Brad Cohen - ICR, Inc.
Bill McGill - Chairman, President & CEO
Mike McLamb - EVP & CFO
Kevin Ruth - Raymond James
Marcelo Choi - B. Riley
Greg McKinley - Dougherty & Co.
MarineMax, Inc. (HZO) Q1 2013 Earnings Call January 29, 2013 10:00 AM ET
Good day and welcome to the MarineMax, Inc., First Quarter 2013 Earnings Conference Call. Today's conference is being recorded and at this time I would like to turn the conference over to Brad Cohen. Please go ahead.
Thank you very much operator. Good morning everyone and thank you for joining us for our discussion of MarineMax’s 2013 fiscal first quarter results. I am sure that you've all received a copy of the press release that went out this morning, but if you have not please call Linda Cameron at 727-531-1700, extension 10100 and she will fax or email one to you right away.
I would now like to introduce management team of MarineMax, Bill McGill, Chairman, President and Chief Executive Officer and Mike McLamb, Chief Financial Officer of the company. Management will make some comments about the quarter and then be available for your questions.
With that I’ll pass the call to Mike.
Thank you Brad. Good morning everyone and thank you for joining this call. Before I turn the call over to Bill, I would like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act. These statements involve risks and uncertainties that may cause actual results to differ materially from expectations. These risks include, but are not limited to the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company’s ability to capitalize on opportunities or grow its market share and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.
With that in mind, I’d like to turn the call over to Bill.
Thank you Mike and good morning everyone. Let me start by sharing that with every quarter we are growing more encouraged that the industry is gaining progress towards its long awaited recovery. While the recovery may continue to have its ups and downs, we believe that the next several years should produce more widespread unit growth especially in the hard hit Stern Drive and Inboard segments. We are encouraged by the more than 8% increase in same-store sales our team produced in the quarter marked by significant headwinds including the ongoing economic challenges, the fiscal cliff discussions and the presidential elections.
Additionally, given our strong presence from Baltimore to Connecticut, our business was further impacted by the devastation resulting from Hurricane Sandy which caused us to loose numerous selling and servicing days during the quarter. Specifically, the storm required most of our Northeastern stores to shut down to prepare for the storm and then most had to clean up and get the stores back to a functioning state after the storm. In hardest hit areas our team then turned their attention to finding and recovering customer boats all the while tending to their own personal challenges that the storm caused.
Unfortunately, ten of our team members lost their homes and four of our larger facilities suffered significant damage. There is no question that the effects of this storm in the respective communities still linger and the recovery will take additional times as homes and property damage are repaired. However, our expectations are that these stores will be completely ready for business as we enter the busiest season for boat sales.
Historically, MarineMax has had ample experience preparing for an overcoming hurricane and we leverage this experience in a minimizing damage to our Northeast facilities and our inventory. Besides the unavoidable damage to facilities and marinas we had very little damage in the areas that we could control, such as our inventory.
The damage that we have had to facilities is largely insurable, but we do have costs that we have incurred either through idle or insufficient payroll dollars or soft costs associated with the storm preparation and recovery that ran through our P&L in the December quarter. While the storm clearly impacted our revenue in the Northeast, it is hard to quantify the full magnitude. Besides the lost traffic at our stores, we did have deal cancellation delays until customers can get their businesses, homes and docks restored.
What is encouraging was the traffic and positive attitudes of customers at the New York Boat Shows which occurred in the first week of January. While the timing of the show was not the most advantageous, it was a good show for MarineMax with encouraging results and seeing customers’ excitement to get out and go boating this spring.
December quarter was our ninth quarter in a row of growth in new unit sales. Just about every category, and type of boat we sell increased in the quarter, including Stern Drive and Inboard (inaudible). Over the last few years, we have seen boat pricing rise to close to near normal margins, yet we are still trailing peak margins by about 75 basis points which we think is an opportunity for us to benefit from as the industry returns to normal historic product margins.
In the December quarter, our decline in overall margin was largely driven by the sale of larger and lower margin boats especially from Azimut line which is up year-over-year in the quarter. Overall, based on the latest industry data, it is our belief that our unit growth in the categories which we operate are exceeding that of the industry which should result in additional market share growth.
Furthermore, used boat pricing is holding up well and we believe the historical trends in relationships between the new and a used boat are returning. This should further drive customers to consider new product and facilitate customers trading their current boat for new ones and will ultimate result in new boat sales increasing as a percentage to total boats sold in the industry.
From an inventory perspective, we are well positioned heading into our busiest selling season. We have the right product across a greater selection of segments than we have ever brought to the market before. Additionally, our manufacturing partners have given us a great line-up of new products this year. Our focus on adding new boat categories and resources to our mix over the last several years allows us to address even more customers boating need as well as meet what we believe will be increased demand in the Northeast.
