GOLF earnings call transcript, November 4, 2026

And lastly, our shoes business continues to build positive momentum, growing more than 30% in the quarter with strong gains in EMEA and the U.S. Now looking at the quarter by region on slide 5, you see the U.S. market was down 1%. driven by lower net sales in footjoy and golf gear, while the Titleist Golf Equipment segment continued to grow in the U.S. Year to date, the U.S. was up 6%. EMEA was up 5% in the quarter, reflecting gains in Titleist Golf Equipment. in golf gear, and through the first nine months, EMEA is up 8% on a constant currency basis. Japan was slightly up in the quarter with gains across all reportable segments and is up 11% year to date. Korea was down 3% in golf gear. And year to date, Korea is about flat with healthy gains from Titleist equipment. And Rest of World was down 2% versus last year's third quarter across all reportable segments and is up 8% year to date. In summary, we are pleased with Akushna's performance, the health of the Gulf consumer, and the direction of the company. Product lines are in great shape. Inventory positions, both owned and at retail, are in line for this time of the year. And we are enthused about our new product pipelines as we prepare for 2027.

As is often the case, will be a period of transition as we convert PROV1 production to next generation product and make key investments in R&D, fitting networks, and our TPI performance platform to drive future growth. Thanks for your attention this morning. I will now pass the call over to Sean.

Thank you, David. Good morning, everyone. As highlighted, we had a solid third quarter in year-to-date performance, driven by continued momentum and Titleist golf equipment, with healthy demand for golf balls and the success of our new GTS drivers and fairways. Third quarter net sales were... $649 million, and adjusted EBITDA was $115 million, down $4 million from last year's third quarter. These results were in line with our expectations following the accelerated launch of our GTS Metal Woods into the second quarter. For the first nine months of 2026, net sales increased 6%, and adjusted EBITDA increased 17%, which includes an approximately $34 million benefit from net tariff refunds. Excluding that benefit, adjusted EBITDA increased 8% year-to-date. Third quarter gross profit of $322 million was up $3 million compared to last year, driven by improved profitability in FootJoy and higher sales volumes at Shoes, partially offset by higher product costs in title. Third quarter gross margin of 49.6% was up 110 basis points, while year-to-date gross margin was 50.5%, up 190 basis points versus prior year. On a normalized basis, year-to-date gross margin was 48.6%, flat year-over-year, despite an approximately $29 million headwind from higher tariff expenses. SG&A expense of $217 million in the quarter increased $12 million from 2025, primarily due to higher IT-related expenses associated with our ERP implementation project.

With respect to the ERP implementation project, I am pleased to report that the company went live in the third quarter in North America and at our golf ball manufacturing operations in Thailand. While the system cutover proceeded smoothly, we experienced some temporary disruption in our custom embroidery operations, which impacted... FootJoy and golf gear. From here, we will continue to advance the ERP implementation in phases across our remaining geographic regions. Interest expense of $12 million in the quarter was down $3 million due to a decrease in interest rates. Our effective tax rate in Q3 was 25.5%. down from 37.3% last year, primarily driven by changes in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income. Moving to our balance sheet and cash flow highlights, our strong balance sheet and cash flow position as well to continue executing our capital allocation strategy with a focus on investing for long-term growth while returning capital to shareholders. Our net leverage rate. Issue at the end of Q3 using average trailing net debt was 1.9 times down sequentially. Inventories were up $60 million versus last year and we remain comfortable with this position ahead of new product. Launches in 2027. Year-to-date cash flow from operations of $319 million increased $124 million from the first nine months of 2025. Driven in part by tariff refunds received in the second quarter and a reduction in working capital requirements. Capital expenditures were $57 million in the first nine months of 2026 reflecting our

