Golfsmith Files for IPO; Look for ‘GOLF’ on a Ticker Near You…

Golfsmith International Holdings, Inc., last week filed an S-1 registration statement with the U.S. Securities and Exchange Commission relating to a proposed initial public offering of its common stock. The company, which expects to trade on the NASDAQ under the symbol “GOLF,” hopes to raise approximately $115 million in the IPO.

Golfsmith intends to use the funds to retire $93.75 million aggregate principal amount at maturity of the company's 8.375% senior secured notes due 2009, which had an accreted value of $82.9 million as of February 28, 2006; to repay indebtedness outstanding under the company's existing senior secured credit facility, which had an aggregate principal amount of $5.8 million; and to pay a one-time $3.0 million fee to terminate a management consulting agreement with First Atlantic Capital, Ltd. upon completion of the IPO. This agreement obligates Golfsmith to pay approximately $600,000 per year, plus expenses, to First Atlantic Capital, Ltd. until 2012.

Golfsmith International Holdings, Inc., is currently expected to offer all of the shares and will grant the underwriters a 30-day option to purchase additional shares up to 15% of the total offering size. Merrill Lynch & Co. and JP Morgan are acting as joint book-running managers for the offering, and Lazard Capital Markets is acting as co-manager.

For the fourth quarter, sales increased 20.5% to $71.8 million from $59.6 million during the same quarter of 2004. Gross profit increased 110 basis points to 35.2% and SG&A expenses improved 240 basis points to 34.1% of sales. However, the company was unable to turn back-end and top-line improvements into a bottom line gain, posting a net loss of $2.3 million for the period. Still, the loss was a clear improvement from a loss of $7.4 million in the fourth quarter of 2004.

Golfsmith plans to open between 10 and 12 new stores in 2006 and between 14 and 16 new stores in 2007. Stores average 15,000 to 20,000 square feet. At the end of 2005 the company had 52 stores, over half of which were opened or acquired during the last three years. In the S-1 filing Golfsmith indicated that opening a new store requires approximately $750,000 for capital expenditures, $150,000 for pre-opening expenses, and $875,000 for inventory.

GOLF generated $353 per square foot in the fiscal year ended December 31, up 6.0% from $333/sf in 2004 and up 16.9% from $302/sf generated in fiscal 2003. The retailer had 905,827 square feet at the end of fiscal 2005.

Golfsmith generated 72.3% of sales from its retail operations in 2005, compared to 69.0% of total revenues in 2004 and 62.9% in 2003. Retail segment sales increased 14.6% to $234.3 million in 2005 from $204.5 million in the prior year. The direct-to-consumer segment declined 1.6% to $83.0 million, or 25.7% of revenues, from $84.4 million, or 28.5% of revenues in 2004. Direct revenues were 34.5% of sales in 2003. Other revenues and international distributors fell 11.4% to $2.0 million in 2005 from $2.5 million in the prior year.

Sales of proprietary branded products accounted for 15.7% of net revenues in 2005 versus 18.0% of net revenues in 2004 and 17.5% of net revenues in 2003.

>>> Looks like Golfsmith wants a little of the love given to Golf Galaxy since it entered the public market in August last year. GGXY shares are up more than 53% from the $14 IPO price…