Golfsmith International Holdings Inc. (
Q4 2010 Earnings Conference Call
February 24, 2011, 9:00 am ET
Melissa Mackay – IR, ICR Inc.
Martin Hanaka – Chairman and CEO
Sue Gove – EVP, COO and CFO
Todd Slater – Lazard Capital Markets
Casey Alexander – Gilford Securities
Previous Statements by GOLF
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Please stand by, as we are about to begin. Good day everyone. And welcome to the Golfsmith International Holdings Incorporated’s Fourth Quarter 2010 Earnings Conference Call. Today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Melissa Mackay. Please go ahead ma’am.
Good morning, everyone. Thank you for joining us today to discuss Golfsmith’s fourth quarter and full year 2010 earnings 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 form on Form 10-K filed with the SEC.
We issued a press release this morning. If you have not received a copy, you can find it on our web site, 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 Financial Officer and Chief Operating Officer, Sue Gove.
With that, I’ll turn the call over to Marty.
Thank you, and good morning all. Thank you for your time and interest in Golfsmith today. Joining me this morning is, Sue Gove as mentioned and remotely Jim Eliasberg, our General Counsel, Jeff Laforce [Ph] and Anna Jobe our VP, Controller.
I will begin with a synopsis of Q4 and then a summary of trends both positive and negative. Sue will then provide an in-depth review of our financials and I will close with some forward-looking direction.
Q4 began strongly in October. It was our best month of the quarter, it continued with a solid November and solid December. Our ad spend overall was essentially flat year-over-year and we comp every single week of the quarter.
Traffic was off slightly over 1%, but our average order value and conversion rose in low single-digits producing a nice net result. Kudos to our entire team as our selling culture continues to improve every quarter. A special mention has to go to our Web team. A cross-section of people from every function at Golfsmith that got behind our growth strategy and produced a 40% increase, that’s right 40. 40% demand increase in the quarter. It is our best performance overall in the top-line since Q1 ‘06, that’s roughly five years. The Direct business overall, including catalogs, was up over 30%.
Our dollar market share grew in all categories, those being the eight that are tracked by Golf Datatech, and was our best showing in years. The industry was actually down 0.4% and we were up in the teens for the quarter and we had a net pick up of 8.2% in dollar share gain in 2010.
This is encouraging as the Sports and Leisure Research Group has validated at 2010 positive channel shift back towards our channel, off-course specialty excess of January 2011. These share gains are a byproduct of our execution, our selling culture improvements and positioning in the industry consolidation that resulted in a 11% fewer doors in our space in 2010 and that is a total aggregate number of 32% fewer golf specialty doors since 2006, according to the Longitudes Group, another independent study that was released in January 2011.
Our Club business was strongest. We’re also up in apparel and consumables. Apparel was our strongest category for the year and I got to tell you, we are really pleased with the overall balance we saw out of all the merchandize categories.
Rounds played end of the year down 2.3%. Again, signaling that this industry has not gotten any bigger and our gains are at the expense of competition. We do record charges, which Sue will detail, but we are really pleased with the overall performance of our core business in Q4.
In a nutshell, the Web was up over 40, comps were at 6.4, best since Q1 ‘06. Gross margin steady, gaining share momentum. The structural change in our industry has continued. Product launches are a net positive and if California rebounds, which was our toughest region last year, and rounds played bounce back, we should be able to perform at an even higher level.
Now let me turn it over to Sue. Sue?
Okay. Thanks, Marty. Good morning everyone. I will first review the financials and then provide some additional detail on the initiatives that Marty laid out, which are aimed at driving sales and earnings growth in 2011.
For the fourth quarter of fiscal 2010, net revenue increased 14.2% to $72.9 million, compared to $63.9 million in the fourth quarter of last year. Comparable store sales increased 6.4%, reflecting the enhancements we made to our merchandize assortment, and our continued focus on improving our selling culture. Our conversion rate accelerated throughout the quarter with improvements across all regions. Net revenue reflected a 30.6% increase from our direct-to-consumer channel, demonstrating solid results [Audio Gap] and strategic focus.
Gross profit increased 7.8% to $23.4 million, compared to $21.7 million in the fourth quarter of last year. Gross margin for the fourth quarter was 32.1%, compared to 33.9% for the same period last year. The decline in our gross margin was primarily the result of higher shipping and freight cost related to free shipping offers on our website, which was particularly heavy around the holiday season.