Golfsmith International Holdings Inc announced its financial results for the second quarter of 2007, ended June 30, 2007.
The company reported net revenues of $125.0 million for the second quarter compared with net revenues of $114.1 million for the second quarter of fiscal 2006.
The increase of 9.5 percent was due to net revenues from 15 non-comparable retail stores that were opened subsequent to July 1, 2006. This increase was partially offset by a 4.8 percent decrease in net revenues from its direct channel and a 4.7 percent decrease in comparable store sales.
Comparable store sales for the quarter were impacted by the continuation of heightened levels of competition in the Dallas and Atlanta markets, and declining sales in the clubmaking business.
Furthermore, golf rounds played in the United States, a leading indicator of golf participation tracked by the National Golf Foundation, declined 1.1 percent year-over-year in the second quarter despite growth in May and June.
The company reported income from operations of $7.7 million in the second quarter compared with $6.5 million for the second quarter of fiscal 2006. Gross margins and operating income continued to be pressured by a higher sales mix of lower margin products and a decline in sales in the higher margin clubmaking business.
The company’s operating results were also largely affected by increased selling, general and administrative expenses associated with 15 new stores opened since July 1, 2006, eight of which opened during the second quarter of 2007.
Selling, general and administrative expenses also included increased corporate support costs related to the growth of the business as a public-equity company.
The company also reported net income of $6.8 million in the second quarter, or earnings per diluted share of $0.43, based on 15.8 million fully diluted weighted average shares outstanding.
This compares with a net loss of $7.9 million, or a loss per diluted share of $0.73, based on 10.8 million fully diluted weighted average shares outstanding in the three months ended July 1, 2006.
The second quarter of fiscal year 2006 included certain charges incurred by the company concurrent with its initial public offering (“IPO”) on June 20, 2006. The charges included $12.8 million related to the extinguishment of the company's long-term debt that was retired with proceeds raised in its IPO and $3.0 million of expenses related to the termination of a management consulting agreement with First Atlantic Capital Ltd partially offset by $1.0 million of derivative income associated with the IPO.
Additionally, the company recorded a non-cash, stock-based compensation expense of $0.4 million during the second quarter of 2006. Excluding these charges, net income for the second quarter of 2006 was $7.2 million or $0.64 per diluted share.
“The second quarter was a good quarter overall for Golfsmith’s business. We drove revenues by opening eight stores that incorporate our core activity-based store format and by increasing sales in certain key categories, such as apparel, tennis and electronic accessories,” said Jim Thompson, chief executive officer and president of Golfsmith.
“We closely managed our operations and remained flexible in the way we ran our business in this highly competitive and promotional environment.”
For the six-month period ended June 30, 2007, Golfsmith reported net revenues of $202.7 million compared with net revenues of $188.9 million for the six-month period ended July 1, 2006.
The increase of 7.3 percent was due to net revenues from 15 non-comparable retail stores that were opened subsequent to July 1, 2006. This increase was partially offset by a 6.8 percent decrease in net revenues from its direct channel and a 5.1 percent decrease in comparable store sales.
The company reported an operating income of $3.8 million for the six-months ended June 30, 2007, compared with an operating income of $8.4 million in the first six months of fiscal year 2006.
Gross margins and operating income continued to be pressured by a higher sales mix of lower-margin products and a decline in sales in the higher margin clubmaking business.
The company’s operating results were also largely affected by increased selling, general and administrative expenses associated with 15 stores opened since July, 1 2006.
The company also reported net income of $1.9 million, or earnings per diluted share of $0.12, based on 15.9 million fully diluted weighted average shares outstanding.
This compares with a net loss of $8.8 million, or a loss per diluted share of $0.85, based on 10.3 million fully diluted weighted average shares outstanding in the six months ended July 1, 2006.
Results for the six months ended July 1, 2006, included certain charges incurred by the company concurrent with its IPO on June 20, 2006.
Excluding these charges totaling $15.2 million and previously described in detail in the discussion of second quarter results, net income for the six months ended July 1, 2006, was $6.4 million or $0.59 per diluted share.
For the full year of fiscal 2007, the company is updating its previously reported outlook. The company expects comparable store sales of negative 3.0 percent to negative 2.0 percent and diluted earnings per share for the year to be between $0.30 and $0.35 based on fully diluted weighted average shares outstanding of 15.9 million.
This lowers the high end of the previously provided earnings per share estimate for the year. Furthermore, the company now expects to open 13 stores in fiscal 2007.
Three stores were opened in the first quarter, eight stores were opened in the second quarter and one store has been opened to-date in the third quarter. The company plans to open one store in the fourth quarter of fiscal 2007.