continued strategic investments and additional golf ball manufacturing capacity and increased club assembly to support the sustained demand of our products globally. We still expect full year 2026 capex spent. to be approximately $95 million. Through September, we returned roughly $127 million to shareholders with $45 million in cash dividends and $81 million in share repurchases. On October 15th, we used $52.5 million to repurchase approximately 584,000 shares of common stock from Magnus in satisfaction of our previously disclosed obligations under our share repurchase agreement. After reflecting the October 15th settlement, we had approximately $107 million remaining under our current share. Share Repurchase Authorization. Today, our Board of Directors declared a quarterly cash dividend of $0.25.5 per share, payable on December 18th to shareholders of record on December 4th, 2026. Moving to guidance, we continue to expect full-year net sales to be in the range of $2.65 billion to $2.67, up approximately 4.1% at the midpoint. On a constant currency basis, we expect net sales to increase between 3.3% and 4.2%. We also now expect full-year adjusted EBITDA to be $455 million to $470 million, which includes the full-year net tariff refund benefit of approximately $30 million. We still expect full-year free cash flow to meet. Seenfully improve year-over-year, converting at roughly 40% to 50% of adjusted EBITDA.

This updated full-year outlook reflects the strength of our year-to-date performance and our expectations for the fourth quarter. At the midpoint, the guidance implies fourth quarter net sales of approximately $440 million and an adjusted EBITDA loss of approximately $5 million. This is consistent with our seasonally lower fourth quarter earnings profile and reflects the timing of expected lower sales in Titleist Golf Equipment, including the impact of accelerating our Meadows launch into the second quarter, which shifted sales and earnings earlier. Earlier in the year, as well as the transition to the 2027 Pro V1 launch. During the fourth quarter, we also plan to continue our strategic investments in technology and fitting, as well as preparing for our product launches in 2027. Overall, we're very pleased with the performance of the business heading into the fourth quarter. The team remains. Focused on finishing the year strong, supporting dedicated golfers around the world, and investing in our long-term strategic priorities. With that, I will now turn the call over to Cameron for Q&A.

Thanks, Sean. Ben, could we now open up the line for questions?

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Joe Altebello of Raymond James. Your line is open. Please go ahead.

This is Mitchell Ingalls on for Joe Altebello. To start, can you help us bridge to 2027? I'm assuming we're going to back out to 30 million, IEPA refunds, but there'll probably be some SG&A spending going away as well. On the other hand, you have raw material and freight pressure. So can you help us think about the puts and takes? Yeah, Mitchell, happy to do that in some broad strokes. So you have it right. At the end of this year, we will have a net benefit of $30 million due to the tariff refund. So we need to normalize that from an input raw material. Cost of sales perspective. Obviously, we've got incremental costs related to some of our input costs, both in terms of golf balls and golf clubs, due to the materials we use in those products. We've got to keep an eye on labor, keep an eye on health and welfare costs, which are obviously increasing, certainly in the U.S. America. As we look at SG&A, we'll continue the IT and the technology investment, the investment in A&P to support product launches. And our whole technology roadmap. So I don't know that there is anything specific to call out SG&A year over year if you're already normalizing for the tariff-free funds and the AIP or the incentive. Impact related to that. So those are the broad strokes. As David said, we're excited about the 27 Pro V1 launch. You know, in the club category, we've got irons and we have putters coming.

Which, you know, certainly will not be as strong of a growth profile as we'll see here in 26 due to the metals and the wedge launch, given that it's an odd number of years. So broadly speaking, that's how we're.

Great. That's helpful. And then as a follow up, can you give an update on the GTS launch? How's the demand track versus your expectations? What you're seeing in terms of sell through and custom sitting?

We're really pleased with the launch on a. A variety of levels starting with tour adoption and adoption across the pyramid of influence. As you know, we went early. The team did a nice job getting our fitting tools out in the second quarter. And I think we went live in June. So as we sit here today in November, we're very pleased with a. product and b. the decision to go early, both in terms of sell through and our shipments into the market. So I think as we indicated on prior calls, this idea of moving launches earlier in the. year. The first example being GTS has been a real positive experience. So we're real pleased with GTS and we're thinking along those same lines for irons. Thanks, Mitch. Next question, please, Ben.

Next question from the line of Simeon Guttman of Morgan Stanley. Your line is open. Please go ahead.

