Acushnet Holdings Corp. (NYSE:GOLF) Q1 2024 Earnings Call Transcript May 7, 2024
Acushnet Holdings Corp. beats earnings expectations. Reported EPS is $1.43, expectations were $1.24. GOLF isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone. And welcome to the Acushnet Holdings Conference. My name is Chatch, and I’ll be coordinating this call today [Operator Instructions]. I would now like to pass the conference over to your host, Sondra Lennon, Vice President of FP&A and Investor Relations. Please go ahead.
Sondra Lennon: Good morning, everyone. Thank you for joining us today for Acushnet Holdings Corp’s first quarter 2024 earnings conference call. Joining me this morning are David Maher, 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 Acushnet’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 US Securities and Exchange Commission.
Throughout this discussion, we will make reference to non-GAAP financial metrics, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these metrics and reconciliations of these items to the most directly comparable GAAP metric can be found in the schedules in today’s press release, the slides that accompany this presentation and in our filings with the US Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year 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 three month period ended March 31, 2024 and the comparable three month period in 2023.
With that, I’ll turn the call over to David.
David Maher: Thanks, Sondra. And good morning, everyone. As always, we appreciate your interest in Acushnet Holdings. I am pleased to report on a strong start to the year for Acushnet led by our momentum in golf balls and Clubs, supported by continued supply chain enhancements and better than expected start-up at our new North American distribution center. As is customary, in Q1, we launched a wide range of new products across our portfolio, helping to deliver worldwide net sales of $708 million, a 4% constant currency increase over last year. This contributed to adjusted EBITDA of $154 million, a 5% gain for the quarter. Global interest in golf and rounds of play continue to be healthy. US rounds were up 21% in March and 7% for the quarter, positive trends particularly given poor weather across the southeast.
Conversely, rounds were off 9% and 12% in Korea and the UK where elevated rainfall caused delayed starts to their seasons. These weather related puts and takes are common for Q1 and inline with the widely held belief that the golf season more often than not starts with the Masters in early April. Getting to our segment results, you see golf ball sales increased 9% in the quarter, which is noteworthy given the steep comp against last year’s sizable Pro V1 launch and 21% growth. This gain was led by double digit growth in the US. We successfully launched new AVX, Tour Soft and TruFeel models in the quarter and also benefited from greater than expected demand fulfillment in our Pro V1 loyalty rewarded program in March. This golf ball success was supported by an especially fast start on the PGA Tour, where Titleist golf balls were used by the winners of 16 of the first 18 events of the 2024 season.
Titleist golf clubs also posted a strong quarter with sales up 14% led by solid gains in the US, Japan and EMEA. Our new T-Series irons have been well received and we successfully launched new Vokey Design SM10 wedges and Scotty Cameron Phantom putters in the period. Our wedge launch was especially well executed as our operations group completed our global launch in Q1 and a few weeks ahead of schedule. Titleist gear sales were up 2% in the quarter on double digit growth in the US, and our FootJoy business was off 6% in the quarter inline with expectations as growth in the US was more than offset by declines in international markets. We are pleased with the early response to new footwear and apparel lines and anticipate growing momentum for FootJoy as the footwear market stabilizes in the back half of the year.
Later this month, FJ will launch the new mobile FitLab performance fitting system to help golfers select the best performing, best fitting and most comfortable golf footwear. This tech enabled golf footwear fitting experience will be in pilot mode in the US this summer. And longer term, we anticipate increasing our investment in FJ FitLab to support the global build out of this value added fitting service and golfer connection opportunity. Also in the quarter, net sales of products not allocated to a reportable segment were down with continued momentum and growth from shoes not enough to offset a decline in our Korean Titleist Apparel business. Now looking at the quarter by region. You see the US market was up 13% with gains coming from all segments and coinciding with a positive rounds of play story.
EMEA was off 5%, reflecting an especially wet spring and slow start to their golf season. Japan was off 10% as gains in golf clubs were more than offset by declines in other product categories. And Korea was off 12%, mainly from Titleist apparel declines and poor weather, which delayed the start to their golf season as rounds were off 9%. In summary, we are pleased with our start to the year as the strength of golf balls and golf clubs and benefits from continued progress at our North American DC offset delayed starts in EMEA and Asia where we anticipate improving results as their seasons open up. As Sean will address, the company is well positioned as we enter Q2 with healthy inventory positions and a strong balance sheet to support our continued organic investment and shareholder return programs.
