Golfsmith Q3 Earnings Increase on New Store Expansion

Golfsmith International Holdings net revenues increased 13.4% to $106.5 million for the third quarter compared with net revenues of $94.0 million for the third quarter of fiscal 2006. The increase includes net revenues from 15 new retail stores, which were partially offset by a 4.4% decrease in net revenues from the direct channel and a 0.2% decrease in comparable store sales.

Net income increased 17.8% to $4.0 million in the third quarter, or earnings per diluted share of 25 cents, versus net income of $3.4 million, or earnings per diluted share of 21 cents in 2006.

Operating income increased 30.4 percent to $4.9 million in the third quarter compared with $3.8 million for the third quarter of fiscal 2006. Gross margin improved to 35.5 percent in the third quarter of 2007 compared with 34.4 percent in the third quarter of 2006. Overall operating margin was 4.6 percent for the third quarter 2007 compared with 4.0 percent in third quarter 2006. These gains were partially offset by increased selling, general and administrative (SG&A) expenses associated with 15 new stores opened since September 30, 2006.

“We made good progress in the third quarter as we executed on our plan, managed costs and drove profits,” said Jim Thompson, chief executive officer and president of Golfsmith. “We remain committed to the path we’re on, and we’re encouraged by our performance over the past two quarters and our management team’s ability to attract and retain guests by evolving our brand, our offering and our service.”

Year-to-Date Results

For the nine-month period ended September 29, 2007, net revenues increased 9.3% to $309.2 million compared with net revenues of $282.9 million for the nine-month period ended September 30, 2006. This increase was attributable to the net revenues from 15 non-comparable retail stores opened after September 30, 2006, but was partially offset by a 6.0% decrease in net revenues from the direct channel and a 3.5% decrease in comparable store sales.

The company reported operating income of $8.7 million for the nine-months ended September 29, 2007, compared with operating income of $12.2 million in the first nine months of fiscal year 2006. Gross margins and operating income continued to be pressured by a higher sales mix of lower-margin products and a decline in sales in the higher margin clubmaking business. Operating results were also largely affected by increased SG&A expenses associated with the company’s growth, the opening of 15 stores opened since September 30, 2006, and the incremental costs of being a public company.

Golfsmith also reported net income for the nine months of $5.9 million, or earnings per diluted share of 37 cents, based on 16.0 million fully diluted weighted average shares outstanding. This compares with a net loss of $5.4 million, or a loss per diluted share of 45 cents, based on 12.1 million fully diluted weighted average shares outstanding in the nine months ended September 30, 2006.

Outlook

Golfsmith is reiterating its previously reported outlook for the full year of fiscal 2007. The company expects comparable store sales of negative 3.0% to negative 2.0% and diluted earnings per share for the year to be between 30 cents and 35 cents based on fully diluted weighted average shares outstanding of 15.9 million.

The company will open 13 stores in fiscal 2007. Three stores were opened in the first quarter, eight stores were opened in the second quarter, one store was opened in the third quarter and a 60,000-square-foot store will be opened in the fourth quarter.