Shares of Topgolf Callaway Brands took a nosedive on Thursday, following the golf company’s decision to lower its guidance. The stock (MODG) experienced a sharp 21% decline in premarket trading, reaching $9.81.
In its third-quarter earnings report released on Wednesday, Topgolf revealed its revised full-year guidance for 2023. The company now expects consolidated net revenue to range between $4.24 billion and $4.26 billion, down from previous projections. Additionally, Topgolf reduced its outlook on adjusted earnings per share and sales growth.
President and CEO Chip Brewer acknowledged the need for decisive action in response to these challenges. “We are lowering our forward guidance and taking decisive action to lower both costs as well as capital expenditures,” he stated. Despite these adjustments, he expressed confidence that the company would still achieve positive free cash flow this year.
B. Riley Securities analyst Eric Wold offered a more positive outlook, highlighting the resilient demand for traditional golf equipment and apparel. He suggested that new pricing strategies and an operational focus could address the challenges faced by Topgolf. Wold maintained a Buy rating but adjusted his estimates, lowering his price target from $31 to $21.
On the other hand, TD Cowen analysts led by John Kernan highlighted the significant decline in the stock’s value since summer. They suggested that while strategic alternatives and private equity may consider acquiring Topgolf, management is likely to set high valuation hurdles for any potential sale. The analysts maintained their Market Perform rating but reduced their price target to $10 from $14, along with adjusting their estimates.
For the third quarter, Topgolf reported adjusted earnings of 20 cents per share, surpassing Wall Street’s estimate of 11 cents according to FactSet. However, the company fell slightly short of revenue expectations, with $1.04 billion compared to the projected $1.05 billion. Within the Topgolf segment, same-venue sales declined by 3%, primarily attributed to the post-Covid surge in corporate events last year.
