Roughly two weeks ago, I wrote an article on MarineMax (NYSE:HZO) with the title, "Why Powerboat Sales Won't Mean-Revert".
In it, I argued that HZO would not see a mean-reversion to sales, but that structural factors were at play.
I believe that there are other factors that make MarineMax dangerous to hold for potential investors.
How MarineMax Seemingly Functions
To understand why MarineMax is in trouble, it is important to understand the true “financial” business model of MarineMax.
MarineMax operates many facets of yachting. They provide financing for boat sales through third-party sellers, have repair operations, and even sell spare parts. The vast majority of their business, measured by sales, is selling new and used powerboats.
MarineMax does not design the boats. MarineMax does not build the boats. MarineMax acquires the boats at a certain price and sells them at another price, preferably a higher one. MarineMax's primary operations is that of a retailer.
A traditional retailer (like your local supermarket) can achieve high returns through a high discrepancy between inventory cost and inventory price. These are “deluxe”/high-touch retailers. Retailers can also achieve high returns through high capital velocity, selling at a smaller discrepancy but moving inventory rapidly. Costco is a great example of a high velocity retailer with a low inventory cost/price discrepancy. The retailer's primary goal is moving inventory at profitable prices. The primary obstacle to profitability lies in the high fixed costs associated with brick-and-mortar retail.
Unlike a traditional retailer, MarineMax has a much more expensive inventory. MarineMax has low velocity and a decent gross margin (another word for inventory cost/price discrepancy). MarineMax is a retailer, but a retailer where every item is covered in solid gold. The price of inventory acquisition is quite extreme in comparison to other fixed asset costs.
It is for that reason
