Topgolf Callaway Stock Fell Close to 25% This Week. Here's Why.
Shares of Topgolf Callaway Brands (NYSE: MODG) slipped close to 25% this week, according to data from S&P Global Market Intelligence. The owner of Callaway, Topgolf, and TravisMathew posted weak growth for the second quarter of 2024. Suffering for many years, the stock is now down 20% year to date and 33% over the last 12 months.
Here's why Topgolf Callaway stock fell yet again this week.
Lower Topgolf traffic, guidance reduction
The second quarter for Topgolf Callaway showed slowing discretionary consumer spending in the United States. Golf equipment revenue decreased 8.2% year over year to $414 million, leading to a decrease in operating income for the segment. Active lifestyle revenue -- which is apparel -- saw a revenue decline of 3.2%. Both show a stagnation in consumer spending for golf-related products.
More concerning is the Topgolf entertainment business. Same-store sales growth -- measuring growth from existing locations -- slipped by a whopping 8% year over year due to worsening traffic at the venues. Topgolf locations are huge driving range entertainment venues that focus on catering to groups and corporate events. The venues have high fixed costs and need a ton of traffic to obtain positive unit economics and operating leverage. An 8% decline in same-store sales is a huge worry for the company, and something that needs to be fixed.
Guidance says it will get worse. Management is now expecting Topgolf same-store sales to be down possibly in the double-digits for all of 2024, indicating worsening trends through the rest of the year. Consolidated revenue guidance has been reduced in line with this change. No wonder the stock is falling on the report.
Will the business break itself up?
The most interesting part of Topgolf Callaway's report was the announcement that the company was looking at a strategic review of the Topgolf segment. What this means is that management might spin out the Topgolf business. While it may be an inopportune time with the business struggling, a big investor could help fuel growth for the nascent entertainment brand and infuse the remaining business with cash. I could see some investors getting bullish around this potential spinoff.
However, you aren't left with much if Topgolf goes away. The remaining assets are golf equipment and apparel brands that are also seeing sales declines. What's to like about this business? Not much right now. For these reasons, it makes sense that Topgolf's stock has fallen after this recent earnings figure. Avoid buying this stock until further notice.
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Brett Schafer has positions in Topgolf Callaway Brands. The Motley Fool recommends Topgolf Callaway Brands. The Motley Fool has a disclosure policy.
