Acushnet Holdings Corp. (GOLF) Q2 2025 Earnings Call Transcript

Welcome to the Cushnet Holdings Corp 2Q25 Earnings Call. My name is Lauren and I'll be your operator today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star, blue, blue, blue, one on your telephone keypad. I'll now hand to you with your host, Saundra Lennon, Vice President, FP&A and Investor Relations, to begin. Please go ahead.

Good morning, everyone. Thank you for joining us today for a Cushnet Holding Corp. second quarter 2025 earnings conference call. Joining me this morning are David Marr, our President and Chief Executive Officer, and Sean Sullivan, our Chief Financial Officer. Before turning the call over to David, I would like to remind everyone that we will be making forward-looking statements on the call today. These forward-looking statements are based on Akushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation, and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non-GAAP financial measures, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures can be found in the schedules and today's press release, the slides that accompany this presentation, and in our filings with the U.S. Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year net sales increases and decreases are on a constant currency basis unless otherwise stated, as we feel this measurement best provides context as to the performance and trends of our business. And when referring to year-to-date results or comparisons, we are referring to the six-month period ended June 30, 2025, and the comparable six-month period in 2024. With that, I'll turn the call over to David.

Thanks, Sandra, and good morning, everyone. We appreciate your interest in Acoustic Holdings. The sport and business of golf continue to be vibrant and healthy. Per the National Golf Foundation's read on the U.S. market, 1.5 million new golfers entered the sport in 2024, marking the seventh consecutive year-on-year increase. These games contributed to resilient participation results, with worldwide rounds of play in the first half projected to be up 2%, despite some of the weather-related volatility we have experienced in the U.S. Continues to benefit from our focus on the game's dedicated golfer, whose healthy demographic and deep commitment to the sport helped to offset some of the macro uncertainties consumers are facing. With that, I am pleased to report on a solid quarter and first half for a Kushnet, led by our momentum in Titleist golf equipment and steady growth in the U.S. and EMEA regions. Moving to slide four, you see our second quarter and first half results delivered worldwide net sales of 720 million dollars a five percent increase over last year driven by the strength of our golf equipment and gear segments which contributed to a nine percent year-over-year increase in adjusted EBITDA net sales of 1.42 billion dollars or up three percent while adjusted EBITDA of 282 million dollars was down one percent in line with our expectations as we make several investments across our business with a long-term focus on golf equipment innovation and our technology and golfer connection platforms. Getting to our segment results, golf equipment sales were up mid-single digits in the quarter and first half, led by the success of new Pro V1 golf ball models and strength within our GT Metals and hybrid franchise. Titleist golf equipment sales were up in all regions for the half, led by the U.S. and EMEA, and When compared with the first half of 2023 and a similar product launch cycle, equipment revenues are up 10%. The Titleist golf ball business is well positioned for the back half of the year as our team keeps pace with healthy demand and activates our golf ball fitting initiatives in all markets. On the club side, we're excited about our new T-Series irons, which were launched last This innovative new product lineup delivers enhanced performance and feel, and while early, initial response is meeting our high expectations. Within our golf equipment business, we are confident in the strength and diversity across our supply chain. With golf balls benefiting from our two production facilities in the U.S., and our ability to assemble golf clubs in most major regions also provides flexibility as we navigate evolving tariff policies. Moving to gear, this business is healthy with sales increasing 7% in the first half. The core Titleist bag, glove, and headwear categories grew mid-single digits, while our travel brands, led by Club Glove, grew more than 20%. Our footjoy business was off 2% in the quarter and 4% in the half. These results were in line with our expectations as we shift towards a higher concentration of premium performance footwear led by Premier, Hyperflex, and Quantum golf shoes. At the same time, we have reduced discounted closeout volumes and elevated our entry-level price points across the brand. We are pleased with FJA's market positioning, product lineup, and sell-through trends, and as you will see in our financials, these are positively impacting FJ's operating results. Lastly, products not allocated to a reportable segment also posted steady growth in the half, led by double-digit gains from our shoes outer, which continues to build nice momentum. Now, looking at our regional results, you see ongoing strength from our U.S. business, despite rounds of play being down slightly due to unfavorable weather. The MEA was up six percent in the first half reflecting gains in titleless golf equipment primarily golf balls as well as golf gear the region is benefiting from outsized growth in the uk where rounds of play are up 20 percent through revenues in japan and korea are off four and three percent and a half respectively as noted on our last call we are pleased with our equipment growth in these countries but the markets for apparel footwear and gear have been relatively soft we expect our business in these regions to stabilize in the back half of in summary golf industry fundamentals are in good shape and we are pleased with our new product pipelines and the overall health of our business as we look to the future as always we appreciate the good work of our associates and supportive partners and while a cushion it is not immune to macro uncertainties we are confident in our ability to effectively manage all that is in our control as we seek to deliver the highest quality products and services to dedicated golfers and in turn grow invest in our future and return capital to shareholders thanks for your interest this morning I will now pass the call over to Shawn thank you David good morning everyone we had a solid second quarter and strong first half to start 2025 second quarter net sales were up five percent and adjusted

