Acushnet Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 29, 2024

There are 9 speakers on the call.

Operator

Hello, everyone, and welcome to the Acushnet Holdings Corp. 4Q 2023 Earnings Call, and thank you for standing by. My name is Daisy, and I'll be coordinating this call today. I would now like to turn the call over to your host.

Speaker 1

Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp's 4th quarter and full year 2023 earnings conference call. Joining me this morning are David Marr, our President and Chief Executive Officer and Sean Sullivan, our Chief Financial Officer. Before turning the call over to David, I would like to remind everyone that we will be making forward looking statements on the call today. These forward looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances.

Speaker 1

Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the U. S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non GAAP financial metrics, including items such as revenues at constant currency and adjusted EBITDA, Explanations of how and why we use these metrics and reconciliations of these items to a GAAP basis can be found in the schedules in today's press release, the slides that accompany this presentation and in our filings with the U.

Speaker 1

S. Securities and Exchange Commission. Please also note that references throughout this presentation to year on year sales increases and decreases are on a constant currency basis unless otherwise stated, as we feel this measurement best provides context as to the performance and trends of our business. And when referring to year to date or full year results or comparisons, we will refer to the 12 month period ended December 31, 2023 and the comparable 12 month period. With that, I'll turn the call over to David.

Speaker 2

Thanks, Sandra, and good morning, everyone. I am pleased to report on Acushnet's 2023 results and our outlook for 2024. As you see here on Slide 4, 2023 net sales of $2,380,000,000 and adjusted EBITDA of $376,000,000 represent growth of 6% 11%, respectively. The company also generated $372,000,000 in operating cash flow for the year. These results are made possible thanks to the talented and dedicated Acushnet team.

Speaker 2

Growth was fueled by Titleist golf balls, which increased 13%, led by strong demand for our new Pro V1 models. Golf ball sales increased in all regions with the U. S. And EMEA markets setting the pace. The continued strengthening of our golf ball supply chain and our team's ability to flex cast urethane production throughout the year were key contributors to these results.

Speaker 2

Titleist golf ball usage across worldwide professional tours indexed at 73% last year and Titleist ball counts at the 2023 NCAA D1 Men's and Women's Championships were 88% 90% respectively, affirming golfers trust in the quality, consistency and total game performance of Titleist. Titleist Golf Club sales of $659,000,000 were up 10% fueled by healthy gains in irons, Scottie Cameron putters and metals. The Titleist Golf Club story is built upon our commitment to product innovation and custom fitting. And similar to golf balls, clubs benefited from continued supply chain optimization as our team met strong demand while achieving elevated quality and service targets. Our club business has great momentum and Titleist has been the most played driver, iron and wedge at every PGA Tour event this year.

Speaker 2

Turning to gear, sales increased 7% with gains in all categories and steady demand for custom gear products. Growth was led by the U. S, Korea and EMEA regions. We talked on recent calls about excess footwear inventories in the channel and I am pleased with how FootJoy has navigated the ensuing retail correction period. FootJoy finished the year down 2% as double digit apparel gains helped to offset a footwear decline.

Speaker 2

FootJoy's unwavering commitment to performance, comfort and design innovation are the foundation for FJ's long standing claim to the number one shoe in golf. Acushnet's strong financial performance supported ongoing investment across our businesses and accelerated capital returns with share repurchases and dividends totaling $332,000,000 $52,000,000 respectively. And furthering our commitment to return capital to shareholders, I am pleased to announce Acushnet's directors have approved a 10% increase to our quarterly dividend to $0.215 per share and a $300,000,000 increase to the company's share repurchase authorization, bringing this total authorization to $1,000,000,000 These actions reflect the Board's confidence in Acushnet's ability to execute and generate cash flow and their positive outlook towards the company's strong position within the healthy golf industry. Now moving to slide 5, you see an overview of our regional results. Our U.

Speaker 2

S. Business was especially robust with all reportable segments posting growth on the year. EMEA sales were off 1%, yet golf balls and clubs were vibrant, up 9% and 7%, respectively. Given macro concerns about the region where we grew 20% in 2022, we are pleased with Golf's resilience across EMEA and especially the U. K.

Speaker 2

Market, which continues to benefit from very strong tourist demand. As you see, sales in Japan were flat for the year with golf balls again the highlight and up double digits. Korea was down 2% with gains in Titleist balls, clubs and gear more than offset by declines in FootJoy and Titleist apparel. And lastly, our rest of world sales increased a healthy 12% with every segment posting gains. As we now look forward and plan for 2024, we are encouraged by strong golfer participation and enthusiasm for the game, including a U.

