MarineMax Inc (HZO) 2005 Q2 法說會逐字稿

Everyone, please stand by, we're about to begin.

Good day, everyone, and welcome to the MarineMax Incorporated Second Quarter Fiscal 2005 Earnings Results Conference. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Chairman, CEO and President, Mr. Bill McGill. Please go ahead, sir.

I think, is Brad on the phone? Well, thank you, operator. Good morning and welcome to MarineMax's Fiscal 2005 Second Quarter Earnings Conference Call. By the way, this is Mike McLamb, not Bill McGill. Which is also 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 make our actual results 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 complete and integrate its acquisitions into its existing operations and numerous other factors identified in our Form 10-K and other filings with the Securities Exchange.

With that in mind, I'd like to turn the call over to Bill.

Well, thank you, Mike and good morning, everyone. This morning we announced our results for the second quarter of 2005. We are pleased to report another record quarter with net income increasing 24%, driven by revenue increase of 13%. For the quarter, we posted diluted earnings per share of 39 cents, which was up 16% compared to the second quarter of fiscal 2004. The percentage increase in EPS includes the diluted effect of the shares that we issued in February.

As always, we owe our strong performance to the MarineMax team who delivered same-store sales growth of over 11%, which was on top of a very strong 23% increase in the second quarter last year. We would like to thank every team member for their extraordinary efforts.

As we said on the past calls, our results are easier to forecast on an annual basis than on a quarterly basis. Frankly, our fiscal second quarter results exceeded our own expectations in many regards.

We expected this quarter to be challenging due to the comp growth comparison from last year and a (inaudible) promotion in December (ph) quarter of the previous year, which we felt likely pulled some business away from this quarter. While we don't typically comment on monthly trends, I feel it's important to do so in this case, in light of the berated negative retail news that was reported during the month of March.

For MarineMax, our quarter was progressing about as expected until March and then the retail activity accelerated, providing us with a very robust month. In fact, we had the best March in our history. Based on our discussions with other dealers, it sounds like March was reasonably good for them as well. However, we believe our performance in March in the same-store growth we've delivered is better than the rest of the industry.

Revenue growth and gross margin improvements continue to drive our earnings growth. The second quarter marks the ninth consecutive quarter of positive same store sales gains. Our second quarter performance demonstrates, once again, the strength of our core strategies, along with the commitment and the ability of our team to execute upon them.

Consumers are responding well to our broad product offering and our full-service approach is winning over new and existing boating enthusiasts nationwide. Sales growth was fairly broad-based across our product offering and also geographically. Our gross margins increased, from a year ago, as the boating industry conditions are enabling us to realize increases in the margins of our boats that we sell.

The gross margin also continues to benefit from growth in our finance, insurance, parts, accessories, service and brokerage businesses, which all carry higher margins. The implementation of improved systems and structure, in our parts and accessory business is also starting to pay off.

While improved industry conditions and growth in our higher margin businesses should continue to drive gross margin improvements, bear in mind, that our larger boats generally carry lower gross margin. Which could cause fluctuations in the gross margins, especially on a quarter-to-quarter basis.

Let me comment on the 2005 Boat Show season. It went very well with the majority of shows experiencing increased traffic. Almost all of our shows yielded better than results than last year. As you likely saw, during the quarter we completed the secondary offering of MarineMax stock. We worked with Brunswick Corporation to sell their 1.86 million shares of our stock. We view Brunswick sale of the stock as positive for our company as we increased our growth and brought in new investors. Our relationship with Brunswick remains as strong as ever and we look forward to continuing and strengthening our long-lasting partnership.

We are confident about our business. Our results over the past several quarters indicates we have the right strategies in place. And most importantly, the right team to execute on these strategies. Our results also suggest, as we have dealt and discussed, that the industry is recovering and on track for continued growth.

For the next 3 quarters, we expect same-store sales to grow at about 10%, in line with our past view on these quarters. Having said this, we also are not ignorant to the lack of earnings -- rash of earnings disappointments and news of (inaudible) economic trends. While we feel our buyers are much more resilient than the typical buyer, we also are cognizant to the macro-economic news.

Furthermore, while we have exceeded expectations several of our recent quarters, we strive to provide realistic value. As I stated before, the second quarter upstream -- upside stemmed from extraordinary strength in March that was even huge toward the end of the month. As I -- but as I also said earlier, our business needs to be viewed more annually, than monthly or quarterly.

The tendency for us to be surprised on the upside or downside in the fiscal second quarter, especially for now, because March alone often accounts for much as -- as much as 50% of the quarter's business. While we are up against the same dynamic in the fiscal third quarter, because historically sales in June can be as much as April or May combined.

I'd like -- I'd now like to ask Mike to further review the second quarter results to provide you with more detailed guidance for fiscal 2005.

