Dick's Sporting Goods to buy Golf Galaxy chain

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Dick's Sporting Goods Inc. is heading out on the greens with plans to spend $225 million acquiring a smaller competitor that has proven it loves golf as much as the Findlay sporting goods retailer does.

The deal to buy Golf Galaxy Inc., a 61-store chain out of Eden Prairie, Minn., will not bring jobs to Western Pennsylvania because the smaller retailer will keep its headquarters, stores, buyers and management if shareholders agree to accept $18.82 per share, a 19 percent premium over what Golf Galaxy shares traded for last week. The merger is not expected to close before February.

Dick's management learned more about the golf business through two golf specialty stores the company opened in Robinson and in the Washington, D.C., area earlier this year. The local Golf Shop, as the company called its test stores, opened not far from the region's first Golf Galaxy store.

Dick's decided it could have spent years rolling out its own specialty golf chain or it could move quickly and acquire a major player in that market.

The retailer, which has almost 300 stores, is taking a much different approach than it did two years ago when it bought Indiana-based Galyan's Trading Co. with the goal of picking up a lot of prime real estate. Those stores have been converted to Dick's stores.

This time around, the sporting goods retailer decided that certain golfers like a lot of special service and will provide enough business to support a specialty golf retailer no matter what a broad-based retailer like Dick's offers.

"There is a smaller degree of overlap of customers than we would have thought," said Edward W. Stack, chairman and chief executive officer.

Mr. Stack said he approached Randy Zanatta, head of the Golf Galaxy operation, to propose a merger.

Certain holders of Golf Galaxy's common stock have agreed to vote 19.9 percent of the outstanding share in favor of the merger.

Some analysts seemed puzzled by the venture into golf at a time when the number of rounds played has been dropping in recent years. Mr. Stack said the market appears ripe for consolidation as many independent golf stores are struggling. In addition, new technology in clubs and balls could bring some excitement to the field.

Unlike some mergers, this one isn't expected to save a lot of money through distribution center mergers and other administrative overlap. Officials aren't even planning to close any stores as a result of the merger, although they have not decided how to handle the situation in Robinson.

Instead, Dick's hopes it can boost profit margins by putting its profitable private label products into the Golf Galaxy stores and by coordinating merchandise buying.

Golf Galaxy generated $250 million in sales during the 12 months ended Aug. 26. Earlier this year, the smaller retailer withdrew plans to raise capital through a secondary stock offering, citing a decline in its stock price.

In the big picture, Mr. Stack said the deal won't skew Dick's business toward the golf industry, since it still will represent a small percentage of the company's overall sales.

Meanwhile, Dick's welcomed cold fall temperatures that had people buying cold weather apparel that helped it beat its expectations for the three months ended Oct. 28. Sales in established stores rose almost 9 percent in the quarter.

The company reported net income for the third quarter of $7.8 million, up from $4.18 million during the same quarter last year. Earnings per share were 14 cents vs. 8 cents last year. That beat the prediction of 5 cents from analysts surveyed by Thomson Financial Network.

Teresa F. Lindeman can be reached at tlindeman@post-gazette.com or at 412-263-2018.


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