Callaway Sells Jack Wolfskin, Faces $40M Tariff Headwinds

Date of Call: Feb 12, 2026

Financials Results

• Revenue: Full year: Consolidated net sales down slightly. Q4: $368 million, decreased 1% year-over-year.
• Gross Margin: Full year consolidated gross margin declined 60 basis points to 42.2%. Q4 gross margin declined 220 basis points to 37.4% due to 340 basis point impact from incremental tariffs.

Guidance:

• 2026 full year revenue expected in the range of $1.98B to $2.05B, down slightly at the midpoint vs last year.
• Full year adjusted EBITDA expected in the range of $170M to $195M.
• Q1 2026 total revenue forecast to be $635M to $665M, representing ~3% year-over-year increase at the midpoint.
• Q1 2026 adjusted EBITDA forecast to be $110M to $125M.
• Anticipate generating ~$100M free cash flow in 2026.
• 2026 CapEx expected in the range of $35M to $40M.
• Full year incremental tariff expense of ~$40M expected in 2026.

Business Commentary:

Strategic Divestitures and Refocusing:

• Callaway Golf Company completed the sale of the Jack Wolfskin business for $290 million and a 60% stake in Topgolf for approximately $1.1 billion, with $800 million in cash proceeds.
• These transactions reflect a strategic refocus on core golf equipment and apparel businesses, returning the company to its roots as a pure-play golf company.

Financial Performance and Margins:

• Consolidated net sales in Q4 were $368 million, a 1% year-over-year decrease, with golf equipment sales flat and soft goods down 1.4%.
• The company reported a $39 million decrease in adjusted EBITDA for the full year, impacted by $34 million in incremental tariff costs, despite a 10 basis point increase in golf equipment gross margin.

Market Conditions and Consumer Trends:

• The U.S. golf market showed growth with rounds played up 1.2% in 2025, marking the third consecutive year of growth, and participation in off-course golf increased by 63% since 2019.
• The positive market conditions and strong brand positions of Callaway, Odyssey, and TravisMathew support the company's strategic focus.

Product Innovation and Launch Strategy:

• Callaway introduced new products like the Quantum family of woods and irons, and the Odyssey AI dual putters with groundbreaking technology.
• The company is adjusting its product launch cadence and extending product life cycles to enhance long-term profitability and market share.

Tariff Impact and Mitigation:

• Incremental tariff expenses are projected to increase by $40 million in 2026, adding to the previous year's $35 million.
• Callaway is mitigating tariff impacts through product mix optimization, pricing strategies, and operational efficiencies, with plans to absorb the costs while maintaining gross margin stability.

Sentiment Analysis:

Overall Tone: Positive

• "Callaway Golf Company's Q4 results were better than expected in both the top line and in EBITDA." "We ended last year on a fantastic note, executing two transformational transactions..." "We're excited about the opportunities we see." "Our golf equipment gross margin... would have increased 189 basis points, excluding tariffs." "We feel good about our position. We feel really good about the market."

Q&A:

• Question from Simeon Gutman (Morgan Stanley): Would you say you built guidance based on moderate product success? Did you build in price and inflation component, or think about unit growth on top of that? Also, on margin, how much better could the margin profile look, and is this iterative?
  Response: Guidance is based on a moderate, cautiously optimistic perspective. The company feels good about the market and product but it's too soon to be sure. On margins, they are focused on long-term improvement, with golf equipment gross margins up nearly 200 bps net of tariffs last year, and they are forecasting total company gross margins to be approximately flat this year despite $40M incremental tariffs.

• Question from Anna Glaessgen (B. Riley Securities): Could you expand on exiting lower-margin businesses and the headwind for the back half?
  Response: The company is pulling back on sales of lower-margin products and categories (e.g., range balls, certain SMU product) for mix optimization. In the second half, changes to launch cadence and product cycles will also impact revenue, but are expected to improve long-term profitability and margins.

• Question from Arpine Kocharyan (UBS): Could you bridge the 2026 revenue and EBITDA guidance from 2025? Does 8-10% pricing sound right, and how much of the tariff impact is offset by pricing? Also, what is the initial feedback on the new Tri-Force driver?
  Response: Pricing was not 8-10% across the core product line. The EBITDA midpoint is down ~$40M due to the incremental $40M in tariffs and $16M less dividend income. On Tri-Force, feedback is positive, but it's premature as the product hasn't launched yet.

