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Callaway Golf (NYSE:ELY)
Q1 2021 Earnings Call
May 10, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day and thank you for standing by. Welcome to the Q1 2021 Callaway Golf earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to Patrick Burke, head of investor relations.

Thank you. Please go ahead.

Patrick Burke -- Head of Investor Relations

Thank you, Erica, and good afternoon, everyone. Welcome to Callaway's first-quarter 2021 earnings conference call. I'm Patrick Burke, the company's head of investor relations. Joining me on today's call are Chip Brewer, our president and chief executive officer; Brian Lynch, our chief financial officer; Jennifer Thomas, our chief accounting officer; Artie Starr, our chief executive officer of TopGolf; and William Davenport, our chief financial officer of Topgolf.

Today, the company issued a press release announcing its first quarter and 2021 financial results, a copy of the press release and associated presentation are available on the investor relations section of the company's website at www.ir.callawaygolf.com. Most of the financial numbers reported and discussed on today's call are based on U.S. generally accepted accounting principles. In the few instances where we report non-GAAP measures, we reconciled the non-GAAP measures to the corresponding GAAP measures at the back of the presentation in accordance with Regulation G.

Please note that this call will include forward-looking statements that involve risks and uncertainties and that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in the presentation and the press release for a more complete description. Please note that in connection with our prepared remarks, there's an accompanying PowerPoint presentation that may make it easier for you to follow the call today. This earnings presentation is available for download on the Callaway Investors website under the webcast and presentations tab.

Also, on the same tab, you can choose to join the webcast to listen to the call and view the slides. As a webcast participant, you are able to flip through the slides. I would now like to turn the call over to Chip.

Chip Brewer -- President and Chief Executive Officer

Thanks, Patrick. Good afternoon, everybody, and thank you for joining us for today's call. Starting on Page 5 of the presentation. It's great to be with you today to discuss what we believe were excellent Q1 results as well as to provide some color on the outlook for the business going forward.

Our Q1 results exceeded our revenue and profitability expectations in all three of our principal business segments. Our golf equipment segment continued to experience unprecedented demand, which combined with a strong performance by our supply chain team, delivered 29% revenue growth versus 2020, and 16% growth versus 2019. Our apparel and soft goods segment also overperformed our expectations, driven by positive brand momentum in both TravisMathew and Jack Wolfskin. The fact that this segment delivered positive segment profitability was, in my opinion, an exceptional performance given the headwinds faced by COVID restrictions and shutdowns in the European markets.

I believe these trends bode very well for the long-term outlook of this segment. Lastly, Topgolf outperformed expectations based on a faster-than-anticipated recovery in demand as well as strong operating efficiencies. We believe it would be hard to find three better-positioned business segments both for the current environment and our expectations going forward. I'd like to take this chance to thank the entire Callaway global team, which I'm happy to call out now includes Topgolf and its related brands, for the hard work required in delivering these results as well as navigating the many challenges presented by both these extraordinary times and the exciting strategy we're implementing.

Like me, I'm sure our team remains highly motivated to capitalize on the strong list of opportunities in front of us. Let's now turn to Page 6 and jump into our Q1 results by segment. Our golf equipment segment continues to benefit from record demand levels. According to Golf Datatech, U.S.

retail sales of golf equipment hard goods were up 49% compared to Q1 2019 and 72% compared to 2020, thus setting another record for Q1 just as the last two quarters delivered records for their respective time periods. Our supply chain team did a great job in Q1 chasing demand and exceeding our expectations on supply. Even with this great work, field inventory levels remain extremely low and we expect them to remain so at least through midyear, perhaps even longer. Fortunately, we also believe our supply chain is and will continue to deliver us a competitive advantage through the balance of the year, especially in custom fitting, where demand is also surging right now.

Although we fully expect the current unprecedented demand to moderate at some point, we have yet to see a slowdown, and we continue to see particular strength in product aimed at women's, juniors and new entrants to the game. We are now quite confident that 2021 will be a very strong year and we also believe there will be a long-term benefit to the golf industry as we expect it will leave the pandemic period with a significantly larger total addressable market and strong momentum. Our Q1 market share was a little weaker than desired during the quarter as four major golf equipment brands launched metal wood product this year, while Q1 2020 only had two of the four launch. We never like to cede share, but at this point, we are not overly concerned.

As our most recent share trends are improving, we expect this improvement to continue through Q2, and we are performing relatively stronger in key accounts that are not reporting to Datatech as well as a strategically important green grass channel. Furthermore, we've been receiving excellent feedback on the performance of our products, especially the Epic MAX Woods, the Apex Ford tires, the two-bolt tin putter as well as our entire ball lineup. We also remain comfortable with our brand strength and position. In the U.S., third-party research from Datatech showed our brand to be the No.

1 club brand in overall brand rating as well as the leader in innovation and technology. Over the last several years, we have shown resilience with these important brand positions. Turning to our soft goods and apparel segment. Given the headwinds faced by COVID restrictions and lockdowns in the European markets, the results delivered in this segment were both better than our expectations, and in my opinion, an exceptional performance.

