MarineMax Inc (HZO) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to the MarineMax Incorporated fourth quarter and fiscal year 2006 earnings results conference. Today's call is being recorded, and now at this time, for opening remarks and introductions, I would now like to turn the conference over to Mr. Brad Cohen.

Mr. Cohen, please go ahead, sir.

Thank you very much, Operator. And welcome to MarineMax's fourth quarter 2006 fiscal year results. I am sure that you have all received a copy of the fourth-quarter press release, but if you have not, please call Linda Cameron at 727-531-1700, and she will fax or e-mail one to you immediately.

I would now like to introduce the management team of MarineMax, Bill McGill, Chairman, CEO, and President; and Mike McLamb, Chief Financial Officer of the Company.

Management will make some comments about the quarter and then we will be available for your questions. Mike?

Thank you, Brad. Good morning and welcome to MarineMax's fiscal 2006 first -- fourth-quarter and full year earnings conference call. Before I turn the call over to Bill, I would like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act 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 10-K/A and other filings with the Securities and Exchange Commission.

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

Thank you, Mike. And good morning, everyone. We appreciate you joining us as we share the results of our fourth quarter as well as the full year of 2006, and provide you with our thoughts on fiscal 2007.

We are pleased to report another record quarter of strong top- and bottom-line growth. Our revenue grew in excess of 41%, with same-store sales growing a strong 14%, which was on top of 24% last year.

As our press release indicated, our net income grew over 20% after adjusting both periods for items to make them comparable. While we would like to have done better versus our expectations that we set in July, I am proud of our team's performance during this quarter.

As we stated on our July call, it is a more challenging retail environment. Most resalers in our industries have reported softer sales. Our team's ability to achieve 14% same-store sales growth in this environment is something we are very proud of. It clearly shows that MarineMax has the right strategies, the right products, and most importantly, the best team.

Our same-store sales growth in the quarter came as a result of our long-term strategy that we have committed -- communicated over the years, including on our July call. In challenging times, we get aggressive. We stepped up our marketing and energized our team with specific promotions to help drive sales and take market share.

We did this at a time when our competition was tightening their belts and spending less to drive sales. We know that every customer we add to our family today will potentially buy several additional boats from us in the future as they trade up, enjoying the lifestyle of boating with MarineMax. This was the same strategy that we deployed in 2001 and 2002 that led to strong growth in '04 and '05.

A good example of what we did to drive sales was the World's Largest Boat Sale that we launched in August. Our team rose to the occasion and executed this sales event very successfully.

Each year we have held a special sales promotion to help drive business in the last quarter of the season. This year, we took the event to much higher levels. First, we increased the marketing of the event to include major newspapers, many radio stations, and some TV stations in the markets that we operate.

We also directed the message of the marketing to really catch the attention of potential customers. This was the first time that our marketing was so widespread and coordinated around a single event nationwide. Our teams then held the boat sale at offsite locations, usually with very good highway visibility. The offsite locations helped to legitimize the sale in the eyes of the consumer.

Due to the offsite nature, the event was targeted towards smaller products, 34 feet and smaller. The results were impressive. Our unit growth for the quarter on a same-store basis was almost twice what our same-store sales growth and revenue was. We moved a large amount of targeted boats.

Perhaps the best thing about the event is about 70% of the sales were to families that were either not active in our database or were new prospects. This means we added potential future sales and grew market share.

While the success of the event is indisputable, our flow through to the bottom line was not as great as we had hoped for, due to the increased marketing spend, additional incentives to our team, and then reduced margins on the boats which we sold.

However, if history repeats itself, we will be very pleased that we invested the extra dollars today to drive business for the future in repeat business.

I just mentioned that our boats margins compressed during the quarter, which they did. But as you can see, our overall gross margin actually expanded. This is a direct result of our team continuing to grow our higher-margin businesses such as finance and insurance, service, and parts and accessories.

Incremental growth in these higher-margin businesses did a lot to offset the planned reductions of boat margins that we anticipated when we launched the World's Largest Boat Sale event. Again, I think MarineMax, with our focus on these higher-margin areas, is in a unique position to be aggressive in challenging retail environments with the margins on our core products of boats, because we have the potential to offset that pressure with our higher-margin businesses.

