ClubCorp (MYCC) reported another solid quarter further putting to bed the bear case that has led the stock to decline by more than 30% in 2016.  The concerns have revolved around the Texas economy, membership trends, lack of margin expansion and return on recent acquisitions, high debt levels, and declining participation in golf.  Each of these items saw positive news in the 1Q16 report.  We were especially encouraged by improved top line growth with same club membership trends accelerating to low sing digit gains and food and beverage up high single digits.  Better revenue growth allowed margins to expand.  It appears the completion of upgrades at many recently acquired clubs has allowed activity at these clubs to improve such that the upside related to these acquisitions is being realized.  This is exactly what we had in mind when we invested in MYCC.

For the second quarter, trends in Texas look good.  Texas accounts for about 30% of MYCC’s clubs and revenues and concerns about the Texas economy due to weak oil prices have fed the bear case on the shares.  Houston, which is 8% of the company, actually returned to growth in 1Q16, while Dallas, continues to be among the fastest growing cities for MYCC, even better than places like Atlanta, Florida, and Southern California.  Oil prices have rebounded and employment trends, wages, and housing prices in Texas are firming.

Skeptics still abound on MYCC but that is where Northlake sees opportunity.  Poor weather last spring creates an easy comparison for MYCC in 2Q16.  Management guidance for 2016 looks low after the strong 1Q.  One more solid quarter should improve sentiment on the shares, which remain very cheap at 7.5X EBITDA.  A conservative target is 8X the conservative management guidance, which would get the shares back to $15.  As confidence in MYCC’s growth profile returns and investors look to 2017, an 8X multiple can get the shares to $18-20.

MYCC is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  MYCC is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.