Looking at the larger individual businesses in this segment, starting with TravisMathew, we had high expectations for growth, and still, the business exceeded these expectations. Driving this performance, e-com was up 145% year over year in Q1, and company-owned stores comped up nearly 10% despite some code restrictions early in the quarter. Sell-through at wholesale was also very strong. Ryan Ellison and his team at TravisMathew are to be commended as momentum for this business is at an all-time high.

Turning to Jack Wolfskin. This is the business that probably most overperformed expectations in Q1. As you probably recall, this business has started to deliver some nice year-over-year growth at the end of last year and was starting to look like we had turned the corner on brand momentum. Though the COVID resurgence and resulting third-wave shutdowns in Europe, we were naturally concerned.

Although these circumstances have significantly impacted our business, how could they not? And they will continue to do so through at least Q2. Our brand momentum in our European e-com channel and key digital partners has really moderated that negative impact. Combine this with both nice growth in China and strong financial discipline, what could have been a significant drag on our business has become manageable. On top of this, the improving brand momentum should set us up for a strong second half, assuming, of course, the European markets open up as expected by then.

Our sell-through momentum in this business is good, and prebooks for the full winter line have been quite strong. As a reminder, Richard Collier joined the brand in December as CEO. Richard joined us from Helly Hansen, where he held the title of global product officer and served in that capacity as well as de facto COO. We also welcomed Andre Grube to the brand as CFO last October, coming to us from Mammut .

We are really pleased with the leadership team we now have in place, and I'm increasingly confident in the future of this brand. Last but not least, a few comments on the Callaway branded softwood business. As mentioned last quarter, in Korea, we plan to take back the Callaway Golf apparel brand that's been licensed to a third party for several years and launched our own apparel business during the second half of this year. We remain on track for this and are investing in staffing and IT systems accordingly.

The team there is energized by this opportunity as this is something, we have been considering for several years now. Taking a step back in looking at the big picture. For the last year, the hero of the soft goods and apparel segment is certainly e-com. This is a channel that was significantly strengthened by investments we made prior to the pandemic as well as those continuing to this day.

These investments enable our apparel business e-com to deliver 96% year-over-year growth in Q1. E-com is now a significant portion of the channel mix of this segment, and we are confident our expanded capabilities and strength here will bolster this business' growth prospects and profitability going forward. Post-COVID, we continue to expect our apparel and soft goods segment to grow faster than our golf equipment business, and with that growth, deliver operating leverage and enhanced profitability. And although the pandemic delayed our efforts, we still believe we'll be able to deliver $15 million of synergies in this segment over the coming years.

Like our company overall, this segment, with its concentration in golf and outdoor, appears to be well positioned for both the months and years ahead both during the pandemic and after. Now turning to Top Golf. This exciting new segment also outperformed expectations based on a faster-than-anticipated recovery in demand as well as strong operating efficiencies. We were pleased to close the transaction in early March, and equally pleased to onboard Artie Starrs as the new CEO in early April.

Artie brings a wealth of valuable experience and talent to an already strong management team and an exciting business. Needless to say, I'm thrilled by this combination. On the venue side, all venues are now open globally. After a challenging start to the year, COVID restrictions are continuing to ease.

COVID impacted, so these include the impact of venues shut or restricted during COVID during the period. Same venue sales versus 2019 was in the low 80s for the quarter, which was above our expectations and showed improving trends through the quarter. We now believe we will be either at the high end or modestly above our previous full year same venue sales expectations, which was 80 to 85%. Walk-in traffic remains stronger than events still, and both are trending well.

Our financial results benefited from the same venue sales fee as well as the operating efficiencies that are higher than both historical levels and our plan. Some of this is due to the fact that in the current environment, like so many other service businesses, it's hard to keep the venues fully staffed. Fortunately, we're working through this well, and so far, it has neither meaningfully constrained us, nor has it had a negative impact on guest satisfaction measures. This availability of labor is an interesting development which is likely playing out across the entire U.S.

economy. We see it as the manageable challenges of now. Also, with these results, we're increasingly confident that previously communicated venue economics will be achievable long term. We successfully opened five new venues so far this year, two in Q1 and three, so far, in Q2.

Globally, we have 66 company-owned venues in operation. For the full year, we are on track to open at least three more venues, for a total of at least eight venues this year. We also remain confident in our pipeline for future venues. Turning to Toptracer.

We successfully installed 1,533 bays in Q1, a new record despite the COVID challenges globally. We now have just over 10,000 bays globally, which is significantly more than our largest competitor. Demand remains strong for the product, and we are finding strong synergies between the Callaway sales team and the Toptracer team. We remain on track for 8,000 bays this year.

At the end of this week, we'll be launching the next global Toptracer tournament, the 9-Shot Challenge. This time, presented by the PGA America and the PGA Championship. This is an excellent example of how we can leverage our global scale and build a digital community. Looking forward, given the unsettled market conditions globally, we're still not providing specific revenue and earnings guidance.

However, we now have enough new information and visibility to provide the following color: As discussed on our previous calls, we continue to have headwinds in our supply chain, logistics and labor. As far as I'm aware, most companies do at this point. Our cost estimates for these headwinds have increased since we last spoke. However, our supply chain and HR teams are proving up to these challenges.

