Golf Galaxy Announces Second Quarter Fiscal 2007 Results

Net Income Up 29 percent to $7.0 million, or $0.61 per Diluted Share 


EDEN PRAIRIE, Minn., Sept. 19  /PRNewswire-FirstCall/ -- Golf Galaxy, Inc. (NASDAQ:GGXY), a leading golf specialty retailer, today announced its financial results for the second quarter ended Aug. 26, 2006.

  (Logo: http://www.newscom.com/cgi-bin/prnh/20050728/CGTH081LOGO )


                     Second Quarter Performance Summary
                                                       Three Months Ended
                                                     Aug. 26,      Aug. 27,
  ($ in thousands, except per share amounts)            2006         2005
  Net sales                                           $95,646      $69,635
  Comparable store sales % increase(1)                   0.8%         7.4%
  Net income                                           $7,001       $5,447
  Diluted EPS                                           $0.61        $0.59
  Pro-Forma Diluted EPS(2)                                 NA        $0.49

   (1) A new or relocated store is included in comparable store results
       after it has been in operation for 12 full fiscal months following
       the month of the store's grand opening weekend, typically a store's
       13th full month of operations.

   (2) Pro-forma results for the quarter ended Aug. 27, 2005 are presented
       as if the company's initial public offering and the conversion of
       preferred stock into shares of common stock had occurred immediately
       prior to the beginning of the quarter. Pro-forma results are not a
       measure of performance presented in accordance with GAAP and are
       intended to be a supplement, but not a substitute for net income or
       other financial data prepared in accordance with GAAP. The company
       believes the use of pro-forma results provides a consistent measure
       of profitability as well as important supplemental information due to
       the significant increase in common shares outstanding resulting from
       the company's initial public offering and the conversion of the
       convertible preferred stock into shares of common stock as of
       Aug. 3, 2005.




Net sales for the second quarter of fiscal 2007 increased 37.4 percent to $95.6 million, compared with $69.6 million for the same period of the prior year. Comparable store sales increased 0.8 percent for the fiscal second quarter, compared to an increase of 7.4 percent for the second quarter of fiscal 2006. The current quarter marked the company's fourteenth consecutive quarter of comparable store sales increases.

The company reported net income for the second quarter of $7.0 million, or 61 cents per diluted share, compared to net income of $5.4 million, or 59 cents per diluted share, for the second quarter of fiscal 2006. Giving effect to the conversion of preferred shares and the company's initial public offering as of the beginning of fiscal 2006, the company's pro-forma diluted earnings per share for the second quarter of fiscal 2006 would have been 49 cents. A reconciliation of pro-forma net income and earnings per share is provided in a table that follows.

"Thanks to outstanding execution by our employees, we produced solid earnings performance this quarter despite a more cautious consumer environment," said Randy Zanatta, Golf Galaxy's president and chief executive officer.  "Our improvement in gross margins, effective inventory management and diligent expense control demonstrates the depth of our management teams and the strength of our operating model. We are pleased to see a strengthening of our sales trend which began in mid-August and has continued into September."

Net sales for the six months ended Aug. 26, 2006 increased 39.0 percent to $178.2 million, compared with $128.2 million in the 2006 fiscal period. Golf Galaxy reported net income of $9.6 million, or 83 cents per diluted share for the six months ended Aug. 26, 2006, compared with net income of $7.1 million, or 83 cents per diluted share, for the six months ended Aug. 27, 2005. Pro-forma diluted earnings per share were 64 cents for the six months of fiscal 2006. Comparable store sales increased 0.9 percent in the first six months of fiscal 2007, compared to an increase of 8.8 percent in the same period of fiscal 2006.

  Company Outlook
  The company said that for the third quarter ending Nov. 25, 2006:

  -- Net sales are currently expected to be $45 million to $50 million, an
     increase of 42 percent to 57 percent over the third quarter of fiscal
     2006;
  -- Comparable store sales are currently expected to increase in the mid
     single digits; and
  -- The company currently expects a net loss of $2.7 million to $2.3
     million, or 25 cents to 21 cents per diluted share (assuming 11.0
     million weighted average shares outstanding). The company typically
     reports a net loss in its third quarter as a result of the seasonality
     of its business.



