Topgolf Callaway Brands may spin off the Topgolf part of its business just a couple of years after buying the brand and changing its name to feature the chain.
Oliver Brewer, CEO of the golf-centric company, told analysts last week that the company is conducting a “full strategic review” of Topgolf. The goal of the review is either to improve the brand’s sales performance or consider alternatives such as a “potential spinoff.”
“We remain convinced that Topgolf is a high-quality business with a significant future opportunity,” Brewer told analysts last week, according to a transcript on the financial services site AlphaSense. “It is transforming the game of golf, and we believe it will deliver substantial growth and financial returns over time.”
“At the same time,” he added, “we have been disappointed in our stock performance for some time, as well as the more recent same-venue sales performance.”
Topgolf was one of the restaurant industry’s most-admired brands going into, and coming out of, the pandemic. Callaway Golf Inc., the golf equipment maker and a major investor, acquired the chain in 2020. In 2022, it changed its name to Topgolf Callaway Brands.
It was easy to see why. Topgolf was thriving coming out of the pandemic as customers, eager to do something after two years of quarantine, were lining up at the company’s venues, which feature driving ranges combined with a full-service bar and grill.
Its primary innovation was its technology-enabled golf balls that allow even novice golfers to play games by driving balls onto a large field with several holes.
But the company’s sales have struggled of late and that has hurt Topgolf Callaway’s stock price.
Same-store sales declined 8.2% last quarter, for instance, as fewer customers visited the chain’s venues. And sales appeared to worsen in July, when they declined 11%, executives said last week.
Topgolf echoed the same complaints many other industry executives have this earnings season: Consumers are frustrated by high prices and are readjusting their spending as a result.
“Price is the biggest concern of our customers,” Brewer said. “We hear it from our peers, see it in credit card data, and observe it firsthand in our venue business, including feedback from our large corporate clients.”
The best-performing venues, he said, were in areas where residents have higher incomes.
Topgolf is having a particular problem with its events business. Same-store sales for events involving three or more bays at a time was down 9% last quarter, 27% on a two-year stack and 5% compared with 2019.
“We previously thought the events business was stabilizing, but then it deteriorated further in late May and June,” Brewer said. He believes the softness reflects a “normalization” from a post-COVID surge. But he also blamed “slowing economic conditions and corporate belt tightening.”
The sales problems at Topgolf have hit the company’s stock price hard. Topgolf Callaway’s share price is down 20% this year and 33% over the past 12 months.
The company lowered its expectations for sales, same-store sales and profitability. Last quarter’s difficulties represented a particularly hard gut punch to projections on same-store sales: Topgolf now expects full-year same-store sales to be down in the “very high single digits to low double digits.”
The previous estimate had been “slightly positive to down low single digits.”
“It really is mostly a traffic issue right now,” Brewer said. “So our business, like much of the outside data we’ve seen, is experiencing a slowness in traffic.”
Topgolf Callaway is now working with outside advisors on plans to get more people into the venues, if it doesn’t opt to spin the brand off. It has developed a new golf club, The Sure Thing Golf Club, Brewer said. The company is working on improving its digital and marketing efforts, along with its promotions.
It also recently hired Erin Chamberlin, a former gaming company executive, to be chief operating officer for the brand.
“I’d also like to be clear we can and are going to do better,” Brewer said. “We recognize that we have to operate in the environment as it exists.”
He added, “It’s not that we’re sitting here and just taking a macro cycle and waiting it out.”
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