How Soon Before Golfsmith’s Stock is Worthless?

February 3, 2009

As an observer of golf and and a sometime investor in the stock market, it is sad to see a venerable name like Golfsmith slowly slide into stock-value oblivion. When the IPO came out it peaked at around $12/share and if you look at the stock charts, its been on a slow descent every since. Today’s closing price was 85-cents. For the price of one Titleist Pro V1, you can buy five shares of Golfsmith. As an early investor, it might be time just to write-off your investment.

Golfsmith hasn’t been dealt a very good hand right now. The economy stinks. The golf economy, even thought it isn’t talked about much yet, is probably worse. Golfsmith is really a single-product segment retailer. Unlike a Dick’s Sporting Goods, who bought Golf Galaxy, Golfsmith can’t rely on skiing or exercise equipment to prop up its sales. Its golf (and a little tennis) or nothing.

At 85-cents a share, its market capitalization is only $13 MILLION. A retailer with 73 stores all across the country isn’t worth more than a dollar a share. Like most retailers, Golfsmith’s sales are suffering. For instance, according to their latest financials, net revenues decreased 2.3 percent to $379.1 million for fiscal year 2008 compared with net revenues of $388.2 million for fiscal year 2007. Net revenues reflect a 6.3 percent decrease in comparable store sales, and a 13.1 percent decrease in net revenues from the company’s direct channel (website). I’m sure the first quarter of 2009 will be at least as dismal.

If I had to place a bet on Golfsmith remaining as an independent company that stays out of bankruptcy, I think I’d lose that bet. Don’t be surprised to see Golfsmith begin to close unperforming stores, announce layoffs and hire an advisory firm that will help them search for “strategic alternatives”. Even if they found someone interested in buying them, financing will remain a problem. Dick’s can survive a severe downturn. Golfsmith, like Circuit City before them, can’t.

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