I believe we may even have a competitive advantage here. Also, at present, the demand is high enough that positive volume variances are expected to overshadow the majority of this year's cost impacts from these challenges. We also continue to make select reinvestments back into our business. For the balance of the year, these will be marginally more than what we discussed during our last call.

These include incremental new store openings at TravisMathew, investments in demand creation and digital resources for all brands, as well as the apparel business. We have a track record for making these kind of internal investments and are confident these will deliver higher returns for shareholders. Although we continue to fight COVID impacts globally,and business conditions remain unsettled, the strong demand equation and the momentum of our brands is such that it's clearly going to be a strong financial year; significantly stronger than previously thought. We now expect that revenue and adjusted EBITDA for the full 12 months of 2021 will meet or beat 2019 results.

More specifically, We are now expecting our legacy business to exceed its 2019 results and the Topgolf business to meet or exceed its 2019 full-year results, as measured over the full 12-month period. It is worth noting that a couple of quarters ago, I said I thought this was not in reach. I'm happy to have to correct that previous statement. Lastly, we are increasingly confident in the future potential of this unique and powerful business.

Brian, over to you.

Brian Lynch -- Chief Financial Officer

Thank you, Chip. We are very pleased with our first-quarter results, with consolidated revenue increasing 47% and adjusted EBITDA increasing 113% compared to the same period in 2020. Our consolidated revenue and adjusted EBITDA for the first quarter of 2021 increased by 26% and 38%, respectively compared to the first quarter of 2019. Each of our three operating segments performed ahead of plan during the first quarter of 2021.

In addition to this better-than-expected operating performance, our liquidity has also improved substantially compared to a year ago. As of March 31, 2021, our available liquidity, which is comprised of cash on-hand and availability under our credit facilities, was $713 million compared to $260 million at March 31, 2020. All in all, we are pleased with the current state of our business and are optimistic for the balance of the year. In evaluating our results for the first quarter, you should keep in mind some specific factors that affect year-over-year comparisons.

First, as a result of the OGIO, TravisMathew and Jack Wolfskin acquisition, we incurred non-cash amortization expense of intangible assets in the first quarter of 2021 and 2020. The first quarter of 2021 also includes non-cash amortization of intangible assets related to the Topgolf merger as well as depreciation expense from the fair value step-up of Topgolf property, plant and equipment and expense related to the fair value adjustments to Topgolf's leases and debt. Second, we also incurred other acquisition and non-recurring charges in the first quarter of 2021, including Topgolf merger transaction and transition expenses and implementation costs related to the new Jack Wolfskin IT system. In 2020, the company incurred non-recurring integration costs related to the Jack Wolfskin acquisition and costs related to the transition to our new North American distribution center in Texas.

Third, we recognized in the first quarter of 2021 a $253 million non-cash gain related to the write-off of our premerger Topgolf investment. Fourth, we incurred in the first quarter of 2021 and will continue to incur noncash amortization of the debt discount on the notes issued during the second quarter of 2020. Fifth, we recorded in the first quarter of 2021, a non-cash valuation allowance related to certain of our deferred tax assets as a result of the merger. Lastly, the Topgolf merger was completed on March 8, 2021.

Topgolf generally operates in a 13-week quarter. As a result, our first-quarter 2021 financial statements include Topgolf results for our four-week period, commencing March 8, 2021 and ending April 4. This can become confusing, and we would do our best to call out when we are discussing Topgolf results for the full quarter versus the four-week stub period. But you should do care when preparing your models to ensure you are using the correct one.

We have provided in the tables to this release a schedule detailing the impact of these items on first-quarter results, and these items are excluded from our non-GAAP results. With those factors in mind, I will now provide some specific financial results for the first quarter of 2021 compared to the first quarter of 2020. Turning now to Slide 11. Today, we are reporting record consolidated first-quarter 2021 net revenues of $652 million, compared to $442 million for the same period in 2020, an increase of 210 million or 47%.

This increase was led by a 26% increase in the legacy Callaway business, as well as an incremental $93 million from the four weeks of the Topgolf business. Changes in foreign currency rates had a $17 million favorable impact on first-quarter 2021 net sales. We are also reporting for the first quarter of 2021 operating income of $76 million, an increase of $35 million or 85%, compared to $41 million for the same period in 2020. On a non-GAAP basis, operating income for the first quarter of 2021 was $97 million, a 54 million or 126% increase compared to 43 million for the same period in 2020.

The increase in non-GAAP operating income was led by a $50 million increase in segment operating income from the legacy Callaway business as well as an incremental $4 million from the four weeks of the Topgolf business. Other income was $244 million in the first quarter of 2021 compared to other expense of $3 million in the same period of the prior year. This includes the $253 million non-cash gain related to the Topgolf merger. On a non-GAAP basis, which includes Topgolf gain, other expense was $5 million in the first quarter of 2021 compared to other expense of $3 million for the comparable period in 2020.

The $2 million increase in other expense was primarily related to higher interest expense related to incremental interest from the convertible bonds issued in May 2020, plus four weeks of Topgolf interest, partially offset by a decrease in foreign currency-related losses. Pretax income was $320 million in the first quarter of 2021 compared to $38 million for the same period in 2020. Non-GAAP pre-tax income was $91 million in the first quarter of 2021 compared to non-GAAP pre-tax income of $41 million in the same period of 2020. Earnings per share was $2.19 or approximately 125 million shares in the first quarter of 2021 compared to earnings of $0.30 or approximately 96 million shares in the first quarter of 2020.

