Callaway Raises Outlook as Margins Drive Profit Growth
Second-quarter sales rose 2.0% to $612.2 million as golf-ball demand offset weaker gear sales.
Callaway Golf (CALY), the golf-equipment and apparel maker, reported a 54.5% increase in second-quarter operating income as wider margins outweighed slower sales growth. GAAP operating income reached $114.8 million, while adjusted EBITDA rose 35.8% to $124.9 million.
The quarter marked Callaway’s second full period as a two-segment, pure-play golf company following the divestitures of Topgolf and Jack Wolfskin. The company retained a 40% equity interest in Topgolf. Sales growth slowed from 9.2% in the first quarter, but GAAP operating-income growth accelerated from 34.0%.
GAAP net income from continuing operations rose 66.6% to $75.8 million, accelerating from an 18.1% increase in the first quarter. Non-GAAP net income increased 89.7% to $73.8 million, compared with 95.8% growth in the prior period. GAAP gross margin expanded 620 basis points to 50.1%, more than twice the first quarter’s 250-basis-point expansion, while non-GAAP gross margin widened 460 basis points to 48.5%.
Golf Equipment sales increased 4.5% to $430.3 million, led by a 14.8% rise in golf-ball revenue. Club sales grew 1.2%. The segment’s operating income rose 31.6%, and its margin expanded 480 basis points to 23.3%.
Apparel, Gear and Other sales declined 3.6% after growing 8.4% in the first quarter, as a 9.0% drop in gear, accessories and other products offset a 0.9% increase in apparel. Despite the sales decline, segment operating income increased 14.0% and operating margin widened 290 basis points to 18.4%. U.S. sales rose 3.4%, while Asia declined 1.7% on a reported basis despite 6.3% constant-currency growth.
Callaway raised the low end of its full-year sales outlook by $30 million and now expects $2.045 billion to $2.070 billion. It also lifted adjusted EBITDA guidance to $246 million to $260 million from $211 million to $233 million. For the third quarter, the company expects sales of $415 million to $435 million and adjusted EBITDA of $10 million to $20 million, below year-earlier levels because of fewer product launches, an irons introduction shifted into 2027 and the exit of lower-margin business.
The company reduced its expected 2026 gross tariff expense by about $7 million to roughly $43 million after new rates came in below its previous assumption. Second-quarter GAAP results included a $10.8 million benefit from tariff refunds, and Callaway expects to recognize nearly $7 million of additional refunds in the third quarter.
Callaway repaid $421 million of convertible notes and term debt during the quarter, leaving $74 million of debt and $278 million of unrestricted cash. Inventory declined $49.7 million to $518.2 million, while year-to-date repurchases reached 5.9 million shares, or $84 million, leaving $120 million under the authorization.