Thank you, Bill. I'd also like to express my thanks to our team for delivering another exceptional quarter. In particular, I want to thank them for an outstanding March.

For the 3 months ended March 31, 2005 revenue increased 13% to 228 million. The revenue growth came primarily from same-store sales improvement of 11% and approximately 3 million from storage added that are not eligible for inclusion in the consular base. Primarily the Maryland acquisition we completed last year. What's encouraging is substantially all of our same-store sales growth is unit based. As you know when we sell someone their first boat and then take care of them, we have a great track record of selling them their second and third boat as they (Audio Gap), which is why the unit growth is important.

Our quarterly revenue came in higher than our expectations. As Bill said, we were surprised on the upside by very strong trends in March. Our growth margin's increased about 180 basis points to 24.1%. The increase stems primarily from better margins on the boats that we sold and a continued expansion of a higher margin parts, accessories, service, brokerage and financial insurance businesses.

As discussed on past calls, we are seeing our growth margin on the core boats, begin to return to levels that we achieved in 1999 and 2000. But we are still approximately 100 basis points behind those levels. As we have maintained, we feel that as the economy sustains a prolonged recovery, we have the potential to get back to those levels.

Our selling general administrative expenses increased 6.6 million to 41 million or 17.9% of total revenue, which is about 100 basis points higher than a year ago. The increase in SG&A is due to several factors including the addition of the new brands that we took on and the related marketing and training that (Audio Gap) leverage associated with that expansion and expenses related to stores opened or acquired over the past 12 months.

As we have said before, the product expansion efforts, as expected, have proven to be a large undertaking. Like anything else, we want to ensure our long term successes. As such, we are investing to ensure the roll-out is done properly. We continue to make other infrastructure investments mainly in personnel for the future that will help sustain our growth. Having said that, we are cognizant of our increased SG&A, and are looking at ways to improve our leverage without impacting market share or long term growth.

Interest expense was up due to additional barrings in a rising rate environment. Our tax rate was flat 38.5% where we expected to remain. Finally net income for the second quarter increased 24% to 7 million or 39 cents for diluted share compared to net income of 5.7 million or 34 cents in the year ago period.

As for the 6 months then in March, I'll make a few brief comments. Revenue is in excess of 412 million, driven by our same-store sales growth of over 13%, which is very strong considering that last year for the same period our same-store sales were up 36%. Our growth margins have jumped 170 basis points and our SG&A is up about 100 basis points, both for the reasons I discussed earlier.

Finally our net income, which is essentially income only from internal growth has increased 25% over the same period last year, which if you remember was a record 6 months for MarineMax.

Turning to our balance sheet, at quarter end, we had almost 21 million in cash. But as many of you know, we use our excess cash to pay down our inventory financing. As such we have substantial cash at quarter end in the form of unleveraged inventory. Inventory increased to 355 million from 284 million at the end of March last year. The 25% increase is attributable to the brand expansions that we have undertaken and inventory increases that we desired in light of our sales growth.

In the larger boat business, those buyers have a very strong appetite with a 9 to 18 months build cycle, you are better off to have the product than to lose the sale. As you know the larger boat buyer is even more resilient to economic swings than the typical consumer.

To a lesser extent, the increase in inventory is also due to the Chesapeake and the Jacksonville acquisitions that we completed in June 2004. As discussed, the marina industry, our inventory levels were dropped as we moved to the summer selling season. We remained comfortable with our inventory levels and believe that our inventory positions us well to take care of current -- take advantage of current inventory -- industry conditions, excuse me.

Property equipment increased mainly due to the Maryland acquisition. And as I reminded you on past calls we had substantial real estate vale on the balance sheet, that in addition to being undervalued is largely unleveraged.

Accounts payable primarily due to the timing of payment to certain manufacturers, customer deposits are up 59%. While I would rather have deposits up versus down, it is hard to extrapolate some confidence the increase in customer deposits. Due to the wealthy nature of the deposits and the time it takes to build larger boats and yachts, as an example, the growth in deposits may relate to sales that will hit a year from now.

Obviously the stock sale that we completed in February has added considerable strength to our already strong balance sheet. We are proud of the strength and the flexibility that it affords us. Keep in mind no other dealer in our industry has anywhere near the capital that we have. This strength supports our pursuit of growth opportunities, whether through brand expansions, acquisitions or expansion of our higher margin businesses.

Now, let me discuss our guidance for fiscal 2005. First, keep in mind that as Bill said our business is challenging to predict quarter to quarter, which is one of the reasons that we only give annual guidance. During our January call, we raised guidance for the year to $1.80 to $1.85 per diluted share. This included a 3 cent expense in the fourth quarter for the impact or the expected impact of the new stock option expensing standard, which has now been deferred to fiscal '06 for us.

