With golfing retailer Golf Galaxy (Nasdaq: GGXY) awaiting approval to be acquired by Dick's Sporting Goods (NYSE: DKS) in February, it may be walking up the 18th hole for the last time as a stand-alone company. And since it's just reported third-quarter earnings, it's a good time to see if that $18.82 cash buyout price is a good one.
To see a summary of its performance, you can go to our Fool by Numbers. Some highlights include a 45% increase in sales, a 3.8% rise in same-store sales, and an increase in gross margins. Not bad considering the third quarter is usually its weakest.
Since operation excellence is vital to a good retailer, let's take a look at some metrics to see how Golf Galaxy performed. We'll start with inventory management.
We see that inventory rose 43% during the quarter. It was less than the sales increase, but that's still a big jump. Should investors be concerned? I think not, and here's why.
To get a better idea of how well inventory is being managed, let's look at a couple of other numbers, namely inventory per store and inventory per square foot. This will help get better visibility into how well the company is using its inventory. And let's not forget that this quarter included inventory from its GolfWorks acquisition, whereas last year's quarter does not.
Inventory per store was up slightly compared to the quarter last year: $880,000 of inventory per store last year versus $960,000 this year. Looking at it on a per-square foot basis, I calculate $59.6 of inventory per square foot last year compared to $66.1 per square foot this year. Do those 9% and 11% increases concern me? No, they don't. I don't think inventory is out of hand, especially considering the GolfWorks acquisition and that demand seems to be up as the company is selling merchandise using less promotional activity.
Being able to sell products and services at full prices is obviously a good thing. But I have to wonder if the possiblity of being a part of Dick's gives it additional bargaining power with Cleveland Golf (owned by Quiksilver (NYSE: ZQK)), Taylor Made, Titleist (owned by Fortune Brands (NYSE: FO)), and Nike (NYSE: NKE)? We'll certainly see, but I think a synergy scenario has to be baked into the $18.82. That's because even with its nice performance this quarter, I still don't come up with a price tag all the way up to $18.82.
In my opinion, management has created value for its shareholders by accepting the buyout price. So tip your hat to the crowd as you stroll up the 18th fairway.
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Retail editor David Meier is ranked 675 out of 17,872 in Motley Fool CAPS, owns shares of Nike, and does not own shares in any of the other companies mentioned. You can view his TMF profile here. The Fool takes its disclosure policy very seriously.
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