MarineMax Vacations, our charter business, down in the BVI’s which we launched about 14 months ago is on-track with bookings and we are pleased with its progress. While still we are very early in its evolution, we believe this is an offering that we can grow through our own database of customers and one day will help to offset some of the cyclicality that comes with boat sales. As the year moves ahead and hopefully some of the economic volatilities subsides, MarineMax is poised to capture more business and meaningful improvements in our cash flow and profitability in 2013.
With that update, I will ask Mike to provide more of comments on the quarter. Mike?
Thank you, Bill. And good morning again everyone. For the three months ended December 31, 2012, our revenue increased about 8% to just over $99 million. Our same-store sales increased by more than 8%. Our growth was essentially across all categories of product with the skew towards larger product.
Geographically, Florida was clearly the strongest market, but most other markets were up as well. The Northeast market from Baltimore to Connecticut saw its boat revenue decline more than 9%, which gives some sense of the storms impact. An encouraging note is that the sport cruiser segment which is generally comprised of 25 to 35 foot cabin boats was significantly up in units for the quarter. This is important segments which today have been significantly trailing all other segments in the recovery.
For the quarter, we grew gross profit dollars, but gross profit as a percentage of revenue decreased due to the mix shift to larger yacht sales. Our selling, general and administrative expenses decreased as a percentage of revenue, but increased approximately $873,000. A significant portion of the increased of SG&A was an unusual spike in health and workers compensation insurance costs and to a lesser extent costs associated with the storm. What is hard to measure is the amount of inefficiencies created by the storm at its large scale was the first storm we have experienced that caused essentially all of our stores from Miami to Connecticut to batten down the hatches and prepare for the storm.
Due to cash flows produced last year, interest expense decreased from less borrowings. The company had no income tax benefit for the quarter. As previously stated, our effective income tax rate will remain essentially zero for the near-term primarily due to the availability of substantial net operating loss carry-forwards which are fully offset by evaluation reserves. Such analog carry-forwards now amount to more than $60 million.
Overall, despite the headwinds in the quarter, we produced a slightly better quarterly loss of $4.16 million or $0.18 per share compared to a net loss of $4.21 million or $0.19 per share last year. Now under our balance sheet, at quarter end we had approximately $15.4 million in cash. As a reminder, we also have substantial cash in the form of un-levered inventory.
Our inventory level at quarter end was about $227 million which was up slightly from last year. As Bill said, we are comfortable with our mix and levels of inventory.
Turning to our liabilities, our short-term borrowings were about $123 million, down almost $7 million from the prior year, while we always say it’s hard to get a good read on trends from our customer deposit liability line, I believe our balance at quarter end is a post 2007 high which is certainly nice to see.
Our balance sheet is strong and we'll continue to strengthen with increased cash flow as the recovery takes hold. We ended the quarter with a current ratio of 1.60 and total liabilities to tangible net worth ratio of 0.83. Both of these are very strong ratios. Our tangible net worth stands at almost a $198 million.
We own more than half in borrowed [allocations] which are debt free and we have no other debt other than the inventory of financing that we have. Before I provide a brief comment on January and the current trends, I need to first remind everyone that the March quarter last year was a very strong quarter for MarineMax where same-store sales exceeding 25%.
That said, we expect January should finish up positive relative to January a year ago. Keep in mind that in this quarter the critical month ends up being March which is often as big as January and February as combined. So our early quarter sales trends are positive. We still have a lot of work in front of us.
With that update, I'll turn the call back over to Bill.
Thank you Mike. We are now in full swing with both shows across the country and based upon results of our January shows thus far; we are encouraged by sales trends and customers’ excitement for the upcoming season. Our primary focus of the show has been displaying a big array of new products and relaying to customers and their families how boarding with MarineMax changes their lives by uniting them with their inner self when they are out on that water and also with others.
MarineMax continues to be the one stop solution for all of our customers’ boating needs. We have broad product assortment and remain committed to growing our market share profitably. We believe our retailing strategy of completely embracing our customers and the helping to ensure that they are enjoying and using their boats with their family and friends is where our unit growth is returning faster than that of the industry.
We will also look to continue to grow the business not only from our brand and product line extensions which we undertook during the downturn but also with accretive acquisitions that help broaden our reach and add strong additional markets where it makes sense. But we will only move forward if the terms are compelling and contribute to our drive towards sustained levels of profitability.
