MarineMax Inc (HZO) 2004 Q3 法說會逐字稿

Good morning, and welcome to the MarineMax third quarter fiscal earnings release teleconference. At this time, all parties have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. It is now my pleasure to introduce your host, Mr. Brad Cohen, of Integrated Corporate Relations.

Thank you very much, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's third quarter results of fiscal 2004. I'm sure that you all received a copy of the third quarter press release, but if you have not, please call Linda Cameron at 727-531-1700, and she will mail or fax one to you immediately. I would now like to introduce to you to the management team of MarineMax, Mr. Bill McGill, Chairman, CEO and President, and Mr. Mike McLamb, Chief Financial Officer of the Company. Management will make some comments about the quarter, and then will be available for your questions. Mike?

Thank you, Brad. Good morning, and welcome to MarineMax's fiscal 2004 third quarter earnings conference call, which also is being broadcast simultaneously over the Internet.

Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements involve certain 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 level of consumer spending; the Company's ability to complete and integrate its acquisitions into existing operations; 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. By now, you have seen our results for the third quarter of fiscal 2004. We delivered another strong performance with third quarter net income increasing 23%, driven from a revenue increase of 17%. I am proud of our team, who delivered an 11% same-store sales growth on top of an 8% growth in this quarter last year.

As I have always said, it's about the people. And our team is highly energized, they're driven, and they're a united group that keeps delivering strong results for MarineMax.

For the quarter, we posted diluted earnings per share of 61 cents, which was ahead of expectations. The EPS increased 14%, even after an 8% increase in diluted shares outstanding. Revenue growth and gross margin improvements were the key drivers of our earnings increase. The third quarter marks the sixth consecutive quarter of positive same-store sales gains, the last 4 of which have been double digit.

Our team's commitment to our core strategies continues to drive industry-leading performance. Our dual service, customer-centric approach to delivering the boating dream is enabling MarineMax to gain market share.

As for the gross margin improvement, you may remember from previous quarterly calls that we cited the economy as causing margin pressure. With the rebound that the industry has experienced, and the focus of our team, we are seeing increases in the margins of the core products that we sell, namely the boats themselves.

While we are still not back to levels we enjoyed in the late 90's, we are getting closer. We also benefited by the continued expansion of our higher-margin businesses, such as Finance and Insurance, Parts and Accessories, Service and Brokerage.

As discussed on previous calls, we have been implementing systems and structure to capitalize on the opportunities in Parts and Accessories, and are beginning to see the benefits of these efforts. Our strong performance was broad based with our newer product lines contributing, validating our decision to invest in these new product offerings.

Our newer lines, such as Meridian, Ferretti, Riva, Pershing, Bertram, and Grady-White accounted for over 50% of our same-store sales growth compared to about one-third in the second quarter. Furthermore, these new products have been complimentary, not competitive to our other products, enabling us to both expand our customer base and better fulfill the needs of our existing customers.

To comment further on our Ferretti brand expansion, we are building momentum, but this is part of a long-term strategy. Accordingly, we have been investing and will continue to invest in training and marketing to ensure that we have the ability to achieve our long-term goals with these brands.

During the past few quarters we have sent team members to Italy for training to supplement our on-going educational sessions in the United States. We expect these efforts will enable us to better support the expected growth in this business over time.

In the near-term, the related profits will be reduced by these on-going investments. We are confident that these investments will pay off as evidenced by the success with Brunswick's Meridian product line that we took on almost 2 years ago.

During the quarter we announced the acquisition of Imperial Marine, a Sea Ray dealer in the Chesapeake Bay region. With the acquisition, we now have presence in one or more exciting markets -- in one of the more exciting markets in the U.S. as well as better coverage in the Mid-Atlantic States.

The acquisition was consistent with our objective of broadening our geographic presence, while taking advantage of attractive acquisition multiples. Imperial Marine has a highway location and a marina that's located on 11 acres on the Gunpowder River, which is just north of Baltimore, Maryland. The marina is sizable with approximately 300 in-water slips, and 250 rack storage slips. In its latest fiscal year, Imperial recorded sales of 12 million.