The golf industry is on firm footing. And while Acushnet is not immune to macroeconomic or weather related pressures, our business has over time proven to be resilient due to the avidity and favorable demographic profile of our core consumer, the sports dedicated golfer. Our global teams have done nice work positioning Titleist, FootJoy and shoes products in golf shops and we are confident in our ability to deliver compelling product, fitting and service experiences to golfers throughout the upcoming season. Thanks for your attention this morning. I will now pass the call over to Sean.
Sean Sullivan: Thank you, David. Good morning, everyone. As David highlighted, we had a strong start to 2024 with the first quarter net sales increase of 4% over prior year. Adjusted EBITDA was $153.7 million, a 4.7% increase from the first quarter of 2023. Net sales growth in the quarter was driven by continued momentum of our Titleist brand with golf clubs, golf balls and golf gear growing by 14%, 9% and 2%, respectively. FootJoy net sales declined 6% in the quarter. Geographically, net sales were up in Q1 in the US but declined in Korea, Japan and EMEA, primarily due to lower net sales within our FootJoy golf wear segment and lower net sales of products that are not allocated to one of our four reportable segments. Gross profit in the first quarter of $378 million was up 3% or $12 million compared to 2023, primarily due to increased net sales, partially offset by lower net sales and unfavorable manufacturing overhead absorption in FootJoy golf wear.
SG&A expense of $237 million in the quarter increased $14 million or 6% from 2023 due in part to increases in advertising and promotional expense, information technology related expenses and employee related selling expenses, which were partially offset by lower retail commission expense in Korea. SG&A expense in the first quarter also included $7 million of restructuring costs related to the closing of certain production lines in China as a portion of our footwear production transitions to Vietnam. Interest expense of $13 million in the quarter was up $3 million due to an increase in interest rates and borrowings. Our effective tax rate in Q1 was 21.7%, up from 18.1% last year, primarily driven by a shift in our jurisdictional mix of earnings.
Moving to our balance sheet and cash flow highlights. Our balance sheet and cash flow positions continue to be very strong, allowing us to execute our capital allocation strategy with ongoing investments in the business and return of capital to shareholders being our highest priorities. Our net leverage ratio using average trailing net debt at the end of Q1 was 1.9 times. Inventories overall declined 13% from the fourth quarter of 2023 with decreases across all of our product segments. When comparing to last year’s first quarter, inventories are down 16%. And at this point in the year, we are comfortable with our current inventory position. Cash used in operations increased from the first quarter of 2023, primarily due to changes in working capital.
Capital expenditures were $7 million in the first quarter of 2024 and are still expected to reach approximately $85 million in fiscal year ’24. Through March, we returned roughly $50 million to shareholders with $35 million in share repurchases and $15 million in cash dividends. During April, our Board of Directors declared a quarterly cash dividend of $0.215 per share payable on June 21st to shareholders of record on June 7th, 2024. On March 14, 2024, we entered into a new agreement with Magnus to purchase an equal amount of stock as we purchase on the open market from April 1st to June 28, 2024 up to an aggregate of $37.5 million. As of March 31, 2024, we had $340 million remaining under the current share repurchase authorization. Turning to our full year 2024 outlook.
We are maintaining our view for revenue to be between $2.45 billion and $2.5 billion, up 4.3% at the midpoint on a constant currency basis compared to 2023. We are also reaffirming our adjusted EBITDA outlook and still expect full year 2024 to be between $385 million and $405 million. As David mentioned, we had a solid start to the year behind our newly launched golf ball models and strong demand and fulfillment of our loyalty rewarded program during the quarter. In clubs, our operations team was successful in the launch of our Vokey SM10 wedges. Following these accomplishments, we still expect net sales in the first half to be up low single digits compared to the first half of 2023 and adjusted EBITDA to be flat with last year’s first half.
In closing, we are very pleased with our performance in the first quarter of the year and remain focused on executing on our strategic initiatives for the remainder of the year. With that, I will now turn the call over to Sondra for Q&A.
Sondra Lennon: Thank you, Sean. Operator, could we now open up the lines for questions?
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