In 2013, we expect customers will be even more excited to get back on the water. And are eager to do so in a new and our bigger boat with favorable financing. The boating lifestyle is alive and well and we're well positioned to meet and exceed the needs of our customers. Our strategy of continuing to invest in our customer centric strategies and never cutting cost at our customers’ expense continues to position MarineMax as the industry leader.
Additionally, I would like to thank our team for their extra efforts during the quarter. Our results reflect their commitment to our customers and their passion for our continued success.
And with that operator, we will open the call up for questions.
Thank you. (Operator Instructions) We will go to Kevin Ruth with Raymond James.
Kevin Ruth - Raymond James
Could you give some color on sales trends that you are seeing in January, specifically as it relates to the cruiser category?
Kevin, this is Mike. Our trends in cruisers are continuing from the December quarter. So we had a good December quarter with cruisers and thus far, what's under contract and expected to close in the near-term, under contracted to close later in the quarter is also positive which is again those of us that had followed the history, that’s a great sign.
Again, the good news out there, Kevin, is that, if you look at the cruiser segment, it's been down, and it is starting to recover for us but what's important is people that are in cruisers right now and are desiring to have cruisers to go boating, they are still out there and they are still boating and so it's just the ageing and the fleet is the real opportunity here. So we are starting to see some movement.
(Operator Instructions) We will go next to Jimmy Baker with B. Riley. Please go ahead.
Marcelo Choi - B. Riley
It’s Marcelo Choi in for Jimmy. I know you guys said that you couldn’t quantify the storm damage to December quarter in terms of the top line, are you guys still seeing a negative impact there for the March quarter?
I would tell you it’s probably a little too early to jump to that conclusion yet. We are certainly having customers come in with their insurance checks albeit slow…
Insurance, these are not real quick to hand the checks out but they will.
Probably the best the New York Boat Show was a reasonably good boat show. I think Bill has probably mentioned that or generally mentioned that. So, as that is evidence, we are not seeing the softness really right now because we don’t think. We need to get to the rest of the quarter to see how that all plays out, our peoples docks rebuild, or they not rebuild, were they staying with their insurance because there is a process that you got to get through to get your claim filed and all that.
And we enter the Atlantic City Boat Show next week and I think that will be a very good indicator for us as to how many people show up with their checks but we are excited to enter that show next Thursday. I think its Thursday through Sunday, Wednesday through Sunday.
Marcelo Choi - B. Riley
And just a follow-up, when would you expect the impact from Hurricane Sandy to turn it to a tailwind for your business?
We should see some benefit from it this year, how (inaudible) more a function of how long it takes the insurance companies and also people to get some of the infrastructure rebuilt, but I think, we will see benefits from it over the next two or three years for sure. So it’s a little hard to say, is it going to be a significant impact to the performance on the north east this year or is it more next year we will have to wait and see.
Fundamentally, you would expect kind of June quarter will be the single biggest benefit I would think this year. Bill is right, it’s probably going to benefit or impact us positively for a little while.
Marcelo Choi - B. Riley
Great, that's very helpful. Can you share some feedbacks from your early season boat shows both in terms of categories and geographies of strength?
Yeah, Atlanta was very good show for us. It was a good show but it was also a show that's kind of tracking like the industry showing, we had a very good pontoon, outboard pontoon show. We had a very good Houston show and you know traffic was down in both of these shows; however, we had a good show.
Higher as percentage of (inaudible) in New York.
Yeah, and we commented on New York and we were in [Kansas City] with the show and turned out very well. We are going into Minneapolis this Thursday and so we are excited about that and what we are doing something little bit different at the shows this year, and that is we’ve got theatre, like we have been doing in some of our mall locations. So we got theatre in the middle of the show, and basically so we can emotionally relate to people, the benefits of boating and what it does to change their life and also that life of their families. And it seems to be working very well. We are having very positive comments about it so we are taking that a few less boats, the theatre is sort of the focal point of it and what we are seeing is maybe the family, you know the wife is walking by and she sees a little video clip of a family out on the water, what it means to them and next thing you know we've stimulate that emotional part of her brain to say well, maybe we ought to be doing this. So we are taking a different approach and we are looking different than we have in the past.
And just the other, we've been to a bunch of shows, some larger, some smaller and another major market Cleveland was a good show on a year-over-year basis in terms of boat sales and I think if I remember right traffic was probably down there also but a good show so…
And hard (inaudible). So we were in a bunch of shows and a bunch more coming. Of course the big show is Atlantic City coming up and Miami coming up in mid-February.
Marcelo Choi - B. Riley
And just one last question, do you guys have a preliminary expectations for your tax rate in fiscal year ’14.
I think it ultimately depends on what the company's earnings are. I'm stating the obvious. If you go back in time when we had taxable earnings we were in the high 30s to around 40% as an effective tax rate.
