Good day, everyone, and welcome to the Golfsmith International Holdings Incorporated third quarter 2010 earnings conference call. One note that today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Melissa McKay of ICR. Please go ahead.

Good morning, everyone. Thank you for joining us today to discuss Golfsmith's third quarter fiscal 2010 results. As a reminder, our presentation includes and responses to various questions may include forward-looking statements about the company's financial results and about future plans and objectives. Any such statements are subject to risks and uncertainties, which could cause the actual results and implementation of the company's plans and operations to vary materially. These risks are discussed in the company's Annual Report on Form 10-K, fiscal 2009, filed with the SEC. We issued a press release this morning. If you have not received a copy, you can find it on our website or by calling Investor Relations at 203-682-8200. Presenting on the call today, we have Golfsmith's Chairman and CEO, Martin Hanaka, as well as Chief Operating Officer and Chief Financial Officer, Sue Gove. With that, I will turn the call over to Marty.

Good morning. Thank you all for your time and interest in Golfsmith. Today I’m going to first present a synopsis of Q3 and then a summary of major trends, both positive and negative in our business. Sue will then cover our financials in detail, and I will close with some forward-looking direction. Obviously, we are interested in any questions you might have. Q3 started off strongly for us. July was our best month of the quarter, August was down slightly, and September offset our July gains basically. It was largely due to a two-week Labor Day promotion that we did not repeat. With our lowest margin offer of the entire year last year, we decided not to anniversary it and cost us on the top line. Soft goods were our strongest category followed by clubs. And club making was our weakest area. We were down about 10%, a trend – it's a multi-year trend that continued. California, in general, was our weakest region, and Southern California, in particular, our weakest market in the company. We had strong performances in Texas, Atlanta, Phoenix, and generally in the Midwest. Traffic was down consistently in each period between roughly 3% to 6%, and that is roughly equivalent to rounds played decrease, which we experienced nationally. And year-to-date, rounds played are down almost 4%. There is good news, however. Our conversion is up nicely. Our average order value is up nicely as well. It underscored the real progress that we are making in building our selling culture. We have seen real, positive share gains. We are essentially 6% better than the industry. If we look at the eight categories that Golf Datatech covers, we have really did some (inaudible), particularly in irons where we are up 9% better than the market. Wedges, putters, and…

Okay. Thank you, Marty. Good morning, everyone. For the third quarter, net revenues increased 3% to $93.3 million compared to $90.6 million in the third quarter of 2009. The increase was primarily driven by new stores and the 5.8% increase in net revenues in the direct-to-consumer channel Marty mentioned, partially offset by a 1.7% decrease in comparable store revenues. As Marty stated, we are pleased to see solid evidence from industry data sources of market share gains, which gives us confidence we are doing the right thing. Our conversion accelerated sequentially in the quarter, with improvements across all regions. In addition, we are extremely pleased with the increased momentum in our direct-to-consumer business. We see a lot of opportunity in the channel from both a marketing perspective and an incremental sales driver. Gross margin for the second quarter increased 10 basis points to 34.4% as compared to 34.3% for the same period last year. The gross margin improvement was driven primarily by a 40 basis point increase associated with improved sales performance of higher margin category and a 20 basis point increase due to a decrease in shrink expense resulting from improvement in the current year physical inventory results. This was partially offset by a decline in vendor allowances, which were shifted to offset direct advertising cost this year. SG&A expense for the quarter increased 6.9% to $31.5 million versus $29.5 million in the same quarter last year. As a percentage of net revenue, SG&A expense increased to 33.8% versus 32.6% in the prior year. The increase in SG&A dollars was primarily due to the four new store expenses and higher advertising spend associated with increased direct mailings. Store free opening and closing expenses were $262,000 in the third quarter of 2010 compared to $144,000 in the third quarter last…