The company said that for the fiscal year ending March 3, 2007, a 53-week period:

  -- Net sales are currently expected to be $285 million to $295 million,
     compared with its prior estimate of $292 million to $300 million; and
  -- Comparable store sales are now estimated to increase 2 percent to 4
     percent, compared with the prior estimate of 3 percent to 5 percent;
     and
  -- The company reaffirmed its previous guidance of net income for fiscal
     2007 of $6.8 million to $7.3 million, or 60 cents to 64 cents per
     diluted share (assuming 11.4 million weighted average shares
     outstanding).  Golf Galaxy's guidance on net income for fiscal 2007
     includes estimated expenses of approximately $900,000, or 8 cents per
     diluted share, from the expensing of stock options.

  Conference Call and Webcast


Golf Galaxy will hold its second quarter earnings conference call at 10 a.m. CDT today, Sept. 19, 2006. Interested parties may listen to the call by dialing 866-383-8119 or international 617-597-5344 (passcode: 61547201). A live webcast will also be available on http://www.golfgalaxy.com/. Interested parties should dial into the conference call or access the webcast approximately 10-15 minutes before the scheduled start time. A replay will be available approximately one hour after the conference call concludes and will remain available through Sept. 26.  The replay number is 888-286-8010 or international 617-801-6888 (passcode: 14888743). The webcast will be archived on http://www.golfgalaxy.com/ for approximately one year.

About Golf Galaxy

Golf Galaxy, Inc., based in Eden Prairie, Minn., is a multi-channel golf specialty retailer. The company currently operates 61 stores in 24 states, ecommerce websites and catalog operations. The company's Everything for the Game(R) merchandising strategy offers a comprehensive selection of competitively priced brand name golf equipment, accessories, apparel, golf services, and golf instruction by on-staff certified PGA professionals in a unique interactive store environment. The GolfWorks, a leading brand for golf club components, clubmaking tools and technical information, is a wholly owned subsidiary of Golf Galaxy.  For more information, visit http://www.golfgalaxy.com/ and http://www.golfworks.com/.

Cautionary Statement

This news release contains forward-looking statements about Golf Galaxy and readers should not place undue reliance on any forward-looking statements that are current only as of the date made. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those expressed in forward- looking statements. The factors listed below, among others, could cause the company's actual financial performance to differ materially from that expressed in any forward-looking statement: A decline in the popularity of golf or golf-related products and services; limitations imposed by suppliers on the amount or variety of products; failure by suppliers to develop and introduce new products or if new products result in excessive close-outs of existing inventories; seasonal fluctuation in demand for products; weather conditions; ability to successfully implement growth plan; competition in the golf and sporting goods industry; a decline in discretionary spending; availability of adequate capital to fund growth; loss of key management; and the company's ability to successfully integrate acquired companies, including The GolfWorks. Additional information concerning these and other factors that could cause actual results to differ materially from those in the forward- looking statements is included in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on May 3, 2006. The foregoing list should not be construed as exhaustive and Golf Galaxy disclaims any obligation subsequently to revise or update any previously made forward- looking statements, whether as a result of new information, future events or otherwise.

  GOLF GALAXY, INC.
  CONDENSED STATEMENTS OF OPERATIONS
  (In Thousands, Except Share and Per Share Amounts

                                   Three Months Ended      Six Months Ended
                                      (Unaudited)            (Unaudited)
                                  Aug. 26,   Aug. 27,    Aug. 26,   Aug. 27,
                                    2006       2005        2006       2005

  Net sales                       $95,646    $69,635     $178,163  $128,205
  Cost of sales                    64,322     47,565      120,541    87,907
  Gross profit                     31,324     22,070       57,622    40,298
  Operating expenses:
   Retail operating                14,895     10,773       30,712    21,705
   General and administrative       4,457      2,155        8,939     5,257
   Preopening                         126         40        1,774     1,350
  Income from operations           11,846      9,102       16,197    11,986
  Interest income, net                 75        100           83       115
  Income before income taxes       11,921      9,202       16,280    12,101
  Income tax expense               (4,920)    (3,755)      (6,707)   (4,961)
  Net income                        7,001      5,447        9,573     7,140
  Less preferred stock dividends       --       (723)          --    (1,721)
  Net income applicable to common
   shareholders                    $7,001     $4,724       $9,573    $5,419
  Net income per share:
   Basic                            $0.64      $0.98        $0.87     $1.62
   Diluted                          $0.61      $0.59        $0.83     $0.83
  Weighted average number of
   shares outstanding:
    Basic                      10,999,356  4,801,458   10,945,096 3,342,714
    Diluted                    11,432,419  9,211,662   11,487,024 8,634,726