The acquisition also fits into our strategy of increasing our less cyclical service business and expanding our marina presence. The marina generates substantial cash flows in service income year-round. We are very excited to have the Imperial team on board. I will also note that with the help of our neighboring New Jersey management team, the integration is going very smoothly.

Additionally, as we announced in early July, we acquired the remaining Sea Ray distribution rights for boats 18 through 34 feet, which we previously did not have in the Jacksonville, Florida, market. Jacksonville is a large and growing market, and with its waterfront, its lakes and rivers, it is an important and growing boating market for us. We now can take a customer from 18-foot Sea Ray right up into the yacht within that market.

While our business and economy continues to improve, we will stay grounded in our planning for the remainder of fiscal 2004. We are pleased and encouraged by our performance year-to-date, but it is important to remember the following points.

We are up against strong comparisons in the fourth quarter. Comparable same-store sales in the fourth quarter of fiscal 2003 were up 18%. This is in contrast to the December, March, and June quarters, where the comparisons were negative 18, positive 9, and a positive 8% respectively.

Number 2, the uncertainty surrounding the up-coming presidential election may influence consumer behavior and delay purchases of big-ticket discretionary items. Plus, the continued global uncertainty makes it difficult to predict consumer buying habits.

Number 3, and lastly, sales of our larger boats, economic gyrations, and weather conditions can create quarter to quarter fluctuations. However, it is worth noting that over the past 5 years, including recessionary years and the year marked by events of 9/11, MarineMax has generated average same-store sales growth of 8%. While our business may fluctuate quarter to quarter, over the long-term we aim to produce consistent and solid results.

We have received many questions concerning increasing interest rates and fuel prices and the impact upon our business. In analyzing the performance of our business over the last 31 years, against interest rates, the results show that historically, higher rates correlate with better business, as can be seen in 1999 and 2000, when rates were above 9%. And the marine industry and our business were doing very well. We believe that higher interest rates are indicative of a better economy and higher consumer confidence, which are drivers of our business.

Fuel prices are a small portion of the total expense package of boating, and should not have a significant impact on our business with the customers that we are primarily selling to. If fuel prices continue to increase, we believe our customers will just shorten their boating trips to compensate for the increased fuel prices.

I'd now like to ask Mike to review the third quarter results in more detail and provide you with an updated guidance for fiscal 2004, and a preliminary guidance on fiscal 2005. Mike?

Thank you, Bill. I'd also like to add my thanks to our team for delivering another quarter of strong results. Yet again, our performance was truly a team effort, as each of our business lines in each of our geographic regions contributed greatly to the revenue and earnings gains during the quarter.

For the three months ended June 30th, 2004, revenue increased 17.4% to 219 million. The revenue growth primarily came from same-store sales improvement of 11% and approximately 12 million from stores added that are not eligible for inclusion in the comp store base.

As Bill said, we believe it is a testament to the success of our product expansion strategy that the new brands accounted for over 50% of our same-store sales growth. We are still in the building phase with all these brands, especially the newer Ferretti and Meridian brands, but are pleased with the performance to date. Over the long-term, we expect them to notably contribute to our total sales.

Gross margins increased about 170 basis points to 25.1%, even as our mix modestly favored larger boats this quarter. Of the increase, a little over 50 basis points is attributable to the adoption of emerging issues task force, 0216, which I will discuss in a minute.

The remainder of the increase stems primarily from better margins on the boats that we sold. But though boat margins are getting better, we are still 100 to 125 basis points away from the boat gross margins we enjoyed in 1999 and 2000.

Our selling, general, and administrative expenses increased 7.3 million to 36.6 million, in total 16.7% of total revenue, which is up from 15.6% a year ago. The increase in SG&A as a percentage of revenue is due to several factors, including the addition of the new brands and the related training, enhanced marketing, and in some cases additional team members associated with that product expansion.

We have also made other conscious infrastructure investments, mainly in personnel, for the future that will help sustain our growth. A few acquisitions we have made over the past 12 months do not currently operate at the same operating margin as the rest of MarineMax, which dilutes this percentage as well.

Lastly, like many other companies, we have experienced higher insurance costs than in previous years. Interest expense was up due to additional barrings and the EITF 0216 re-class, partially offset by more favorable interest rate environment.