Non-GAAP earnings per share was $0.62 in the first quarter of 2021 compared to earnings per share of $0.32 for the first quarter of 2020. Fully diluted shares were 125 million in the first quarter of 2021 compared to 96 million shares for the same period in 2020. The net 29 million share increase is primarily related to the issuance of additional shares in connection with the Topgolf merger. Full year estimated diluted shares is approximately 176 million shares, which represents the weighted average shares issued in connection with the merger over approximately a 10-month period.

As of March 31, 2021, we had approximately 185 million shares that were issued and outstanding. Adjusted EBITDA was $128 million in the first quarter of 2021 compared to $60 million in the first quarter of 2020 and $93 million in the first quarter of 2019. Topgolf contributed adjusted EBITDA of $15 million for the four-week period. To provide some additional perspective, The Topgolf first quarter 2021 EBITDA, the full three months was $17 million.

The golf equipment segment's net revenue increased $85 million or 29% to, $377 million in the first quarter of 2021, compared to $292 million in the first quarter of 2020. This increase was driven by the continued surge in golf demand and participation, our supply chain team's ability to secure a greater-than-expected supply of golf equipment components during the first quarter as well as the COVID-19 shutdowns across portions of our business in the first quarter of 2020. Both golf club and golf ball sales increased by 26% and 50%, respectively. The golf equipment segment operating income was $85 million or 22.5% of net revenues in the first quarter of 2021 compared to $59 million or 20.2% of net revenues in the first quarter of 2020, an increase of $26 million or 230 basis points.

The increase was driven by the increased revenue, operating expense leverage and favorable foreign currency exchange rates, partially offset by increased freight and product mix, including lower margins on our higher technology golf club product offerings and package sets. The apparel, gear and other segment's net revenue increased $31 million or 21% to $182 million in the first quarter of 2021 compared to $151 million in the first quarter of 2020. The increase was driven by a 23% increase in apparel sales as well as an 18% increase in gear and accessories and other. Both the TravisMathew and Jack Wolfskin business had a recovery from a pandemic faster than expected, despite continued retail restrictions and other effects from COVID-19, particularly in Europe.

The apparel, gear and other segment's operating income increased $24 million to $20 million compared to a loss of $4 million for the same period in the prior year. In 2021, this equated to 11% of segment revenue, a 1,360-basis-point improvement over the first quarter of 2020. The increase was driven by the increased sales, operating expense and cost of revenue leverage, favorable foreign exchange rates and increased commerce revenue, partially offset by the lower retail revenue in Jack Wolfskin due to further government-mandated retail shutdowns during the first quarter in Central Europe. The Topgolf segment net revenue was $93 million in the first quarter of 2021, which includes four weeks of the Topgolf business.

The Topgolf segment's operating income was $4 million for the four-week stub period. To provide investors additional perspective, Topgolf's full first quarter net revenues were $236 million and full first quarter GAAP operating loss was $30 million and on a non-GAAP basis, Topgolf's operating loss was 15 million. Turning now to Slide 13. I will now cover certain key balance sheet and other items.

As of March 31, 2021, available liquidity was $713 million compared to $260 million at the end of the first quarter. This additional liquidity reflects higher revenues in the legacy Callaway business, improved liquidity from working capital management, and proceeds from the convertible notes we issued during the second quarter. At March 31, 2020, we had total net debt of $1,160 million, including 640 million of Topgolf related net debt. The Topgolf debt includes landlord financing of $222 million related to financing the venues business.

Our consolidated net accounts receivable was $329 million, an increase of 27% compared to $260 million at the end of the first quarter of 2020. Days sales outstanding decreased slightly to 61 days on March 31, 2021, compared to 62 days as of March 31, 2020. The increase in net accounts receivable primarily is attributable to the increase in first quarter revenue, but also includes an incremental $9 million of accounts receivable. We continue to remain very comfortable with the overall quality of our accounts receivable at this time.

Also, this on Slide 13, our inventory balance decreased by 19% to $336 million at the end of the first quarter of 2021 compared to 413 million at the end of the first quarter of the prior year. The $77 million decrease was due to the high demand we are experiencing in the golf equipment business, recovery of our soft goods businesses, as well as inventory reduction efforts in the soft goods business. Capital expenditures for the first quarter of 2021 were $29 million. This includes $16 million related to Topgolf.

From a full-year 2021 forecast perspective, the legacy Callaway forecast is increasing to approximately $65 million versus the previous forecast of 50 million due to capacity investments in our plants and warehouses, as well as increasing the number of play in TravisMathew retail stores. The full year and 12-month forecast for Callaway and Topgolf is approximately $265 million, driven primarily by the new venue openings. If you include Topgolf for only 10 months, that would be approximately $235 million. Depreciation and amortization expense was $20 million in the first quarter of 2021.

