Golfsmith International Holdings, Inc. third quarter net revenues increased 9.9% to $94.0 million compared with $85.5 million for the third quarter of 2005. The increase was driven by the addition of seven retail stores over the past year and a 5.1% increase in net revenues from its direct-to-consumer channel.

Comparable store sales increased 0.2%, compared with 6.2% in the same period a year ago, driven by sales of golf clubs, apparel, technology-related accessories and tennis products. The company delivered this performance against a challenging year-over-year comparison, a quarterly decrease in golf rounds played, and vendor promotions.

Operating income of $3.8 million, or 4.0% of sales, compared with operating income of $4.1 million, or 4.8% of sales, for the third quarter of fiscal 2005. This decline was a result of increased sales in lower margin categories such as golf clubs; increased freight costs due to higher fuel prices; and increased selling, general and administrative expenses associated with seven stores opened subsequent to October 1, 2005.

Net income was $3.4 million, or earnings per diluted share of 21 cents, compared with net income of $1.2 million, or earnings per diluted share of 12 cents. This was based on 15.9 million diluted weighted average shares outstanding at September 30, 2006, and 9.9 million diluted weighted average shares outstanding at October 1, 2005, respectively. Net income for the quarter ended September 30, 2006, was positively affected by a $2.1 million decrease in interest expense year over year.

For the nine months ended September 30, 2006, Golfsmith reported net revenues increased 12.3% to $282.9 million compared with $252.0 million for the corresponding period a year ago. Comparable store sales increased 4.2% compared with negative 0.2% for the same period a year ago.
Operating income of $12.2 million, or 4.3% of sales, versus operating income of $13.9 million, or 5.5% of sales, for the same period of fiscal 2005.

The company's net loss was $5.4 million, after certain net charges of $14.7 million in conjunction with the initial public offering, or a loss per diluted share of 45 cents based on 12.1 million diluted weighted average shares outstanding. This compares with net income of $5.2 million, or earnings per average diluted share of 52 cents based on 9.9 million diluted weighted average shares outstanding, in the nine months ended October 1, 2005.

“We are pleased with our performance in the third quarter and the progress we've made year-to-date executing our strategic initiatives and increasing our position in the marketplace,” said Jim Thompson, president and CEO. “Our team was able to grow year-over-year comparable store sales during a three-month period that included a decrease in golf rounds played, an increase in competition and vendor promotions.”

The company focused on key growth initiatives during the quarter:

Store Growth – On October 12, the company announced that it had signed leases to open stores in Houston, Tucson and Chicago by the end of 2006. Golfsmith will end the year having opened 10 stores, raising its national footprint to 62 stores.

Tennis – On August 16, the company announced the creation of its first-ever tennis catalog. Simultaneously, Golfsmith re-launched its tennis website (tennis.golfsmith.com). Both will showcase the latest apparel, footwear, accessories and racquets in tennis and complement Golfsmith's 41 full-service tennis departments in stores around the country.

Proprietary Business – On October 17, the company announced an exclusive partnership with PGA Teaching Pro Hank Haney to create a comprehensive line of golf training aides. Haney will collaborate on the development of a product line that will be sold nationally in 2007 exclusively through Golfsmith's stores, catalogs and website. This development is designed to help expand and diversify the company's proprietary offerings.

Based on current business trends, the company anticipates net revenues for the fourth quarter of fiscal 2006 will range from $73 million to $76 million. Because of challenging year-over-year comparisons of 13.5% comparable store sales in the fourth quarter of 2005, the company expects comparable store sales of between negative 8% and negative 4% for the fourth quarter of 2006. The diluted loss per share is expected to be between 11 cents and seven cents based on diluted weighted average shares outstanding of 15.9 million.

For the year ending December 30, 2006, Golfsmith expects net revenues to range from $356 million to $359 million and comparable store sales from 1.5% to 2.4%. This compares with comparable store sales of 2.6 percent for fiscal year 2005. Based on a diluted weighted average share count of 13.3 million, the company now expects pro forma diluted earnings per share of between 60 cents and 66 cents compared with its previously announced full-year outlook of 58 cents to 64 cents. This upward revision reflects stronger third quarter results.

                    Nine Months Ended           Three Months Ended
               September 30,   October 1,   September 30,  October 1,
                    2006           2005          2006         2005
               ---------------------------- --------------------------

Net revenues    $282,928,686  $251,972,974   $93,980,075  $85,521,081
Cost of
 products sold   183,053,628   161,494,699    61,608,658   55,638,319
               -------------- ------------- ------------- ------------
Gross Profit      99,875,058    90,478,275    32,371,417   29,882,762

Selling,
 general and
 administrative   86,249,248    74,803,234    28,383,552   25,438,975
Store pre-
 opening
 expenses          1,419,883     1,742,389       197,147      338,870
               -------------- ------------- ------------- ------------
Total operating
 expenses         87,669,131    76,545,623    28,580,699   25,777,845
Operating
 income           12,205,927    13,932,652     3,790,718    4,104,917

Interest
 expense          (6,649,729)   (8,688,730)     (836,657)  (2,938,100)
Interest income      433,019        66,678       277,544        3,718
Other income       1,518,149        65,769        97,373       34,679
Other expense       (145,089)      (87,718)      (36,849)     (15,740)
Loss on debt
 extinguishment  (12,775,270)            -             -            -
               -------------- ------------- ------------- ------------
Income (loss)
 before income
 taxes            (5,412,993)    5,288,651     3,292,129    1,189,474

Income tax
 benefit
 (expense)           (31,116)      (75,981)       76,974       21,121
               -------------- ------------- ------------- ------------

Net income
 (loss)         $ (5,444,109) $  5,212,670   $ 3,369,103  $ 1,210,595
               ============== ============= ============= ============
Net income
 (loss) per
 share:
   Basic        $      (0.45) $       0.53   $      0.21  $      0.12
   Diluted      $      (0.45) $       0.52   $      0.21  $      0.12
Weighted
 average number
 of shares
 outstanding:
   Basic          12,143,767     9,803,712    15,716,591    9,803,712
   Diluted        12,143,767     9,943,684    15,856,972    9,943,684