MarineMax Inc (HZO) 2005 Q4 法說會逐字稿

Good day, everyone and welcome to the MarineMax, Incorporated Fourth 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 conference over to Mr. Brad Cohen with ICR. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining this discussion on MarineMax's fourth quarter and fiscal 2005 results. I'm sure that you've all received a copy of the press release but if you have not, please call Linda Cameron at 727-531-1700 and she will fax or email one to you immediately.

I would now like to introduce 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 their comments about the quarter and the year and then will be available for your questions. Mike?

Thank you, Brad. Good morning and welcome to MarineMax's Fourth Quarter and Fiscal 2005 Earnings conference call, which is also being broadcasted 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 the 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 10K and other filings with the Securities and Exchange Commission. With that in mind, I'd like to turn the call over to Bill.

William H. McGill, Jr.: Thank you, Mike. Good morning, everyone. This morning we announced record fourth quarter results which capped a very strong fiscal 2005. Before going into our great results in more detail, I must comment on Hurricane Wilma.

Many residents suffered extensive damage to their homes and businesses as the hurricane rolled through the state on Monday. Our thoughts and prayers go out to them and others who were impacted by Wilma and the other storms this year. Unfortunately, we also suffered limited damage in several stores and extensive damage in a few stores. Additionally, our strong team, who have proven their resiliency time and time again, are getting their personal lives back in order and are focusing on our stores. Admittedly, it's hard to get a clear picture on how badly the storm will impact our business and our industry.

Unfortunately, the storm's path carried it over some of the state's most populated areas, which also happen to be the most important boating markets. The storm caused the postponement of the very important Fort Lauderdale Boat Show. This show historically has been one of the largest revenue producing shows for the industry. The storm and the show postponement will adversely impact this December quarter. At this point, our best estimate is that the storm will have a negative impact on fiscal 2006, which is why we are altering our guidance. This is not a permanent affect, rather a change in the timing in when we get the business. We will keep you updated as things change materially.

Having updated you on the hurricane, I'd like to now discuss the quarter and the year. During the quarter, same-store sales rose 24%, yielding net income growth of 27% and a diluted earning per share of $0.54. While these results are strong, the quarter was actually stronger. Included in our net income and EPS are costs of approximately $1 million after tax or $0.06 per diluted share. That's related to an increase in our litigation reserve, associated with a single legal matter. While legal costs are a part of operating any business, MarineMax has never experienced an adverse decision like we suffered this summer. We disagree with the decision and have filed an appeal but we prudently increased our litigation reserve.

Before this additional expense, our diluted EPS for the quarter was $0.60, an increase of 25% over the prior year. Once again, our strong performance was driven by outstanding same-store sales, which increased 24% on top of an 8% increase in the fourth quarter a year ago. We owe these superb results to our passionate team members who, quarter after quarter, execute on our core strategies. The fourth quarter marks the 11th consecutive quarter of very positive same-store sales gains.

As we have stated before, our results are easier to forecast on an annual basis than on a quarterly basis. In fact, our fiscal fourth quarter results exceeded our own expectations. Heading into the quarter, we believe that our exceptional third quarter same-store sales increase of 37% might have resulted from some [full] forward of business from the fourth quarter are from fiscal 2006. In fact, our results in July collaborated this theory. However, August came in very strong, on the heels of Hurricane Katrina, and in anticipation of Hurricane Rita, we entered September with some degree of caution. But once again, our team focused on the lifestyle of boating and delivered very strong results.

This performance, amid a mixed resetting environment, is a testimony to the ability and drive of our team, further validating our knowledge that it's all about the people.

Our sales growth in the fourth quarter was fairly broad-based by product line and by geography and demonstrates the continued success of our strategies. Our core same-store sales growth was very strong and the addition or expansion of the new branch further fueled our performance.

Fiscal 2005 was an outstanding year for MarineMax. Same-store sales growth was 23%, on top of the 21% in fiscal 2004. Net income, before the increased litigation cost, grew 33% as we approached the $1 billion mark and we benefited from improved industry conditions. More significantly though, the strategies that we put in place over the past years enabled us to distance ourselves from others in the industry.

With that overview, let me turn the call over to Mike who will review our fourth quarter and full-year results and our guidance for fiscal 2006, in greater detail. Mike?

Thank you, Bill. I'd also like to add my thanks to our team for delivering another exceptional quarter. I'd also add that our team did a great job preparing for the hurricane and minimizing the damage. Obviously, the physical damage is largely covered by insurance. It is the human challenges that will take time to heal. I will comment more on the hurricane in a minute.

For the 3 months ended September 30, 2005, revenue increased 25% to $228 million. The revenue increase stemmed almost entirely from strong same-store sales growth of 24%. Our gross margin declined almost 70 basis points to 28.3%. The decrease is attributable to a greater percentage of our business coming from boat sales. We make higher margins on service, parts and accessories and our finance and insurance businesses than we do from boat sales. Accordingly, when we post large same-store sales increases, which are primarily driven by boat sales, the tendency for gross margins to fall exists. To further clarify, we did not experience pricing pressure during the quarter.