Speaker 2

S. Golfer base that grew for the 6th consecutive year and where the fastest growing cohorts are juniors and women according to the National Golf Foundation. Global rounds of play were vibrant in 2023, up about 2% and led by the U. S. Market, which increased 4% to more than 5 30,000,000 rounds.

Speaker 2

Rounds are up double digits since 2019 in almost every region with the U. S, Korea and U. K. All growing by more than 20%. And the only down markets during this period are China and Southeast Asia.

Speaker 2

For context, the number of golf courses and rounds played annually in China are comparable to the golf profile here in the state of Massachusetts. Market fundamentals are strong, trade partners are financially stable and channel inventories are seasonally in line. The past few years have seen expansive investment by golf courses and retailers seeking to improve their facilities and experiences to meet the evolving preferences of tomorrow's golfers. As a result, it's a great time to be a golfer. Now looking forward at our segments and starting with golf balls, we successfully launched new AVX, TourSoft and TrueFuel models in the Q1.

Speaker 2

Initial response has been favorable in Sunbelt markets and we are in good shape to support our global launch over the next 2 months as northern markets open up. Within Titleist golf clubs, we look to build upon our T Series iron momentum and add energy with new Vokey SM10 wedges and Scotty Cameron Phantom Putters. We expect these new products and the expanded execution of our fitting strategies will drive our first half performance. Our gear business is well positioned for growth both organic and from the recent inclusion of ClubGlove effective at the start of this year. We have successfully integrated ClubGlove into Acushnet and are committed to enhancing supply chain, B2B and digital platforms in 2024 to then pave the way for accelerated investment and growth expectations for Golf's leading travel brand.

Speaker 2

And with ClubGloves addition to the Acushnet portfolio, we have scaled back some of our Titleist branded travel gear offerings. However, even with the SKU reduction, still expect growth from Titleist gear in 2024. FootJoy is launching a wide range of new products in the first half led by new Pro SLX and Quantum Golf Shoes and several style updates to our leading premier franchise. Golfers will notice refinements to the FJ apparel line and additions such as our performance oriented Thermo and Tempo series mid layers and a new golf fitness collection as we continue to build upon FootJoy's unmatched authenticity in the golf wearable space. And we're enthused about our opportunities to continue developing our Schuh's performance outerwear business and anticipate double digit growth in 2024, driven by our golf product lines in the U.

Speaker 2

S. And UK and measured growth within ski. In addition to the full assortment of new products we have scheduled for the first half, our positive outlook is also shaped by several new initiatives as we adapt and invest to position the company for future success. First, our new Titleist golf ball and Voki wedge selection apps will supplement our in person fitting efforts. We are enthused about the opportunity to connect with a wider audience of golfers to help them make the best equipment choices for their games.

Speaker 2

In the coming months, we will mobilize FootJoy's proprietary new FitLab performance footwear system to help golfers select the best performing, best fitting and most comfortable golf footwear. We are confident that all golfers can benefit from this innovative and value added fitting experience and are prepared to invest behind this initiative similar to our comprehensive ball and club fitting programs. Our investment in technology will also support trade partners as we implement improved B2B capabilities and empower their use of Acushnet's proprietary online Pro Shop to support their own D2C engagements with emphasis on club logo and tournament opportunities. In 2024, we will begin operating a new state of the art golf ball customization technology that our team has been developing for the past few years. This new automation will expand our throughput capabilities resulting in greater efficiencies and faster lead times for custom imprinted Titleist golf balls.

Speaker 2

Earlier this year, we started fulfilling orders from our new 500,000 square foot distribution and custom embroidery center located in nearby Lakeville, Massachusetts. This facility is representative of the company's commitment to providing leading service and the highest quality distribution experience. Initially, we will fulfill wholesale demand for FJ footwear, Titleist gear and ClubGlove and over time expect to support D2C and additional product groups from this new facility. We also recently expanded our apparel customization capabilities in the U. K, bringing much of this work in house to improve quality, reduce lead times and meet growing demand for embroidered FJ and shoes products in this golf rich region.

Speaker 2

And lastly, within golf footwear, we continue to progress towards our objective of establishing a more resilient and geographically diverse supply chain and this year expect to produce roughly half our footwear in Vietnam as we leverage the expanded capabilities of our long time JV Footwear production partner to supplement our China factory. We are confident these investments in golfer connection, technology and supply chain will benefit golfers and trade partners while positioning the company for sustaining success. In summary, we are optimistic about the structural health of the golf industry, the great momentum behind our Titleist FootJoy Shoes and ClubGlove brands, and the resilience and engagement of the game's dedicated golfer. Thanks for your attention this morning. I will now pass the call over to Sean.

