partners. One additional area that we are at liberty to discuss now is the planned closure of four TravisMathew stores that were not hitting our financial targets. These stores will close in Q4 of this year, and the financial charges for these closures was included in our Q2 financials.

This will leave us with a stronger and more profitable retail fleet of 61 stores going into 2027. Similar to our previously mentioned SKU rationalization across both the Callaway and TravisMathew brands, this is another strong example of us making disciplined, long-term decisions as we refocus on our core business. Turning to tariffs. These continue to be a dynamic area, but have been a tailwind for us relative to our expectations going into the year. We have also recently begun receiving refunds for the IEEPA tariffs, with more expected in the future. Brian will add more color on actual and forecast tariffs in his section. It is worth calling out, though, to protect inter-year comparability and to provide what we believe is a cleaner look at our performance, we made the decision to back out the IEEPA refunds from our non-GAAP numbers and forecasts. Moving to our forward guidance.