Non-GAAP depreciation and amortization expense was $17 million in the first quarter of 2021 compared to $8 million in 2020. This includes $9 million of non-GAAP depreciation and amortization related to Topgolf. To help give investors additional perspective, the Topgolf full Q1 non-GAAP depreciation and amortization was $27 million. For the full year of 2021, we expect non-GAAP depreciation and amortization expense to be approximately $155 million, which includes 115 million for the Topgolf business.

I'm now on Slide 14. We are not providing specific revenue and earnings guidance ranges for 2021 at this time due to the continued uncertainty surrounding the duration and impact of COVID-19. However, we would like to provide some guidance comments we previously made. First, last quarter, we provided some guidance on full year consolidated gross margins and operating expenses.

Due to the merger with Topgolf, that guidance is no longer applicable. We are no longer providing specific guidance for consolidated gross margins and operating expenses, given the disparate treatment of those items from the legacy Callaway business and the Topgolf business. With that said, I would like to call out a few factors that have changed since our call in February. First, we have changed our accounting for golf advertising and our golf equipment business.

For 2021, it is treated as a discount to sales as opposed to an operating expense in 2020 and 2019. This negatively impacted gross margins for the golf equipment business in the first quarter of 2021 by approximately 85 basis points and will continue to affect comparisons with prior periods for the balance of the year as prior periods were not changed. There is no change to operating income. This is only a shift between gross margin and operating expenses.

We previously estimated that the freight container shortage was expected to have a negative impact of $13 million on freight costs in 2021, with a substantial majority affecting the first half. At this point, the impact of COVID-19 in our overall freight cost is expected to be greater than the 13 million, with more costs hitting the balance of the year than originally expected. We also previously estimated that operating expenses for the legacy Callaway business would be approximately $78 million higher than in 2019 due to the negative impact of foreign currency inflationary pressures and continued investment in the company's business, which included investment needed to assume the apparel business, investment in the other soft goods businesses and investment in Pro Tour. We now expect these factors along with both deferred spending from the first quarter and increased variable costs associated with the increased revenue and higher stock price will have an overall greater impact than we originally anticipated for the balance of the year.

In addition, we plan to invest a little more back into our business than originally planned. These incremental investments include additional TravisMathew stores given that brand's momentum and the availability of favorable lease terms in the current environment, and incremental investments in demand creation and digital resources for all brands as well as the Korea apparel business. Lastly, we, along with most other companies are experiencing increased wage pressure due to a tight labor market, increased freight costs as I mentioned earlier, and increased commodity prices. These are impacting all aspects of our business.

We're seeing increased freight costs in terms of increased container prices, but also increased air freight expense as well. We're also seeing an increase in commodity prices from steel to titanium, from rubber urethane to textiles and from cheese to chicken wings. As Chip mentioned, at present, demand is high enough the positive volume variances are expected to overshadow the majority of these increased costs. But these increased costs in the aggregate will still have some impact on balance of the year operating margins.

In 2022, we will have to explore price increases if those higher costs continue. We have previously guided that due to the impact of COVID-19, the company's revenue and adjusted EBITDA would not return to 2019 levels until 2022 for either legacy Callaway business or the Topgolf business. Given the faster-than-expected recovery of both businesses, and with all three of our operating segments performing above plan in the first quarter, we now project that revenue and adjusted EBITDA from our legacy businesses will exceed 2019 levels, and then our Topgolf business for the full 12 months of 2021 will meet or exceed 2019 levels, which is a year faster than expected. As a reminder, in 2019, the Calllaway legacy business reported revenue of $1.7 billion and adjusted EBITDA of $211 million.

For full year 2019, that's 12 months. The Topgolf business reported revenue of $1.06 billion and adjusted EBITDA of $59 million in 2019. Please note that Callaway's actual reported full year financial results will only include 10 months of Topgolf results in 2021, and therefore, will not include January and February results which were in the aggregate, $143 million in revenue and $2.3 million in adjusted EBITDA. That concludes our prepared remarks today, and we will now open the call for questions.

Operator, over to you.

Questions & Answers:


Operator

[Operator instructions] Your first question is from Randal Konik with Jefferies.

Randal Konik -- Jefferies -- Analyst

Hey, thanks. Can you hear me guys?

Chip Brewer -- President and Chief Executive Officer

Sure thing.

Randal Konik -- Jefferies -- Analyst

All right. Good afternoon. Chip, I just want to ask you a question. You got some good color there on how we should be thinking about 2021.

But I just want to get your level -- give us your level of comfort on how you're thinking about those 2022 numbers you guided to us with, I believe, it was about 3.2 billion in sales and about 360 million in adjusted EBITDA. Just want to get your thoughts on how you're thinking of those goals for next year.

Chip Brewer -- President and Chief Executive Officer

Yes. Good question, Randy. As previously discussed in the calls that we've had, the 2022 guidance that we gave in conjunction with the announcement of the Topgolf merger, we believe, was conservative. And I think we can even take that a step further now and say that we expect to be better than that guidance, better than the 360 million adjusted EBITDA in 2022.

However, we're not providing any specific estimates at this point and we do hope to be able to restore at least annual guidance early next year per our previous practice.

Randal Konik -- Jefferies -- Analyst

That's super helpful. One last question is you gave us some color on Toptracer where you said that you expect to hit those 8,000 bays. I think all these driving ranges that look like they're stuck in the 1990s and best need of this Toptracer technology. These ranges are always packed now.