Speaker 3

Thank you, David. Good morning, everyone. Turning to the financial results for the quarter and the full year on Slide 8. In line with expectations, our 4th quarter net sales were down 8.6 percent when compared to 2022 with lower net sales across all reportable segments except for golf balls. Adjusted EBITDA was a loss of $1,500,000 approximately $27,000,000 lower than Q4 of last year.

Speaker 3

The net sales decline in the quarter was primarily due to golf clubs and FootJoy, which were down 17% 14%, respectively. Golf balls partially offset these declines with a 5% increase on higher sales volumes and average selling prices of our Pro V1 family of golf balls. In golf clubs, net sales were down as higher sales volumes of our newly introduced T Series irons were more than offset by lower sales volumes of PSR drivers and fairways, which were launched in Q3 of 2022. Lower footwear sales volumes in the quarter drove the decrease in FootJoy net sales. As David highlighted, for the full year 2023, net sales and adjusted EBITDA increased 6 0.2% and 11.1%, respectively, driven by increased net sales across all reportable segments except for FootJoy.

Speaker 3

The net sales increase for the full year was primarily driven by higher sales volumes in golf balls, golf clubs and Titleist gear, up 13.5%, 9.5% and 7% respectively. FootJoy was down 2.1% compared to 2022 on lower sales volumes mainly in footwear, partially offset by higher apparel volumes, which increased by a double digit percentage. Sales volumes of products that are not allocated to 1 of our 4 reportable segments also decreased versus prior year. Turning to results by region. In the Q4, the U.

Speaker 3

S. And Japan were down mainly due to lower net sales comparing to the prior year launch of TSR drivers and fairways previously mentioned as well as lower footwear sales volumes in the U. S. Full year growth was led by the U. S.

Speaker 3

And Rest of World with gains across all reportable segments in those regions. Gross profit in the quarter was $210,000,000 down 6.2% compared to 2022, primarily due to decreased sales volumes in golf clubs and FootJoy. Gross margin of 50.8% was up 80 basis points, largely due to favorable manufacturing costs in golf balls and lower inbound freight costs. Gross profit for the full year was $1,300,000,000 up 6.2 percent, primarily resulting from increased volumes and average selling prices in golf balls, golf clubs and Titleist gear as well as lower inbound freight across all reportable segments and lower royalty expense in golf clubs. Lower sales volumes in FootJoy and products not allocated to 1 of our 4 reportable segments partially offset the increase.

Speaker 3

Gross margin of 52.6 percent was up 70 basis points mainly due to lower inbound freight costs. SG and A expense of $213,000,000 in the quarter increased $17,000,000 or 8.8 percent across all operating expense categories, mainly due to higher employee related expenses, partially offset by lower IT expenses. R and D expense of $18,000,000 was also up mainly due to higher employee related expenses. SG and A expense of $888,000,000 for the full year increased $55,000,000 or 6.6 percent from 2022, primarily due to higher advertising and promotional expenses across all reportable segments to support new product launches and higher employee related expenses in selling and admin, partially offset by lower retail commission expense in Korea and lower IT related expenses. We also incurred about $12,000,000 of one time charges in 2023, of which $10,000,000 related to the optimization of our distribution and custom fulfillment operations.

Speaker 3

R and D expense of $65,000,000 was up to support new product introductions. Our increase in intangible amortization was due to the acquisition of trademarks related to Titleist Golf Clubs and Golf Gear in the Q4 of 2022 Q1 of 2023, respectively. Interest expense was up $6,000,000 in the quarter and $28,000,000 for the full year due to an increase in borrowings and interest rates with a little more than half the increase coming from higher debt. Our effective tax rate in Q4 was 26.9 percent and our full year effective tax rate was 17.8%, down from 20.9% last year. Decreases in both periods were primarily driven by a shift in our mix of jurisdictional earnings.

Speaker 3

Moving to our balance sheet and cash flow highlights on Slide 9. Our balance sheet and cash flow positions continue to be very strong, allowing us to continue to execute our capital allocation strategy with our ongoing investments in the business and return of capital to shareholders being our highest priorities. Our net leverage ratio at the end of 2023 was 1.9 times. As expected, inventories increased sequentially from Q3 in support of 2024 product launches, but declined from year end 2022. We're comfortable with our inventory quality and net position given the current state of demand and the supply chain as we move into 2024.