Great. Thanks, Sue. Before the Qs, just a couple comments. We are planning 2011 with the following priorities. Number one, Sue mentioned new stores. We originally thought of seven. We moderated that back to five that we can find quality sites. That means really healthy overall mix of stores, given the recent closures. Really going to grow the web aggressively next year. This trend that we are experiencing, we see continuing beyond selection, which means assortment and technology, which has to do with speed and our card availability, marketing around search and social media, and finally, service, which really is based on inventories, particularly essentially located inventory. We really see that that’s continuing to grow aggressively. We see mid-to-low single-digit kind of comp growth. We are making some exclusive assortment of buying changes, which would really fuel our proprietary mix and apparel shift that we think continue our strongest category overall, including a better floor planning. And then finally, continued focus on improving our traffic, because we know if we can drive traffic with every marketing spend with the progress we’re making, our selling culture, conversion AO will certainly – average order value will certainly follow, and we are going to link our pay plans to guarantee execution of these areas. So those are the comments. Please, your questions.

Thank you. (Operator instructions) We will go first to Todd Slater with Lazard Capital Markets.

Hi. Congratulations, guys, on actually a good quarter in a bad environment.

Thank you.

Sorry. It’s Jennifer for Todd. I should have said that first. A couple of questions. First, on the advertising spend, it looks like that that drove direct sales. But I was wondering if you could elaborate a little bit on what you are doing to improve traffic to the stores. And then secondly, could you talk about the nine markets where the PGA stores are closing, kind of the timing of that, because I assume that you will see kind of a hit as they clear. But then, once those stores close, that should benefit you. So if you could just kind of talk about the timing of those closures. Thanks.

By all means. Number one, what we did is, in the quarter, we had more spend on catalog, particularly on acquisition and reactivation. And that spend really didn’t give us the top line results we had expected. And frankly, we did have two other extra spends on the retail side of the business. And while we are really pleased with the share gains in all eight categories that are tracked, we’ve had really meaningful increases. But it didn’t give us the absolute top line we wanted. So we didn’t get the fruit of those labors. So we are reevaluating how we are going to spend those dollars going forward. And we are in a real quiet time of the year right now. You don’t see us spending money in retail until really December. The markets that are closer from Galaxy, not PGA, and those stores close anywhere from the Sunday after the Thursday earnings call from Dick’s this week. And frankly, those – that closings haven’t affected us in a negative way, because some close immediately, we get a benefit; and some, they really drove very hard and eye witnessed 50 pallets coming off of trucks from their central warehouse two weeks into the closing offer. And so we were disrupted a little bit as they cleared out inventory. But at the end of the day, beginning now, every one of those locations will be a net positive for Golfsmith. We have no other negatives that we are looking forward to. It should all be positive. And those markets were Dallas, Phoenix, Austin, Texas, one in Chicago, two in Houston. So, right across the board, we see benefit to Golfsmith shareholders.

Great. Thanks. Good luck.

Thank you.

Next we’ll here from Derek Leckow with Barrington Research.

Thank you. Good morning.

Good morning.

Hey, Marty. The selling, general and administrative expenses that we’re modeling was a bit – we're modeling has been lower. I think you called out there were some spending in a couple categories. Can you help me understand what that was? And are we going to see that revert in the following quarter? Was it spending that was pulled ahead or –?

Yes. I’ll talk about advertising. Sue can elaborate further. But – as we got into second quarter, it was clear that we were being outspent by a margin from some of our big competitors. So we’ve put in, beginning of the second quarter, extra efforts and extra Memorial Day effort, extra pages in June, and then we added an extra effort in July and August. And frankly, again, on an absolute basis, we are disappointed. And the answer is no, you’re not going to see us spend at those levels going forward. We are finishing out ’11 plan right now, and you’re going to see us leverage advertising next year. And you’re going to see us with a more stratified approach market-by-market. And therefore, you won’t see that continue. There are other SG&A spends. I’ll let Sue again to elaborate a little more. Sue?

Right. The other piece of the increase in SG&A, as I mentioned, Derek, was on new stores. The new stores expenses are reflected in the SG&A. And unfortunately, overall, we are not seeing the leverage because the new stores revenues are being offset by the comp decrease that we have. So, from a comp base-to-base expense, expenses are down slightly. We are continuing to see the benefit of the initiatives that we have in place to continue to control our costs. But I think the key point is that we are not seeing leverage on the SG&A rate.

