Golfsmith International CEO Discusses Q3 2010 Results – Earnings Call Transcript

Golfsmith International CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript
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Golfsmith International Holdings, Inc. (

GOLF

)

Q3 2010 Earnings Call Transcript

October 27, 2010 9:00 am ET

Executives

Melissa McKay – IR

Martin Hanaka – Chairman and CEO

Sue Gove – EVP, COO and CFO

Analysts

Jennifer Davis – Lazard Capital Markets

Derek Leckow – Barrington Research

Alex Silverman – Special Situations Fund

Casey Alexander – Gilford Securities

Presentation

Operator

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Previous Statements by GOLF
» Golfsmith International Holdings, Inc. Q2 2010 Earnings Call Transcript
» Golfsmith International Holdings, Inc. Q1 2010 Earnings Call Transcript
» Golfsmith International Holdings, Inc. Q4 2009 Earnings Call Transcript
» Golfsmith International Holdings Inc. Q3 2009 Earnings Call Transcript

Good day, everyone, and welcome to the Golfsmith International Holdings Incorporated third quarter 2010 earnings conference call. One note that today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Melissa McKay of ICR. Please go ahead.

Melissa McKay

Good morning, everyone. Thank you for joining us today to discuss Golfsmith's third quarter fiscal 2010 results. As a reminder, our presentation includes and responses to various questions may include forward-looking statements about the company's financial results and about future plans and objectives.

Any such statements are subject to risks and uncertainties, which could cause the actual results and implementation of the company's plans and operations to vary materially. These risks are discussed in the company's Annual Report on Form 10-K, fiscal 2009, filed with the SEC.

We issued a press release this morning. If you have not received a copy, you can find it on our website or by calling Investor Relations at 203-682-8200. Presenting on the call today, we have Golfsmith's Chairman and CEO, Martin Hanaka, as well as Chief Operating Officer and Chief Financial Officer, Sue Gove.

With that, I will turn the call over to Marty.

Martin Hanaka

Good morning. Thank you all for your time and interest in Golfsmith. Today I’m going to first present a synopsis of Q3 and then a summary of major trends, both positive and negative in our business. Sue will then cover our financials in detail, and I will close with some forward-looking direction. Obviously, we are interested in any questions you might have.

Q3 started off strongly for us. July was our best month of the quarter, August was down slightly, and September offset our July gains basically. It was largely due to a two-week Labor Day promotion that we did not repeat. With our lowest margin offer of the entire year last year, we decided not to anniversary it and cost us on the top line. Soft goods were our strongest category followed by clubs. And club making was our weakest area. We were down about 10%, a trend – it's a multi-year trend that continued.

California, in general, was our weakest region, and Southern California, in particular, our weakest market in the company. We had strong performances in Texas, Atlanta, Phoenix, and generally in the Midwest. Traffic was down consistently in each period between roughly 3% to 6%, and that is roughly equivalent to rounds played decrease, which we experienced nationally. And year-to-date, rounds played are down almost 4%.

There is good news, however. Our conversion is up nicely. Our average order value is up nicely as well. It underscored the real progress that we are making in building our selling culture. We have seen real, positive share gains. We are essentially 6% better than the industry. If we look at the eight categories that Golf Datatech covers, we have really did some (inaudible), particularly in irons where we are up 9% better than the market. Wedges, putters, and shoes are other strong categories. And that also speaks to the fact that our custom fitting initiative is really gaining traction with the customer.

Our direct business is growing, and this may be the best thing within our numbers. It’s the first time we’ve had an overall net gain in our direct business since Q4 2006. We are up 6% in our direct business. So our web demand is really now more than offsetting the clubmaking decline and the natural shift away from catalog shopping.

Another good guy is our proprietary mix is up 70 basis points of total, and as I said, custom fitting has improved nicely. Some major trends. First of all, the consolidation continues. This is not just mom-and-pop stores anymore. Our largest major competitors closed 12 doors, nine of which directly compete against us. We think they will be accretive next year. Sue will talk more to that. But beginning now, these stores are getting room clean. We should see a direct benefit to Golfsmith.

The web is showing real momentum. We’ve had double-digit demand increases for several months now. It’s a definite trend. As Steve Larkin said, she has really taken hold. And we are encouraged by some launches that are coming down the pike, most notably, Web 2.0, which is in the market. Callaway Octave, which comes up very soon, and there is huge buzz around the Titleist Suzen [ph] watch. So hopefully, that will generate more demand.

With those opening comments, I’d now like to turn it over to Sue. Sue?

Sue Gove

Okay. Thank you, Marty. Good morning, everyone. For the third quarter, net revenues increased 3% to $93.3 million compared to $90.6 million in the third quarter of 2009. The increase was primarily driven by new stores and the 5.8% increase in net revenues in the direct-to-consumer channel Marty mentioned, partially offset by a 1.7% decrease in comparable store revenues.

As Marty stated, we are pleased to see solid evidence from industry data sources of market share gains, which gives us confidence we are doing the right thing. Our conversion accelerated sequentially in the quarter, with improvements across all regions. In addition, we are extremely pleased with the increased momentum in our direct-to-consumer business. We see a lot of opportunity in the channel from both a marketing perspective and an incremental sales driver.

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