Golf Galaxy Latest Specialty Retailer to File for IPO…

May 23, 2005
SGB Update

Despite a quite unhealthy golf retail market that is plagued by declining rounds of play, price wars on key technology, and a strong commitment from TSA and Dick’s Sporting Goods to the golf category, the world is about to get another public golf specialty retailer.

Golf Galaxy, a Minnesota-based golf specialty retailer with 44 stores in 19 states last week filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its common stock. The shares will be sold by the company and by selling shareholders with the expectation they can raise $46 million in the offering.

Golf Galaxy intends to use the net proceeds from the sale of shares to “continue to open new retail stores across the country and for general corporate purposes” and will allocate a portion of the proceeds to pay preferred shareholders all of the accrued and unpaid dividends due upon conversion of their shares of preferred stock into shares of common stock.

Golf Galaxy reported that the increase in net sales in the most recent fiscal year resulted primarily from $25.5 million in sales from new stores opened in fiscal 2005 or fiscal 2004, coupled with a 6.7% increase in comparable store sales. The increase in comparable store sales was primarily attributable to increased sales of clubs, apparel, and golf balls.

Galaxy opened ten new stores in the fiscal 2005 year ended February 26 after opening four stores in fiscal 2004. Golf Galaxy has already opened ten of eleven stores planned for the first quarter of the current fiscal year, with three to five more planned for the balance of the year.

The strong improvement in gross margin for the year was attributed to higher margins achieved on the sales of clubs and apparel as the retailer improves purchasing leverage and increases sales of higher margin merchandise. GM also got a bit of a lift from leveraging of occupancy costs and lower cost of services.

Exclusive of certain one-time items, net income for 2005 would have been $2.5 million, compared to $1.4 million in fiscal ‘04, an increase of about 78.5%.

Galaxy gets 60% of its merchandise from its five largest suppliers. Acushnet Company, Callaway Golf Company, and TaylorMade-adidas Golf each represented more than 10% of purchases.

Golf Galaxy opened its first retail store in Bloomington, Minn. in April 1997. They raised $30.9 million of venture equity financing to supplement the $1.9 million of start up capital raised through a private placement financing. GolfGalaxy.com launched in March 2004.


>>> Quick, what is the most over-retailed sporting goods sector after Hunt/Fish/Camp…

Golf Galaxy
Fiscal 2005 Full Year Results
(in $ millions) 2005 2004 Change
Total Sales $133.1 $99.6 +33.6%
Gross Profit % 29.4% 27.3% +210 bps
Net Income $7.54  $7.58  -0.5%
Diluted EPS 97¢  98¢ -1.0%
Comp Sales 6.7% 5.6%  
Inven @ qtr-end $30.4 $25.6 +19.0%

Golf Galaxy Latest Specialty Retailer to File for IPO

May 17, 2005
SGB Executive
by

Golf Galaxy, a golf specialty retailer with 44 stores in 19 states, filed a registration statement with the Securities and Exchange Commission on Wednesday for a proposed initial public offering of its common stock. The shares of common stock will be sold by the company and by selling shareholders.

The company hope to raise approximately $46 million in the offering, but the number of shares to be offered and the price per share have yet to be determined.


Golf Galaxy intends to use the net proceeds from the sale of shares to “continue to open new retail stores across the country and for general corporate purposes” and will allocate a portion of the proceeds to pay preferred shareholders all of the accrued and unpaid dividends due upon conversion of their shares of preferred stock into shares of common stock.

Golf Galaxy reported that net sales for the 2005 fiscal year ended February 27 increased 33.6% to $133.1 million from $99.6 million in fiscal 2004. The increase in net sales resulted primarily from $25.5 million in sales from new stores opened in fiscal 2005 or fiscal 2004, before becoming comparable stores, and a 6.7%increase in comparable store sales. The increase in comparable store sales was primarily attributable to increased sales of clubs, apparel and golf balls.

Full year gross margin imprved 210 basis points to 29.4% of sales in fiscal 2005 from 27.3% in fiscal 2004. The increase was primarily due to higher margins achieved on the sales of clubs and apparel as they continued to improve purchasing leverage and increased sales of higher margin merchandise. To a lesser degree, the gross margin rate also benefited from a lower cost of services and occupancy as a percentage of sales.

Net income was $7.5 million in fiscal 2005, compared to $7.6 million in fiscal 2004. Net income in fiscal 2005 included the non-recurring gain on the sale of Golf Town Canada Inc. stock, which increased net income by $5.0 million, after taxes. In addition, net income for fiscal 2004 included a $6.2 million reversal of a previously established income tax valuation allowance. Exclusive of these items, net income would have been $2.5 million in fiscal 2005 and $1.4 million in fiscal 2004, or an increase of roughly 78.5% year-on-year.

Piper Jaffray is the sole book-running manager and William Blair & Company as joint lead manager for the offering. A.G. Edwards and Wedbush Morgan Securities have also been selected as co-managers for the offering.

Golf Galaxy, based in Eden Prairie, Minnesota, owns and operates a chain of golf specialty retail stores. The company currently operates 44 stores in 19 states and an eCommerce website, www.golfgalaxy.com.

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