Golfsmith International Holdings, Inc. (NASDAQ: GOLF),
today reported its results of operations for the second quarter ended
July 1, 2006.
Net sales for the second quarter increased 11.4 percent to $114.1
million compared with $102.5 million for the corresponding period a
year ago. Comparable store sales for the quarter increased 3.0
percent. Golfsmith reported a net loss of $7.9 million, after certain
net charges of $14.8 million, or a loss per diluted share of $0.73.
This compares to net income of $6.0 million, or earnings per diluted
share of $0.60, in the second quarter of fiscal 2005.
Second quarter net income included certain charges incurred by the
company totaling approximately $14.8 million. The charges included
$12.8 million related to the extinguishment of the company's long-term
debt that was retired with proceeds raised in the company's initial
public offering on June 20, 2006 and $3.0 million of expenses related
to the termination of a management consulting agreement with First
Atlantic Capital, Ltd., offset by $1.0 million of derivative income
associated with the initial public offering. Additionally, the company
recorded a non-cash, stock-based compensation expense of $0.4 million
during the second quarter. Excluding these charges, net income for the
second quarter of 2006 was $7.3 million or $0.64 per diluted share.
For the six-months ended July 1, 2006 net sales increased 13.5
percent to $188.9 million compared with $166.5 million for the
corresponding period a year ago. For the same period, comparable store
sales increased 6.4 percent. Golfsmith reported a net loss of $8.8
million, after certain net charges of $14.8 million, or a loss per
diluted share of $0.85, compared to net income of $4.0 million, or
earnings per diluted share of $0.40, in the six months ended July 2,
2005.
In the second quarter, Golfsmith opened six new stores and remains
on track for new store growth of 10 to 12 for fiscal 2006. As of July
31, 2006, Golfsmith operated 59 stores in 14 states.
"We are pleased with our overall financial results for the second
quarter, particularly in light of the relatively soft retail demand we
experienced the last few weeks of the quarter," said Jim Thompson,
president and chief executive officer of Golfsmith. "Sales were driven
by double-digit increases in key categories such as clubs, apparel and
services. We also made meaningful progress executing several strategic
growth initiatives, such as opening new stores and renovating existing
locations, launching our loyalty program, and expanding our tennis and
private label offerings."
Gross profit for the three months ended July 1, 2006, was $41.7
million, or 36.5 percent of sales, compared with gross profit of $37.8
million, or 36.9 percent of sales, for the three months ended July 2,
2005. The decline in gross profit as a percentage of sales was
attributable to a sales mix shift driven by strong sales of golf clubs
that generally carry lower gross margins.
Selling, general and administrative expense for the second quarter
was $34.2 million, or 29.9 percent of sales, compared with $28.0
million, or 27.3 percent of sales in the corresponding period a year
ago. The increase reflected expenses related to nine stores in
operation that were opened subsequent to July 2, 2005, as well as an
expense of $3.0 million related to the termination of the company's
management consulting agreement with First Atlantic Capital, Ltd. and
an expense of $0.4 million related to a non-cash stock compensation
charge. Excluding the expenses related to the consulting agreement
termination and the stock compensation charge, selling, general and
administrative expenses as a percent of sales improved compared with
the same period in 2005. Store pre-opening expense for the quarter
totaled $1.0 million compared with $0.9 million for the same period in
2005. Operating income for the second quarter was $6.5 million, or 5.7
percent of sales, versus operating income of $9.0 million, or 8.8
percent sales, in the year ago period.
On June 20, 2006, the company completed its initial public
offering of 6,000,000 shares of common stock at a price to the public
of $11.50 per share, all of which were sold by the company. Upon
completing the offering, the company received net proceeds of $61.2
million which, together with borrowings under its amended and restated
senior secured credit facility, were used to repay all of its
outstanding 8.375 percent senior secured notes.
Mr. Thompson continued, "With the completion of our initial public
offering we have entered an exciting new era in the company's history,
and we believe that we have successfully positioned Golfsmith for
continued growth."
Outlook
Based on current business trends, the company is updating its
outlook for the third quarter and fiscal year 2006. For the third
quarter ending September 30, 2006, the company currently anticipates
total revenues to be in the range of $91.0 million to $93.0 million.