the EBITDA was $143 million, up $12 million from last year's second quarter. For the first half of 2025, net sales increased 3%, and adjusted EBITDA decreased 1%, in line with our expectations. Net sales growth in the second quarter was driven by continued strength in our Titleist Golf Equipment segment, up 6% in the quarter, behind the continued momentum of our latest pro v1 golf balls launch and gt metal success gross profit in the second quarter of 354 million was up 21 million compared to 2024 driven by increases in the titleless golf equipment golf gear and footjoy golf wear segments the increase in titleless golf equipment was primarily driven by higher sales volumes and higher average selling prices partially offset by mix Increased sales volumes and lower distribution costs were the primary drivers in golf gear. In foot joint golf wear, the increase was driven by lower manufacturing costs and a favorable product mix, including less closeout sales. Also impacting gross profit in the second quarter was approximately $5 million of costs related to the recently implemented tariff. second quarter gross margin of 49.2% was up 40 basis points versus prior year, while first half gross margin of 48.6% was consistent with last year. SG&A expense of $222 million in the quarter increased $14 million from 2024 as we continue to invest in our fitting network, IT systems, and A&P to support new product launches and future growth. During the second quarter the company initiated a voluntary bridge to retirement program to reduce operating costs and bridge long tenured eligible employees to retirement as a result sga expense includes restructuring costs of 6.4 million dollars related to this program for the second half of the year we are expecting approximately seven million dollars of additional charges related to this program interest expense of 15 million dollars in the quarter was up 1 million due to increase in borrowings partially offset by a decrease in interest rates our effective tax rate in q2 was 19.9 percent down from 23.2 percent last year primarily driven by a shift in our jurisdictional mix of earnings moving to our balance sheet and cash flow highlights the strength in our balance and cash flow supports the continued execution of our capital allocation strategy our focus remains on investing in the business to support long-term growth and returning capital to shareholders our net leverage ratio at the end of q2 using average trailing net debt was two times inventories were up 11 when compared to last year's second quarter reflecting the advancement of inventory ahead of tariff deadlines and the impact of our iron lunch overall we are comfortable with our inventory quality and position first half cash flow from operations decrease from the first half of 2024 primarily due to an increase in cash used to fund working capital capital expenditures were 25 million dollars in the first half of 2025 and we now expect full year 2025 capex spend to be approximately 70 million dollars rather than the 85 million previously stated. Through June, we returned roughly 154 million dollars to shareholders with 125 million in share repurchases and 29 million in cash dividends. Today, our board of directors declared a quarterly cash dividend of 23.5 cents per share payable on September 19th to shareholders of record on September 5th, 2025. On July 10th, we repurchased approximately 953,000 shares of our common stock from Magnus for an aggregate of $62.5 million in satisfaction of our previously disclosed obligations under our share repurchase agreement. While the game of golf is healthy and dedicated golfers' demand for our products is strong, we continue to operate with caution given tariffs and their potential impact on consumer spending. For these reasons, similar to our Q1 call, we're not going to formally update our full-year guidance at this time, but instead provide some color around the second half of the year as we see it today. During the second half of 2025, we expect net sales to be up low single digits, taking into account a full-year FX headwind of approximately $5 million as compared to last year. the second half quarterly cadence is expected to align with our historical seasonality we anticipate net sales growth across all segments driven by the continued strength of golf equipment while fj continues to execute on their premium performance strategy the situation remains very fluid and we continue to closely monitor developments in the dynamic tariff landscape and broader macroeconomic environment. Based on the recently announced tariff rates and agreements, we expect to have an estimated impact of approximately $30 million in the second half of the year, in addition to the $5 million impact in the first half of 2025. Our mitigation efforts include optimizing our supply chain footprint, vendor sharing programs, programs, selective pricing actions, and cost reduction initiatives such as the VBR program. As a result, we estimate mitigating greater than 50% of the tariff impact in the system. Overall, we are very pleased with our first half performance and remain focused on executing our long-term strategic priorities. With that, I will now turn the call over to Sondra for Q&A.