Our selling, general and administrative expenses increased $7.4 million, or 19%, to $46 million. However, SG&A, as a percentage of revenue, dropped approximately 90 basis points to 20.1%. The increased leverage enabled us to completely offset the gross margin decline. Removing the increase in our litigation reserve from our SG&A costs, results in SG&A, as a percentage of sales, of 19.4%, further illustrating the leverage we obtained.

Interest expense was up marginally. Though rates were higher than a year ago, our borrowings were less than a year ago. Our tax rate was 39.4%, which is a little higher than recent quarters. Finally, net income for the fourth quarter increased 27% to $10.2 million or $0.54 per diluted share, compared to a net income of $8 million or $0.48 in the year ago period.

Moving to the full year, I'll make some brief comments. Revenue grew 24% to $947 million, fueled by same-store sales growth of 23%, which is very strong in its own right, but even stronger considering that last year, our same-store sales growth was 21%. Most of its growth is unit growth, as we've commented on past calls. When the year started, we estimated that we would do $60 million in sales of Ferretti Group Product, which was a doubling of the business from 2004. I'm happy to report that we actually exceeded $70 million in sales of Ferretti Group Product. We did this without cannibalizing our other premium brands. As mentioned on the last call, in the future, we will no longer specifically break out Ferretti but will refer to our yacht business.

Our gross margin has improved slightly this year, due to improved margins on boat sales and growth in our higher margin service, parts and accessories and finance and insurance businesses. Keep in mind that the increase in the lower margin yacht sales partially offset these increases in our higher-margin businesses.

SG&A, as a percentage of revenue, was 36 basis points lower than a year ago, yielding almost a 40 basis point gain in our operating margin for fiscal 2005. Interest expense increased, primarily due to the rising rate environment. And finally, our net income increased 29% to $33.8 million, resulted in diluted earnings per share of $1.88 versus $1.58 last year. Again, adding back the increase in the litigation reserve, 2005 finished at $1.93 or 22% ahead of last year.

Turning to our balance sheet, at year-end we closed the books with $27 million in cash. Bear in mind that we used our excess cash to pay down our inventory financing. Therefore, we have substantial cash at quarter-end in the form of un-leveraged inventory. Put another way, the difference between our inventory balance and our short-term borrowings on the September 30th balance sheet, is essentially cash. As such, we had approximately $165 million of additional cash available at the end of fiscal 2005.

At year end, our inventory was up 12% to $318 million. Given that our same-store sales were up 23% this year, and our thoughts about the future, we feel good about where we are positioned, from an inventory standpoint. I'd also comment that, based on the sources that we speak with and our own knowledge about the industry, the industry is in pretty good shape from an inventory standpoint.

Customer deposits on the balance sheet were up 62%, but as we've said on many calls, it's difficult to get a meaningful read on our business from the deposit line. Our deposits are lumpy and can relate to a yacht sale that is perhaps 18 months out, although I guess we'd rather have the deposits trending up than trending down. Our equity is almost $290 million at year-end. This represents a book value per share of approximately $16, before considering the upside in our owned real estate which was estimated at approximately $30 to $40 million using 1998 valuations. Overall, the balance sheet remains in great shape and we're committed to strengthening it.

Now, let me discuss our guidance for fiscal 2006. This discussion had a lot more clarity before Hurricane Wilma. We finished 2005 very strong. October was shaping up to be a very good month; in fact, maybe even a record month for October. In general, business was doing well. Then we get the unfortunate dual obstacles of damage to the very important south border boating market and the postponement of one of the largest boat shows in the industry. While our team continues to deliver, when it would otherwise seem unlikely, the best visibility we have is that 2006 will be challenging out of the gate.

Keep in mind that the south board boating market tends to be a larger contributor to our business between now and the end of March. It's prudent to expect that those areas may not completely recover from the effects of the storm during that time, thereby impacting all of fiscal 2006. As such, we are adjusting our 2006 guidance to the range of $1.85 to $1.95, which is from the range of $1.95 to $2.00 per diluted share. In both cases, these ranges are net of the estimated $0.10 per diluted share impact from adopting a new stock option expensing accounting standard, which we were required to adopt October 1st.

Reflected in our guidance is our belief that the marine industry will continue to grow for the foreseeable future. We now expect low to mid-single-digit same-store sales growth, which is a correction from the press release. We'll fix the press release in our 8K, which may have already been done by now. But this growth is still solid growth, given the robust sales growth we experienced over the past 2 years and the effects we will likely have from the hurricane. We expect most of this growth will continue to be unit driven. We also expect modest gross margin improvement and incremental leverage at the SG&A line on an annual basis.

On the last call, I pointed out that the December quarter should be modeled as a single-digit earnings per share quarter. The consensus is currently $0.06 for the quarter. Unfortunately, the December quarter will bear the brunt from the hurricane, making it challenging for MarineMax to be profitable in the quarter. As such, it's prudent to model the quarter at breakeven to even a small loss.

As we were ending the year, we received several questions regarding gas prices, interest rates and economic related issues. As we were in our blackout period, we couldn't respond to such questions. But I again want to state that business was very good as we finished the quarter and is very good as we started this quarter. And it was about as it should be from a mix standpoint.