With the difficult comparisons for the quarter we expect comparable
store sales to be between negative three percent and negative one
percent. Based on a weighted diluted share count for the third quarter
of 16 million, the company currently expects earnings per diluted
share of $0.16 to $0.19.
For the year ending December 30, 2006, the company currently
anticipates total revenues to be in the range of $352.0 million to
$359.0 million and comparable store sales to be between 0.5 percent
and 2.0 percent. Based on a weighted diluted share count for fiscal
2006 of 13.3 million, the company currently expects earnings per
diluted share of $0.58 to $0.64.
Mr. Thompson concluded, "Our entire organization is focused on
achieving our long-term goals and returning significant value to our
shareholders. Looking ahead, we believe we are well positioned
financially, operationally and strategically to successfully increase
our geographic penetration and capture market share. We plan to
further diversify our product selection, leverage our well-built
infrastructure, and enhance our proprietary products and services to
attract new guests to our multi-channel retail model and ensure we
fully capitalize on the strength and history of the Golfsmith brand."
About Golfsmith International Holdings, Inc.
Golfsmith International Holdings, Inc. (the "Company") through its
subsidiaries, is a multi-channel, specialty retailer of golf and
tennis equipment and related apparel and accessories and is a designer
and marketer of golf equipment. The Company offers golf equipment from
top national brands as well as its own proprietary brands and also
offers clubmaking capabilities. As of July 31, 2006, the Company
marketed its products through 59 superstores as well as through its
direct-to-consumer channels, which include its clubmaking and consumer
catalogs and its Internet site. The Company also operates the Harvey
Penick Golf Academy, an instructional school incorporating the
techniques of the well-known golf instructor, the late Harvey Penick.
Cautionary Language Certain statements made in this news release
are forward looking in nature and, accordingly, are subject to risks
and uncertainties. These forward-looking statements are only
predictions based on our current expectations and projections about
future events. Important factors could cause our actual results,
performance or achievements to differ materially from those expressed
or implied by these forward-looking statements. These factors include,
but are not limited to, those discussed in our form 10-Q, filed
concurrently with this release and our Registration Statement on Form
S-1, filed on June 15, 2006 under the caption "Risk Factors."
Non-GAAP Financial Measurements
Golfsmith provides a non-GAAP measure of net income (loss) and net
income (loss) per share in its earnings release. The presentation is
intended to be a supplemental measure of performance and excludes: (i)
charges related to the extinguishment of the company's long-term debt;
(ii) expenses related to the termination of a management consulting
agreement; (iii) expenses related to stock-based compensation; and
(iv) derivative income associated with the initial public offering.
Golfsmith believes that excluding these items from the reported net
loss represents a better basis for the comparison of its current
results to past, present, and future operating results, and a better
means to highlight the results of core ongoing operations. The
presentation of this additional information is not meant to be
considered in isolation or as a substitute for results prepared in
accordance with GAAP. The non-GAAP financial measures included in the
press release have been reconciled to the corresponding GAAP financial
measures as required under the rules of the Securities and Exchange
Commission regarding the use of non-GAAP financial measures.
The names "Golfsmith (R)," "ASI (TM)" "Black Cat (R)," "Crystal
Cat (R)," "GearForGolf (TM)," "GiftsForGolf (TM)," "Killer Bee (R),"
"Lynx (R)," "Parallax (R)," "Predator (R)," "Snake Eyes (R)," "Tigress
(R)," and "Zevo (R)," and the Golfsmith logo are trademarks, service
marks or trade names owned by Golfsmith International, Inc.