So how do you -- are you getting a lot more incremental inbound? And if so, do you think that the level of installations can potentially rise over time as your construction teams get used to the installation process and get better and faster on what they do? Just curious on your thoughts there.

Chip Brewer -- President and Chief Executive Officer

Yes, Randy, we remain very encouraged and probably increasingly encouraged by that business. So Q1, you have to keep in mind, had significant COVID restrictions in various parts of the world, and we still do in various parts of the world. So the fact that we're comfortable with the 8,000, which was our previous communication bay installs means that, among other things, that the demand for the product is quite good. It's also an area where we're seeing very strong synergies with the Callaway business being able to generate additional leads and sales pipeline for the Toptracer business.

So as we work through the COVID environment and scale that business, yes we remain very optimistic. And hopefully, there is some upside potential. .

Randal Konik -- Jefferies -- Analyst

Great. Super helpful. Thanks, guys.

Chip Brewer -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Brett Andress with KeyBanc Capital Markets.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Hey. Good afternoon, guys. Can you give us any detail on the cadence of same-store sales in the quarter, just how it progressed from January into March, April, May? Just trying to get a feel for the exit rate of the business. And then, if you look at the non-COVID impacted units, how did those units compare to that low-80s number that you gave us?

Chip Brewer -- President and Chief Executive Officer

OK. Hey, Brett, it's Chip. So as you would've expected, the same venue sales ramp during the quarter, if you go back, it seems like a long time ago now, but in Q1, even in the U.S., COVID was pretty hot and heavy in the January time period. We were scaling back up and there were significant restrictions in the U.S., as well as globally.

And so, as you would expect, the same venue sales ramped nicely during the quarter. And we're at the highest point toward the end of the quarter. What was the other question, Brett?

Brett Andress -- KeyBanc Capital Markets -- Analyst

Just the non-COVID-impacted units, how those units compare to that low 80s number that you gave us?

Chip Brewer -- President and Chief Executive Officer

Yes, Brett, I'm not going to be able to give you anything quantitatively there. Unfortunately, the level of granularity there is beyond what we're comfortable with. To a degree, you could argue that most were COVID impacted at some stage during the quarter. But certainly, the results vary by venue and location, and we prefer not to get into specifics of which venue did better than the others at this stage.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Got it. OK. That's fair. And then, my follow-up is, can you just talk about what you're seeing in the events piece of the Topgolf business? I mean how is the events business doing compared to '19, I guess, today? And then If you look into the back half of the year, presumably you have some visibility, right, in terms of the events on the books.

Can you just maybe talk about that and how you see the events recovery playing out for Topgolf?

Chip Brewer -- President and Chief Executive Officer

Sure. But again, it will be a qualitative, not a quantitative discussion. So the events are still significantly impacted, as you would expect. But they, like the rest of the business, ramped during the quarter, and we are seeing increased interest for events.

The events sales team is getting better response and improved leads. So we're optimistic that it will continue to ramp, but it is still significantly impacted, as you would expect it to be. And our visibility of that specific element is it's still not great, to be honest. We are optimistic on it, and it's certainly above where we expected.

But it would be beyond me that will predict that one for Q3 or Q4, although we like the trends. .

Brett Andress -- KeyBanc Capital Markets -- Analyst

Awesome. All right. Thank you.

Chip Brewer -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Joe Altobello with Raymond James.

Joe Altobello -- Raymond James -- Analyst

Thanks, guys. Good afternoon. First question, in terms of development costs for the new venues, given what we're seeing in the real estate environment and given what we're seeing across raw materials, how has the development cost for new Topgolf venues increased materially?

Chip Brewer -- President and Chief Executive Officer

We have seen some pressure on that. It hasn't had a material impact on us at this stage, but it is something we'll continue to monitor because all of the cost impacts across all of the business are seeing some inflation at this point. So nothing to report at this stage. But yes, we are starting to see some things that will keep our attention on.

Joe Altobello -- Raymond James -- Analyst

OK. Great. And just a follow-up on that. Now that the deal is closed, can you provide us a little more insight into the potential revenue synergies that you see for your equipment business and apparel business with Topgolf?

Chip Brewer -- President and Chief Executive Officer

Really no change in our point of view right there. We think that it's very attractive strategically, and there are going to be significant synergies. We're not pulling those out. And It's going to take some period of time to really realize those, although we're getting a nice start on it now.

And -- but no, we're not going to specifically call anything out at this point. .

Joe Altobello -- Raymond James -- Analyst

OK. Understood. Thank you.

Operator

Your next question is from Susan Anderson with B. Riley.

Susan Anderson -- B. Riley Securities -- Analyst

Hi. Good evening. Nice job on the quarter. Just really quick on the core golf business.

You mentioned all of the port and freight issues going on and does look like inventory is pretty lean. So I'm just curious how you feel about inventory in that segment, and do you feel like you missed, even though sales were obviously very strong, do you feel like you missed any sales in the quarter? Or should we see that more spread out throughout the year because of the freight and port issues?