Our tax rate declined modestly in the quarter. This contributed about a penny to diluted earnings per share. The tax rate decline is due to our review of the various states and jurisdictions where we are now doing business. On a going-forward basis, we believe our rate will be approximately 37.8%.

Finally, net income for the third quarter increased 23% to 10.4 million or 61 cents per diluted share with about 1.3 million additional shares in the denominator due to outstanding stock options, compared to net earnings of 8.5 million or 54 cents per diluted share a year ago.

As we have discussed, the company adopted EITF 0216, which was finalized in March, 2003, and impacts had to account for cash consideration received from vendors. The standard dictates the cash consideration received from a vendor is presumed to be a reduction of the price of the vendors' products or services, and characterized as a reduction of inventory and therefore cost of goods sold.

The standard most significantly made us reclassify manufacturer interest assistance from interest expense to cost of goods sold. After the June quarter, the comparisons going forward will be easier, as we have now anniversaried the adoption of the standard.

Turning to the nine months ended June 30th, 2004, revenue increased 30% to 578.7 million, due primarily to a 25% same-store sales increase. Our gross profit margins of 23.4% for the 9-month period ended June 30th, were up 50 basis points compared to the same period last year.

Overall this year, we have sold more larger boats, which carry a lower gross margin. But the expansion of our higher-margin businesses, and the EITF 0216 re-class, have more than offset the downward pressure from the larger boats.

SG&A fell as a percentage of revenue for the 9 months ended June 30th, 2004, to 17.4% from 18.1% for the 9 months ended June of last year, which is primarily attributable to the increased revenue from same-store sales growth, which yielded additional leverage of our expense structure. Interest expense increased to 4.9 million, primarily due to the impact of the EITF re-class and increased borrowings.

Lastly and most significantly, net income has increased 52% and earnings per share has grown over 41%.

Turning to our balance sheet, at quarter end we had 15.4 million in cash, which is down slightly from the prior year. But remember, the cash in our balance sheet is really a function of how much we decide to leverage our current assets. We had substantial additional asset-based borrowing capacity and therefore, cash at June 30.

Accounts payable increased about 27 million, due solely to the timing of when we pay certain manufacturers, and then the corresponding drawdown in our line of credit. Inventory increased to 257 million from 171 million in June of last year.

The increase in inventory from last June is mostly attributable to the following reasons -- the Florida Panhandle acquisition that we completed in September of last year; and the Imperial and Jacksonville acquisitions that we completed during this quarter; also, the product line expansions that we have made and the normal increases associated with the strong same-store sales growth require more inventory.

The good news is that the aging of our products and the mix is in very good shape and we do feel very comfortable with our current levels.

Property and equipment increased due to the real estate purchases in Texas and Georgia associated with the new store relocations, and property and equipment related to the Maryland acquisition. Remember, we have substantial real estate value on the balance sheet, that in addition to being under-valued, is also unleveraged. Our balance sheet continues to gain formidable strength, allowing us to take advantage of expansion opportunities as they arise.

Now let me discuss our guidance for the remainder of fiscal 2004, and I will lay out a few preliminary comments on fiscal 2005. Based on our third quarter performance, we are raising full-year estimates to the range of $1.58 to $1.60, which is up considerably from our full-year guidance we gave at the end of the March quarter. This assumes a share count in the range of 16.8 million, which reflects more than 5% increase in diluted shares.

Our outlook assumes that the fourth quarter will have low, to mid-single digit positive comp growth, which will be a feat, as we are up against an 18% comp in the same quarter last year.

We expect some gross margin pressure as we continue our focus on expanding our larger boat business, which, as we said, carries lower margins. However, we expect to gain modest leverage at the expense line.

For 2005, I can start by telling you that the product line-up from our manufacturing partners is outstanding. In my opinion, we will have the best line-up that we have had since MarineMax was formed. We believe the consumers will agree. Accordingly for 2005, we are expecting positive same-store sales growth.

However, we will be up against the significant comps of this year, a fluctuating economy, uncertain political landscapes at home and abroad, all which may impact consumer buying habits. Nonetheless, based on what we know today, we believe that our same-store sales growth will be in the high single digits, 7, 8, 9%.