Hey, guys. Good morning. First, a short-term question. Rounds played. Looks a little, I don't know, choppy, volatile. At least coming into September. We haven't seen October yet. Normal noise, the health of the consumer, health of the game. Where does it stand right now? Yeah, Simeon, I think you summed it up. It was a bit of a choppy quarter. And if you look at golf playable hours, it would show that golf playable hours were down, I think, 6-8 percent. In the key third quarter months, rounds of play weren't down quite that much. So the way we think about it, and really U.S. commentary, rounds are still tracking ahead for the year. We got through periods. In the third quarter of heavy rains, heavy heat, the latest we saw for October was that golf playable hours were about flat. But net-net, I think we're coming off a six-, seven-year run of increases, maybe more like five-, six-year run of rounds play increases. 2026 still tracking. At or maybe slightly above last year, despite some choppy weather. And we saw it in our business. When weather was good, people were playing. We'd see upticks. Weather was poor. We saw rounds declines. And some downticks. But I think you summed it up well. It was a bit choppy. As we look around the world, similar profile. If we've got U.S. rounds up slightly, we've got rest of world rounds down slightly. But it's a mix. They're up in Korea. They're up in Australia and New Zealand. They're up in China. But they're down in some other markets, all in the low single-digit ranges. And again, I think it's as much commentary on weather. But as we step back from that...

We still, you know, we're enthused about the game's underlying demand. And again, I think that's reflected in our performance. That's reflected in the overall rounds of play trends. And we do accept... that you're just going to see some weather swings like we saw in the third quarter. Got it. And my follow-up is how do you...how are you looking at replacement cycles? Are they elongating? And are there differences in uptake from green grass versus some of the big bucks? Yeah, you know, we've said previously that, you know, when things slow down in the economy, we would expect consumables to hold up quite well and durables. To maybe see some elongated product life cycles. We have not seen that at this stage, and it leads me to comment on the resilience and durability of our dedicated golfer right there. They're playing, they're avid, they're active, they're taking lessons, they're spending on performance equipment. And the other point I would make is we've countered to if there's an elongated life cycle. Purchase cycle, we're going a little bit the other way in part by us entering the second quarter, which was a really good move for our club business. And again, as I noted earlier, we think that's a trend you'll see play out over the next couple of years with iron launches. So haven't seen anything yet. Consumable's in very good shape. And obviously our results, our club business this year, up double digits, suggest that our golfer is staying with there.

Pre-existing conversion cycles. Thanks. Okay. Good luck. Appreciate it. Thanks, Samin.

Your next question from the line.

of Gregory Miller of Truist Securities. Your line is open. Please go ahead. Thank you very much. Good morning, David and Sean. First question I'd like to ask you is about green fees. They are rising, and I'm curious if you're seeing any impact. The rounds played or scored interest as a result. Yeah, that's a great question. We talk about it often because it's a surprising number, and we point to data from the NGF average cost of a round, and they normalize based on... an average of peak and off-peak times. This is public golf. Average course of a round is $47. It's up 4% versus last year, and it's up 29% versus, I guess, six, seven years.

It's affordable golf out there, but on the other side of it, we all know in major markets, big cities, it's maybe a little bit of a different story. So when we look at rounds of play data, public, private, there doesn't seem to be a skewing or a backlash to the biggest influencer, as we've seen this year and talked about earlier, has been weather. It is and will and should always be a watch out for the industry. But at the moment, we have not seen pushback. Again, the pushback on rounds has been largely weather for a lot of people when they hear that the average cost of a round. That's $47. Thanks. And I do look at the national data from the U.S. as well, but I frankly don't have as much color of what's going on internationally in terms of green fees. And I'm wondering if you could also speak to that as well. Yeah, generally speaking, it's a little bit like the U.S. in that it depends. Big cities, you're going to see higher costs. Seoul, Tokyo, Japan, Korea, the cost of play is higher. Always has been. Across Europe, you've got really two versions. You've got local play and you've got tourism play. Tourism play, cost of those rounds have spiked. But local play has been more normalized. So it's a similar watch out, but we have not seen it reach a level where it's prompting folks to not play or play less. Thanks, David. Appreciate it. Thanks. Your next question from the line of Matthew Boss of JP Morgan. Your line is open. Please go ahead. Great. Great. Thanks. So, David, any recent change in buying?