  GOLF GALAXY, INC.
  CONDENSED BALANCE SHEETS
  (In Thousands)

                                           Aug. 26,    Aug. 27
                                             2006       2005      Feb. 25,
                                          Unaudited   Unaudited    2006(1)
  Assets
  Current Assets:
    Cash and cash equivalents               $9,850    $26,387     $11,075
    Accounts receivable, net                 9,794      8,118       4,523
    Inventories, net                        55,141     36,694      45,278
    Other current assets                     3,729      3,967       5,196
                                            78,514     75,166      66,072

  Property and equipment, net               39,813     23,434      35,218
  Goodwill & intangible assets, net          9,512         --          --
  Deferred tax assets & other                5,292      2,562       5,257

  Total assets                            $133,131   $101,162    $106,547

  Liabilities and stockholders' equity
  Current liabilities:
    Accounts payable                       $27,582    $21,984     $23,224
    Accrued liabilities                     16,801     12,183      16,453
  Total current liabilities                 44,383     34,167      39,677

  Deferred rent credits and other           16,824     10,664      12,177
  Redeemable convertible preferred
   stock, including accumulated
   preferred stock dividends                    --         --          --
  Stockholders' Equity                      71,924     56,331      54,693

  Total Liabilities and
   Stockholders' Equity                   $133,131   $101,162    $106,547

  (1) The Balance Sheet as of February 25, 2006 has been condensed from the
      audited financial statements.



  GOLF GALAXY, INC.
  CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
  PRO-FORMA EARNINGS PER SHARE
  (In Thousands, Except Share and Per Share Amounts)

                                                  Three Months    Six Months
                                                      Ended         Ended
                                                  (Unaudited)    (Unaudited)
                                                   August 27,     August 27,
                                                      2005           2005
  Pro-Forma Information (1)
  Pro-forma net income applicable to common
   shareholders                                       $5,447        $7,140
  Pro-forma net income per share:
   Basic                                               $0.51         $0.67
   Diluted                                             $0.49         $0.64
  Pro-forma weighted average number of shares
   outstanding:
    Basic                                         10,636,436    10,636,436
    Diluted                                       11,211,662    11,134,726

  Reconciliation of pro-forma information to GAAP
  Net income applicable to common shareholders
   (GAAP)                                             $4,724        $5,419
  Preferred Stock Dividends                              723         1,721
  Net income applicable to common shareholders
   (Pro-forma)                                        $5,447        $7,140

  Basic
  Weighted average number of shares
   outstanding (GAAP)                              4,801,458     3,342,714
  Conversion of preferred stock to common          3,834,978     4,793,722
  Weighted average additional shares
   issued in IPO                                   2,000,000     2,500,000
  Weighted average number of shares
   outstanding (Pro-forma)                        10,636,436    10,636,436

  Diluted
  Weighted average number of shares
   outstanding (GAAP)                              9,211,662     8,634,726
  Weighted average additional shares
   issued in IPO                                   2,000,000     2,500,000
  Weighted average number of shares
   outstanding (Pro-forma)                        11,211,662    11,134,726

  (1) Pro-forma results for the three and six-month periods ended Aug. 27,
      2005 are presented as if the company's initial public offering and the
      conversion of preferred stock into shares of common stock had occurred
      immediately prior to the beginning of fiscal 2006. Pro-forma results
      are not a measure of performance presented in accordance with GAAP and
      are intended to be a supplement, but not a substitute for net income
      or other financial data prepared in accordance with GAAP. The company
      believes the use of pro-forma results provides a consistent measure of
      profitability as well as important supplemental information due to the
      significant increase in common shares outstanding resulting from the
      company's initial public offering and the conversion of the
      convertible preferred stock into shares of common stock as of
      Aug. 3, 2005.

  Contact:
  Investors: Rick Nordvold
  Golf Galaxy, Inc.
  952-941-8848

  Investors and media:
  Susan Eich
  For Golf Galaxy, Inc.
  612-285-4188


http://www.newscom.com/cgi-bin/prnh/20050728/CGTH081LOGODATASOURCE: Golf Galaxy, Inc.



CONTACT:  Investors: Rick Nordvold of Golf Galaxy, Inc., [phone];

Investors and Media: Susan Eich for Golf Galaxy, Inc., [phone]



Web site:  http://www.golfgalaxy.com/

http://www.golfworks.com/ 

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