Golfsmith International Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
-------------------------- ---------------------------
July 1, 2006 July 2, 2005 July 1, 2006 July 2, 2005
------------ ------------ ------------ ------------
Net revenues $188,948,611 $166,451,893 $114,138,315 $102,493,511
Cost of
products sold 121,444,970 105,856,380 72,437,031 64,660,890
------------- ------------- ------------- -------------
Gross profit 67,503,641 60,595,513 41,701,284 37,832,621
Selling,
general and
administrative 57,865,696 49,364,259 34,163,217 27,964,324
Store pre-
opening
expenses 1,222,736 1,403,519 1,022,987 886,762
------------- ------------- ------------- -------------
Total operating
expenses 59,088,432 50,767,778 35,186,204 28,851,086
------------- ------------- ------------- -------------
Operating
income 8,415,209 9,827,735 6,515,080 8,981,535
Interest
expense (5,813,072) (5,750,630) (2,753,646) (2,888,528)
Interest income 155,475 62,960 144,692 45,520
Other income 1,420,776 31,090 1,098,712 8,492
Other expense (108,240) (71,978) (65,296) (48,230)
Loss on debt
extinguishment (12,775,270) - (12,775,270) -
------------- ------------- ------------- -------------
Income (loss)
before income
taxes (8,705,122) 4,099,177 (7,835,728) 6,098,789
Income tax
expense (108,090) (97,102) (108,090) (97,102)
------------- ------------- ------------- -------------
Net income
(loss) $ (8,813,212) $ 4,002,075 $ (7,943,818) $ 6,001,687
============= ============= ============= =============
Net income
(loss) per
share:
Basic $ (0.85) $ 0.41 $ (0.73) $ 0.61
Diluted $ (0.85) $ 0.40 $ (0.73) $ 0.60
Weighted
average number
of shares
outstanding:
Basic 10,330,492 9,803,712 10,823,558 9,803,712
Diluted 10,330,492 9,946,879 10,823,558 9,946,879
Golfsmith International Holdings, Inc.
Consolidated Balance Sheets
July 1, 2006 December 31,
(Unaudited) 2005
-------------- --------------
ASSETS
Current assets:
---------------
Cash and cash equivalents $ 152,090 $ 4,207,497
Receivables, net of allowances of
$155,385 at July 1, 2006 and $146,964
at December 31, 2005 2,487,339 1,646,454
Inventories 90,123,761 71,472,061
Prepaid expenses and other current
assets 9,640,710 6,638,109
-------------- --------------
Total current assets 102,403,900 83,964,121
Property and equipment:
Land and buildings 21,412,537 21,256,771
Equipment, furniture, fixture and
autos 22,507,618 19,004,608
Leasehold improvements and
construction in progress 25,716,175 20,866,839
-------------- --------------
69,636,330 61,128,218
Less: accumulated depreciation (17,675,833) (14,558,256)
-------------- --------------
Net property and equipment 51,960,497 46,569,962
Goodwill 41,634,525 41,634,525
Tradename 11,158,000 11,158,000
Trademarks 14,156,127 14,156,127
Customer database, net of accumulated
amortization of $1,416,335 at July 1,
2006 and $1,227,490 at December 31,
2005 1,982,870 2,171,715
Debt issuance costs, net of accumulated
amortization of $2,388 at July 1, 2006
and $3,126,103 at December 31, 2005 355,852 4,731,612
Other long-term assets 458,892 450,208
-------------- --------------
Total Assets $ 224,110,663 $ 204,836,270
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
--------------------
Accounts payable 61,417,121 42,000,236
Accrued expenses and other current
liabilities 13,139,463 19,163,459
Line of credit 36,450,901 -
-------------- --------------
Total current liabilities 111,007,485 61,163,695
Long-term debt - 82,450,000
Deferred rent 5,106,031 4,095,442
-------------- --------------
Total liabilities 116,113,516 147,709,137
Total stockholders' equity 107,997,147 57,127,133
-------------- --------------
Total liabilities and stockholders'
equity $ 224,110,663 $ 204,836,270
============== ==============
Three Months Ended July 1, 2006 Reconciliation
----------------------------------------------
Proforma Net Income and Proforma Earnings Per Share Reconciliation
Three Months Ended
July 1, 2006
-----------------------
Net income (loss) as reported $ (7,943,818)
Non-GAAP adjustments:
Loss on debt extinguishment 12,775,270
Management fee termination expense 3,000,000
Stock-based compensation 438,304
Derivative income (1,033,257)
-----------------------
Adjusted net income $ 7,236,499
Weighted Average number of shares outstanding:
Basic 10,823,558
Diluted 11,233,830
Net income (loss) per share:
Basic - non-GAAP $ 0.67
Diluted - non-GAAP $ 0.64