Speaker 3

Capital expenditures for 2023 were in line with expectations of $75,000,000 and are projected to reach approximately $85,000,000 in 2024. As David noted, in 2023, we returned roughly $384,000,000 to shareholders with $332,000,000 in share repurchases and $52,000,000 in cash dividends. The quarterly dividend announced today of $0.215 per share will be payable on March 22 to shareholders of record on March 8, 2024. This increase in our quarterly dividend is the 7th increase since the dividend was implemented in 2017, which highlights our continuing confidence in the business outlook and cash flow generation. During the Q4, we repurchased approximately 2,300,000 shares of our common stock for $127,000,000 bringing our full year repurchases to approximately 6,500,000 shares for a total of $332,000,000 As mentioned on February 15, our Board of Directors increased the share repurchase authorization by an additional $300,000,000 bringing the total authorization to $1,000,000,000 since the share repurchase program was established in 2018.

Speaker 3

As a result, as of February 23, 2024, the remaining share repurchase authorization was $359,000,000 and the number of shares outstanding was 63,500,000. Turning to our full year 2024 outlook on Slide 10. Full year revenue is projected to be between $2,450,000,000 $2,500,000,000 dollars up 4.3% at the midpoint on a constant currency basis compared to 2023 with growth across all reportable segments as well as growth both domestically and internationally. Our full year adjusted EBITDA is expected to be between 3.85 $1,000,000 405,000,000 At the midpoint, our adjusted EBITDA growth would be 5% with an EBITDA margin of approximately 16%. As we continue to invest in the business to drive sustainable long term growth, many initiatives are underway that will continue into 2024, including expanding our distribution and customization capabilities, increasing our fitting network for both balls and clubs, and technology investments to support B2B, D2C and enterprise systems.

Speaker 3

As a result, full year SG and A growth will be a bit higher than our sales growth projections. And as we have mentioned, we have been diversifying our supply chain in footwear as we shift incremental production into Vietnam. As a result of these initiatives, we expect to incur transformation and restructuring charges in 2024. We will provide more information on these charges on our Q1 call. Due to the investments and operating expenses in support of the strategic initiatives highlighted, the quarterly cadence of our financial results in 2024 will differ from historical patterns.

Speaker 3

With respect to the first half of twenty twenty four, we expect net sales to be up low single digits compared to first half twenty twenty three with growth coming from Titleist golf balls, golf clubs and golf gear and first half EBITDA to be about flat to first half of twenty twenty three due to increased operating expenses and to a lesser degree the unfavorable impact of changes in foreign currency exchange rates. We are also forecasting a modest impact in freight costs in the first half due to the situation in the Red Sea. From a quarterly standpoint for the first half of twenty twenty four, as is typically the case, we expect net sales to be more weighted to the 2nd quarter, while EBITDA will be even further weighted to Q2 as the Q1 will be burdened by continuing 23 and begin the year with a positive outlook for 2024 given the state of the industry, our consumer and our leading product portfolio, all while remaining focused on executing our strategic priorities. With that, I will now turn the call over to Saundra for Q and A.

Speaker 1

Thanks, Sean. Daisy, could we now open up the lines for questions?

Operator

Of course. Thank Our first question today comes from Megan Alexander from Morgan Stanley. Megan, please go ahead. Your line is open.

Speaker 4

Hi, good morning. Thanks so much. I wanted to start on the sales outlook. I think I heard you're expecting growth in all segments. Maybe can you give some color on what you're assuming for core equipment growth within that 3% to 5% guide?

Speaker 4

And then related to that, you've talked about some changes you've made specifically on your ball product. In the guide in terms of price versus units as well?

Speaker 2

Yes. Hi, Megan. I'm going to start with your second question about the ball product line. So just to walk it back, odd years we launched Pro V1s and even years we generally launched the remainder of the product line as is the case this year. And for the most part, they're not equal weighted.

Speaker 2

A Pro V1 launch will typically be larger than what we would see an even year. We did say we have in our golf ball business. So you'll see new models in TrueFuel and these have already been introduced and launched in the market and Velocity and new AVX and TourSoft. So we've got an exciting lineup of new golf balls, Made the comment that they're off largely Sunbelt launch in the 1st part of the quarter, but by March, April, we'll have our global launch underway. And then in terms of guidance for the year, I would say Sean was fairly prescriptive in terms of first half and quarters.

Speaker 2

But as it relates to segments, I'll just I'll reiterate, we do anticipate growth across segments. The one difference would be within gear where you'll see the additive component of ClubGlove, which was not part of our results last year. But again, we're confident at this stage to leading and guiding towards low single across the board for each of the segments. Again, outlier being the gear business.