I also want to point out that the increase in our same-store inventory dropped to 11%, after the acquisitions of Port Arrowhead and Surfside 3 and the addition of the new line of Cabo yachts are removed from the numbers. This is again consistent with what we stated on our July call. We expect that same-store inventories will continue to fall in line with our same-store sales growth as we move through the next 12 months.

We recently completed the Norwalk, New York, Long Island, Tampa, and Fort Lauderdale boat shows, and are optimistic about what we saw. Traffic was healthy at the shows and we are encouraged by the orders that we secured. With that being said, we are now in the seasonal slow part of our year, where our visibility gets limited.

While these shows hold promise, we believe the overall environment will remain challenging, and we anticipate that in the near term, it may still require us to commit additional marketing dollars, and perhaps, incentives to drive business as we did in the September quarter.

I mentioned Cabo Yachts a minute ago. We announced that we expanded with Cabo on the west coast of Florida in mid-September. We now have it for the entire State of Florida.

Cabo is a very well-built premium fishing boat that ranges from 32 feet to 52 feet in length. The brand is part of the Hatteras collection and provides us with a new source of customers and revenue as the brand fills a void in our product lineup between Laguna, Boston Whaler, and Hatteras.

The superior-quality Cabo yachts should be a great source of customers for Hatteras as they migrate into the larger products, since Hatteras starts at 54 feet today.

The integration of our two most recent acquisitions, Port Arrowhead and Surfside 3, is progressing according to plan. We are pleased with the initial performance of both and believe that they have even more long-term upside than we originally expected when we acquired them. We are proud to say that their teams are now a passionate part of our family.

While the near term is likely to present challenges, we remain confident that our long-term strategies will allow us to continue to expand revenue, profits, and gain additional market share while providing the best lifestyle experience to our customers and boating enthusiasts.

I would now like to turn the call over to Mike to review in more detail the fourth quarter and year -- and guidance for 2007. Mike?

Thank you, Bill. I'd also like to express my thanks to our team for delivering another strong quarter, despite a more challenging retail environment. The 14% same-store sales growth is very strong and speaks to how well our team executed during the quarter.

For the 3 months ended September 30, 2006, revenue grew over 41% to $324 million, including a 14% increase in same-store sales, which followed a 24% increase in the same quarter last year. The remaining growth came from the acquisitions that we completed during the year.

As Bill indicated, our same-store sales growth was entirely unit-driven. Actually our units grew almost twice the level of our same-store sales revenue growth. This was one of the strongest quarterly unit growths that we have ever experienced.

Gross margins expanded 60 basis points to 28.9% from 28.3% last year. As Bill said, our overall margins increased despite reduced boat margins. This increase is due to the incremental growth in our higher margin businesses, primarily finance and insurance, service, and parts and accessories. Our SG&A expenses increased 46% to $67 million, or 20.7% of revenue, versus 20.1% in 2005.

Included in last year's SG&A was a $1.7-million charge related to an increase in our litigation reserve associated with a single legal matter which is under appeal. Included in this year's SG&A is approximately $1.1 million of stock option expenses as required by the new accounting rules. Factoring in both these variables, SG&A as a percentage of revenue increased about 100 basis points to 20.4% this year.

As Bill shared with you, the increase in SG&A was driven mostly by additional promotions for our team and marketing dollars, both of which helped to drive sales during the quarter.

Interest expense increased to $5.7 million due to the rising rate environment and additional borrowings associated with the acquisitions. Our tax rate was up to 39.7%. We believe that on an annual basis it will approximate this level.

Finally, net income for the fourth quarter increased over 24% to $12.6 million or $0.66 per diluted share, compared to net income of $10.2 million or $0.54 per diluted share a year ago. Excluding the impact of expensing stock options, and the lawsuit reserve increase, net income increased almost 21% to $13.5 million from $11.2 million in '06.

Now, I'll make a few comments on fiscal 2006, hitting only the highlights. Revenue exceeded $1.2 billion. The increase in revenue was driven by a 7% increase in same-store sales growth, which is on top of 23% last year, and the addition of approximately $205 million from stores opened or acquired that are not eligible for inclusion in the same-store sales base. Obviously most of this relates to the acquisitions.

