The Sportsman's Guide is increasing its sales and earnings guidance for fiscal 2004 after announcing last week that it will acquire The Golf Warehouse, LLC and its tgw.com business from a private investment firm in an all-cash transaction valued at approximately $30 million. SGDE said it will finance the transaction through a combination of available cash and an expanded bank credit facility.

Falconhead Capital acquired The Golf Warehouse, which was founded in 1998, through a growth recapitalization in late 1999 and reportedly generated a return of four times 4x invested capital over the four-year period.

The company sees the deal as “immediately accretive” and has increased current revenue guidance for full year 2004 by 10% to 12% over previous estimates in the $205 million to $210 million range. Full year diluted EPS forecast was increased 8 cents to 10 cents over the previous range of $1.28 to $1.30 a share.

TGW reported more than $40 million in sales and operating income of $1.7 million in 2003, boasting a five-year compounded growth rate in excess of 60%. SGDE management said TGW was debt-free. They said CapEx spending was historically just 1% of sales and that TGW currently has the capacity to run a $100 million business.
Management did say that the TGW business was “driven by close-outs”, with more than 60% coming from the segment last year.

The addition of the Golf channel is expected to smooth out some of the bumps throughout the year for SGDE. Second quarter is the largest quarter for TGW, followed by the fourth quarter. They saw the business as “fairly even” in the first half versus second half.

Guide management sees continued opportunities in the Internet side of the business for its new channel and said the golfers use the Web more than any other sports enthusiast. The Internet end of the business has also grown steadily as a larger piece of the overall SGDE business.

One area that SGDE feels they can add immediate help is in the catalog business, which represented about $9 million, or 22.5%, of sales last year for TGW. They also see efficiencies in call center activities.

One other area of savings will be the elimination of a management fee charged to TGW by Falconhead. “We think we can provide what Falconhead did without a management fee,” said Gregory Binkley, SGDE president and CEO.
The Sportsman’s Guide sees their debt at $5 million or less at year-end.

SGDE shares were up 12.7% for the week to close at $23.48 on Friday.