We expect our annual interest expense will track proportionately higher, due to the rising rate environment. We also expect our tax rate to the end the year at about 39.5%. The increase in the expected rate is due to the jurisdictions where we now operate and the impact of the new stock option expensing rules. Factoring in these assumptions, we arrive at the EPS range that I stated earlier. Our guidance excludes the impact, as it always does, from any potential material acquisitions, which we may complete.

Now, I'll turn the call back to Bill for additional comments.

William H. McGill, Jr.: Thank you, Mike. As we enter fiscal 2006, even with the new obstacles, we feel confident in our ability to build upon our success in fiscal 2005 and deliver another year of growth. While Hurricane Wilma will cause us challenges, I'm glad to report that our markets affected by last year's storms are well on their way to a full recovery or beyond. Accordingly, it is a temporary impact with our demonstrated ability to deliver strong same-store sales.

Our customer demographic wants a boating experience as trouble-free and easy for them and their families. At MarineMax, our customers can select, purchase and finance a boat, solely through us, and at the same time, equip their new boats with spare parts and accessories while receiving industry-leading service and support. Furthermore, our 71 retail locations, in 17 states nationwide, enable our customers to travel across the country and utilize a MarineMax location to fulfill their boating needs. No other boating retailer comes close to our breadth of product and services. We believe that by continuing to offer boating enthusiasts an unmatched offering of premium products, a turnkey purchasing experience and follow-up services, MarineMax will continue to gain market share.

On the topic of market share gain, I'm proud to tell you that at the recent Sea Ray dealer meeting, MarineMax received almost all of the first place awards for market share and many second and third place awards, as well. That's another testimony to the strength of our team and the strategies that we have in place.

We believe that by adhering to our core strategies, we will continue to widen the gap between our Company and the other industry players. We constantly challenge ourselves to seek new ways to further broaden our product line and expand our services, in order to improve the experience of our existing customers, while attracting new customers.

In addition, we are excited about the pipeline of potential acquisitions. We have a number of significant opportunities that we are pursuing. We will complete them when they make sense for MarineMax. Remember, we can be selective, as we are the only industry consolidator.

In conclusion, we remain confident about our business prospects for fiscal 2006 and beyond. The industry is healthy and as our results bear out, we have effective strategies in place to continue to gain market share and create value for our shareholders. The combination of our business model, our people and our strong financial position is generating market share gains, strong earnings growth and significant value for our shareholders. We look forward to updating you on our next quarterly call and with that, I'd like to turn the call back over to the operator, who will open the call up for questions.

Thank you. [OPERATOR INSTRUCTIONS] And our first question comes from Ed Aaron with RBC Capital Markets.

Thanks, good morning.

William H. McGill, Jr: Good morning, Ed.

Nice job on the quarter, once again.

William H. McGill, Jr: Thank you.

I wanted to just ask you to talk a little bit more about the outlook. I think by this point, there is not really much debate that MarineMax consistently outperforms the industry. But there is some debate as to what the cycle is going to look like going forward and you seem to be pretty comfortable with the statement that it's going to continue to grow. And with all the uncertainty out there, I'm just curious to get your thoughts on what gives you comfort with that assumption?

William H. McGill, Jr: Well, Ed, as you know, our focus is on the premium products for the premium customers. And what we were seeing and what we continue to see for quite a number of years, is that people with the discretionary dollars, like our customers, they continue to spend. And we get compared to a lot of different industries and we're not really a blue collar focused type business. We're more like Tiffany's or more like Four Seasons and our customers are pretty doggone resilient and at the same time, they're continuing their spending habits.

I'll give you an example. Here are the hurricanes and there's no power in South Florida and we've got people coming by and asking for free boat show tickets as of yesterday. And we've got people talking about, "I still want to talk about a boat when I get my dock back" or whatever the case may be. So, people with dollars that see this as a true family-type recreation that's stress relieving, are saying, "Hey, I'm going to have my recreation." And they can afford to pay for it, so they're resilient. It's not about fuel; it's not about interest rates. It's more about a lifestyle.

Yes, I would reiterate, and September, as we said, was very strong, as was August. And that was after the spike in fuel prices and October was pretty darn strong. And we don't play at all on the -- really the entry level, Ed.

William H. McGill, Jr: We think it [inaudible].

At some point, though, if there's weakness in the market, it does migrate to higher price points, just looking back historically. What do you look at, in your business, to get a sense as to whether or not that is likely to happen? If you can just elaborate on that? Thank you.

I'll tell you, Ed, we do a lot of talking with our sales team and our store managers. Ours is not an industry with a ton of visibility. A lot of it is just what are our -- the guys on the line, what are they hearing from the customers, which then gets fueled up to us. We do have some reports that we track where we look at all boats that are under contract. And we track it, basically, day over day, this year over a year ago, and that report has been tracking higher consistently for about 24 months now. And so that makes us feel pretty good.

And then it's just what are the customers telling us and our customer base is still very much enjoying this lifestyle of boating and they want to go boating. And I think really, if you stratify the industry, and we really can't comment on what's happening outside of the world that we play in, not with any authority. But there are a lot of boats sold that are $25,000 and below in this industry and that's not really the market that we're in. We're on the much higher end.