Speaker 4

Okay, great. That's helpful. And then maybe just taking a step back bigger picture, the business historically grew at call it, a 1% to 2% annual CAGR prior to COVID. You're now guiding sales 3% to 5% this year. And we may arguably be in the first kind of normal year post COVID, supply seemingly in a good spot.

Speaker 4

So I guess, how do you think about whether the industry and business has structurally changed? And does this give you confidence that maybe this 3% to 5% is the new normal run rate for your business?

Speaker 2

Yes. Certainly, you look at where golf is today versus where it was before COVID. The baseline would be number of golfers, right? We've seen that number increase 6 years in a row. So that's certainly a positive and not going to yet prognosticate on what is going to happen in 2024, but we feel really good about the energy and momentum around participation.

Speaker 2

In round numbers, that looks like 950 or so 1,000,000 rounds in 2023 as compared to call it 800,000,000 rounds in 2019. So that 150,000,000 round number additional was true in 2021 and 2022 and 2023. So there's been a real step up in our industry. And you're right, I would say supply chains have normalized, probably in the back half of twenty twenty three. And certainly, our guide reflects our enthusiasm and confidence around dedicated golfer, right?

Speaker 2

We operate in a bit of a subset of the total golf marketplace, but they're responsible for a whole lot of purchasing activity. Our confidence in the structural health of the marketplace, Our retailers are in really good shape. Golf courses are investing in their products to be more relevant and appealing to tomorrow's golfer. And then certainly our own internal momentum with our products and brands. So in terms of how we're thinking long term, we certainly are assessing the impacts of what has been a step up in our industry.

Speaker 2

And I think by virtue of our guide for 2024, we feel a bit more positive about the outlook today than we may have 5 plus years ago.

Speaker 3

Yes. And Meghan, maybe I'd just add to that again to punctuate in the club business, for example, I talked about the investments we're making in the fitting network. So I think as we expand the fitting network, we think the club business has probably outsized growth relative potentially to the market as we invest in that area for dedicated golfers. David talked about, obviously ClubGlove and integrating that into our distribution network. And certainly as we look at 2024, the hope is that the footwear market will normalize as we get into the back half of the year.

Speaker 3

So I think all of those are the puts against our outlook at least for 2024.

Speaker 4

Great. Thank you so much.

Speaker 1

Thanks, Megan. Operator, next question.

Operator

Of course. Our next question today is from Randy Konik from Jefferies. Randy, please go ahead. Your line is open.

Speaker 2

Great. Thanks. David, I've asked

Speaker 5

this question before, but when you have your conversations across the many golf course operators you speak to. Maybe give us some perspective on what those conversations are like in terms of how they feel about their business, the outlook, etcetera, how they

Speaker 2

We're certainly we connect with 100, if not 1000 of golf professionals. They're let's face it, they're looking at the impacts of rounds up in the U. S. 20 some odd percent and they've seen an increase in their play midweek. Weekends were always fairly robust.

Speaker 2

They've seen new participants. The number of lessons has increased. The number of juniors, the number of women has increased. So from where they sit, they're busy and they're optimistic about the state of the game and the energy and momentum behind the game. One reality they'll always face is weather and that's an unavoidable influence on the golf business.

Speaker 2

But even through some tough weather starts last year to see the U. S. Market finish up 20 some odd 1000000 rounds up 4% off the prior year and even ahead of 2021 was really impressive. So there's a general level of enthusiasm towards just an increase in participation. We've said this, it puts a lot of pressure on the supply side of game and that many, many private clubs are full and there are long wait list and that's a reality the game is contending with.

Speaker 2

On the flip side, some 75% of play in golf is at public facilities. They're doing real well. Again, their challenge and their frustration maybe is moments where demand exceeds supply. So they would all say, hey, those are nice problems to have, but those are some of the realities they're dealing with. But generally speaking, again, and I point to the BGA show, there's a general level of optimism about the state of the game as you would expect coming off a year like we had in 2023.

Speaker 5

Super helpful. I guess my last question would be, I think, I've also asked about this in the past is, the concept of fittings and customization and how the and and how that's kind of changed in terms of changed, let's say ASPs, conversion, working capital improvements potentially in the business, the way you're running your business, but then the whole industry is being run. It just seems like a bigger opportunity for you and others and there's only a few others, given it's oligopoly or a consolidated industry, that it's just a better run industry now with a lot more stability in pricing and margin. So maybe kind of comment on what you think there on those thoughts?

