Shares of golf giant Topgolf Callaway (MODG 8.76%) rallied 8.8% on Thursday. The company delivered earnings last night that beat expectations across the board. Investors may also be looking forward to the spinoff of Topgolf, even though it may be pushed into next year in light of the unit CEO's resignation.

Better-than-expected strength across the business

In the second quarter, Topgolf Callaway saw revenue decline slightly by 4.1% to $1.11 billion, with adjusted (non-GAAP) earnings per share down 45.2% to $0.24. While results were down, they also reflected the divestiture of the company's Jack Wolfskin apparel business. Moreover, both figures came in ahead of analyst expectations as results got "less bad." The core golf equipment business was down just 1.4%, and Topgolf, which had been a bigger problem, was down "only" 1.2%, as new price cuts seemed to work in spurring traffic.

CEO Chip Brewer noted:

These results reflect continued consumer strength in our golf equipment business, the benefits from our gross margin and cost savings initiatives across each segment of our business, as well as the success of Topgolf's value initiatives, which have significantly improved traffic and sales trends in the venues. We are also pleased that these results, along with current trends, are allowing us to absorb the increased tariffs this year and increase our full year outlook for our ongoing businesses.

Investors seemed to be particularly enthusiastic about Topgolf's improvements. Even though revenue was down slightly in the quarter, management raised full-year guidance for the unit from a revenue decline of 6% to 12% to a narrower range of a 6% to 9%. Management also raised the low end of the company's adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) range, perhaps alleviating some concerns over worst-case scenarios. 

Golfer pumps fist as they make a putt.

Image source: Getty Images.

Topgolf is an interesting special situation ahead of next year's spinoff

While still seeing revenue declines, Topgolf stock remains close to 75% below its 2021 highs. After that much of a decline, the stock had gotten quite cheap, and was perhaps ripe for a rally off any news of improvements.

The company is still pursuing the spinoff of 80% of the Topgolf segment, which Callaway acquired back in 2021 and could perhaps "unlock" value by optimizing each unit's capital structures. While the spinoff was supposed to happen later this year, Topgolf's CEO announced his resignation on July 31, and will stay on through September to transition a new leader. In that light, the company said it now expects the spinoff to be pushed to early 2026.

Even though the stock has rallied recently and is a bit risky, Topgolf Callaway could still be a value play if the spinoff goes well and consumer demand stabilizes.