Okay. And can you elaborate? You made a comment in your script about the pricing environment and how that didn't affect margins at all. Could you elaborate on that? And then maybe talk about what you're seeing in terms of margins on used boat sales?

We received no pricing pressure on margins during the quarter or during the year, quite frankly and nor on the used boat business. Our used boat margins have been relatively consistent for a long period of time. What happens, though, as I said when you drive same-store sales through boat sales, which -- that's what's going to drive it with our average selling price being as high as it is. Boats are the single lowest margin product that we sell so that impacts our gross margins as boat sales spike. And then during the September quarter, you do get a little pick up in the bigger boat sales and larger boats carry lower gross margins, as you guys know. And that's kind of what we saw during the quarter. But no pricing pressure in the used boat margin business. It's been surprisingly the same for roughly 8 years, from a margin standpoint.

Okay. And last thing -- I'll open it up, but could you just give us a sense as to how the margins should break down within your '06 guidance in terms of gross margin, SG&A and so forth, maybe at least just directionally?

Yes, I commented that we ought to see some slight gross margin improvement and I probably would have said maybe a little bit greater gross margin improvement before Wilma. But I'd say now, a slight gross margin improvement and some incremental SG&A leverage. So, we ought to see the operating margin continue to expand incrementally in '06.

Thanks.

Thank you, Ed.

We'll go next to Laura Richardson with BDT.

Thanks. Could you guys tell us either precisely or roughly what was the average selling price in the quarter?

I don't have that. What I can tell you is, if you look at our same-store sales growth of 24%, I would say just over half came from units and the rest of it came from larger product.

Okay. I know your customer is a very upscale customer. Refresh my memory again. What's the average income for your customer and has that increased at all in recent years as you've seen the average selling price going up?

William H. McGill, Jr.: The average demographic of our customer is the wealthy baby boomer and their average income is the $150,000 to $200,000 range. But it varies by the product size, Laura, from an 18 footer; it could perhaps be less.

Right.

William H. McGill, Jr.: These mega-yachts, they're very wealthy people and make millions of dollars in income a year. So, has it increased? Yes, it's been going up a little bit as inflation has gone up and as net worth has gone up on individuals. And the high net worth individuals have been growing better than 10% a year.

Right.

William H. McGill, Jr.: So, that's fueling a lot of what we're seeing. But the customers are still there and we ask our stores, a little back to the very first question that Ed had, and we ask our stores, "What are you hearing? What's going on?" And we just don't hear about fuel prices. We're not hearing about concerns about the economy and even consumer confidence concerns. What we're hearing is, "Hey, I want to do boating." And what's really, I think, great that's happening in our Company is that we're really validating that we've got the right strategies. What we're doing for our customers is exactly what's driving it; it's what they want. And it's what has separated us from any of the other dealers that are out there today is that we stay focused on that.

Right, right, understood. And then in terms of the hurricane impact and the guidance change for '06, how much of that is coming from specifically the Fort Lauderdale boat show and how much from the store closings?

The majority of it is coming from the impact to South Florida and I kind of characterize that really as Naples, the Miami area, Fort Lauderdale, West Palm and Stewart and I'm sure you guys have seen the news reports that are coming out of there.

Right.

William H. McGill, Jr.: 6 million homes without electricity.

Right, right. Yeah, I heard that last night on the news. Is it more the stores or more the boat show that I'm trying to get at?

It's really more the customers in the stores than the boat show. The boat show is definitely going to have an impact on the December quarter.

Yeah.

But when we look at adjusting guidance, it's really just that whole area and how long it's going to take to get it up and running and get people into boating. And as you know -- I think I said this in script -- this time of year, that area gets a lot of additional population growth from people up north coming into the area.

Right.

And they're worried now about cleaning up their condominium and their house and getting their dock built. And they're going to go back in March or April and that's what gives us the belief that it's going to be hard to recover that business by the time the year ends.

Yeah. Okay. So, let's say we saw this morning a release that the Fort Lauderdale show is now scheduled to be on again, November 3rd to 8th. Does that change what you wrote in the press release yesterday, presumably?

No.

William H. McGill, Jr.: No.

It does not. The show is, I guess, going to be next week --

Yeah.

-- which we obviously are going to give it our all and have the best show that we can have there and our team is going to perform like they always do. But it obviously will not be the show that it would have been had Wilma not --.

William H. McGill, Jr.: It's not very good timing, Laura. But it's the only timing that's available to continue the show because of the marina. And it's going to be a little tough with customers, a lot of them without power, to be excited about going boating here.

Yeah, yeah. Well, hopefully, people will have their power by then but I guess you never know.