Were the incremental expenses approximately $3 million? Is that about what it was?

That’s right, between new stores and advertising.

And advertising would include the additional pages in the catalog or is that a separate category?

No, that includes that.

That includes it?

Yes.

What was the sort of catalog circulation or page count increase in the period?

It really had more to do with an extra vehicle.

An extra drop? Okay.

Yes, an extra drop.

And – okay. And then, you also mentioned (inaudible) cost savings with regard to some stores that were closed, and just wondered if you look at your portfolio of stores, how many more are there that are unprofitable that you think might be a candidate for closure?

Derek, at this point, we have a couple of stores that are marginally unprofitable, but they are improving with the initiatives that we have in place. So, at the current time, we do not expect any further impairment.

Okay. So we’ve kind of reached a threshold here that were some stores that are future stores that are going to be performing better?

Yes, absolutely. We have much healthier base. And you’re going to see a wholesale event from us.

And then if I look at my two – Q1 and Q4 for next year, are we going to expect to see that reflected in the improvement there in terms of the operating losses that we should expect?

Yes, we definitely feel you should see us return to profitability and improvement in every quarter next year.

So you’re going to –

Following [ph] some change in demand, some unusual event, we definitely feel we will continue to take share, capitalize on these competitors’ closings in the overall consolidation, and be better operators of the business.

Well, that’s a huge swing from year-to-year, Marty. I mean, if you guys can do – this year I’ve got you losing like $9 million in those outside quarters. Is that what you’re saying?

No, not in every quarter. You will see improvement in every quarter.

Oh, okay, got it. Got it.

Yes.

No breakeven. Okay.

That’s right.

Thanks a lot.

Yes, that would be a – from your lips to God’s ears, right?

Yes. Okay. Thanks a lot. Appreciate it.

Yes, sir. Thank you.

(Operator instructions) From Special Situations Fund, we’ll move on to Alex Silverman.

Hey, good morning. My –

Good morning.

My question was answered. Thank you very much.

Thank you.

And we’ll move on to Casey Alexander from Gilford Securities.

Hi, good morning.

Good morning.

Just real quick, it seems like you’re a little further out on your credit line than normal at this time of year. Your cash is a little lower than normal at this time of year. And you should be at the better portion of the cash conversion cycle. Should we be a little concerned about your ability to get the right inventory in the stores going into the New Year?

No, not at all.

No. Just to add to that, we are, as you noted, at a higher debt level than we were last year and at slightly lower level in our borrowing capacity. A combination of a couple things; one, the new stores openings, funding the inventory for those new stores. And in addition, some inventory that we brought in in the second quarter that there again are some timing differences. So you see our payables balance is actually slightly lower. So there are some timing differences, but we feel confident in our borrowing situation and where we will end the fiscal year.

Okay. Look, I know it’s always the dangerous prospect, taking a snapshot of a balance sheet when the train is moving. So, secondly, could you give us some sense of where we are at in kind of the promotional environment as you see it from various competitors out there?

Yes. I was going to close with that. It’s a much more rational marketplace with the exception of Southern California where the economy has been very difficult and rounds played are down basically 4%, 5% consistently. So, other than that, part of the world, that’s pretty rational plays. Everyone is pretty quiet right now. And we’ve got a lot of new exciting products coming. So that means full price sales, which is what we live on. We don’t live on a $149 two-year old driver. So it’s not a challenge at this point in time.

Okay. Great. Thank you.

Thank you.

(Operator instructions)

Okay. We’ll close then, operator?

Certainly.

Okay. 2009 was about survival. It’s a very difficult marketplace in this year. While we’re missing our top-line because of the marketplace, frankly, we’re really in a stabilized position. So we look forward to 2011. We think it will be of a meaningful profit improvement. We’ve got a healthier store base. We’re carefully opening new stores. We’re taking shares, and competition is less aggressive than we’ve seen. So we think that makes for a good set of environmental conditions. Q4 is off to a strong start. Hopefully, this will continue and we’ll begin to realize the return to profitability. Our team is fully committed to making that happen. Again, thank you for your time and interest in Golfsmith. Good day.

Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation.