NEW YORK, April 7, 2016 /PRNewswire/ -- Kerrisdale Capital, a private investment firm, has released a report on ClubCorp Holdings, Inc., the nation's largest owner and operator of private golf and country clubs. Kerrisdale's report reveals the unfavorable long-term realities of ClubCorp's golf business: anemic underlying growth, low customer loyalty, a never-ending succession of capital-expenditure projects, and intense competition from both lower- and higher-end alternatives. Kerrisdale believes that ClubCorp is worth, at most, 80% less than its current price, as the company is heavily indebted and does not generate enough cash to justify more than a negligible equity value.
The full report can be found at http://kerr.co/mycc.
Kerrisdale has a short position in ClubCorp and stands to benefit if the share price falls.
Conference Call Schedule
Sahm Adrangi, Kerrisdale's chief investment officer, will host a conference call on Thursday, April 7 at 4:00pm EDT to discuss the ClubCorp report.
To participate in the conference call, dial (888) 390-3983 (US and Canada) or (862) 255-5354 (international) and reference the Kerrisdale Capital call.
A replay will be available following the call at http://kerr.co/mycc-apr7.
Golf Is in Decline
Golf has been in decline for over a decade, with consistently deteriorating participation, particularly among the young. Kerrisdale's extensive research also reveals that significant shifts in social norms have negatively impacted golf's appeal as a leisure activity. These trends ensure that ClubCorp's business will continue to flounder.
ClubCorp's Business Model Is Inherently Flawed
Kerrisdale's report points out that ClubCorp clubs are largely mid-tier, for-profit operations that struggle to compete with high-end socially exclusive clubs and low-end public golf courses, both of which generally operate as not-for-profits. Unlike many of its competitors, ClubCorp has to trade off the quality of its members' experiences against the interests of its shareholders; historically, it has short-changed both groups. Members leave frequently, with attrition rates over three times the private-club average. For shareholders, weak revenue growth and high capital intensity have resulted in anemic returns.
Nor have ClubCorp's acquisitions overcome its failed business model. Kerrisdale's analysis shows that, although acquisitions have increased the size of its club portfolio by almost 40% in recent years, ClubCorp has not enjoyed any economies of scale, as both margins and returns on capital have actually declined.
Extraordinary Leverage and Contingent Liabilities Imperil Equity Value
Despite these challenges, ClubCorp has amassed a potentially fatal debt burden. With debt at about 10 times operating profit, there is little sustainable cash flow left for equity holders after interest and taxes. In addition, the company's refundable deposit liabilities could conceivably result in insolvency, particularly if ongoing state audits are decided unfavorably for ClubCorp.
About Kerrisdale Capital
Kerrisdale Capital Management, LLC, is a fundamentally-oriented investment manager that focuses on long-term value investments and event-driven special situations.
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SOURCE Kerrisdale Capital Management, LLC