William H. McGill, Jr.: Well, the estimates are it will be 3 to 4 weeks before they all get their power. But we're going to make the most of it. The resiliency is pretty incredible. If you go to the panhandle and Stewart, Stewart had two hurricanes run over it last year and the panhandle and Pensacola, in particular, had Ivan, which was just absolute devastation. I mean, if you look at what happened to southeast Florida and Naples, we got hit pretty hard but it wasn't devastation. And those markets have recovered very nicely for us. And so resiliency of the customer is what really drives it all and that's our real hope that it will come. But short-term, we're going to be impacted. We have to be. We haven't been able to write insurance for over a week in the state of Florida. It's just now opening up in parts of Florida. It may be even longer before we can even close any boats in southeast Florida. And so we're losing some pretty good production times. But we'll make it up because our team always does.

Yeah. So, if you think you can make up a good amount of this business, it's fairly conservative, would you say, to cut the guidance, assuming you're not going to make it all up?

William H. McGill, Jr.: Well, back to Mike's point, that a lot of the customers that are down at the Fort Lauderdale Boat Show and in southeast Florida are there for the winter months --

Right.

William H. McGill, Jr.: -- and leave in March and April. So, we may, because of their particular docks or marinas or their situation, we may miss some of that business.

Okay.

William H. McGill, Jr.: I think it's prudent that we do say that we need to revise this. Now, if we get better visibility on it later, then obviously, we'll adjust our guidance. But right now, we've got to err on the side of conservativism because we don't know. This call would have been entirely different if it hadn't been for Wilma and obviously, it'd be different if it was 4 weeks from now.

Right, right, understood completely. Now, in terms of the fourth quarter, were there any charges or lost sales from the Gulf hurricanes?

There weren't any charges of any significance. We had a little bit of damage in Texas and a little bit of debris and cleanup in South Florida because both those storms passed South Florida, as well. We did have the insurance moratoriums, with all those storms, including one in early July but we recovered that business. So, I'd say no to both -- no lost business, no charges in the September [inaudible] that we're aware of.

William H. McGill, Jr.: Laura, we've got a strong team. To give you an example, yesterday was Tuesday, the day after the storm rolled through, and in our stores were team members, cleaning up and getting everything where we could get back in business and they were without power in their own homes, and had debris over their homes and everything else. So, hats off to our team for thinking about the Company, as well. And so that's called passion for what we're doing.

Yeah, agreed. And then this litigation reserve, do you get that money back if you end up winning the case?

William H. McGill, Jr.: Yes, if there's an adjustment in the findings, monetarily, we will get that back.

Okay. And then the last question,in terms of the stock options expense, how are you going to reflect that in the income statement, in SG&A or its own line?

No, it's going to be in SG&A.

Okay.

And it's roughly pro rata for the quarters, but in SG&A.

Okay. Thanks a lot, guys.

Thank you, Laura.

William H. McGill, Jr.: Thank you.

We'll go now to Jennifer Malone with Jefferies & Company.

Last year the response that you guys had after the hurricanes actually generated a bunch of pent-up demand, much sooner than a year after the hurricanes. So, would you say your '06 outlook may generate pent-up demand sooner, maybe as soon as the second quarter?

Anything is possible, Jen. I think what happened last year is with the insurance moratorium that the state was faced with for about 5 or 6 of the last 8 weeks in the quarter, the entire state was shut down. So, let's say if you were in Naples, you couldn't buy a boat. You couldn't close on a boat, even though the storm was hitting over in Pensacola or in Stewart. And so, most of the state was not impacted to the degree that the state is impacted this year, from Wilma.

And I don't mean to take away from the damage that occurred in Stewart or Pensacola or the other ones. But with this storm, it's a little bit different because it affected such a wide population base and such a massive boating market that it's possible to have pent-up demand, and as Bill said, we will get the sales. We just don't think we can get them all this year. This is not a permanent effect; it's a timing effect. I would think it's prudent to model that we won't get it all done in time for this year.

Okay. Thank you.

William H. McGill, Jr.: Thank you, Jen.

We'll go next to Greg McKinley with Jardy (ph) and Company.

Thank you. I'm wondering if you could help me better understand the role that your product lifecycles play in your business outlook? We know that the new lines, which I guess you refer to as your yacht business, going forward have, at times, contributed materially to your sales growth. At other times, it's been your legacy business with Sea Ray. But as you look forward, how important is it that you continue to add to product line extension to drive your longer term growth?

William H. McGill, Jr.: Greg, if you go back a few years, it was very important because we didn't really have products for our customers to migrate to, as they moved out of Sea Ray or even some of the Hatteras products. And with the addition of the Ferretti Group products, we pretty well have filled all that white space. And so we don't see that we really need to do too much, as far as additional products, in order to meet our customers' needs. And the exception to that might be some fishing boats to complement the Boston Whaler business that we do, or perhaps some inboard ski boat type business, but not other yacht lines or other brands.

You've heard us say we don't really sell competitive brands within the same markets and we think that's pretty important. So, it's becoming more and more and more a function of what is this thing called boating do for me and my family versus the boat itself. And to support what we're doing, it takes the wonderful manufacturers that we have and their premium products. But it's as much about doing business with MarineMax as it is about owning a particular brand.

Yeah.

Greg, I would add to what Bill just said that if you strip out the new products, we've got phenomenal growth with our core brands. And when you're in bed with a manufacturer like Sea Ray or Hatteras or the Ferretti Group, it's not just about what are the models today. It's critical that the manufacturers continue to come up with new models and innovation, which they all do; that continues to drive sales. And so our core, as you referred to them, our Legacy brands, are doing very well. That's a critical thing and we watch that very carefully, obviously.

