I recently stumbled upon an analysis of the retailer Golf Galaxy that also provided a window onto the golf industry in general. Here’s a quote:
Golf Galaxy is still a rather small retailer, with only about $200 million in fiscal 2006 sales, yet it grew sales by 50% last year and predicts 52%-57% growth this year. What really impresses us about Golf Galaxy is that it was founded by two former Best Buy(Nasdaq: BBY) executives and that the rest of the management team includes players from Select Comfort(Nasdaq: SCSS), Calloway(NYSE: ELY), and Target(NYSE: TGT).
The number of golfers in the USA has been fairly stagnant for a few years now, and according to the National Golf Foundation, the number of rounds of golf played in 2005 was down slightly from 2004, which was also the first year in the previous three years that the number had actually increased. Even so, it looks like 2006 might be a good year, as the number of rounds played has risen just less than 2% year-to-date.
In the recent CIBC World Markets report covering the sporting goods sector, Golf Galaxy is rated as a sector performer. While they face formidable competition from the large operators, they have the opportunity to gain market share from on-course pro shops and smaller retail chains. Weak sales trends are expected to be offset by continued margin upside which will help the company meet estimates for FY06.
With Golf Galaxy’s shares having fallen 30% year-to-date, we believe the current level has limited downside.
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