Golf Galaxy’s slow start to the third quarter in September was overcome by “strong sales” in October and November, according to company CEO Randy Zanatta. While sales were strong, a highly promotional business environment this holiday season, coupled with the closing of 20 competitors’ stores in nine different markets and the ensuing liquidation pricing, forced margins down and limited the transition of the sales increases to the bottom line, resulting in a net loss for the quarter.

While the company posted a loss versus a profit last year, the loss for the period was a bit better than its guidance for a net loss of $2.2 million to $1.8 million and last year included a one-time pre-tax gain of $8.4 million realized on the sale of its equity investment in Golf Town Canada Inc. stock. The company typically reports a net loss in its fiscal third quarter — its lowest volume period — due to seasonality. The Pro-forma net loss, excluding the one time gain, would have been $1.7 million, or a loss of 16 cents per diluted share, for last year’s Q3.

Golf Galaxy opened four new stores during the quarter, including its first stores in the Denver, Omaha and Tulsa markets. They also opened a third store in the Philly market. GGXY said it plans to open one additional store during the current fiscal year, which ends Feb. 25, 2006 and plans to open 14 to 16 new stores during fiscal 2007.

Looking at Q4, GGXY expects net sales between $40 million and $42 million, or a 49% to 57% increase over Q4 LY on a mid-singles comp sales increase. Despite the expected sales gains, the company still forecasts a net loss in the $900,000 to $600,000 range. For 2006, sales are seen in the $200 million to $202 million range on a 6% to 8% comp sales increase. Net income is currently expected to be $4.6 million to $4.9 million.

Golf Galaxy
Third Quarter Results
(in $ millions) 2005 2004 Change
Total Sales $31.8 $20.3 +56.7%
GM % 24.8% 25.1% -30 bps
Store Op Exp 23.9% 23.6% +30 bps
Net Income ($1.6) $3.4 vs profit
Diluted EPS (15¢) 43¢ vs profit
Comps Change +6.7% +9.9%  
Inventory* $43.3 $29.3 +48.0%