Gross margins are up 53 basis points, again, primarily due to the expansion of our higher-margin businesses I referred to earlier.

Excluding the impact of stock option expenses of approximately $3.5 million and the hard costs we incurred associated with Hurricane Wilma of approximately $1.2 million, and excluding the lawsuit reserve increase last year, SG&A as a percentage of sales increased to 18% from 17.8% last year. As such for the year, SG&A is approximately flat in a more challenged environment.

Finally, excluding those same charges, net income is up about 23% for the year. Keep in mind our same-store sales growth of 7% includes the impact of Hurricane Wilma, which adversely affected our largest market, Florida. The exact extent of the impact to Florida is hard to measure, but intuitively, it has had an impact.

Turning to our balance sheet, at quarter end we had $25 million in cash. But as I've said in the past, we utilize excess cash to reduce our inventory financing, so we have substantial cash in the form of unleveraged inventory. At September 30th, we had inventory -- equity and inventory, excuse me, of approximately $140 million.

Our receivables more than doubled over the prior year due to the acquisitions and the strong close to the year that we had.

Inventory increased to $463 million from $318 million at the end of September last year. Of the increase, over $99 million is attributable to the Port Arrowhead and Surfside 3 acquisitions and $12 million is from the additional Cabo yacht inventory which we purchased as we became the dealer in mid-September.

Excluding the two acquisitions and Cabo yacht inventory increase, same-store inventory increased 11% at the end of September.

Inventories dropped sequentially from the June quarter as we indicated they would, and they should continue to fall as we move through fiscal 2007, as we are buying less in dollars this year than last.

The increase in property and equipment is due primarily to the Port Arrowhead acquisition, which we acquired three pieces of property including a large marina.

Our real estate is a growing asset with substantial value over its carrying amount, with most of it located on the water in desirable parts of the country. While we have not done recent appraisals, we have estimated that the excess fair value over the carrying value of our real estate is at least $60 million.

Customer deposits dropped, but as we've said repeatedly in the past, our deposits are very lumpy and not necessarily an indicator of future business. One or two large yachts can drive increases or decreases in the deposit line.

The timing of the acquisitions also impacted the balance of our revolving line of credit, which grew to $322 million at the end of the quarter. But I'll remind you that our borrowing capacity is now $500 million, which allows for future growth.

Our equity is just under $350 million at quarter end, which is more than $18 per share. Adding in the excess real estate value net of tax raises our book value per share to above $20. Overall, our balance sheet remains in great shape and we are committed to strengthening it.

Now, let me discuss our guidance for fiscal 2007. As I explain our guidance I need to remind you that our business is difficult to predict and our visibility is limited, as Bill said. As such, we don't issue quarterly guidance.

Consistent with the 2007 guidance that we gave in July, we expect that the marine retail environment will remain challenging, and we anticipate higher levels of marketing and promotional expenditures in order to gain each incremental sale and drive same-store sales growth.

We expect pressure on the margins of the boats, but are optimistic that our expansion of our higher-margin businesses will offset this pressure. As such, our operating margin in 2007 will likely be flat to 2006. Based on what we have recently been seeing, we continue to believe that same-store growth will be in the mid-single-digit range for fiscal 2007.

In general, this guidance is consistent with our past guidance, but we feel our upside and operating margin improvement is very modestly less than what we indicated in July. This is due to us coming in at the low end of our range in the September quarter and us having another quarter of visibility under our belt.

Therefore, we are modestly adjusting our expectations for 2007 EPS to be in the range of $2.05 to $2.15, excluding the impact from any potential material acquisitions that we may complete.

I will now turn the call back over to Bill for additional comments.

Thank you, Mike. While we acknowledge that we are modestly lowering our guidance range by $0.10 for 2007, we remain focused and committed to our core strategies and long-term view.

Early 2007 boat show results and attendance indicates resurgence in the boating customer's confidence. However, not having a crystal ball, we believe that it is prudent to be cautious in our guidance and forecast and rest -- but rest assured that we'll be pushing hard to exceed our expectations, if external economic factors cooperate with us.

We are singularly focused on building sales momentum and getting even better at reducing costs and maximizing the value of our assets.

Our focus is very simple. We understand that it's about the people, a passionate, educated team delivering the boating dream through sales, service, and execution. And it's about our customers enjoying boating as a lifestyle, focused on boating's many benefits to the family and stress relief.

