On Sept. 19, Golf Galaxy (NASDAQ:GGXY), the space-age golfer's paradise for equipment and instruction, released its second-quarter earnings for the period ended Aug. 26.

  • It's always nice to see gross margin improvements at a retailer, but it would have been even nicer to see more of it fall to the bottom line.

  • A 50% year-over-year increase in inventory outpaced revenue growth and store growth (from 45 to 61 over the previous period). Inventory declined from the previous quarter, but remains something to keep an eye on as the company enters its seasonal slow period.

  • Shares outstanding increased due to the conversion of preferred shares to common shares.

(Figures in millions, except per-share data)

Income Statement Highlights

Avg. Est.

Q2 2007

Q2 2006

Change

Sales

$100

$95.6

$69.6

37.3%

Net Profit*

--

$7.0

$4.7

48.9%

EPS*

$0.60

$0.61

$0.51

3.4%

Diluted Shares

--

11.4

9.2

23.8%

*Available to common shareholders

Get back to basics with a look at the income statement.

Margin Checkup

Q2 2007

Q2 2006

Change**

Gross Margin

32.74%

31.69%

1.05

Operating Margin

12.34%

13.07%

(0.73)

Net Margin

7.32%

6.75%

0.57

**Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q2 2007

Q2 2006

Change

Cash + ST Invest.

$9.9

$26.4

(62.5%)

Accounts Rec.

$9.8

$8.1

20.7%

Inventory

$55.1

$36.7

50.2%



Liabilities

Q2 2007

Q2 2006

Change

Accounts Payable

$27.6

$22.0

25.6%

Long-Term Debt

$0.0

$0.0

N/A



Learn the ways of the balance sheet.

Cash Flow Highlights

I think Golf Galaxy should be assessed a two-stroke penalty for not including a cash flow statement in the release.

Find out why Fools always follow the money.

Related specialty sporting-goods retailers:

  • Golfsmith (NASDAQ:GOLF)
  • Dick's Sporting Goods (NYSE:DKS)
  • Zumiez (NASDAQ:ZUMZ)
  • Cabela's (NYSE:CAB)

Take a swing at some related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Zumiez is a Motley Fool Hidden Gems selection. Do you like small, undiscovered companies? So do Tom Gardner and Bill Mann. To see what they're recommending in the Hidden Gems newsletter, take a free trial.

At the time of publication, David Meier , a lefty with a sweet set of Titleist 731 clubs in his bag, owns shares of Cabela's, and does not hold positions in any of the other companies mentioned. The Motley Fool has a disclosure policy that's right on par.