Speaker 2

Yes. So high level, Randy, I'm going to agree with all your points, but I'll dig in on a couple of observations on how they play out across the industry. So we've been dedicated to custom fitting for 30 some odd years and we continue to build out and refine our fitting efforts. And as Sean said, we continue to invest more and more in fitting. It just becomes a clear place for us to invest money because it results in all the benefits you described.

Speaker 2

But most importantly, we know it's the best way for golfers to, to experience and ultimately select golf clubs. Years ago, fitting was isolated to outdoors. Now fitting is happening almost everywhere with the advent of launch technologies and indoor simulators. There's a whole lot of education happening on the fitting side. So fitting continues to grow.

Speaker 2

It's most evolved and advanced in the U. S. And Europe. I've said this in the past. It's got a long way to go in Japan and Korea, but we're moving forward.

Speaker 2

And one of the benefits that I think fitting lends itself to is just a reality that comes at end of product life cycles. You have less product, less stock product in the market. Therefore, you're discounting less stock product. And as an example, right now, you've seen you're seeing a lot of new driver launches from our competitors in the Q1. And typically when that happens, you'd see a good amount of sell off of prior generation.

Speaker 2

And while that's happening, it's not happening to the degree we've seen in prior years. And again, I think that's a positive ancillary benefit of because so much of the business nowadays is happening through custom fitting. So it's been a great transformation. You've also got new channels emerging, right? You've got indoor fitters, teachers emerging because fitting has become so prevalent across the industry.

Speaker 2

But again, as it relates to working capital, as it relates to margins, as it relates to the overall golfer experience, all positives. And I think it's a trend. I made the point. We're 30 years down the road here and we keep building it out. And I would imagine that trend will continue.

Speaker 2

And it's compelling us to keep investing in custom fitting, which again, if nothing else gives you confidence, gives you a sense for our confidence about the opportunity moving forward.

Speaker 5

Very helpful. Thanks guys.

Speaker 1

Thanks Randy. Operator, next question please.

Operator

Thank you. Our next question is from Mike Swartz from Truist Securities. Mike, please go ahead. Your line is open.

Speaker 6

Hey, good morning, everyone. Maybe just as it pertains to guidance and more specifically gross margin, as we typically think about a non Pro V1 year in even years, gross margin, I know it's typically down year over year. But if I'm doing my math correctly based on your guidance, I think it would imply gross margin of flat to maybe up slightly. So maybe I guess is that correct? And then maybe walk us through some of the puts and takes around gross margin as you think about it in the year ahead?

Speaker 3

Sure, Michael. Happy to. I think that we're not guiding specifically to margin. I don't think your assumptions though are far off. I think the biggest item probably I would call out is freight.

Speaker 3

We've seen freight normalize. So that will be less of a tailwind, I guess, that it was in 'twenty three versus 'twenty two. So we think that normalizes. We think that we get some more normalization in the supply chain. I think I've talked about raw materials.

Speaker 3

We have pretty good visibility in terms of what our costs are by product. So, it's really a freight conversation. And again, I don't think your assumption is too far off.

Speaker 6

Okay, great. That's helpful. And then maybe if we just look at the range of guidance, and I know the range really isn't too wide, but maybe help us understand what are the assumptions at the top end of that guidance? What are the assumptions at the bottom end of that guidance?

Speaker 2

Yes. I think Michael certainly we'll it's an appropriate guide for our business certainly this time of year, right? We're late February and so much of the golf season is in front of us with the majority of rounds and fittings happening really in Q2 and Q3. There is a wide variety of puts and takes, I would say. Hey, unlike past years, there's more supply chain certainty this year than we've experienced in the last couple of years.

Speaker 2

Sean mentioned the footwear category we expect to stabilize here in the mid part of the year. So there's more marketplace clarity and certainty in the wildcard as always as it always is this time of year Q2, Q3 weather participation etcetera. We like the way we're trending. But I think you get a better insight and answer from us maybe on a subsequent call. Okay, great.

Speaker 2

Thanks.

Speaker 1

Thanks, Mike. Operator, next question please.

Operator

Thank you. Our next question is from Joe Altobello from Raymond James. Joe, please go ahead. Your line is open.

Speaker 7

Thanks, hey guys. Good morning. I guess first question, a little bit of a housekeeping question here. But what's the contribution from ClubGlove that you're assuming in your guidance?

Speaker 3

Yes, Joe, I think we have said it's less than $20,000,000 in sales. It's EBITDA accretive, but again, not material.