After reflecting the dilutive effect of the February stock offering and adding back the 3 cents from the stock option deferral, we are adjusting our stated guidance to $1.75 to $1.80. This is effectively the same guidance that we had before the stock sale. Our guidance excludes the impact from any potential material acquisitions that we may complete.

Our expectations for the year have not changed significantly since last summer. We expected 2005 to be strong, we still feel that way. The more significant assumptions that we have made to arrive at our estimates are as follows. We believe that our 4 year same-store sales growth will be in the low double digits, 10, 11, or 12%. This is on top of 21% last year, which clearly illustrates our optimism about the marina industry and our enthusiasm about our market positioning and product line-up for this year.

While we had expected growth margins to slightly trail last year, we are revising that guidance to indicate that we will modestly exceed last year's growth margin. This revision is largely due to the increased margins we have recognized to date coupled with our expanding larger boat businesses, which historically carries lower grosses.

We have anticipated gaining modest leverage at the SG&A line and thus far have not achieved such leverage. While we are making progress on SG&A, we now expect to end the year with SG&A as percentage of sales being slightly higher than last year as we invested in the long term growth of MarineMax.

Net net, we do still expect to achieve modest growth in our operating earnings percentage. Our tax rates should be approximately 38.5%, as I noted earlier. Now I will turn the call back over to Bill for additional comments.

Thank you, Mike. We are encouraged about our business prospects for fiscal 2005 and beyond. Our performance quarter after quarter, reaffirms the strength of our core strategies and we believe that by adhering to these strategies, we'll continue to gain market share and create value for our shareholders.

We are excited about the results of our strategies. By providing our customers with the entire boating experience, we are winning them over and adding new customers. Our brand offerings and product lines are unparalleled and 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 new boats with spare parts and accessories while receiving industry leading service and support.

We remain committed to delivering a hassle-free experience to our customers by focusing on the lifestyle of boating. (inaudible) a family-binding experience and 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 where they make sense. We have an industry leading team that executes superbly on our strategies. We continually invest in this team. Our people are the most valuable asset and we refuse to cut corners on training and bolstering our team. Our business is truly based upon the strength of our people.

We will maximize and maintain a strong balance sheet. This will enable us to seize opportunities on the acquisition front as they make strategic sense for the long term. As we have said on past calls, we have a full pipeline of dealers that we are in discussion with. When the terms meet our guidelines for our long term strategies, we have the capital and the team to complete the deals and integrate our strategies.

The combination of our business model, our people and our strong financial position is generating market share gains, strong earning growth and significant value for our shareholders.

We remain encouraged by the retail environment and do not see the Armageddon predictions that our customers -- with our customers concerning fuel prices, consumer confidence and our interest rate increases. The retail environment remains strong. We look forward to updating you on our next quarterly call.

I'd like to now turn the call over to the operator who can open up the call up to questions.

Thank you sir.

[Operator Instructions].

And the first question today comes from Mike Fox, JP Morgan.

Good morning, guys. Congratulations on a great quarter.

Thank you. Thank you.

You talked about how the quarter progressed and got stronger and stronger. Can you -- can you talk about how that started off in the second quarter in April? And then also, you said there was strength across all products and sizes and geographic areas. Was there any determinable strength between big boats and small boats?

And then I was wondering how the strength in the industry is affecting target dealers and your ability to acquire them if they're becoming more or less likely to sell to you guys. Thanks a lot.

Well number 1, on your first question there, April has started off strong. As we expected to do and when you -- when we mentioned that March really accelerated, I think it kind of surprised us as how well we it came in. Especially with all the news that's out there today about what's going on with fuel prices and interest rates. We're not seeing it. So it has started off very strong.

As far -- as far as the products, the interest level in the larger boats for this time of year, usually starts to dwindle and it really hasn't done so. So we see that activity as been very strong as far as prospects and customers and working them. But yet also -- and even in the smaller segments, we're seeing it strong. So it's pretty well across the whole product offering that the business seems to be very encouraging.

It's important to recognize that we hear about consumer confidence going down and we hear about interest rates increasing and we hear about all the things that are going on in the world, but we're not hearing it from our customers. So even though we are cautious or -- and cognizant of what's going on, at the end of the day we're not hearing it from our customers and I think it speaks well to the fact that the baby boomers and the consumers out there today are really saying, "Jeez, I need this recreation called boating because of what it does for my family and also myself. This thing called stress relieving."

On the acquisition front, to answer your question, the activity is still very strong with what's going on today. I think more than any thing, what we're hearing is that, "Jeez, MarineMax is doing well as a company," and what the customers are expecting today, being part of a larger company like MarineMax will provide a lot of positives. Because you need better systems, you need better integration of those systems with the manufacturers. And we're working with our partner, Brunswick, to do that and making some real strides. And we're seeing that in a lot of our products and accessories and service business. So we think that we'll continue to be a big focus of people wanting to join our company.