William H. McGill, Jr.: And a real testimony to that is how well Meridian has done with us. It was a brand new brand, starting from scratch and it's done very well and the reason is distribution, not just us but some other premium dealers that are selling it, as well.

How long have you had Meridian?

About 4 years.

William H. McGill, Jr.: About 4 years. But it was a little slow in the beginning, starting so, you could say a full 3 years [inaudible].

Okay. And then thinking about longer term, where this Company's profitability can move in terms of operating margins and return on capital, I know by adding some of these brands, obviously, the Company incurred a lot of training costs; there's some higher inventory carrying costs because those products tend to turn a little more slowly. How much of that has been product adoption costs that are behind this versus what should we think of as ongoing operating expense for the Company? And when would we expect to see margins leverage, as a result?

I think the costs that we've incurred to launch like the Ferretti Group brands that we've talked about a lot on these calls, I think the dollars that we have spent are not necessarily going to go away. I think what you're going to see is the sales increase and you'll get more leverage out of the business by increased volume. There's a certain amount of cost it takes to take on almost any brand, especially a product as unique and as special as those products are. We look at the business and we say to ourselves that it's very reasonable and we don't put numbers out there for pie in the sky numbers. But it's very reasonable for us to expect, over time, for our gross margins to be 25.5, maybe a little bit north of that, and for our SG&A to be back around the 17 or even sub-17 percentage points, where we have operated below that in the past.

And that's going to take increased focus from our standpoint, doing a better job of getting the output out of the business, while we're watching the dollars that we're spending. But we think we can get there and that would give you an 8.5, maybe even 9% operating margin and we have regions in the Company that are north of 10% now. And the day that we can get the entire Company firing on all those 8 cylinders, the earnings power in the Company is pretty intense right now.

Well, very good. Thank you.

Thank you, Greg.

William H. McGill, Jr.: Thank you, Greg.

We'll go next to Joe Hovorka with Raymond James.

Hi, guys. Actually, most of my questions have been answered. But I just want to clarify one thing. On your last quarter conference call, you had talked about the fourth quarter -- rather, the December quarter comp-store sales would likely be negative. And from your comments today, it sounded like before Wilma, you were maybe running at positive comp-store sales? And then maybe you could just update us on how negative you think the sales will be in the December quarter?

I would tell you before Wilma, October was on track to have positive same-store sales growth. That's a good point. It's going to be negative this quarter and I would -- it's hard to really throw out a number right now to say how negative. I can tell you that I think it's going to be very hard, as I said, for the Company to be profitable. I think breakeven is the right answer because of the -- we're right at the end of October. We've got 2 months still to go and we're not expecting a whole lot of sales to be coming out of the affected regions in these 2 months. So, we'll have fairly significant negative comp growth in the December quarter, is what we're estimating.

Are your comp trends outside of Florida still positive?

Comp trends outside of Florida are doing fine, yeah. What happens though, Joe, is we recognize a boat sale when it's paid for and delivered essentially, from the customer. And between now and April, while we are now in March, while we do literally sell boats and deliver boats and record revenue in other markets, a lot of those sales in other markets are contracted for April and May delivery and the revenue comes in the June quarter.

Okay. All right. Thanks, guys.

William H. McGill, Jr.: Thank you, Joe.

We'll go now to Matt Kelleher with Smith Barney.

Hi, guys. Great quarter. At September 30th, how much of your inventory was 2005 and older model years, in units?

Well, I definitely don't have the units right in front of me. I can tell you that our aging mix was very comparable to the prior year, but I don't have the exact -- oh, I'd say in units, it was less, in units than in the prior year. We, like a lot of dealers, with the sales we had, we got pretty lean in certain categories of product, including some small product, as we ended the June quarter and even as we were wrapping up July and August.

Great. Well, good work. I was also looking at Marine Products' release this morning and they were saying that they're going to cut back due to the hurricanes and the high fuel prices and consumer confidence. I assume the answer to that is because they make mostly smaller boats?

William H. McGill, Jr.: Well, that is correct.

Yeah, their release -- and it specifically said the smaller boats and we don't carry the products they sell.

But you carry some competing products but mostly your mix is towards the larger stuff?

Well, not only is it larger, it's a more premium product range, what we carry versus what they sell.

William H. McGill, Jr.: And it's a much more premium experience for the customer. I think is the big thing on the entry products.

Right.

All right. Great. Thank you.

William H. McGill, Jr.: Thank you.

We'll move now to Greg Hartley with Kalmar Investments.

Good day. Can you help clarify the challenges that a West Marine or like the intra-quarter announcement from Brunswick regarding their production adjustments, to what extent that overlapped or did not overlap relative to your business?

It's hard to comment specifically on Brunswick but I'm going to say again, Brunswick sells a lot of product that is the lower end of the industry and they also had more of a direct impact from Hurricane Katrina than we did.

William H. McGill, Jr.: And we don't have stores in that market.