At the end of the day, we provide our family of customers with a full boating experience, which makes MarineMax a world-class brand.

Our financial strength provides us the significant flexibility to expand our presence and the brand through accretive acquisitions as they make sense for our company and by investing in the expansion of existing operations that provide the best return on that investment. We are committed not only to growing our top line and extending the reach of the brand, but to enhancing value below the operating line, while we continue to outperform the marine industry in virtually every measure.

Our near-term outlook will be challenging. But these challenges become opportunities for the long-term growth. I am confident that our MarineMax team will continue to improve our business, take market share, and return value to our shareholders.

Before I open it up to questions, I'd like to remind you that over the last 3 years, our same-store sales growth has increased 17%. Same-store sales growth has increased 17%, and our comparable net income is up over 80%.

With that, I would like to open it up to questions.

Thank you very much, sir. [OPERATOR INSTRUCTIONS] We'll go first to Ed Aaron with RBC Capital.

Thanks. Good morning, guys.

Hey, Ed.

A couple of questions for you. First, let's see, with the comps coming in ahead of expectations, but earnings coming in at the lower end, I'm assuming that the marketing spending was higher than you had planned.

Over the course of the quarter did you get -- did you progressively increase your marketing plans or did you just underestimate the spending plans that you put in place earlier in the quarter?

I can tell you, I think we ended up launching the World's Largest Boat Sale, which when we were giving the guidance in July, we had an idea that we were going to do an end-of-year seasonal event like we always do, but it wasn't quite to the degree that we did now.

Ed, we said, "Why not? Let's go out and really do something in a major way and let's take some significant share." And to take -- to sell the number of units that we sold -- and 70% of them got the units that we had a chance to sell in the short term, is pretty significant.

Do you expect that sale to become an annual event?

I would say that it will. I don't know that the twist would be the same. We may put a little different spin on it, because I think we got a lot of people concerned, including investors that, "Hey, what are you doing? Are you in desperation here?"

But that's the message we wanted to kind of put out to the customers that, hey, now is the time to get all the benefits of MarineMax. And we've got to clear some inventory.

Ed, we had -- I mean, I said more than double our revenue growth was in the way of units. To have over 30% unit growth, I mean, I can assure you the industry did not see that in the market share gains that are going to be evident when the data all comes out.

Getting them in our families today, as we know, is very, very important. And to put everything in perspective, I know you know this, Ed, and probably most people on the call do, but the difference between the high end of our range and the low end of our range equates to $1.5 million at a pretax level.

And so because there are so few shares outstanding, it's not like it's a major deterioration one way or another. It's a little bit more marketing expense, maybe a little less than the boat margins and you get to the low end of the range. Conversely, the other way around, you could be at the high end of the range.

Sure. Yes, that's a fair point. On the boat margins, can you give us just a general sense, if you looked at margins kind of on a product-by-product basis, what the variance was versus last year on the gross margin line?

On a product-by-product basis, I don't have that handy. I would say other than obviously the larger -- a real large product like, let's say, a 55-feet [North], which we have always maintained that's doing pretty good, I would say the margins there have held up pretty well. I think most of the margin erosion would have been at the 34 feet and down, where we got aggressive at the World's Largest Boat Sale.

Okay. And then just a last question, before I turn it over, the -- kind of on a quarter-by-quarter basis for '07, I think you had previously stated expectations for a small loss in the first quarter.

Right.

First of all, I'm assuming that's still the case?

Yes. I would definitely be modeling a loss. I know that the analysts that have the numbers out there are at a loss, but I would definitely get a loss with the two acquisitions coming in now. That's what people should be prudently expecting for December.

And I would tell you, as I said in July, when you bring in the two acquisitions again, it's going to be work to get to the level that we had last year for the quarter, which I think that's mostly where people are coming in at now. And then what I would do is just kind of tweak the quarters or adjust the quarters based on the same-store sale that was achieved during that quarter. If it was a high one, it may be a little more challenging this year. If it was a low one, there is some potential upside there.

Right, but how much dilution do you actually expect those acquisitions to bring into that quarter?

Into the December quarter?

Yes.

