peers, as I feared in my previous article. Once again, DS is struggling in the food and beverage category vs. Worse yet the spend/visitor remains low at $40/visitor in Q1 2019 down from $41/visitor in Q4 2018, but up from just $38/visitor in Q3 2018. ![]() Subtracting the $1.179 million in pre-opening costs for the new Raleigh facility that gives us an astounding annualized figure of ~$24 million in total operating costs with just around ~$8 million in annual revenue. Unfortunately, Q1 2019 revealed problems from the Orlando facility continue as DS reported just $1.72 million in revenue from their new entertainment golf business.Įven worse, total operating costs rose to $7.42 million in Q1 2019. Total operating costs for Q2, excluding the $200K of pre-opening costs, were $4.3 million. Even worse, costs were enormous in the quarter. Kaufmann's review which revealed DS may be behind Topgolf in the food and beverage and events categories. This was something I had warned about given Mr. On top of that only 40,000 visitors came to the facility and the average spend per visitor was only $44. In fact, in Q2 the Orlando facility posted just ~$1.8 million in revenue. Thus far these estimates have been far from reality. This is important because management uses these figures time and again to value the business as they have placed the utmost importance on this new entertainment golf model. Given the venue's performance after their first quarter in operation in Q2 2018, I felt their estimates were well off. The Entertainment Golf Business Is Still Strugglingīack in my Q2 2018 analysis, I questioned Drive Shack management's estimates for revenues, earnings and costs in their new entertainment golf facility in Orlando. I will be keeping my eye on Drive Shack going forward in hopes the new CEO, Ken May, can turn things around, however, at this point DS is simply not worth the risk. 2019's annual report and the first two quarterly reports of 2020 will be telling for DS as the three new upcoming venues will determine the viability of the new business model once and for all. With these two possible futures and the continued failings of DS's Orlando facility in mind, I am reiterating my Sell rating for the company. The second, I believe the more likely future is DS continues to struggle to reach their lofty expectations for revenue and EBITDA margins, debt piles up, the recession hits and Drive Shack faces pressure at their new facilities as visitor numbers plummet causing the stock price to fall. Orlando lead to prosperity in-spite of overall global market conditions. In this future, the strong underlying market conditions for the golf business and superior location vs. The business thrives even in what may be a struggling economy in 2020 and beyond because it has the cash and now the expertise with the new CEO to prosper. ![]() One, where the high margins and lower cyclicality that management anticipated from the new entertainment golf business, but have not yet been seen or proven, come to fruition. ![]() Thus far, results have been lacking and the stock has struggled as a result.Īs of now, DS lays on the precipice of two possible futures in my view. The long and short of it is as follows, DS is in the process of transforming from a traditional golf course business with owned courses to an entertainment golf business that may manage or own only a limited number of traditional golf courses.ĭue to this transition, the new entertainment golf venues are of utmost importance to Drive Shack and investors. If you're unfamiliar with Drive Shack's story I suggest briefly skimming those pieces for context. Then in a follow-up after Q2 2018's results led to falling share prices I wrote, Drive Shack: A Rough Q2 Earnings Release, in which I outlined the slow start of DS's new Orlando entertainment golf facility. In that piece, I came to the conclusion that the young company wasn't a strong investment opportunity given its unproven new business model, relatively young and inexperienced CEO (at the time), and rich valuation (at the time). I first discussed Drive Shack ( DS) and its rather convoluted formation into what is today mainly an entertainment golf business back on Jin an article entitled, Drive Shack: Can the Model Succeed.
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