We expect to gain modest leverage at the SG&A line and gross margins will likely be about flat. Our gross margins will be about flat due to the expected increases in our larger boat business, which generally carry lower margins, partly offset by the continued expansions of our higher-margin business. Our tax rate should be approximately 37.8%, as I noted earlier.

Depending on the exact assumptions utilized, our preliminary guidance for 2005 EPS is in the range of $1.75 to $1.80. I will caution everyone that this is our preliminary estimate. We need more visibility into the factors noted earlier and how they may impact our business. We will obviously add more color after the September quarter.

I would note that with the November election, the very large comp that we are up against in the December quarter, it is prudent to expect earnings in the quarter to be more like our historical average, which is about break-even.

Now, I will turn the call back over to Bill for some additional comments.

Thank you, Mike. Amid a challenging environment in fiscal 2001 through 2003, we have stayed focused and committed to our core strategies and the long-term view. We stated that over this time frame that doing so would put us in the best position to benefit from an eventual up-turn in the economy and the boating industry.

We think our year-to-date performance demonstrates the effectiveness of our decisions, and we strongly believe that adhering to our core strategies will enable us to continue to gain market share and deliver long-term shareholder value.

I'd like to conclude today's call by reiterating these core strategies. Number one, we will continue to provide our customers with the entire boating experience. Not only is our brand offering and product lines unparalleled, but no other boating retailer provides one-stop service like we do.

Our customers can select, purchase, and finance a boat solely through MarineMax, and at the same time equip their boats with spare parts and accessories, while receiving industry-leading service and support.

We remain committed to delivering a hassle-free boating experience to our customers by focusing on the life-style of boating, namely a family bonding experience, a stress-relieving recreation that can be enjoyed close to home. We will look for areas to further broaden our brands and product lines, and enhance our capabilities.

Number two, we will continue to invest in the team. We refuse to cut corners on training and bolstering the MarineMax team. As such, we have in place a team that is unparalleled in our industry. During the downturn of 2001 through 2003, we continued to invest in top-notch managers and the education of the entire team. And as such, we are fully leveraging and capitalizing on the industry upturn and accelerating growth in our business.

Number three, we will pursue select, strategic acquisitions, such as the recent Imperial acquisition and the Jacksonville expansion, to compliment our strong presence and enhance the customers' boating experience.

Number four, we will continue to maximize and maintain a strong balance sheet. Though we are already self-funding, our cash flow is accelerating, helping to improve upon the Company's already-strong balance sheet.

We believe that through careful planning, and our team's commitment to our strategies, MarineMax is positioned to benefit disproportionately from a sustained industry upturn and to deliver strong earnings results and returns over the next 12 to 18 months.

In previous calls, we've indicated that business was not yet back at 2000 and 1999 levels. I'm happy to report that we are back to those levels. The caveat is that it is costing us more to get the business and reduce boat gross margins and higher marketing costs, such as outside sales events. We believe that as the economy stabilizes through the election and into the future, we will be able to overcome these obstacles on operating margin and extra marketing expenses as store traffic improves.

The bad news is that we are challenged by these uncertain times. The good news is we are capitalizing on the opportunity to gain market share while delivering good earnings growth. Our business is doing fine. I'd now like to turn the call over to the operator, who will open the call up to questions.

Thank you. The floor is now open for questions. If you have a question, please press star, then 1, on your touch-tone telephone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask though while you pose your question, that you please pick up your hand set to provide optimum sound quality. Once again, ladies and gentlemen, that is star, then ,1 on your touch-tone telephone at this time. Our first question is coming from Ed Aaron with RBC Capital Markets.

Hi, good morning!

Hey, Ed.

Good morning, Ed.

Just hoping you could comment maybe on sales trends that you saw throughout the quarter? There's been a lot of chatter about June and then the early part of July being a somewhat softer environment for the consumer. And I was wondering if you saw any of that in your business?

Ed, we don't really release comps or data on a monthly basis like that. I can tell you, obviously with the quarter, it was a strong quarter overall. And we are raising guidance for the full year, which would tell you, we feel pretty good about retail activity in September. And you know, you can infer that we had -- it was a pretty good quarter throughout.

Okay. And then also, I know that some manufacturers did their model year change-over a little bit earlier than usual. Did that have any impact on your business this quarter?

No, none whatsoever. There's just very few that did that. Some have actually extended it to become lighter. It doesn't really have a big influence on our business, Ed, as our team stays focused on the inventory that we have. And as the new products start coming in, we adjust for that as well.

So we've got a big push on, the model year has changed for Sea Ray as an example, it changed on July 1st, and we've got a great big push, as we've done historically, to go ahead and eliminate the '04's and make room for the '05's.

Okay, and maybe lastly, any commentary about geographic trends that you saw this quarter? Is it pretty consistent with what you had been seeing previously?

It's pretty consistent. I mean, one of the benefits of MarineMax that we have with our broad geographic presence, is we kind of offset if there's challenges in the mountain regions with the water levels of Lake Powell, as an example. Or if there's a challenge in the Midwest in like Ohio, we offset that with, you know, outstanding performance in other regions.

So yes, there were some geographic ups and downs, but at the end of the day, we kind of expect that. It goes with the fact that, you know, not everything is the same across the United States.

All right. Thanks a lot. Nice job this quarter.

Thank you, Ed.

Thank you. Our next question is coming from Steve Muraglia (ph) with FAS.

Hi, nice quarter.

Thank you, Steve.

The success of the large boats -- was that at the expense of the smaller boats, or just the fact that that's where most of the growth occurred? And if there was any impact, does that portend anything going forward for MarineMax?

Steve, the nice thing about the large boats is it's all complementary to what we're doing. In a lot of cases it's migration of our customers, and you know, as they move up the food chain to larger products. So, the fact that we're selling larger boats absolutely has no impact on our smaller businesses at all. So, it's really complementary to our business. And on a going-forward basis, you know, it's just going to continue to grow, is how we see it.

And then just one related question. When you're saying large boats, I realize the definitions have changed a bunch, but obviously that includes Hatteras. But does it -- which other brands does that include?

Well, it also includes the Meridian products, which are some larger products -- they have some larger products as well. But then the Ferretti group, and Bertram. The Ferretti group is the Riva, the Pershing, Apreamare, and Mochi Craft, and CRN, and Custom Line, and of course, Ferretti.

Steve, we generally say boats larger than 50 feet.

Than 50 feet.

Okay, thank you very much.

Thank you.

Thank you, Steve.

Thank you. Our next question is coming from Tim Conder with AG Edwards.

Let me offer my congratulations also, gentlemen, on another great quarter.

Thank you, Tim.

Thank you, Tim.

A couple of questions. It's typical, you said, that with the model year changeover, you're clearing out some of the '04s that you have remaining. Can you just kind of comment on your amount of carry-over relative to last year? And then the level of discounts or anything needed to move that? Secondly, if you could give some comment, year-to-date here or in the quarter, your average selling price on a new boat? And then how's the used market progressing here?

Tim, let me take the first couple and I actually did not write them all down. Let me go by order. The level of carryover is fairly consistent with last year, which was pretty healthy. It's probably a little bit healthier on a same-store basis this year--

Healthier meaning lower?

Yeah, yes, I'm sorry. Healthier meaning lower, good question. From a margin standpoint, you saw that our margins actually have gone up during the quarter, and there is less discounting going on right now than there was a year ago.

It's kind of business as usual with the '04s, Tim, because you know, obviously when you go to receive the '05s, they're -- you can't have empty stores. So you have to have some carry-over. We're very pleased with the aging of that carry-over.

We're very pleased with the model mix as well. And you know, as Mike mentioned, on a same-store basis it's better. As far as level of discounts, we don't anticipate anything more than we historically do. And most of that is in the form of incentives to the team, to be you know, to be out of the product by certain dates.

As far as the average selling price of our products, it's about 87,000 per unit on new boats and that's probably increasing slightly, as some of the larger boats come into the equation. The used boat business has remained very strong and pretty consistent with last year. There's no aging problem with our used inventory. We're in very good position there. In fact, actually it's in better position than it was last year.

Okay. And one other question. If you look at the credit quality of the customers that you're seeing now versus the beginning of the year, how's that changed? And I guess you have to -- also if you could make any comments as far as if there's a seasonality of that also?

From a credit quality standpoint, Tim, we have not really seen any fluctuation. Our customers generally tend to be very good credit. A, they're discretionary consumers coming in buying a very premium item within our industry, so we haven't seen a notable change.

I will tell you, I did talk to one of the major retail lenders this morning. They just happened to mention that, you know, their loan losses, which have never been big, but they are dropping right now from where they were 2, 3 years ago, which I guess would imply the health of the consumer is stronger today than it was 3 years ago.

Okay, okay. Thank you again, gentlemen and congratulations.

Thanks, Tim.

Thank you. Our next question is coming from Don Trott with Jefferies and Company.

Good morning, Don.

Good morning. I have a couple questions. As you know, I'm relatively new to your stores. This may be old information. You mentioned a good deal of your comp is coming from the lines that have been added more recently. When do you anniversary-ize the beginning of their contribution to your results?

The December quarter is when the Ferretti brands get anniversaried. I'd be a little cautious when we say that though, because the Ferretti brands and the Meridian brands, which are largely new brands -- Meridian was brand new 18 months ago, and Ferretti is brand new to us -- that would be a ramping process where you know, we expect it to ramp up over the next 24, 36 -- actually hopefully a continual ramping process. But we do actually anniversary it in the December quarter, Don.

And to that point, like on Meridian, which is in its second year now, or starting into the third year, you know, it was a big acceleration as we received products and got our team positioned to be able to sell them. So it's just, it's getting better. The great news about adding additional products to our stores is, obviously we're leveraging the fixed costs in those stores as well, Don.

All right, and then Bertram, when do you anniversary-ize that?

Same time, February. -- excuse me, December.

December.

Okay, thank you. And then also, you know, you've alluded to the strong asset value of your real estate. I don't know if publicly you've ever put a range of valuation on that.

What we've said before, Don, is that in 1998 we did a pooling transaction when the Company formed, where all of the real estate, or at least most of the real estate with the private companies, came over onto our balance sheet at their historical book basis, which was largely depreciated in many cases.

So it's on our books now, 6 years later depreciated. And using valuations from 1998, which are 6 years old now, we had 30 million of upside value back then. Most of it, or at least a lot of it, is on the water in Florida and you know, has multi uses. So the value's probably gone up.

Additionally, the property that we've purchased since 1998 we think we've bought you know, well. And there probably is some appreciation in the property, even subsequent to the original formation of the Company. But we have not gone out and incurred any new valuations to try to figure out what that is. It's not our intention to tap it. It just helps to show the true strength of the Company. The balance sheet is even a lot stronger than it shows.

Okay, thank you very much.

Thank you, Don.

Once again, ladies and gentlemen, if you do wish to ask a question, please press star, then 1, on your touch-tone telephone at this time. Our next question is a follow-up question from Ed Aaron of RBC Capital Markets.

Hi, thanks, just a couple clarification questions on your guidance. You mentioned that you're looking for, I think you said, low to mid-single digit comps in the September quarter because you're up against an 18% comparison.

But looking out into '05, the full-year comparison is going to be about 18% as well and you're guiding for what seems to be a higher comp assumption of 7 to 9%. So I'm just trying to figure out you know, why the guidance for '05 would be different than the guidance for Q4.

We've got, with the products that we've got coming in we feel pretty confident that as I said, that the consumers are going to feel as good about them as we do, and that's baked into a lot of our assumptions. We also think that there's some uncertainty and unstableness now, which you know, we're not trying to play Alan Greenspan, but we think will go away after the elections and will make for a good January, February, March boat show season.

When we look back, I think Bill mentioned looking at data over the last 30 years, but when we look back to the '92 recovery that the industry saw, we had an unusually strong comp in '92, then in '93 we went to a high single-digit, low double-digit comp. And we are planning that we'll have a similar track here going into '05.

Okay. And then my other question, just as it relates to the margin trends, you know this quarter you came in much better than we were looking for on gross margin, but SG&A was a little bit higher. And it sounds like what you're talking about for Q4 is somewhat of the opposite.