I mean, if we were at $0.04 positive last year and I am telling people to be in the -- I forget what I said on the July call but I know the Street's set it at a negative $0.05 now, that's -- again, you're not talking about big dollars, because it's only about a breakeven quarter, and to have those two large businesses, $250 million in business, they definitely will lose enough money to take us into a loss.

I guess what I was getting at is last year this quarter was impacted fairly significantly by the hurricane and it sounds like the boat shows are going fairly well this year. So I'm just trying to figure out what the --

If you go way back, Ed, if you go way back to even when we made $0.17, which was on $4 million of pretax earnings, $4 million of pretax earnings isn't a whole lot for two large companies to eat up in a quarter.

Fair enough. Thanks, guys.

Thank you, Ed.

We will go next to Steven Rees with JP Morgan.

[technical difficulty] increasing SG&A to really invest in and acquire new customers, develop the relationship early on. How much of your business is from repeat customers, and in your experience, what do you think the average time is that customers wait before they trade up?

Steven, the repeat part of our business is about 45% of our sales, and the average time, depending on the size, is anywhere from about 3 to 5 years. So it's an investment in the future, as you said.

Okay. And then you've had some experience here in the quarter with increased employee payouts and some additional traditional marketing. Can you just talk about what you think is the most efficient way to drive sales and what you plan on doing in 2007?

We believe the most efficient way to drive sales is to keep our team focused on the lifestyle of boating. And when -- what MarineMax does, we call it [selling] the balloon with everything that we bring to the equation and try to get away from the price part of it.

But it's real tough to do in difficult times because what you end up doing, the manufacturers and we get aggressive to switch it faster and harder and so we get them a little more price focus.

But the biggest opportunity is to stay focused on the lifestyle of boating and what does boating do for the individual and for their family. And so we've got to -- we are reenergizing our team back to that, what they know. And -- but at the same time we're going to have to do a lot more marketing, I think, to get the customer.

Okay, great. Thank you very much.

And next we'll go to Laura Richardson with BB&T.

Thanks. Hi, guys.

Hi, Laura.

Hey, Laura.

I would think, with the challenges in the environment, that might help your acquisition pipeline, is that a fair assumption?

Well, Laura, as we've said on previous calls, when times get a little more challenging for the bottom lines of companies that are looking to join our family -- and we have a big pipeline of potential acquisitions, they get a little skittish, saying, "Well, maybe I need to wait until times get a little bit better." So it's almost the opposite.

Oh, okay.

When times are better, their interest level goes more up because we pay on a multiple of earnings.

Okay, okay. They want to get a good price when they sell?

That's exactly right.

Okay, that's fair. And following up on the question Ed was asking about the first quarter, I understand the earnings impact of those northern dealerships you acquired. But if we are thinking about comps, given that December was a weak quarter last year and Fort Lauderdale was a negative in the quarter, is it fair to assume you could have, like, better than average comps in Q1?

I think it's fair to assume that when you are up against a negative 4 comp, which we are up against, that we definitely would hope to be positive since we want to be mid-single digits for the whole year. The only thing I'd tell you is, again, it's a small quarter.

Yes.

And while we -- we hope Florida to do better because it's not going to have Wilma. From a modeling perspective, I think it's prudent to expect a loss in the quarter.

Yes, yes, I'm not going to argue against that, Mike, because I'm with you. I was looking through notes and I -- if it was ever said I don't have it in my notes, of like, what -- how negative was Wilma for you last year? Did you ever quantify it?

Well, here is what I -- I know one thing we commented and I've got a decent script memory from when we read these things, but the -- we said on the January call that outside of Florida we had double-digit comps in the December quarter.

Okay.

And then -- so that would tell you that Florida was negative, certainly.

Okay. And then the last question might be easier. What is the -- I had 85 stores at the end of the last quarter and now 88.

We have opened up what I'd call a handful of auxiliary locations near other stores across the country.

Okay. And what's the plan for those next year?

We normally open up two to three stores like this each year and we'll probably open up a couple more. These are more like sales center operations in different parts of the country that are operating contiguous with other stores.

Yes. So if I was modeling them, I shouldn't model quite the level of sales from a full dealership?

No.

No. It's to supplement the stores that are in the same markets.

Okay. Thanks, guys.