Behavior that you've seen from customers in the U.S. versus overseas? And could you just walk through puts and takes on fourth quarter revenues or any change relative to your initial plan? And last, just, you know, if we're taking a step back, how do you feel? About your product and innovation pipeline into 27 at this point. Okay, Matt, but maybe Sean and I will tackle that one together, but I'll start with, you know, what we've seen. From the consumer, you know, anytime you have weather and rounds declines, you're going to see some dips. We saw that. The quarter best described as a bit choppy, but a lot of upticks within that choppiness when weather was decent. So our consumer and... Again, it's this dedicated golfer. They're avid. They're resilient. They're passionate. They are alive and well. Not to say that all of them are unaffected by whether it's interest rates or gas. But by and large, the first thing we're going to point to is rounds of play. And that speaks to their avidity and their commitment to the game. And then what flows from that is their spending. So I would say steady state over the last. Several months with with ups and downs is much weather related. And I'm not sure I have any meaningful call outs outside the U.S. that would that would counter that. So again, it really it speaks to this. Sustainability and durability of a Kushnitz core consumer. We're very we're very sensitive to it. We're very aware of it. We understand, you know, what's happening broadly with inflation and watch carefully and closely as to what that might do.

To to consumers and their interest in our products. But at the moment, as we as we really enter, we're in a shoulder season. We're soon to enter the snow belt season where a lot of our play really comes from. A handful of open sunbelt markets. We're pleased with the state of our consumer and the durability of our consumer.

Stepping back the full year, I think it's playing out largely as we had expected. I think, again, strong year from golf equipment, strong performance in golf balls in a non-Pro V1 launch year. So when we think about Q4 for Titleist Golf Equipment, we're obviously expecting to be down, given the transition to Pro V1 2027. Obviously, with the accelerated club launch, we're going to... the year-over-year decline in golf clubs. From a FootJoy perspective, as David said, the profit focus, and you'll see that in the queue in the full year in terms of the profitability portrait. Golf gear, third quarter soft, but just timing. So overall, I think the full year will have a nice outcome there. And I call that on my script. I think if not for some of the disruption to FootJoy and golf gear on the customs. Outside, I think the sales, due to the ERP implementation, I think the sales profile for the year is largely in line with our expectations. So very pleased with that. Yeah, Matt, I'll wrap it up with commentary on our pipeline. And I'll begin with. As we both stated, the inventory at retail and in our facilities is in really good shape. So we like our state of readiness for the holidays. And behind that, we like our state. We like our state of readiness for new product launches. It's a Pro V1 year, so that's a boost to the ball business. We've got some exciting things happening on irons and putters, so we're enthused there. We've got some good momentum happening in football.

And gear and apparel, we're just cautious about. We're always cautious about, largely. That's an Asia comment. We've seen softness over the last couple of years in Korea and Japan, and not that we expect that to persist a whole lot longer. But we're just conservative about those very large apparel markets. So real pleased with the state of our innovation pipeline. We got some exciting things happening at TPI in terms of that side of the business. So overall, we're... We're investing. And as Sean talked about, part of our Q4 guide implies that we're going to continue to make some investments. I called it out. It's in R&D. It's in our fitting networks. It's in TPI. And that's really to drive future growth. So we are right where we want to be at this time of year and feel really good about what's to come.

On the drivers of gross margin expansion that you saw this year, any change or considerations we should think about for next year gross margin as we think or start to size up input costs, freight and price?

Yeah, again, a little early, Matt, to talk overall, but clearly we're pleased that we're three for 26.

Excluding tariff, the net tariff impact, gross margin expansion. So slightly better. I talked about it in my comments about, you know, FootJoy and some of their aspects driving that. And, you know, I think in one of the earlier. You know, we haven't finalized the pricing grid for every product and every launch next year. So I'll leave that to the side. But from a cost of goods sold perspective, you know, I think tariff, you know, unless there's a change. You know, I would expect that to be effectively flat year over year. We certainly are seeing rising input costs in tungsten and some of the oil-based input costs to balls and the manufacturing of balls. Health and welfare, labor, et cetera. So, again, the goal here is to meet or expand the gross margin profile. There are certainly headwinds. Like I said, we haven't finalized the pricing decisions across every product launch. for next year. So, overall, I think those are the things. I think they're all manageable, Matt, and we'll have more to say, certainly, in February on the call. That's great. Best of luck.

Thanks, Matt. Next question.

Please, Matt. Your next question from the line of Jeff Lick of Stevens. Your line is open. Please go ahead.

Hey, guys. This is Connor on for Jeff Lick of Stevens. Congrats on a nice quarter. First question from us. As more competitors move towards the two-year product launch cycle, how do you think that changes the overall golf club market, and what does that mean for your positioning?

Yeah. You know, so we're certainly aware. Our competitors are moving in a two-year direction, we think is prudent. We've been there a long time and continue to stay there. What I think it means longer term is... It invites a healthier marketplace. You're going to have less periods of discounted prior generation product in the market, and you're going to have more periods where it's principally about... ...performance rather than generation new versus generation old. So high-level, see it as a step towards an even more rational golf marketplace. And if we go back 10 years, it was going the other way. Product life cycles were less than a year, and it was very murky and complicated and messy. So I think it results in a cleaner marketplace. I think it ultimately benefits of Kushnet over the long term. And I think the final piece of that is it's going to... force and require a commitment to fitting, which is one of our core strengths. So high level, that's how we think about it. Awesome. And then just following up on the fitting comments, you've invested in fitting over the last few years. Are you seeing those investments change, how often golfers are buying equipment or the type of products that they are buying, and how important is fitting becoming in the overall golf equipment market? Yeah, so we jumped into fitting in the early 90s. And we've been public for 10 years, but since the early 90s, we've been talking about building out and expanding our fitting network. And whether it's in the U.S. or whether it's globally, it's that important to our business.

We believe for golfers to get the very best out of Titleist equipment, they need to be fit. So it's really a core strategy of ours. It applies principally to clubs and balls. We started talking a year or two ago about FitLab and a fitting process. It's a core strategy of the company and at the heart of it is we believe great product plus a great fitting is going to help golfers play their very best and we also believe for our target. You need both. So key key key key part of our business for a long long time and I expect for years to come you'll you'll continue to hear us talking about investing strengthening building out and grow.

Awesome. Thanks for the color. Best luck in the fourth quarter. Thanks, Connor. Ben, next question, please. Your next question from the line of Noah Zatskin of Keep Bank Capital Markets. Your line is open. Please go ahead. All right. Thanks for taking my question.

When I look at geographic constant currency performance year to date, relatively stronger performance in Japan and Korea. So maybe if you could just provide kind of a quick update on those markets and how you think about the share opportunity looking ahead internationally. Thanks. Yeah, no, I'll do a quick flyover of Japan and Korea. Really pleased with our team's performance this year. I think we're up, doubled it, up 11 percent. Really led by balls and clubs. Footwear and gloves are in pretty good shape in Japan as well. Apparel's been soft. I think I've talked about that. Rounds have maybe down slightly, but I think about rounds as being ballpark flat. So very pleased with our momentum. And as I've said on prior calls, we see Japan as our biggest market share gain growth opportunity, and that's as much common in the competitiveness of the market. Back to my earlier comments, it's the least evolved of our fitting markets, so one of our unlocks in Japan will be to continue to activate. Nice year in Japan. Korea rounds the player up a little bit versus last year. We feel really good about that as just an overall sign of market health. Our business down slightly, and that warrants a comment. So nice growth in Titleist equipment, balls and clubs, and that's a theme we've talked about across regions. Balls and clubs are having a good year in every region. Similar to Japan, footwear and gloves are in good shape. If there's softness, it's apparel, and the apparel market in...

Korea is really outsized. It's a very, very large marketplace. We think it's after a couple year period of correction. It's largely stabilizing. But as we think about the future... If you're really good about our business in Korea, we're going to take a cautious view towards apparel and keep fueling our ball and club momentum. Very helpful. Maybe just a housekeeping question. I think net tariff refunds were a 30... $88 million benefit through second quarter. And I think the benefit sits at $33.8 million as of the end of 3Q. So is the delta there in timing of incentive comp hitting in 3Q? Or am I thinking about that wrong? Thanks. No, you're thinking about it right. And we'll have another one in Q4, right, as we true up the net 30.

Perfect. Thank you.

We appreciate your interest in the company and wish you all a great holiday season and look forward to reporting back when we're on our February call. Thanks again.

This concludes today's call. Thank you for attending. You may now disconnect.