Speaker 7

Okay, perfect. And then in terms of the new golfers that you've seen enter the sport over the last, call it 6 years, how do they differ from typical golfers in respect to how often they trade up in terms of their clubs, where they buy their clubs, are they more inclined for fittings, etcetera?

Speaker 2

Yes. I think it's a question we have been asked often and we're certainly trying to understand ourselves. I'll attach it to Randy's earlier question as it relates to fittings. There's just a there's an inertia and energy around fittings that's hard to avoid. So where yesteryear's beginner golfer may not have been as inclined to get fit, that's not the case today.

Speaker 2

You look at rounds, you look at participation, there's an avid golfer base out there. And you know our story. We're focused on the dedicated. We said then and we say it now, they make up 15% or so of the golfers. They play 40% of the round and responsible for about 70% of the spend.

Speaker 2

We still think that's the case. But I would say as it relates to these new golfers, we sort of break them out into 2 parts. The true new to the game golfers and the latent golfers, those who played at previous points took some time off and now jump back into the game. So clearly they come in with a bit more experience and a bit more understanding, maybe a step closer to becoming a dedicated player. But when you look at overall and you look at channel activity, you look at overall sell through, you see clearly this golfer has a preference for performance equipment And you see that in strong ASPs and balls and drivers and in every category quite frankly.

Speaker 2

And further to that and they go hand in hand, they subscribe to the benefits of fitting. So we like what we see. It's a moving target, but we certainly like what we see in these changing times.

Speaker 7

Very helpful, David. And maybe lastly, your thoughts on the January rounds play date. I know it's a small month and I know there was some weather in there, but just curious what you thought what you were thinking there?

Speaker 2

Yes. So just for context, January is about 5 S. Total. It's probably, I don't know, 2%, 3% of the global total, down obviously. And I'll answer that question, Joe, on a 3 month.

Speaker 2

So you look at November and this is U. S. Up I think 8%, December up 24% and January down 16% or 17%. And when I look at January, really I look at 3 markets. I look at California, Arizona and Florida.

Speaker 2

California, Arizona were up. They had some favorable weather comps even though they had a lot of rain and Florida was down. So net net, I think it's more than anything weather story and where you had decent weather, you're going to be fine and where you have cold and rain, you're going to take the hit. So I'm going to give mother nature a lot of credit for what we saw in January.

Speaker 7

Okay, great. Thank you.

Speaker 1

Thanks, Joe. Operator, next question please.

Operator

Thank you. Our next question is from George Kelly from Roth MKM. George, please go ahead. Your line is open.

Speaker 8

Hey, everybody. Thanks for taking my questions and congrats on another strong quarter. First for you on the increased authorization, the $300,000,000 buyback that you announced this morning. Curious, should we anticipate a similar kind of cadence to your fiscal year 2024 buybacks to what you did in 'twenty three? Or do you expect to slow it down?

Speaker 8

Like any kind of

Speaker 2

color there would be helpful.

Speaker 3

Sure, George. So as I've talked about in the past, I think we're going to be guided by overall net leverage, right? So I've talked about less than 2.25 times for the business. You can appreciate the seasonality in the guide that I really was trying to be prescriptive about what to expect in the first half of the year. So you can imagine there'll be some variability in leverage first half versus second half.

Speaker 3

So I would use the leverage as one indicator of how the pace of share repurchases may or may not proceed in 2024. So again, it's the capital allocation strategy here, I think our past practice has been well articulated. We've got significant investments we're making in the business for real long term benefit. Obviously, very pleased with the dividend increase and we'll continue to be opportunistic with the share repurchase at the end of the day, making sure we've got a strong balance sheet and the appropriate leverage profile.

Speaker 8

So that's how

Speaker 3

we think about it for 2024.

Speaker 8

Understood. Thanks. And then second question, in your prepared remarks, you talked about CapEx plans and efforts in customization in the ball and apparel businesses. And so I'm just curious, how big are those businesses? And what does the growth path look like?

Speaker 8

I'm just curious if you could give a little more context around the investments you're making and the opportunity you see in customization in the ball and apparel stuff outside of the equipment business?

Speaker 2

Yes. George, I'll start and then Sean will jump in. But in terms of those businesses, right, I did make the point that FootJoy as an example, while a tough year for footwear, FootJoy apparel was up double digits. So we like the growth we're getting out of the FootJoy apparel business. I would add shoes to that.

Speaker 2

So much of what we do in the shoes line, particularly in the U. S. And the U. K. Is customized.

Speaker 2

So we're seeing nice growth in that business. A lot of it, as you would expect, is on course where custom logos are very important. So clearly, we're compelled to invest to increase our capacity. And I also made the point where part of it's a function of moving from 3PL where we used to outsource to bring it in house. We think it brings just better control, better quality execution and more cost effective.