Our next question will come from Joe Hovorka with Raymond James.

All right, thanks, guys. A couple of questions. One is, can you give us the dollars contributed from the acquisitions in the quarter?

It's basically the entire difference between the same-store sales growth and the top-line revenue -- the couple of stores we opened had some contribution, but just the difference, Joe.

Okay. So the new stores are minor then?

That's correct.

Right.

Okay. And your share count actually declined from the June quarter to the September quarter. Why was that?

Two reasons. One is you have less options coming in to it when the stock price falls. And then the second reason is we did buy back shares during the September quarter. We bought back, from memory, 225,000 shares during the quarter, which is consistent with what our -- not our requirements, but our authorization is, is to buy back shares to offset some of the dilution caused by options in the employee stock purchase plan.

And can you talk a little bit more about the potential for Cabo? How big is the brand nationwide? How much of that is sold in Florida?

Our best estimates -- and we just -- as Bill said, we just kind of got the other coast of Florida and we are trying to kind of work through what that dealer did. But it's probably safe to say that the two dealers that we got the product from were probably in the $40-million range, maybe a little bit north of that.

But I wouldn't -- you guys should not expect that we'll have $40 million in year one. We -- obviously whenever you take on a new brand, you got to get your team up to speed, you got to get the marketing plan in place, the product to the stores, and so forth.

So something south of that is probably a reasonable expectation for year one for Cabo. It's a fantastic brand. I think the bigger potential for Cabo is how it's going to be a feeder product for the rest of our portfolio like specifically with Hatteras, and how it's going to migrate customers up into the 54 Hatterases, the 64s and so forth.

Okay. So if you make an assumption that you're going to do maybe 30-ish or something like that, and that gives you almost 2.5% in comps in '07 just from Cabo, and if you are projecting a mid-single-digit comp for the full year, are you being conservative, are you --?

I'll be honest with you, when we projected our comps, we factored Cabo in to a little degree. I mean, mathematically if you do it, I think you're right. You would probably add about 2 points. We've got to get our team up to speed on Cabo and get the product here also, and get it sold in (multiple speakers).

And we've got some product to sell through that is not fresh product.

Right.

Not fresh, okay. Did you have any Cabo sales in the September quarter or are they all coming after October 1?

Nothing in the September quarter. All post 9/30.

And it's a lower-margin boat also, Joe. It's not a real high-margin boat at this time.

Lower margin relative to your corporate margins or relative to something like --?

It has the same type of margins like a Hatteras would.

Hatteras. Hatteras would.

Okay, great. Thanks, guys.

Thank you.

And next we'll hear from Greg McKinley with Dougherty & Company.

Yes, thanks. Guys, just a couple quick questions. In SG&A, how -- what type of promotional costs show up there? Obviously your marketing spend and advertising, but to the extent that you might have offered any unique financing packages on your World's Biggest -- would that be in there?

No, the type of stuff that's going to show up in SG&A, all of our payroll, so if we offered our sales team some spiffs or some promotions, which we did, that would show up there. But anything that's, like, product-related to reduce the cost or even finance incentives or something like that, that would show up in the margin line.

It is. Okay, up in gross margin. Okay. For FAS 123, was substantially all of that cost then in SG&A or did some of that get allocated up in cost of sales with your sales force?

All in SG&A.

Okay.

Our sales force is down in SG&A also.

Okay. The -- in terms of when you look at -- you think about your balance sheet for the early part of this current fiscal year, how will having greater market presence in those seasonal markets with Surfside 3 and Port Arrowhead -- how should we think about that impacting -- I know you've talked about the dilutive impact on earnings, but in terms of cash flow and debt to sort of fund those inventories when the sales vibe isn't there, how will your balance sheet look early this year?

Well, clearly because -- they are going to have a loss because they are not selling as many boats. And -- but they are still receiving boats because their factories like to build boats 12 months out of the year. So as we move out of the Sun Belt you get a more seasonal impact not just in earnings but also in the balance sheet.

So you will see our inventory continue to climb with the Port Arrowhead and Surfside 3 acquisitions onboard at 12/31, and it will climb also through March. That's why we are kind of -- we kind of have been informing you guys about the same-store inventory. I think that will decline, but the absolute value is going to increase through 12/31.

