ClubCorp (MYCC) reported earnings largely in line with management forecasts although a bit below more optimistic analyst estimates.  Revenues are tracking perfectly for 2015 but operating margins are a bit light as improved profitability at the large Sequoia golf acquisition is bit behind schedule.  Nothing in the story has changed at all.  MYCC is on track to meet its 2018 EBITDA goal of $300 million assuming no further acquisitions.  Consensus estimates for 2015 call for $235 million, growing to $255 million in 2016.  Management strongly reiterated its 2018 guidance on its earnings call and also announced accelerated capital spending for reinvention at the Sequoia clubs in 2015.  This should set the stage for a very strong 2015 when a normal weather would also provide a boost given the massive rainfall in Texas during the second quarter of 2015 that clearly held back golf and food and beverage operations.

Management also seemed a little more optimistic about closing on new club acquisitions.  Only 8 clubs have been purchased this year but after the big Sequoia deal in 2014 a slower year probably had benefits for integration.  MYCC is the dominant club operator in the U.S. and the rollup strategy is integral to the growth plan.  That said, there are reasons for optimism on the core organic growth front as golf seems to be growing in popularity again after a multiyear lull.  Thanks to the emergence of several great young players including Jordan Spieth (learned to play at an MYCC club), Rory McIlroy, Jason Day, and Rickie Flower, TV ratings are up, round played are up, and sporting goods stores are seeing a cessation of declines in spending on golf equipment.  At its own clubs, MYCC is seeing higher spending on lesson activity, especially among junior players.  In the latest quarter, MYCC also saw positive revenue trends form golf operations after several quarters where it ran slightly negative.

MYCC shares have pulled back from their highs early in the year due in part to another secondary offering from insiders.  The private equity firm that funded MYCC throughout its history has now sold all its shares, something we believe eliminates an overhang on the stock.  With 4Q likely to benefit from spending on holiday parties and private events and 2016 setting up well with an easy comp, less renovation disruption during golf season, and renewed acquisition activity, MYCC shares are looking very attractive.  A strong balance sheet and 2.5% dividend yield makes waiting in MYCC an easy call.  Northlake still sees upside to $25-30 over the next 12 months, a gain of 25-50% from current trading levels.

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.