Chip Brewer -- President and Chief Executive Officer

Susan, there were definitely constraints as the demand was so extraordinarily high during Q1. And you got to keep in mind, Q1 is not a high-sell-through quarter, although it was a record sell-through result. Q2 is a much larger quarter as is Q3 from a sell-through basis. The fuel inventory levels are quite low.

Our inventories are quite low, and we think that our supply chain team is doing a fantastic job. If you look at just the golf club side of our business, it was up 49% last in Q4 and 26% in Q1. So sequentially, building, and it's building without having the time period that it had -- would have liked to have to build inventories for Q1. Usually, we take the second half of the year when demand is low and build inventory at our foundries for the subsequent quarter.

We didn't have that luxury as much last year, but still, as you can tell, the team has been able to flex and grow, and we think it's going to be a nice competitive advantage going forward. I don't really think the right way to think about it personally is whether what we left on the table in Q1 as opposed to how strong the demand equation is, how long -- and it's sustaining at these levels and that we believe we have a very strong supply chain team that clearly is creating us, we think, a competitive advantage and allowing us to take advantage of the opportunities that are in front of us.

Susan Anderson -- B. Riley Securities -- Analyst

Great. OK. That's very helpful. And then, just really quick on Topgolf on the EBITDA, it looks like it was relatively strong, I think versus kind of the longer-term expectations you laid out.

So I'm just curious if there's any updates to your thoughts around EBITDA as we kind of look out over the next several years there?

Brian Lynch -- Chief Financial Officer

Susan, we're not providing long-term guidance there, but you're right, it was a very good EBITDA performance. And just as the business recovers from COVID, I think you'll see continued ramp in that business and performance.

Susan Anderson -- B. Riley Securities -- Analyst

Great. OK. If I could add one last one on Jack Wolfskin. I think you had mentioned that you now expect it -- you think it could be bigger than originally expected.

Maybe if you could give a little bit more color around that. Is that as you add North America or are you seeing the strength in Europe and China greater than what you would have originally expected?

Chip Brewer -- President and Chief Executive Officer

Europe and China are really starting to hit stride, Susan, and I'm increasingly confident in the team. I'm seeing brand momentum. We're just seeing a lot of strength in a lot of different areas there now. Some of these are the results of investments that we've made over the several years that we had the business.

But a lot of confidence right now in that brand and in those markets, Obviously, it's a difficult environment right now because Europe was literally -- at least in Central Europe, locked down. And yet, you can see our confidence is increasing and the results are showing that we think we're in a very good position there going forward. .

Susan Anderson -- B. Riley Securities -- Analyst

Great. That sounds good. Thanks so much. Good luck next quarter.

Chip Brewer -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from John Kernan with Cowen.

John Kernan -- Cowen and Company -- Analyst

Good afternoon. Thanks for taking my question. Was wondering if Artie's taking questions. I know he's probably excited about the opportunity at Topgolf.

I'm just curious if he's able to share what -- the potential he views for the concept. I know he obviously comes from a deep background in restaurants. I'm just curious what you've seen at Topgolf at this point that gets him excited.

Chip Brewer -- President and Chief Executive Officer

Yes, John. Given that Artie's one month or one week into the new role, we are going to not introduce him to specific questions on this call. However, we look forward to exposing him to you and other analysts in the future and obviously thrilled to have him on board.

John Kernan -- Cowen and Company -- Analyst

All good. Very good things. Maybe, Brian, we could go back to you, just on the guidance. It seems like you're more confident than maybe when the initial guidance for 2021 was provided.

The cost -- so the SG&A -- the incremental SG&A cost seemed to be the biggest headwind for the core Callaway business. Just wondering what the offsets to those are, as you're now going to be exceeding 2019 levels of EBITDA.

Brian Lynch -- Chief Financial Officer

Yes. A lot of it's going to be the revenue over-performance versus 2019. We still are seeing the continued surge and interest in demand and participation for golf. And then, I think you see it's largely that.

It's just all the businesses are recovering faster than expected. Golf's on fire. The soft goods business are recovering faster than we think. So that will offset some of the incremental expenses between Q2 and Q4.

We're probably underperforming those expenses right now. We're getting leverage because we're not able to hire and we had to defer some marketing and things like that. So the levels right now are probably not sustainable. And the OpEx will continue to ramp and increase as we go through the year.

John Kernan -- Cowen and Company -- Analyst

Understood. Maybe just one final question. It sounds like, Chip, you're more incrementally positive on the soft goods side of the business maybe relative to where we were three months ago. Just any comment on Travis, Jack Wolfskin, the sales and margin opportunity there as you look not just for 2021, but beyond.

Chip Brewer -- President and Chief Executive Officer

Yes, John, I'm fortunate right now that I'm incrementally more positive in all three of our business segments and continue to build confidence in all of them. The TravisMathew business is, like I said, momentum is at an all-time high. We had high expectations for growth going into the quarter, and it's outperformed those expectations in every chance. The brand is really resonating.

It's really got high potential, I think, going forward, and we're excited about investing in it, and it's delivering. And the Jack Wolfskin business, that business has really started to deliver as well. We're not going to call out any quantifiable guidance on these. We've done a little bit of that in the past.