We had no specific exposure in those markets and I don't know the number of outboards Brunswick sells down there. And then West Marine, I think as we've commented before, because people often try to compare us with West Marine, but it's two different businesses, really. West Marine is essentially a hardware store for boaters. And they're the best at it in the industry out there. But in my 8 years in the industry, the only thing I can comment on is the manufacturers are selling to the dealer a far more equipped boat than it used to be 8 years ago. And I don't know if that's impacting West Marine or not.

William H. McGill, Jr.: And the customers are more, "I want you to do it for me" than they have been in previous years.

15 years ago, when you bought a boat, you bought a cooler and a toolbox at the same time. And today you don't. You buy the cooler but you don't buy the toolbox. People don't want to go work on their boats. They want it done for them. So, that could be impacting them and that's just us theorizing. They probably know that a little better than we do.

No, that's helpful. Thank you. And then a follow-on question, if I may? Bill, you said during your prepared commentary regarding acquisitions that you're excited about the pipeline and you see a number of opportunities. Could you comment any further about is this reflecting any kind of change in the pipeline, either getting larger or anything getting closer, if you will? Thank you.

William H. McGill, Jr.: Well, I can't really comment on whether they're getting closer but I can comment to say that we've always had a very active pipeline. The timing, as such, is what we look at and the needs of the sellers or the people that are joining our team. And I can say that we do believe there are some very good possibilities going forward and it's not that we're going to indicate when they will happen, but they will. And the neat thing is, we are the only marine consolidator out there.

So, maybe it's just the way we like to do business but we don't rush in to do the acquisitions. We try to really run a good business and have great same-store sales growth and focus on the people. And acquisitions are kind of like the gravy and when they happen, they happen, but we're not going to rush them and we're absolutely not going to do anything that is what's called a major stretch with the Company. So, it'd be one of those things, we'll just have to wait and see.

(OPERATOR INSTRUCTIONS) And we'll go to Ed Aaron with RBC Capital Markets for a follow-up.

Thanks. Just a couple of follow-up questions. First, I think last year in this quarter, there was a Sea Ray promotion that was in effect. Is there a similar promotion this year?

Ed, there was a Sea Ray promotion, which probably came out in response to the hurricanes that affected the southeast and as of now, there's no wide-scale Sea Ray promotion that's in place.

Okay. And then lastly, [inaudible] levels, could you talk about any thought you might be giving to stock buy-back? You do have some room on your balance sheet to do some of that, if it makes sense. And I know you're also looking at acquisitions in the use of capital. But do you give any consideration to stock buy-back here?

We talk about items like stock buy-backs at our Board meetings and I'm sure it will be talked about again at this meeting, as it has been at past meetings. We have not acted on that as of yet, and I can't say whether we'll act on it here in the future. If you recall, one of our biggest challenges as a Company, for years, was our trading. We traded by appointment for our first 4 or 5 years and we're finally getting some volume out there, which we are glad to see and new investors into the Company, which is positive. But that's something that we'll certainly consider, again, Ed, as we have in past Board meetings, too.

Okay. And do you have any guess as to what the fair value of your real estate would be now? I know you haven't' done a formal appraisal since 1998, but --

I would --

William H. McGill, Jr.: I think it's close to $40 million, in excess.

It's higher than that. I mean that's -- Ed, I would hate to even throw out a number. We've bought a number of parcels, quite a few parcels, on the water, post-1998, in great markets. And they certainly have gone up in value, since the time we've done those acquisitions. But I'd be totally guessing. It's something north of 50.

William H. McGill, Jr.: Yeah.

Okay. Thanks.

William H. McGill, Jr.: Thank you, Ed.

We'll go now to Jeff Allen with Silver Crest Asset Management.

Hi, good morning. Just following on your earlier comment that with the addition of Ferretti, you filled in most of the white space in your [inaudible]. I'm thinking maybe you might be refocusing on the non-boat revenues and could you just comment on your reference there?

William H. McGill, Jr.: Well, Jeff, we have been focusing on the non-boat opportunities for gross margin, and as you know, they're higher gross margin opportunities than even the boat sales. And we've done very nicely with the finance and insurance and with interest rates rising, that hurts that a little bit. But we've still been able to grow it. Parts and accessories are growing very nicely within our Company. Service is a huge opportunity and we have a major full-court press on it.

But with that means hiring a lot of extra technicians and that type of thing. And so we are pursuing those. But there's a lot of opportunities that are there that are non-boat and there's also opportunities just to continue to grow market share and to bring the operating margin of all of our stores up to that 10%, which, as Mike mentioned, there's ones that are beyond. So, we've got a lot of room for growth without any more acquisitions and without any new product lines or anything else, [inaudible].

Okay. Fair enough. Thanks.

Thank you.

We'll go next to Kevin Sonets with RK Capital.

Thanks. Regarding your comments about no longer talking specifically about the Ferretti Group, but you will be discussing the yacht sales, can you just give us a little historical context there? As you're going to categorize them now, what were yacht sales in fiscal '04, fiscal '05?