• Question from Casey Alexander (Compass Point Research & Trading): The guidance presumes about a 9% EBITDA margin, down from ~12% prior to Topgolf purchase. How do you improve margins to make up that ground?
  Response: The company is focused on driving improvements through three initiatives: mix optimization towards higher-margin products, changes in launch cadence and life cycles, and increased investment in fitting. They note the tariff impact over two years is $75M, which has significantly affected margins.

• Question from Noah Zatzkin (KeyBanc Capital Markets): How are you thinking about the opportunity to margins from mix and launch cadence changes? And how are you feeling about the ability to offset the $75M of tariffs?
  Response: The three improvement initiatives are structural investments aimed at enhancing long-term margin profile and share. Efforts to offset tariffs include restructuring, working with vendors, changing product mix, and taking pricing, which are already having impact. Gross margin is forecast to be approximately flat in 2026.

Contradiction Point 1

2026 EBITDA Guidance and Key Drivers

Contradiction on the primary factor affecting EBITDA versus other variables.

What are your key takeaways from the latest earnings report? - Arpine Kocharyan (UBS Investment Bank)

2025Q4: 2026 EBITDA is down about $40 million compared to 2025, primarily due to $40 million in incremental tariffs and $16 million less in dividend income... - [Brian Lynch](CFO)

Can you confirm the 8% to 10% pricing increase in the core product line and clarify how much of the $40 million tariff impact is offset through pricing, and how this affects the 2026 revenue and EBITDA guidance compared to 2025? - Noah Zatzkin (KeyBanc Capital Markets)

20251107-2025 Q3: The tariff impact over two years is $75 million, which has significantly affected margins. - [Brian Lynch](CFO)

Contradiction Point 2

Tariff Impact and Mitigation Strategy

Contradiction on the company's ability to absorb tariff costs versus previous guidance.

What is the company's outlook for the next quarter? - Noah Zatzkin (KeyBanc Capital Markets Inc.)

2025Q4: The company is absorbing the $75 million impact through restructuring, vendor collaboration, product redesign, and pricing strategies. - [Oliver Brewer](CEO)

How are you structurally addressing the impact of mix changes and product launch cadence on margin opportunities, and what is your outlook on offsetting the $75 million in tariffs? - Joe Altobello (Raymond James) - George Kelly:

20251107-2025 Q3: If current tariff rates hold, the 2026 impact is expected to be a little more than double the 2025 impact of approximately $40 million. - [Oliver Brewer](CEO)

Contradiction Point 3

Golf Equipment Gross Margin Trends

Contradiction on whether margins are improving or flat despite tariff challenges.

What are your key priorities for the next quarter? - Simeon Gutman (Morgan Stanley)

2025Q4: The company is forecasting total company gross margins to be approximately flat in 2026 despite $40 million in incremental tariffs. - [Oliver Brewer](CEO)

How much can the business's margin profile improve? Is this an iterative process with ongoing actions, and do you reinvest savings or let them flow to improve profitability? - Anna Glaessgen (B. Riley Securities, Inc.)

20251107-2025 Q3: Golf Equipment margins would have grown by 200 basis points net of tariffs. - [Oliver Brewer](CEO)

Contradiction Point 4

Tariff Impact on EBITDA and Gross Margin

Conflict in the magnitude of tariff impact and ability to offset it.

What are your thoughts on the recent earnings report? - Arpine Kocharyan (UBS Investment Bank)

2025Q4: At the midpoint, 2026 EBITDA is down about $40 million compared to 2025, primarily due to $40 million in incremental tariffs. - [Brian Lynch](CFO)

Can you confirm the 8% to 10% pricing increase in the core product line and clarify how much of the $40 million tariff impact is offset through pricing, and how this affects 2026 revenue and EBITDA guidance compared to 2025? - George Kelly (Raymond James on behalf of)

20251107-2025 Q3: If the current tariff rates hold, the 2026 impact would be a little more than double the 2025 impact of approximately $40 million. - [Oliver Brewer](CEO)

Contradiction Point 5

Tariff Impact Estimation

Inconsistent estimates for the 2025 tariff impact on the business.

What are your thoughts on the company's recent earnings performance? - Casey Alexander (Compass Point Research & Trading, LLC)

2025Q4: The tariff impact over two years is $75 million. - [Brian Lynch](CFO)

How will you bridge the 3% EBITDA margin gap between 2023 (12%) and 2026 guidance (9%), considering tariffs, price increases, and the Topgolf acquisition, and what factors differentiate the current outlook from prior periods? - Simeon Ari Gutman (Morgan Stanley)

2025Q2: The estimated full-year impact has increased from $25 million to $40 million due to recent changes in rates and timing. - [Oliver Brewer](CEO)