And when you look at the apparel and soft goods segment, it's still the segment that is most heavily impacted. It's still in Europe, the Central European markets are still in lockdown. But as shown in our results, we're hitting stride, we're building momentum, good sell-through despite that strong e-com growth, fall/winter bookings looking really good, China business starting to hit stride. So we do feel very good about this segment as we do about all three of our business segments.

.

John Kernan -- Cowen and Company -- Analyst

Awesome. Thank you, guys.

Chip Brewer -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Casey Alexander with Compass Point.

Casey Alexander -- Compass Point -- Analyst

Hi. Good afternoon. I know we've been here for a while, but just a couple of segment questions. One, you're able to grind out a year-over-year increase in Europe despite some key markets being closed for golf for more months this year than they were last year.

I'm curious, what -- was it something outside of golf that contributed to Europe that allowed you to get a gain there? And conversely, in Japan, where there was a 7% decrease, is that a part of the share argument that you were talking about, that drove that one market to show a decline?

Chip Brewer -- President and Chief Executive Officer

Sure, Casey. In Europe, yes, it was outside of golf, although golf did better than you would have expected it to do given the shutdowns that existed in that market in Q1. The apparel business that we have in Europe did better relatively than a year ago in Q1 where COVID hit so hard early on. And now with the strength of our ability to do business in a COVID environment, we overperform.

And we didn't know that going into the quarter because at the time we had the last call with you, they were just announcing the further shutdowns in Europe. So we were trying to get our arms around all that, and we outperformed our expectations. In Japan, what we saw there was a little bit of a share shift during the quarter. A lot of it's timing, though.

We had comped a strong year in Japan last year in Q1, so our -- the whole business last year in Q1 was a little all over the map because of COVID. But Japan itself was up versus 2019 and 2020 for the first quarter. And this year, our product mix in Japan sells in a little less than our product mix did a year ago. We also shut down a few stores during the COVID period, so our apparel business over there has its own stores.

We closed nine, actually not profitable stores, so that impacted some of the revenue. The long and short of it is we expect Japan to be up for the full year and we remain comfortable with that business, although it was an outlier in Q1.

Casey Alexander -- Compass Point -- Analyst

All right. Great. Thanks for that. And secondly, the golf ball is up 50% year-over-year clearly the biggest trend of all.

What would you say drove that golf ball comp? And was it programs that you ran? Is that sustainable for the year? Or would you expect that to back off some as the year goes along?

Chip Brewer -- President and Chief Executive Officer

Casey, I would probably -- I'd expect it to back off. I'm not sure we can have a 50% growth for the full year. In fact, I would guess we cannot. However, I think there's some sustainability in the good momentum we have in the golf ball business where we see our share up.

We're seeing continued strength in that business. And you're also seeing some of the benefits of the investments we've made into that business. So last year was a particularly hard year in golf ball. We were in the middle of trying to start up after a significant capital improvement plan.

Then COVID hit, and it became a very difficult situation. We're starting to see the benefits of the investments we've made and the brand position is strong as you can tell, the demand equation is equally strong. .

Casey Alexander -- Compass Point -- Analyst

OK, great. Thank you for taking my question.

Chip Brewer -- President and Chief Executive Officer

Thank you.

Operator

Your final question is from Alex Maroccia with Berenberg.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

Hi. Good afternoon, guys. Thanks for taking my question. There was a bit of debt repayment in the period.

Can you just remind us about efforts to delever in the coming years following this deal?

Brian Lynch -- Chief Financial Officer

Yes. I mean, what we originally said a long time ago said we wanted to get to below two times leverage. But I think with the current environment, we're trending toward four to five times by the end of this year, and then working toward three or so after that. With the growth in the company and the growth in Topgolf business, we're going to be able to -- even without paying down much debt, we're going to be able to outrun it just through the EBITDA growth.

Alex Maroccia -- Berenberg Capital Markets -- Analyst

Got it. That's helpful. And then, secondly, are you planning any type of promotional activity for Jack Wolfskin products in Europe since the key selling season was essentially lost this year?

Chip Brewer -- President and Chief Executive Officer

Alex, very limited. We find ourselves -- because we had very good sales at the e-com and digital channel, we do not find ourselves in an inventory concern in Europe, which is another positive occurrence. The team has been able to manage that quite well. And if it will be, it will be marginal to the point where I'm not expecting any impact that will be noticeable.

Operator

At this time, I'll turn the call back over to Chip for closing remarks.

Chip Brewer -- President and Chief Executive Officer

Well, thank you, everybody, for calling in. As you can tell, we're delighted with our performance in all three business segments showing strength going into the balance of the year. We appreciate the opportunity to discuss it with you and look forward to talking to you again at the end of next quarter.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Patrick Burke -- Head of Investor Relations

Chip Brewer -- President and Chief Executive Officer

Brian Lynch -- Chief Financial Officer

Randal Konik -- Jefferies -- Analyst

Brett Andress -- KeyBanc Capital Markets -- Analyst

Joe Altobello -- Raymond James -- Analyst

Susan Anderson -- B. Riley Securities -- Analyst

John Kernan -- Cowen and Company -- Analyst

Casey Alexander -- Compass Point -- Analyst

Alex Maroccia -- Berenberg Capital Markets -- Analyst

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