Yeah, what we're going to do, Kevin, is very similar to what we did when we took on Hatteras in 1998. As we were ramping Hatteras, it obviously was contributing to some same-store sales growth. And then once we anniversaried it, we no longer talked about Hatteras. We just talked about our yacht business and Ferretti is going to fold into those same types of discussions and when we have a strong same-store sales growth, we'll give color to what drove the growth. Was it migration or an unusually strong yacht quarter or was it not? And we've gotten to the point with Ferretti where we've had it for 2 years and we think that makes sense to comment on it in context of our overall yacht business and yacht focus, which is how we look at the Company.

Okay. And what were yacht sales in fiscal '05?

Michael H. McLamb? You know what? I'll be prepared to answer that as we go into '06.

William H. McGill, Jr.: We've got our hands full here, dealing with it.

Kevin Sonets. No problem. Just one other question, regarding the real estate question and answer, I thought that was interesting. What's on the books today, in terms of the real estate? So, if I want to assume it is worth $50 million, in that book value you mentioned, I assume some part of that's in there?

Yeah, no, actually, to clarify, I think what Ed was asking and the comment that I made in the prepared remarks, if you take our book value, we have something around a $50 million gain on top of the book value, in real estate values. Several years ago, we used to comment more about this, than we have in the last couple of years and every now and again, it comes up as a question, which is why we decided to say it at this time. But we've got - the example I always give is Bill's Store, which the Company bought from him in 1998. It's on our books for $400,000. It's on one of the busiest highways in Florida. It's on the water. It was appraised by -- had a valuation done in 1998 of $4.5 million or something like that. And it's obviously gone up over the last 8 years.

So, there's a fair amount of upside in our real estate. We only point that out, really as questions come up. It's not our intention to monetize it. We love controlling our future and having access to the water and having the facilities that we have. We're blessed with many facilities on high traffic roads that are also on the water. And that is a wonderful facility in our industry, obviously.

No, I think it's very worthwhile, especially as the stock kind of almost approaches that book value. So, just to making sure I understand it. So, the $50 plus million number and I understand, Mike, that you're just kind of throwing out a guess. But the $50 plus million number, that's over and above any value that's already on the books in terms of equity?

Absolutely.

William H. McGill, Jr.: Yeah, that's above balance sheet.

Okay, great. Thank you.

Thank you.

William H. McGill, Jr.: Thank you.

We'll go now to Mike Lauren with First Washington.

Guys, congratulations.

William H. McGill, Jr.: Thank you, Mike.

We're seeing some commodity pressures, obviously, and fuel prices, and yet you've commented that your gross margins you see going forward, you're going to gain some leverage there. Do you see any pricing pressure whatsoever on yachts coming from Brunswick, because of these pressures?

You know, we've obviously seen the same headlines that you're referring to, Mike, how petroleum affects the cost of a lot of goods and even wood and concrete prices. But our industry has never really done a great job of sourcing the components and the materials for the boats. I'd tell you in the last 3 to 4 years, Brunswick and, I think other manufacturers have followed suit, has done an outstanding job of looking more globally for the materials that they use to build the boats. And really for the last 4 years, we've had very little true pricing pressure. I shouldn't say pricing pressure, but pricing increases from people like Sea Ray or our other manufacturers. We're expecting some as we go into the current model year and even beyond. But we're not expecting any material price increase, and I say material, any significant price increases that are going to alter our outlook for the industry.

Thanks. And one last, could you give a little more color to the litigation expense? What was involved there? Obviously, it kept you from having a truly fabulous quarter; it was a pretty big impact. Just any other thoughts?

It's simply a -- we pointed out and I'll point out again -- it's a single lawsuit, it's a single event, which was decided adversely against us. We have appealed it. It's kind of hard to comment a whole lot on it other than to say we've appealed it, which means we disagree with the decision that was handed down. And we hope to --

William H. McGill, Jr.: Prevail.

-- yes, to prevail. But when you have a judgment against you, you have to put up a reserve against that judgment, which is what we did.

Any anticipated timeframe for when this might be adjudicated or --

No, and I would hate to even throw out a time. The way the court systems work, I'd had to throw out an estimate of time. It's going to be a while is, I think, is a safe guess.

Okay. Thanks.

Thank you.

William H. McGill, Jr.: Thank you.

And we have time for one final question and we'll go to Matt Kelleher with Smith Barney.

Gee, I'm sorry. Mine was asked and answered. That $50 million isn't anywhere on the balance sheet is what you guys are saying? So we just add that to the property, plant and equipment?

William H. McGill, Jr.: That's correct, Matt.

So, that would really be closer to $150?

William H. McGill, Jr.: That's correct.

Super. Good news. Thank you.

Thank you.

William H. McGill, Jr.: Thank you, Matt. Operator, can we close?

Yes, sir.

William H. McGill, Jr.: Okay. We'd like to thank everyone for participating in our Fourth Quarter and Fiscal Year 2005 Conference Call and web broadcast this morning. Mike and I are available this afternoon or the rest of the day to answer any questions you may have. So, thank you for you continued support and belief in MarineMax and we'll all say a prayer, too, for the poor families that are without power and some without roofs in Florida. Thank you.

And that concludes today's teleconference. Thank you all for your participation.