Thank you, Sean. Operator, could we please open the line for questions?

Yes, of course. We will now begin the Q&A session. If you would like to ask a question, then please press star-loaded by 1 on your telephone keypad. To withdraw your question, please press star-loaded by 2. Please also ensure that your phone is unmuted locally. So as a reminder, that is star-loaded by 1 to ask a question. We'll pause for a moment to allow questions to be registered. Our first question today comes from Simeon Gutsman from Morgan Stanley. Please go ahead.

Hey, good morning everyone and good quarter. My first question, it's around inflation and pricing. So there is a certain amount of inflation driven by innovation every year in this category. Now we have tariff on top of that. Do you have a sense of where that number on a percentage basis can go for the industry, not just the kushnet, for the second half, given some of the tariff impacts?

And how will that compare to some of the annual rate of inflation that's happened in the past? uh morning simeon i'll touch that more in a general sense than a than a hard number um and and tell you what we've seen up to this point um we've certainly seen price increases in gear footwear and apparel across the industry and we've taken select moves in in those categories would be part one. Part two, our ball business is not entirely immune but somewhat immune to some of the tariff risks as we manufacture so much of our product in the U.S. So we haven't seen as much in balls. Clubs has really been all over the map depending on sourcing and where manufacturers assemble product. So it's certainly part of the story. It has been to this date. We saw some price increases introduced into the industry in late Q2, some of which really flowed in Q3 after pre-books had shipped. But to your question, how does it compare to historical? I would say it's almost too soon to say, in part because we're dealing with rapidly changing rates, even today, right, the narrative changes. But you have seen some pricing action taken, and again, I point you more so to gear, footwear, and apparel than equipment at this stage. But we're doing what everybody's doing, and that is assessing what it means for balance of year and future product introductions, what it means for next year, and how much dexterity do we have within our sourcing and supply chain to mitigate before we take price. So again, hopefully some general overview of what we're seeing in the industry is helpful as you think about inflation and how Gulf responds to tariffs and how it compares to some of the broader national numbers.

And if I can, one follow-up, same topic, which it's somewhat nebulous, but given the customer profile, who you sell to, and the premium product line, how much do you worry about your customer's ability to take price, not just in the golf category, not just from a cushioned, but as they face higher prices in general in the second half and beyond?

Yeah, we think about it a lot. Um, and, and every time we think about price, we think about our ability to show, improve performance. Um, you know, if you look at our results, um, certainly we've, we've, we called it out earlier, uh, balls, right. It was, it was driven by premium performance, Pro V1, Foot Choi there, performance driven by premium, Premier, Hyperflex, Clubs. We don't really run a multi-tier pricing strategy. So we're careful. We're, in many respects, premium positioned across the board, and we balance the need to pass along tariff costs with the need to constantly show value and prove to our consumers who, yeah, I guess they are certainly higher-end and more performance-oriented in nature. But we're careful about it, and we realize that there's got to be a performance story attached to any pricing action.

Thanks. Good job. Good luck.

Thanks. Thanks, Simeon. Operator, next question, please.

Our next question comes from Joseph Altebello from Raymond James. Please go ahead.

Hi, good morning. This is Martin on for Joe. So I was just trying to get an idea of how did demand play out as expected and any kind of commentary you might have when it comes to sell-in and sell-through.

I'm sorry, Martin, could you cut out just a little bit in the beginning of that question? Would you mind repeating?

Yeah, I wonder if you can get any commentary regarding kind of sell-in and sell-through.

