Drive Shack (DS) Reports Q1 Loss of $0.24, Revenues Miss; Provides Business Outlook

Drive Shack (NYSE: DS) reported Q1 EPS of ($0.24), versus ($0.26) reported last year. Revenue for the quarter came in at $53.95 million versus the consensus estimate of $69.29 million.

“We are pleased to see Drive Shack Orlando’s improved performance compared to the prior quarter. We are on track to open Raleigh, Richmond and West Palm Beach in the second half of this year, and we are thrilled to announce a new Drive Shack location in Minneapolis, MN,” said Ken May, Chief Executive Officer. “We continue to refine our blueprint for site-level operations, using Orlando as the test kitchen for new ideas, ahead of the next three site openings. Guest experience is the priority. The implementation of Trackman ball tracking technology at all of our sites and the menu redesign rollout are just a couple ways we are enhancing the experience.”

“We continue to make strides optimizing our American Golf portfolio and expect the stabilized business to generate $175M in total revenue by 2020. In terms of course sales, we generated $132 million in gross proceeds from the sale of 18 owned golf courses and expect approximately $42 million additional gross proceeds across 5 courses in contract or LOI. We will use these proceeds to fund our entertainment golf business and expect to have 20 sites open by 2022,” said David Hammarley, Chief Financial Officer. “Overall, I’m confident that our world class operating team will execute on our business plan and hit the financial targets we’ve set. With our team and operating costs largely in place, we expect overall company G&A costs to scale down to 5-10% of total revenues over the next few years as the business scales up.”

Financial Outlook

Our FY 2019 expectations and stabilized targets are as follows:

• Drive Shack Orlando site is targeted to break even from a cash flow perspective in 2019 and continue to ramp up its revenues and cash flow generation in 2020 onwards
• Raleigh, Richmond, and West Palm Beach planned to open in the second half of 2019 and expect to generate revenues and EBITDA consistent with target unit economics starting in 2020
• Plan to open 3 to 5 new sites in 2020 and 5 to 10 sites in 2021 and 2022
• Targeting 20+ open sites in 2022
• Stabilized target Drive Shack entertainment unit economics:
  • Cost to build between $20 to $35 million across the varying markets and relevant venue formats
  • Top-line revenues anticipated to be $15 to $25 million with targeted EBITDA margins of approximately 25%-30%
• Stabilized traditional golf business to generate revenue of approximately $175 million and target annual course-level EBITDA margins of 15-20% in 2020 and beyond
• Complete the remaining short-term course sales by end of 2019 with total gross proceeds of approximately $175 million from 24 of the 26 owned courses
  • Continue to explore the monetization of the remaining 2 owned courses in 2019
• Target total Company G&A of 5-10% of total Revenue by 2022

For earnings history and earnings-related data on Drive Shack (DS) click here.

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