Yeah.

Just trying to get my arms around that a little bit.

We're expecting to have, as we move into September, which tends to be a -- you start selling some of the bigger boats again, you know, September, October, really all the way through April is the big boat season. We are expecting to have some deliveries, which will, or could potentially put some margin pressure on it, the gross margin line. If we see more clarity here, if the consumer feels better, there is room for improvement there. But I think from a guidance and from a modeling standpoint, we think it makes sense to assume some slight margin pressure.

The other thing is, Ed, if you look at the September quarter of last year, we had I think that was the best margin September quarter we probably ever had, or close to it, due to a lot of factors we talked about back then -- the economy recovering, the first signs of it, the buyers getting off the fence and so forth.

So, I think it would be prudent to think that there could be some margin pressure. Remember, in this quarter we had -- the big boat business was about where it had been in the prior quarter. A little bit stronger, but hopefully we'll have it even stronger in the September quarter.

And why is it from just a seasonal perspective, that the September quarter is such a higher gross margin quarter?

The manufacturers all have incentive plans that are in place that are earned in the September quarter. So if you meet the goals and rewards, you get paid those in the September quarter. So that goes through and is treated as a reduction of cost of goods sold in the September quarter.

I'm assuming based on the performance that you've had that you're going to be meeting those incentive goals?

I can tell you that in all of our expectations, we've factored in what those performance rewards will be.

Great, thanks a lot.

Thank you, Ed.

As another reminder, to ask a question, please press star, then 1, on your touch-tone telephone. Our next question is coming from Brian Gustoffson (ph) with Balyasny Asset Management.

Hi, guys. I just got a question on -- given what you've talked about, kind of a macro environment, the election, what is your attitude for ordering for manufacturers versus last year? How are you kind of looking at that?

We're being fairly optimistic. And you know, we mentioned on our inventory where it may be up, and it's obviously is up substantially. A lot of that is the Ferretti product, and Meridian product, and Grady White, so they're new additional brands that we're going to be leveraging. And we also mentioned that -- we're very happy with the aging and we're very happy with the mix, and at the same time, I can tell you that a little bit on this year, we've probably left a little business off the table that we could have gotten if we'd have had a few more models. So we're positioning ourselves to see an increase for next year, and with that means we're being fairly aggressive with the manufacturers and increasing our orders.

Okay, thanks.

Thank you, Brian.

Thank you.

Thank you. Our next question is a follow-up from Tim Conder of A.G. Edwards.

Gentlemen, one thing we noticed out there in the boating presses, there's talk about the looming vote on the California boat tax, or looking to close a sales tax loop hole. Could you comment on that, and then any potential fallout, positively or negatively, from your perspective, what that means for the industry and then you in particular?

Tim, we've received a couple questions on that. And what that's referring to, California has a provision that says if you register your boat someplace away from the State of California, Mexico, Oregon, and keep the boat in that market for 90 days, you avoid California sales tax. While that certainly happens, it doesn't happen to a high degree with our customers. It's not like you know, 50% or even 20% or I don't--

Probably not even 5.

It's probably not even 5% of the units that we sell out there, so--

And you need also to consider that in most states, take Florida, they're doing what California had done, what California's trying to do. And it doesn't have a negative impact on our business.

I was personally a little surprised by the tone of that press release that came out, Tim. I didn't think it was as big a deal, at least not to us. Now maybe in some segment out there it is, but you know, I'm sure from a consumer standpoint, the consumers would rather have it stay in place to at least give them the option to register it offshore, or in a different location. But we don't see this having a major detriment, one way or another.

To your business, nor the industry?

I don't see it. Unless there's a segment that I'm missing, Tim, that constantly goes to Mexico or Oregon or someplace else. We're not aware of it though.

Great, thank you.

Thank you. As another reminder, to ask a question, please press star, then 1, on your touch-tone telephone at this time. Gentlemen, I'm showing no further questions at this time.

Thank you, operator. I'd like to thank everyone for participating in our third quarter conference call and the web broadcast this morning. Mike and I are available after this call to answer any questions that you may have. Thank you for your continued support and obviously, your beliefs in MarineMax.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.