(Operator Instructions) And we will g next to Greg McKinley at Dougherty & Co.
Greg McKinley - Dougherty & Co.
Could you talk a little bit about sales contribution by both categories? So you mentioned that you had strong unit growth in your sports cruiser segment, what had that been in the previous quarter or two and does what you saw in December represent a big trend change for that category, and then can you comment on maybe some of the more value oriented brands you added to the portfolio here and how big of a difference had they made recently to sales trends.
I can comment on cruisers if I'm going from memory I'm pretty sure I mentioned on the March call last year that we saw growth in cruisers. I think in the June and the September quarters we were probably down single digit in cruisers whereas the industry was probably down double-digit like in the teens in cruisers. So I think we finished last year down single digit, whereas the industry again was down 15% something like that. The increase that we got in cruisers in the December quarter you have to preface it, it’s a small quarter to begin with, but I recognize that and when I look at it, it’s a meaningful shift in business.
It looks like there's something more there than just a couple of units increasing on top of a small number. It’s a decent sized number of last year growing to a significantly bigger number this year and that trend is continuing into January, which is, it looks like there's something beginning to percolate there on the cruiser side which is encouraging and then with the other value brand we've taken on we continue to see unit growth in those brands on a year-over-year basis whether its Bayliner or some other product that we've taken on (inaudible).
Yeah, both Craft and Harris are good, are doing very well at the shows. They are pontoon boats, mercury powered and so they are starting to add and so you know we are at shows and we can pretty well meet the needs of most anyone attending the show and soon we will have jet boats from Brunswick in the form of Sea Ray brands and also Bayliner and we are excited about that as well as more outboard runabout deck boats coming from both Sea Ray and Bayliner. So we're excited about the future. A lot of new products and new sales in a lot of regards and we are seeing a lot of excitement about a lot of the new products including the new 37 venture outboard powered [boat] by Sea Ray.
Greg McKinley - Dougherty & Co.
Now, in the December quarter you had mentioned that boat sales in the northeast segment were down about 9% and that Florida was by far your strongest market. Can you give us the sense for excluding the northeast, how did the store base comp during the quarter so we can maybe have a better understanding for this market share gains and overall trends excluding Sandy implications.
That would have been double-digit. I was doing some rough calculations, 12%-13% same store sales growth or there about low double-digit.
Greg McKinley - Dougherty & Co.
Okay, and so you are positive here in January versus what you indicated very strong performance in the year ago quarter, March, which is the most important month here. Can you give us the sense, I mean positive, can you give us the sense of magnitude. Are we modestly positive or are you seeing enough follow through here, where you are feeling this isn’t just sort of squeaking along that nominal revenue growth, there’s something more happening?
I think what we do when we look at our numbers is we also look at do we have any unusual contracted boat sales last year, anything large and when you factor it all in, we keep concluding that the industry is recovering. That it’s going to gain strength in 2013, that it’s going to have its ups and down. I think we all know that when the next round of fiscal cliff discussions come about, it’s going to make consumers [stuck] up for a little while then they will come back and they will buy their boats. But I think our message is that the industry is recovering in 2013 should be a greater unit year than 2012, the question is what’s the magnitude and I think we need to kind of work through some more quarters on that Greg.
And we are hearing very, very positive comments from people at boat shows, and so I think the whole attitude is let’s get on with it. We kind of know what we have going on here from a tax standpoint from the next four years, and so let’s get on and go boating with our family and enjoy it. So we are hearing that more and more from customers at boat shows and so that really start to drive it as people have a little more visibility as to and little less unsurity about where the future is.
Greg McKinley - Dougherty & Co.
And then just last question on your operating expense structure, it’s been relatively fixed despite some revenue improvements. As we see the market recover a little bit more here are there any trigger points such as employee compensation hurdles and bonuses that we should be aware of that, that might make that very more with gross profit dollars or should we still expect that to remain relatively fixed?
I think once we really start breaking out, when I say breaking out having meaning, very meaningful increases in revenue. We are going to have an expense increase for no other reason commissions and complaints to your point. I think everyone in the company is very focused at looking at every area to gain leverage that doesn’t take away from the experience we provide our customers, and we continue to look for those areas to find leverage. But at some point in time you will see roughly a third of our expenses which tend to be more variable will start to creep up. But I do think you will be less than historically, you would have seen in MarineMax, I think we’ll gain more leverage than we historically would have.
And at this time, I would like to turn the conference back over to management for any additional or closing remarks.
Okay, I would like to thank everyone for your continued interest and support of MarineMax. Mike and I are available today, if you have any additional questions. So thank you every one.
And this does conclude today's presentation. We thank everyone for their participants.
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