Great, thanks a lot.

Thank you, Mike,

And the next question comes from Don Trott, Jeffries & Company.

Good morning. Could you comment on what's happening with Ferretti in terms of how pervasive is that throughout your system and what kind of comps you might be doing there?

The roll-out with Ferretti is going right according to our plan, Don. We expect to do 60 million with Ferretti this year, which we've maintained all year long. We have trained numerous sales people and managers within our organization to handle the product. The product itself is probably concentrated in about -- I'm going to do it in my head, here -- maybe 13 to 14 stores. Though what we found, with a product as unique and as high end as that product is, the customers have no problem flying to the location where the product is and buying it.

So it's going according to the schedule. And I'd say it's probably gaining traction and even strength during this time of the year -- Bill kind of alluded to it -- in April. But usually big boats traditionally sell strongest in the time period of October through March. Though what we're seeing is that momentum kind of continuing here into April through -- well, at least through April, we anticipate through the summertime. And part of that is because of Ferretti, which is kind of encouraging.

Of your -- of your 68 dealerships -- I think that's the number -- roughly what percentage of those do you think are candidates for ultimately getting Ferretti (inaudible).

Well, I will tell you they are all candidates for generating leads which then will lead to sales. In the near term, I would tell you, we would probably only put product in 20 stores perhaps, because you don't need to put it in more stores than that. It is, you wouldn't necessarily put it in a land based store. You'd have it on the water where you can really appreciate the beauty and the performance of the product.

But also Don, it's important to leverage this thing we call the marina (inaudible) connection. And so, as an example we've had some sales where smaller stores have gone to the team members, that -- where we have the product, sort of centralized, and say, "Help me with this. I don't understand the product or I don't have the product here." So we fly the customers in and demonstrate them and deliver the product. And it is sales that wouldn't have had.

So we're going to continue to leverage all of our 68 locations with this product for the consumers. But as Mike said, if the products are -- and the focus team is primarily only in few of our stores right now.

Thank you.

Thank you, Don.

Next, Laura Erickson, CBC Capital Markets.

Yes, thanks, hi, everybody.

Hey Laura.

I want to ask you to expand on a couple of your comments and then followed by a couple of other questions. Mike, can you explain again why the 59% increase in deposits and doesn't translate into 59% increase in sales right away?

Yes, Laura, on the deposits and as obviously as I said, I mean we're much happy, if we have deposits trending up, especially 59%, than trending down 59%, but in this business, when you're selling products that go all the way up to several million, I mean, some of that growth in deposits could be a million dollar deposit on one boat that's going to deliver in 18 months from now.

So it definitely does not translate to sales that you should expect in the June quarter. I think if there's a way to read into it, I think perhaps, the way to read into it is that trends are healthy right now. And that usually when you have an increase like that that tells you that your -- you have got some customers that are -- that have boats on order with different manufacturers, whether it's Brunswick and Hatteras or the -- or the folks over at Ferretti for future deliveries.

And can you tell by analyzing deposits if that hypothesis is true. That it -- there's more big boat deposits in there even though the comps seem to be driven more by units than by big boats?

Yes, I think you could tell from the growth of it in our comments, I mean we do have big growth deposits in there.

OK. And so you've analyzed the composition of deposits is what you're saying.

Yes.

OK. I had read somewhere that you were taking on Princecraft. Any comments on that?

Yes, Princecraft, which is a high-end aluminum brand which runs like a (inaudible), geez, probably 18 months, 2 years ago, Canadian company. We have expanded with Princecraft and I'm going to say Minnesota, Ohio, New Jersey, Georgia, Texas and California, I think. And really started rolling that out in the -- really the January Boat Show season. It is a -- obviously it's a much lower average unit price. We had some other brands in place which were -- which were good brands in the aluminum side but we think Princecraft is a little more premium end. This is -- in many cases, this is replacing another brand that we dropped to go with the more premium brand with Princecraft.

OK, and you said it's pretty much everywhere but Florida?

It's not in Florida and it's not in our mountain states - Colorado, Utah, Vegas and Phoenix.

OK. Is it -- is that a factor all of the comps switching the old brand out for Princecraft?

No, not at this time. It may have an impact on it.

OK.

In future. But it's growing and it's like that we're replacing some brands (inaudible).

OK. So it doesn't have the sort of class that Ferretti does either, right?

Well, it has ...

Has some.

It has some, but in the -- in the scheme of the 2 brands, it would -- it would pale by comparison to the -- to the ramp up (inaudible) because we're replacing a brand.

OK. Can you also comment on used boat sales?

Used -- we often get the question about is used stronger or ...

Yes.

... or weaker. I'll tell you for as long as I've been here, used boats has really not changed as a percentage of our business. And they are wonderful products. They turn as fast as we can get them. And there's no real change in the used boat activities from the new boats and it's healthy business.

OK. And then in terms of real estate and acquisitions, I guess I heard a rumor that you were out looking at locations somewhere. I don't know how to interpret that in terms of what your V-time normally is on announcing a new store opening, a new market, a new acquisition, et cetera.

Well we are always out talking to dealers. That's nothing new. I think everybody should realize that we're always flying around, we're visiting our agents, we often stop in and talk to the dealers and always cultivating the opportunities. And sometimes there's a phone call to come in to us and ask us to come out. And sometimes we just -- we know these guys or families who stop in.

So that's just -- it's a process that when the terms of the agreement or the transaction come to place, and we feel that we have all the right people to manage it along with if the seller is going to stay on, we pull the trigger and close on it.

We are -- we were quoted in a couple of industry publications as looking to expand our waterfront presence either through service operations or marina operations, which we are still investigating and looking into different opportunities. And I guess we're patient in both regards, that we want to make sure that we do things properly for the -- for the long term.

The main thing there, Laura, is that we don't really put it as something that we have to do.

Right.

No-one else is going to step in and interfere with the acquisition because there's no one else that's making acquisitions in our industry right now. And so, we don't really have any competitors. So there's no sense in stretching. So we do not really stretch it. And so we look to find that quality of company to join us and make sure that the people are there and the systems are there and when it makes sense, we do it. And of course the numbers need to be right.

Right. And I think someone tried to ask this earlier, but I'm not sure I heard the answer. Is the -- is the -- is the kind of bad press about the industry and consumer spending helping at all on the prices you might pay if you made an acquisition in the near future?

It's kind of funny, the -- we're sitting here saying that things are going well ...

Right.

... for us and the high end, for what we play in. That's true probably for all the dealers out there. Maybe not to the same degree that we have. But I think psychologically, yes. I mean they're reading the same things we are. I don't care how great you feel about your business, when you read day after day after day after day of bad news, it kind of -- it's got to at least make you think about the future a little bit.

Right.

I would -- I don't think that it's gotten to the point where it's making people say the sky is falling and want to run away from the businesses though.

OK. Well, I guess we'll hope that it doesn't get there. It's -- couple of other questions really related to guidance. In terms of your revenue guidance is there -- has everything ordered from boat shows in the first quarter been delivered or there's some of that could hop to June quarter?

It's always -- it's same as prior years, Laura, I mean ...

OK.

... we've delivered a bunch of it, but a lot of it gets delivered in April and May.

OK.

And Bill had said that we expect double-digit comps in the next 2 quarters, about 10% which we had 11% this quarter of last year and 8% in the September quarter.

Right.

We do expect the growth margins will end higher for the whole year than they were last year, incrementally 30 basis points or something like that. SG&A has the chance to end a little higher, not a whole lot but some higher. You'll see you'll have an expanding operating margin at the end of the day. Interest expense is trending higher, to the rising rate environment.

Right.

We do have more products. Keep in mind, we have -- we do get subsidized interest from our auto manufacturers we deal with. So, it's not quite the -- we don't get quite hit at 25 basis point every time prime (ph) goes up, as an example.

What is a good number for interest expense for the year and I was also going to ask about share count.

I think -- I think something north -- something around 7 million range for interest I believe for the year. I think if you were tracking about a million a quarter higher that should go down a little bit in the June and the September quarters. I think if you work that out, you're going to get either high 6s or about 7, 8.

The share count we issued 1,429,000 shares in February, and that's going to be 7 and a half months of that. So, you've got to -- you've got to do 7 and a half divided by 12, you get like 900,000 will be added to the denominator this year on a full-year basis. Now, each of the June and September quarter, you have to add the full million 429 in there. And so the -- just the way EPS calculations work.

And if you work through that, and look at the old assumptions you had, you'll get either $1.74 to $1.79 or $1.75 to $1.80, in that range, considering the -- get to add back the 3 cents ...

Right.

... from the stock option accounting that is now being deferred also.

Which is really the same guidance that we (inaudible).

Right. Right. Right. Understood. OK. Thanks a lot guys.

Thank you Laura.

And we go next to Scott Blumenthal.

I have a couple of questions. One, maybe Mike, you could talk about just the percentage of the inventory build that's related to the new products. And on your assumption of 10% second half same-store sales growth, your inventory turns would go down this year to closer to 2 times, whereas historically, they've been even up 2-8, 2-9, 3 times. Do you have a new target inventory turns number and has that number sort of, permanently changed because of the mix that we've had?

Scott, we said as we started ramping the Ferretti business. I don't know if we said it on the January targets. But we said it before that, that -- exactly the point you're making that our inventory turns historically have been bumping up against 3 times. And now, when you expand with a product line like Ferretti, which is a much higher average ticket selling price. It's a more complicated process -- product. The turns of the larger boats tend to be slower that we said at one point to expect a below 2.5 turns, you know, 2-25, 2-30 something like that.

I think as you ramp with Ferretti like we have, it's possible to be -- we won't go below 2 but in that 2-15 range to 2-20 range, which is -- that's mathematically about the right number you get. We -- obviously, we looked at the same calculations. But with the traction that we're getting with Ferretti and with the -- it takes time. You can just plug the brands in and expect the sales to occur overnight. But we are pleased with the progress that we're -- that we're making with the Ferretti brand and expect that to continue to be good business for us.

If you look at the increase in the inventory, I would say, year/year, less than half is tied to the Ferretti product. The rest of the increase -- some of that is the expansion that we did in Chesapeake. That's a smaller piece of it and then the rest of it is just how we feel about business overall. And keep in mind, as I said, you'd much rather have the product and as the manufacturers subsidize the carrying cost. And especially if you look at -- we made comments before about how -- why we may have -- we may have missed a sale because the market was so hot, the customers went on to buy something else or we had to somehow retain the customer and convince him to buy a boat a year away.

In this environment we feel it's smarter to have the product on hand and -- than potentially miss a sale. It's not the smart thing to do.

Sure, it just would be eclipsed by that, sounds like, maybe, that 10%. And you've still got maybe a little bit conservative given your optimism, given where everything stands today.

We -- go ahead, I'm sorry.

Yes, just a couple other questions. Could you just remind us what percentage of your boats are financed? And I assume given the resiliency you talk about with your customer base, you probably haven't seen any changes in marine lending standards. Is that the case?

Absolutely not. The -- 85% or maybe a little bit more of our boats are financed in some way, shape or form. And we've seen no problem with our customers obtaining their financing. Marine lenders love this financing because they have such a low loss on it and they stay very competitive. And the consumers continue to buy.

And you got to keep in mind as I'm sure you all know there's a big difference between us and an RV buyer. And actually I'm not sure what's going on in the RV industry but people have called me on it. The typical person that's going to buy a big motor coach in the RV industry has got a lot of time on their hands because they're going to drive that thing around which takes a lot of time. So they're probably retired, which they're living on a fixed income.

And granted, it may be a big fixed income but it's still a fixed income. And as gas prices rise and interest rates rise, it makes it more difficult for them to either trade up in an RV or go buy an RV, whereas predominantly the majority -- overwhelming majority of our buyers are working or they own a business. They're a doctor or they're a lawyer. They all have an income. And as the economy does well their pay checks do well.

And their pay checks out-strip the growth and interest rates and gas prices and everything else. And when you go back over time and chart our industry versus periods of rising gas prices and interest rates, it's been the best times for the marine industry. It's just no question about it. 2000 was our best year prior to last year. We had 20% same-store sales growth yet the RV industry was on its ear. Because rates were high. But we don't see any issues. We're get financing, Scott, and the lending standards have definitely not tightened.

OK, great maybe Dale (ph) will let you get one in. There's been, last couple of years, the core traffic has lagged relative to sort of pre-9/11 levels. So you're back to 2000 for traffic levels?

Scott we're not -- we're not back to the core traffic of 2000 level, but what we're doing is a better job of basically prospecting our customers as we sell boats too as well as those that we've been in contact through boat shows and that type of thing. So we are getting them into the showrooms but the drive-by traffic is still not back at the normal levels that it was back in the late 90s.

So that's -- we're encouraged by the fact that people today are even more and more focused on family and also this stress relief thing that you talk about all the time. And if you talk about so it's recreation -- recreational spending is still key to everyone today and it's really accelerating. And what's happening in our industry, I think is good in that more and more dealers like MarineMax are starting to say, "Hey, it's about the lifestyle of boating."

OK great, thanks guys.

OK. Thanks, Scott.

Thank you, Scott.

We'll go next to Matthew Telleher (ph) with Smith Barney.

Hi guys, I'm kind of new to the story. Looking at this inventory figure, what percentage of that in dollars or percentage terms is in boats less than, say, 20 feet?

You mean the total of the two or just the build?

Just the total inventory.

I don't have -- I don't have that number handy, Matthew, I apologize.

I could live with a guess.

Boats less than what size?

20 feet.

Oh, gee, maybe 20%.

OK.

25%. Maybe a little less than that.

Yes.

Yes. It's a guess

Percent in dollars or units? Dollars I guess.

It's dollars, yes.

Perfect. Thank you, that's really my only question.

Thank you.

Thank you.

The next (Audio Gap) RBC Capital Markets.

Thanks. Good morning and congratulations on another great quarter.

Thank you, Ed.

Thanks, Ed.

A couple of questions, first of all, on the inventory side, I mean, you've definitely seen a build on your balance sheet but at the same time you (inaudible) commentary about some shortages of product in the -- in the big boat market.

Right.

To what extent did you see that this quarter?

We have seen it with some of the hotter models from the different manufacturers that we deal with. It's really hard to quantify the exact extent of it. But the -- it's more -- it's more -- that comp is more prevalent to the -- to the bigger boats so that's where you see it and you feel it more, it's more visible within the company.

Great, I know we see it -- we see it every year to an extent. I was just wondering if it's more or less than we usually see?

Yes, I would -- I'd say we're doing a better job today than we have historically in making sure that we have some of the hotter models in stock.

Right.

So that we don't lose sales as we have the demand through the summer months.

Right. OK. Now, other -- also if you can maybe talk a little bit more about the seasonality dynamics of the business. And I know that once you get into the boating season that the market tends to shift more towards smaller boats and also more toward the northern markets or I would say, for example, with water power becomes less part of the mix.

That's correct. As we move into the June and September quarter traditionally, that's correct.

Right. You said that you're seeing key strength in big boats, I just am wondering -- my perception has been that big boats have been selling particularly well and that Florida has been especially strong. So I was just wondering if you expect the dynamics of the business to really change much in light of those factors, just considering the seasonality of June and September quarters.

The big boat business is healthy across the country. And we keep saying the big boat business, that's not to imply that the smaller boats are weak. They're not. They're very healthy as well. But across the country, the larger product is pretty strong. Not just in Florida. So now in New Jersey we'll be selling more larger boats in Minnesota, larger boats and so forth.

So, we expect that those are the reasons that the country will do what they normally do and kick in and have -- be a bigger percentage of our business here in the June quarter as they have in prior years. And that Florida will -- Florida will do well. It just will seasonally shrink a little bit. The unknown, I guess is exactly the -- how does the Ferretti expansion ramp, which, while it's in 13 stores across the country; Florida has a bigger share of the Ferretti expansion than any place else does.

Right. Are you continuing to see this unusual strength in Florida relative to other markets or is it maybe pretty balanced out?

Florida is clearly strong. I would tell you though that many of our other regions are equally as strong. We've commented on past calls that regionally Ohio is probably not as strong for us than some of our other markets. It's doing OK but it's not as strong. We heard a lot of comments in the last 3 or 4 months about softness in New England. We're not in New England. New Jersey's doing reasonably well, probably not quite as strong as Florida. But still reasonably well. The business is good in Florida, but it's good in California, Texas, Carolinas, Georgia, the mountain states, everywhere.

Right. OK, overall I think you have the margins -- the operating margins are turning about -- you probably would have outlined at the beginning of the year, so we've definitely seen a flip-flop in the mix of growth margin versus SG&A.

Yes, we have.

I mean how much of that is surprising to you and how much has your thought process changed in terms of where the margins -- where we should see margins improving going forward?

We saw that margins were trending up. We anticipated it as the Ferretti brands ramp that we have some margin pressure. And we still expect to see some margin pressure as those -- as that product ramps but we're doing a better job in service, a better job in parts and accessories, a better job in brokerage, a better job in our -- and these are all incremental improvements than we had anticipated.

Then the core margins on the other product that we're selling are going up, not back to the '99 and 2000 levels. At the same time, we made conscious decisions for those margins to go on up to make sure that we're not losing a sale. As Bill said, the drive-by traffic and the store traffic is still not back to the 2000 level, but we're taking the product to the people and doing a lot more offsite events and additional marketing.

The question that we're asking ourselves right now, Ed, is we got to really drill down into all the additional costs that we've been expending on the marketing side. And obviously on the personnel and development side as well to make sure that what we've invested is truly paying off. And as you know sometimes it's hard to really dial that in. But we said when the year started that we would not have these trends and since they're going up -- they're going better on the margin side, it was a surprise a while ago, it's not a surprise as much anymore.

OK. Great. And then 1 just -- last question on the interest expense line. It came out (inaudible) rising rate environment, I think I just -- my math is bad. But can you just maybe give us some guidance for -- for that 1 item for the full year?

I think if you add -- if you take last year's interest expense and add around 750,000 each over the next 2 quarters, you should -- I think that's going to put you close to the high 6 or 7 million. That should be about right.

Great, thank you very much.

Thank you.

(inaudible). We'll go next to Thomas Daniel, SNN Research (ph).

Hello, can you hear me?

We can hear you.

Oh great. Technology makes me crazy. I'm (inaudible) I need to be in my boat. I want to ask you just a quick question if I could. I was a little surprised and wanted to get a little (inaudible) on (inaudible) versus MarineMax. It looked like they reported earlier this week that their boating business is up about 17%. And their -- will be I guess their first quarter and yours were at slightly less and obviously 13, still a big number. I'm just kind of curious, how do we reconcile those data points?

You know what, I hate to admit this. I did read their release. I have not listened to their call to hear all of that. And obviously they are the manufacturer. We're at retail. And I don't know is that a percentage sale or is it a percentage unit? And is that with or without acquisitions, do you know?

I know that they said that that was excluding acquisitions. And they said excluding incremental sales from acquisitions, both segments sales were at 17%, higher volumes, effective cost management, the usual.

That number to me sounds reasonable when you consider where our growth is. That doesn't sound like a -- I'd say that's pretty close to our number. I realize it's higher but mathematically, that number seems to make sense to me.

OK so let me ask -- let me -- I guess let me ask it this way then, maybe there is -- I'm not sure if the report says sales but maybe they are looking at it more on a unit basis, were Marine Axis unit sales up about 17% in the quarter?

I don't have the exact number in front of me. We did say on the call that dang near all of our same-store sales base was unit driven so we're up 11%, slightly higher than 11. You can assume that that was all unit based at the 11% level.

OK so maybe your units lagged just a little bit or maybe there's some other influences on it.

We also, yes, -- you're comparing wholesale shipments to retail sale.

We're also comparing a little bit apples to oranges. We do not sell every brand that Brunswick carries and I don't know how all the other brands are doing it. I know that they've been very successful with their smaller day liners and maybe the growth there is higher than the -- than the entry level growth of the other products, that's a view.

OK one other quick question, if I could, just getting up to speed on the story. Is -- you mentioned the units but would it be possible for us to get the number of boats in inventory like the unit data. We have the dollar math but I think it might be helpful to answer some questions or some concerns if you could give us the number of units in inventory on March 31st and then maybe if you can compare that to December 31st or maybe even March 31st last year. So you can also give a sense of how -- because the rationale of increasing inventory for stores makes them increased dollar value for Ferretti makes a lot of sense. But if we could have the unit data I think that will really help a lot. Is that something you could provide us?

I do not have that now. We have never disclosed that type of data. I'm not sure that will be real, real meaningful. Give you an example, we take on -- we cycle out of one aluminum brand like the Princecraft brand. Now we're cycling out of the other one from a unit stand point, you'll see a big drop in units. I think it's probably more relevant to have dollars. And then what do you think sales are going to do -- we think, sales are going to be up 10% plus the inventory and you know that's I think that's probably a little more relevant. I think you're getting your answer from last year when we recorded that average unit selling price really did change pretty much (inaudible) units here.

But I guess if inventory days are rising and that rise is influenced to some extent by Ferretti ...

Right.

... you could expect that the -- if you calculated inventory days using units, then we perhaps wouldn't see a (inaudible) increase in inventory days. Would that be a safe conclusion?

I'm not sure because of the ramping of brands. You got to -- -- you got to -- I got to look at that. I don't have that data with me.

OK. And then one last -- real quickly if I could, I want to just clarify, did your guidance on the last quarterly call, I know you had already filed the (inaudible), the registration statement for the stock sale when you reported first quarter earnings, did the first quarter -- I just want to clarify, did your guidance last quarter for the full year include the impact of the stock sale because I know, like I said you knew -- I knew, it was filed (inaudible). I had assumed it was included.

No. It did -- it did not. I guess, I'll apologize. I probably should have made it clear in the press release that went out this morning that the $1.75 and $1.80 is the same as the $1.82 and $1.85. It's the -- it's just our first stated guidance publicly post-stock deal and so no, $1.80 - 1.85 was gross for the stock deal which had not happened yet. We didn't know how many shares we were going to sell at the company until the deal actually happened.

OK, great. Thank you gentlemen.

Yes. Thank you.

[Operator Instructions].

We will take a follow up Laura Erickson CBC Capital Markets.

Thanks, this may be a dumb question, but I'm going to ask it anyway. Interest expense guidance, I'm confused on the math, Mike, because if you take what interest expense has already been reported this year and then you assume 750,000 more in each of the next 2 quarters, you end up closer to 10 million than 7 million.

Let me look at my numbers here. Yes, I take that back, when you reflect in -- when you reflect the stock deal, which is the 45 million or 44 million that we raised in March and the interest savings, which is on a separate line, I will apologize, everybody.

Oh, OK.

Your interest expense for each of the next 2 quarters is kind of (inaudible) should be flat to slightly down in the next 2 quarters.

OK.

Yes, when you reflect the stock, you will get to the -- in the 7 million range.

OK. Thanks. That works.

(inaudible). Thank you for the follow-up.

Sure 'bye.

And there are no further questions at this time. I'd like to hand back over to the speakers for any additional closing comments.

We'd like to thank everyone participating in our second quarter conference call and web broadcast this morning. Mike and I are available after this call to answer any questions and we look forward to seeing you on the next call and for your continued support for (inaudible) and MarineMax. Thank you.

Thank you. Once again, (inaudible) today's teleconference, we do appreciate your participation. And you may disconnect at this time.