Golf Galaxy Shares Fall on Reduced Guidance; Meets Reduced First Quarter Outlook…

Golf Galaxy, Inc. posted its 13th consecutive quarter of comp sales improvements, though not to the level of initial targets, but took a major hit from analysts after reducing their expectations for the year. In a conference call with analysts, management attributed the missed goals to poor spring weather in many of the Northern and Midwestern markets in the early part of the quarter and to just a generally tentative consumer. On a comparable store basis, traffic was down slightly for the quarter, but was offset by an increase in average ticket and a higher rate of add-on sales in the services and accessories categories.

In terms of product, the company’s “club business declined in the quarter, especially in drivers and irons.” However, the company saw its Services division grow from 3.0% of total sales to 4.7% of the sales mix, largely attributable to the company’s acquisition of The GolfWorks, for which several stores now have store-in-store concepts. Services was the company’s “most profitable category” in the first quarter. In fiscal 2005, GolfWorks posted approximately $24.5 million in revenues, a number which Golf Galaxy sees as unchanging, with a growth projection of zero percent. GGXY is instead choosing to focus on using GolfWorks and Maltby-built clubs as value-added portions of the current business with custom club fittings and custom built clubs.

GGXY pointed to its Advantage Club as a key driver of sales growth, proudly announcing that the club is expected to enroll its millionth member in the next couple of weeks and is expected to reach 1.3 million members by the end of the fiscal year. Currently, Advantage Club purchases account for approximately half of all sales in the stores, with a “reasonable” goal of 80% of all purchases in the long term.

For the 2007 fiscal year, GGXY lowered its net sales expectations to $292 million to $300 million, from its prior estimate of $300 million to $310 million, with comp store sales growth in the 3% to 5% range, compared with the prior estimates of 5% to 7% growth. The company currently expects net income for fiscal 2007 of $6.8 million to $7.3 million, or 59 cents to 63 cents per diluted share down from its prior estimate of $7.5 million to $8.1 million, or 65 cents to 70 cents per diluted share. Analysts, on average, were looking for 66 cents per share. The company expects net sales for Q2 to be in the $98 million to $102 million range, an increase of 40% to 46% over the same period last year and a comp store sales increase of 3% to 5%. Net income is estimated to be in the range of $6.8 million to $7.2 million, or 59 cents to 62 cents per diluted share. GGXY shares were down 16.7% for the week to close at $12.84 on Friday, and are down more than 38% since the retailer first issued its revised outlook on May 22.

Golf Galaxy opened eleven new stores during its fiscal first quarter, including its first stores in the Las Vegas, Pittsburgh, Syracuse, Oklahoma City, and New York City metro markets. The company currently operates 61 stores in 24 states. Golf Galaxy said it plans to open three to five additional stores during the current fiscal year, which ends March 3, 2007, for a total of 14 to 16 new stores in fiscal 2007.