Speaker 2

So we like the space. Part 2 of that question is as it relates to golf balls And that's an automation capability we've been working on for a few years as part of our long term $120,000,000 capital campaign. We're really excited about it. It's a quality play. It's a throughput efficiency play.

Speaker 2

It's inevitably going to be a cost effectiveness play. And just to contextualize our ball business, roughly 1 in 4 dozens are decorated in some way, either with a corporate logo or a club logo or a golfer personalization. So a big meaningful part of our ball business.

Speaker 3

And George, just to clarify, I guess what I was highlighting in the script was we're going to see about $85,000,000 of CapEx, obviously, very much focused on the ball and club segments and franchises to continue to support the growth. I talked about some of the technology investments, But specifically, distribution and customization was about taking ownership and control of the quality, lead times and delivery of our product. I think David talked about the specific segments and products that are within this Massachusetts distribution and customization facility, primarily FootJoy and Gear. So those were really the comments in my script that I was highlighting.

Speaker 2

George, the final point I'll make is we're a lot bigger than we were 3, 4, 5 years ago. So our historical distribution methods have been pressured. So this is as much a commentary on building a distribution network for the future recognizing that our past infrastructure was taxed to the point where we had to make some meaningful changes.

Speaker 8

Okay. That was helpful. Thank you. Thank you.

Speaker 1

Thanks, George. Operator, next question.

Operator

Thank you. Our next question is from Noah Zafkin from KeyBanc Capital Markets. Noah, please go ahead. Your line is open.

Speaker 6

Hi, thanks for taking my questions. Maybe first, if you could give just an update on the competitive environment and channel health and footwear and maybe the unlock as you see it from FootJoy, FootLab? And then second, any color on the differences in the markets outside of the U. S, both from an industry and strength of sport perspective that's kind of baked into the guide would be helpful as well. Thanks.

Speaker 2

Yes. Hey Noah. So specific to footwear, I'll walk it back a bit. And we saw that inventory globally spike really in Q2 last year. And then we saw it retreat in Q3 and Q4.

Speaker 2

We like where it's trending. We think we're in the back half of a correction, maybe 60%, 70% downfield on the correction, but we're in a good place. And if you see a situation like that and it corrects itself in less than a year, we feel pretty good about it. So as we've guided, we think we work our way through it through Q2 and then return to sort of a more normal healthy cadence within footwear and should return to more normalized growth. And you said it, part of it is, a response to the after effect of COVID, where there was a time when the marketplace had an insatiable appetite for footwear and then demand normalized.

Speaker 2

The other part of it is you saw a lot of new competitive entries into the marketplace. I am pleased with in particular how FootJoy share and premium positioning has held up during this time. And I think that's commentary on a lot of the great products they brought to market, particularly on the Premier franchise. And I think we continue to build upon that with SLX and Traditions in some of our newer footwear models. So again, I think we're in the back half of that correction and after 2 quarters of inventory reduction.

Speaker 2

And when I say that I'm speaking to global inventory at retail. And the final point I'll make on that is we're pleased with our inventory in house. It's down quite a bit from a year ago. So we think we're healthy and nimble and agile. So we like where that positions us.

Speaker 2

In terms of your second question, how we feel about markets around the world, I'll start with U. S. Market was clearly the strongest in 2023 and we don't see that changing in 2024. There's just a there's a vibrancy in the U. S.

Speaker 2

Market that I think everybody's in tune with. As we look around the board, I'm not sure any one market jumps out, right? We're projecting growth in EMEA and Korea and rest of world. So there's not a market that stands out. I do like to call out Korea just because it's such a vibrant golf marketplace.

Speaker 2

I've said before, the average course in Korea does about 70,000 rounds a year, which is extraordinary, just a strong demand, vibrant golf marketplace. And then the only other comment I'd add is EMEA. We've all been cautious and careful about EMEA certainly in 2023, whether it's inflation or energy costs or the war. I thought it held up pretty well last year. And the outlier, if you will, would be the U.

Speaker 2

K, where golf remains vibrant and in particular, golf tourism is really at terrific levels. So that's a high level of our perspective as to key regions around the world. Thank

Speaker 1

you. Thanks, Noah.

Speaker 2

Okay. Thanks, everybody. As always, we certainly appreciate your time this morning and your interest in Acushnet. Hope you all have a great spring, and we look forward to talking to you again on our next call.

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Earnings Conference Call
Acushnet Q4 2023
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