Yeah, well, I think sell-in, I'd point to our results. We're pleased with our results in the quarter and half. I would link that to inventory levels in the market, which I would say are normalized, and the bridge between selling and inventory is sell-through. So we're pleased. You know, it was, I guess our last call would have been early May, and there was a lot of angst around the state of the consumer, certainly for the second quarter and balance of the year. and we've been pleased, both in terms of participation, rounds of play down slightly in the U.S., but up overall worldwide. And our consumer is engaged and we're pleased with what we're seeing. And again, certainly when you reference that against some of the early narrative and concerns around tariffs and inflation and what it might mean to the consumer, I think we're I think we're in a pretty good spot industry-wide and again if we had if we had meaningful sell-through concerns you'd see it in in inventory levels on the rise which again I would I would characterize inventory as seasonally normal you're always going to have some pockets around the world and we do but but by and large I would characterize it as seasonally normal which again links back to um sell through and in pretty good shape particularly given the backdrop of of all the tariff uncertainty great and you mentioned there's some stabilization in the asian region what can sort of affect a return to growth yeah i i think um i'll speak of of japan and it's really japan and korea and i'll speak of them in two two parts part one is is equipment balls and clubs which have been for us steady and stable and and we like the trends there part two is is is footwear and gear and apparel and and we've seen particularly in apparel almost a bit of a bubble in the last couple of years it's that as that has been correcting it went on such a rise during the covert years and it's been correcting but we like the way we're approaching it. Nothing has necessarily surprised us in that we planned for it. We saw a whole lot of new entrants in apparel, particularly in Korea and Japan, jump into the market in the last handful of years. And we expect to see some of those new entrants exit the market. So I think it's part of a correction. It's part of a rationalization, most noteworthy in apparel. and i would say korea first korea is the largest apparel market across asia but i did call out also i think we we see things stabilizing in the back half of the year so i feel like we're okay and again i think it's important as you think about japan and korea at least on our side to break apart what's happening with equipment with what's happening with footwear and apparel because really the drag has been on the ladder.

Thank you. Congrats, Nicorder, and good luck.

Thanks. Operator, next question.

The next question comes from Matthew Boss from J.P. Morgan. Please go ahead.

Great, thanks. So, David, could you elaborate on customer response to new launches, maybe across both clubs and balls in the marketplace today, and speak to your level of visibility, as we look out to the low single-digit back-half revenue growth forecast across segments.

Yeah, Matt, hey, we're obviously pleased with our launches. Pro V1 launched in Q1. We like our sell-through trends. We like our share trends across all markets. I think we made the point that our equipment business was up in all regions in the half. Similarly, while not a new product in that we didn't launch it in 25, we launched it in the back half of 2024. We're very pleased with what's happening on the driver front. So sell-through trends, pyramid usage, meeting our high expectations, I think, is the best way to characterize it. And, again, we're in a good place as we enter the back half of the year. Your comment about your question about second half and how do we think about second half, you know, it starts with our new product pipeline. It starts with our order book, inventory levels, and just initial response and demand that I point to. We've got a new iron in the market, our T-Series, which is off and running. We launched it in July. And, again, early response is, again, meeting our high expectations. As you'd expect, we get pretty good sell-through data week to week, which just gives us a read on trends and which way the wind's blowing and how our inventory's holding up. So all that informs what Sean said was our outlook for the back half of the year, which we characterized as low single, I think, with growth coming from all segments. And just a final point I'd add, much of my commentary was balls-clubs, but FootJoy as well continues to generate momentum. And I noted top line down slightly, but really pleased with the profitability and sort of operational results within FootJoy. And our confidence there really driven behind some exciting new product line extensions. So a lot of parts and pieces go into it, Matt. But I think that certainly fuels how we think about the half and our confidence in our outlook.

That's great. And then maybe, Sean, could you speak to gross margin considerations for the back half of the year? And maybe just how best to think about the timing of operating expense dollar growth relative to your low single-digit sales forecast for the back half?

Sure. Sure. Yeah, I mean, just, Matt, to go back to the script, obviously, I'm trying to guide you to the top line relative to some historical cadence in terms of Q3 versus Q4. So that was helpful. You know, obviously, we're pleased with the gross margin profile through the first half. As I look in the back half, I've obviously given you some impact as a result of the tariffs. So that certainly will spread across Q3, Q4. But, you know, again, we see growth across all segments in the back half. In terms of operating expense, I don't think, you know, there's anything more to say in terms of the profile. We feel the conversion, the overall margin profile, obviously we're investing for long-term growth. We'll continue to do that. You do have the impact of the VBR that we talked about in Q2. That will roll through in the back half as well, so I'll give you that number as well. So all in all, I guess, absent tariffs, we're pleased with where we're at for the year and the outlook for the year. David's talked at length about the demand, the dedicated golfer, and, you know, it's really about execution at this point for us. And, you know, certainly the tariff and the supply chain and vendor sharing and all those things, you know, will happen over the course of the year. So we position ourselves for 2026.

Helpful caller. Best of luck.

Thanks. Thanks, everyone. Yeah, we as always, and now more than ever, your understanding is we attempt to thoughtfully manage and navigate these tariff uncertainties and always stay connected to our core consumer. So we appreciate your interest and understanding, and hope you have a great rest of the day.

This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.