Citing a dismal retail environment and a horrendous second half of the year for golf-related sales, management for Golfsmith International Holdings said net revenues for the fourth quarter of fiscal 2008 decreased 14.1% to $67.8 million compared to $79.0 million in the year ago period. Same-store sales for the fourth quarter fell 17.3% and direct channel revenues dropped 23.1%. The comps decline more than doubled the rate for the any of the preceding fiscal 2008 reporting periods.
On a conference call with analysts, management said that club sales were particularly slow for the quarter, while new product launches that were pulled forward produced less-than-favorable results. Likewise, the company noted that a more value-oriented customer has forced the retailer to slash driver prices and heavily liquidate apparel. Custom clubs were the lone bright spot for the quarter.
As a result of the increasing frugality of Golfsmiths market, management said store traffic had decreased significantly while ticket totals have seen remarkably sharp declines. Average ticket prices slipped below the $100 threshold, a development management said was highly unusual.
The operating loss totaled $6.6 million for the fourth quarter compared to a loss of $45.6 million for the same period last year. The fiscal 2007 operating loss included a $43.0 million non-cash impairment charge to write-off goodwill and reduce the net book value of other long-lived assets related to the decline of the companys stock price and market capitalization. Management said the company has cut operating expenses for the year by reducing marketing costs in the direct channel, lowering wages and reducing store opening costs.
The net loss in the fourth quarter totaled $6.5 million, or 40 cents per diluted share, compared to $46.7 million, or excluding the $43.0 million cash charge, a net loss of $3.7 million, or 23 cents per diluted share, in the year-ago period.
For the fourth quarter, management noted that Golfsmith endured a “tremendous amount” of promotional pressure from competitors, while also boosting its own promotional efforts.
For 2009, management said the company had slightly exceeded projections for January and February, but still expected to see significant weakness in the first half of the fiscal year. To cut marketing expenditures, the company will now issue two catalogs instead of three. For fiscal 2009, the company will also place an emphasis on enhancing the e-commerce business and continuing to strictly monitor inventory levels and merchandising assortments. Marketing spending will continue to shift from direct to retail, which the company said has proved effective in the past. Management added that the company was continuing to benefit from vendors stimulus programs and added that the numerous closings of competitor store locations due to the economy would ultimately be a profitable development for Golfsmith. Management noted that as of October, 76 competing locations had shuttered their doors in response to the weak economy.
Regarding outlook, Golfsmith representatives said the company expects negative comp trends to continue in fiscal 2009. Specifically, management expects same-store sales to fall in the mid-singles for the year on a double-digit loss in the first half. A slight improvement is expected in margins, aided by reduced costs and improved inventory management. To improve cash flow and boost margins in 2009, management said they would implement several initiatives, including incorporating more part-time workers in the distribution centers, renegotiating freight contracts and broadening responsibilities at the middle-management level.
