Golfsmith International Holdings, Inc. net sales for the second quarter increased 11.4% to $114.1 million compared with $102.5 million for the corresponding period a year ago. Comparable store sales for the quarter increased 3.0%. Golfsmith reported a net loss of $7.9 million, after certain net charges of $14.8 million, or a loss per diluted share of 73 cents. This compares to net income of $6.0 million, or earnings per diluted share of 60 cents, in the second quarter of fiscal 2005.
Second quarter net income included certain charges incurred by the company totaling approximately $14.8 million. The charges included $12.8 million related to the extinguishment of the company’s long-term debt that was retired with proceeds raised in the company’s initial public offering on June 20, 2006 and $3.0 million of expenses related to the termination of a management consulting agreement with First Atlantic Capital, Ltd., offset by $1.0 million of derivative income associated with the initial public offering. Additionally, the company recorded a non-cash, stock-based compensation expense of $0.4 million during the second quarter. Excluding these charges, net income for the second quarter of 2006 was $7.3 million or $0.64 per diluted share.
For the six-months ended July 1, 2006 net sales increased 13.5 percent to $188.9 million compared with $166.5 million for the corresponding period a year ago. For the same period, comparable store sales increased 6.4 percent. Golfsmith reported a net loss of $8.8 million, after certain net charges of $14.8 million, or a loss per diluted share of $0.85, compared to net income of $4.0 million, or earnings per diluted share of $0.40, in the six months ended July 2, 2005.
In the second quarter, Golfsmith opened six new stores and remains on track for new store growth of 10 to 12 for fiscal 2006. As of July 31, 2006, Golfsmith operated 59 stores in 14 states.
“We are pleased with our overall financial results for the second quarter, particularly in light of the relatively soft retail demand we experienced the last few weeks of the quarter,” said Jim Thompson, president and chief executive officer of Golfsmith. “Sales were driven by double-digit increases in key categories such as clubs, apparel and services. We also made meaningful progress executing several strategic growth initiatives, such as opening new stores and renovating existing locations, launching our loyalty program, and expanding our tennis and private label offerings.”
Gross profit for the three months ended July 1, 2006, was $41.7 million, or 36.5 percent of sales, compared with gross profit of $37.8 million, or 36.9 percent of sales, for the three months ended July 2, 2005. The decline in gross profit as a percentage of sales was attributable to a sales mix shift driven by strong sales of golf clubs that generally carry lower gross margins.
Selling, general and administrative expense for the second quarter was $34.2 million, or 29.9 percent of sales, compared with $28.0 million, or 27.3 percent of sales in the corresponding period a year ago.
The increase reflected expenses related to nine stores in operation that were opened subsequent to July 2, 2005, as well as an expense of $3.0 million related to the termination of the company’s management consulting agreement with First Atlantic Capital, Ltd. and an expense of $0.4 million related to a non-cash stock compensation charge. Excluding the expenses related to the consulting agreement termination and the stock compensation charge, selling, general and administrative expenses as a percent of sales improved compared with the same period in 2005.
Store pre-opening expense for the quarter totaled $1.0 million compared with $0.9 million for the same period in 2005. Operating income for the second quarter was $6.5 million, or 5.7 percent of sales, versus operating income of $9.0 million, or 8.8 percent sales, in the year ago period.
On June 20, 2006, the company completed its initial public offering of 6,000,000 shares of common stock at a price to the public of $11.50 per share, all of which were sold by the company. Upon completing the offering, the company received net proceeds of $61.2 million which, together with borrowings under its amended and restated senior secured credit facility, were used to repay all of its outstanding 8.375 percent senior secured notes.
Mr. Thompson continued, “With the completion of our initial public offering we have entered an exciting new era in the company’s history, and we believe that we have successfully positioned Golfsmith for continued growth.”
Based on current business trends, the company is updating its outlook for the third quarter and fiscal year 2006. For the third quarter ending September 30, 2006, the company currently anticipates total revenues to be in the range of $91.0 million to $93.0 million. With the difficult comparisons for the quarter we expect comparable store sales to be between negative three percent and negative one percent. Based on a weighted diluted share count for the third quarter of 16 million, the company currently expects earnings per diluted share of $0.16 to $0.19.
For the year ending December 30, 2006, the company currently anticipates total revenues to be in the range of $352.0 million to $359.0 million and comparable store sales to be between 0.5 percent and 2.0 percent. Based on a weighted diluted share count for fiscal 2006 of 13.3 million, the company currently expects earnings per diluted share of $0.58 to $0.64.
Mr. Thompson concluded, “Our entire organization is focused on achieving our long-term goals and returning significant value to our shareholders. Looking ahead, we believe we are well positioned financially, operationally and strategically to successfully increase our geographic penetration and capture market share. We plan to further diversify our product selection, leverage our well-built infrastructure, and enhance our proprietary products and services to attract new guests to our multi-channel retail model and ensure we fully capitalize on the strength and history of the Golfsmith brand.”
Golfsmith International Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
-------------------------- ---------------------------
July 1, 2006 July 2, 2005 July 1, 2006 July 2, 2005
------------ ------------ ------------ ------------
Net revenues $188,948,611 $166,451,893 $114,138,315 $102,493,511
Cost of
products sold 121,444,970 105,856,380 72,437,031 64,660,890
------------- ------------- ------------- -------------
Gross profit 67,503,641 60,595,513 41,701,284 37,832,621
Selling,
general and
administrative 57,865,696 49,364,259 34,163,217 27,964,324
Store pre-
opening
expenses 1,222,736 1,403,519 1,022,987 886,762
------------- ------------- ------------- -------------
Total operating
expenses 59,088,432 50,767,778 35,186,204 28,851,086
------------- ------------- ------------- -------------
Operating
income 8,415,209 9,827,735 6,515,080 8,981,535
Interest
expense (5,813,072) (5,750,630) (2,753,646) (2,888,528)
Interest income 155,475 62,960 144,692 45,520
Other income 1,420,776 31,090 1,098,712 8,492
Other expense (108,240) (71,978) (65,296) (48,230)
Loss on debt
extinguishment (12,775,270) - (12,775,270) -
------------- ------------- ------------- -------------
Income (loss)
before income
taxes (8,705,122) 4,099,177 (7,835,728) 6,098,789
Income tax
expense (108,090) (97,102) (108,090) (97,102)
------------- ------------- ------------- -------------
Net income
(loss) $ (8,813,212) $ 4,002,075 $ (7,943,818) $ 6,001,687
============= ============= ============= =============
Net income
(loss) per
share:
Basic $ (0.85) $ 0.41 $ (0.73) $ 0.61
Diluted $ (0.85) $ 0.40 $ (0.73) $ 0.60
Weighted
average number
of shares
outstanding:
Basic 10,330,492 9,803,712 10,823,558 9,803,712
Diluted 10,330,492 9,946,879 10,823,558 9,946,879