Okay.

All the way through -- really, we don't anniversary -- I guess we anniversary Surfside on the eve of March 31st, so we'll anniversary it right at that point.

Okay. Thank you.

Yes. Thank you, Greg.

Thank you, Greg.

Anthony Lebiedzinski with Sidoti & Company has our next question.

Good morning. A couple of questions. Could you tell us what the EPS accretion was from the two deals that you did in fiscal '06? And also, you did give some numbers as far as what you expect the accretion for the first 12 months would be. I think it was around $0.10 or so. Is that still the case?

The accretion that we said for '06 when you -- I'm going from memory now, was between the two deals would had been about, I think it was, like, around 11 or 12 for Surfside and like 4 or 5 for Lake of the Ozarks. That's about what those two acquisitions would have contributed, which means the rest of MarineMax was up just incrementally for '07.

Okay. And in terms of your share buyback, how much do you have outstanding on that authorization?

About 700,000 shares, or 650-ish.

Okay. And then on your last conference call, you talked about the sales of high-end boats doing better than smaller boats. Can you give us a sense how that was in the quarter, what you're seeing so far early in this quarter?

In the December quarter, high-end boat sales were fine. What happened though is we got real aggressive on product 34 feet and down. So we actually had a deterioration of our average unit selling price in the September quarter. We sold so many boats below 34 feet, a 34% increase.

But that's not to say the larger product was weak, it's just we focused on the smaller product and drove the business. And we are not expecting to have any issues with the higher-end product. That should continue to do well throughout '07.

Okay. And in terms of your marketing strategy, is it just -- do you foresee doing more of the same that you saw -- that you were doing in the September quarter? Do you expect the same sort of -- same type of strategy in terms of marketing for the next few quarters?

Anthony, we're going to continue to look at the market, and the other shows as they start to come through, as you know, if things kind of slow down a little bit during our first quarter, this December quarter. And so to do a lot of marketing in the first quarter may not make the most sense because people have Christmas and Thanksgiving on their mind.

But we're in boat show season right after that, beginning in January, and we are going to stay aggressive to get market share, because that's an investment long term for our shareholders. And so you're going to -- I would say we are going to continue to spend marketing dollars but probably not a whole lot of it during this first quarter.

Okay. And lastly, what was the CapEx in fiscal '06 and what are you projecting for F '07?

CapEx, really the right way to answer that is maintenance CapEx in fiscal '06 was around $5.5 million and we're going to spend around that again for maintenance CapEx. Now, if you actually look at our cash flow when our K comes out, you're going to see a lot more than that because of the acquisitions.

But it's really -- the maintenance CapEx for the company is $5.5 to $6 million and it will be again in '07. Depreciation and amortization for '06 was around $8 million and it's probably going to be around $8 to $9 million in '07 for depreciation and amortization.

Okay. Thank you.

Thank you.

Thank you.

We'll go next to Jonathan Cramer, with Cowen.

Hi, guys. A quick question. How does your used-boat inventory look, how does it compare to last year, and what is your strategy for that category?

It's funny, we get asked that question a lot about how is used-boat sales trending, how does the inventory look. And I've always answered in basically the same way. I mean, our used-boat business has been good as long as I've been around. It doesn't really seem to get weak or really gain a tremendous amount of strength. It just kind of keeps chugging through.

And inventory is in pretty good shape from a used-boat perspective. The brands that we carry -- you get a 1-year-old or 2-year-old brand that we carry on a trade-in, they are pretty sought after by customers.

But used boats, we do have the addition of the acquisitions to the inventory. So it's good inventory. We -- it's good business. The good news is, as Mike says, it sells through and the percentages really haven't changed a whole lot since 1998.

So -- and the reason for that is it's [taking] trade. So we continue to look at the used boats as an opportunity to get to the new customers in the new boats or the existing customers in the new boats.

How about in terms of turns? Has that changed with the new acquisitions?

I guess by definition, when you have -- when you leave the Sun Belt again, your turns will probably by definition slow a little bit with the sales cycle, but that's normal and to be expected. There's really nothing a whole lot unusual from a used-boat perspective.

Okay, thank you.

Thank you.

We'll move on to Tim Conder with A.G. Edwards.

Yes, gentlemen, a couple of questions. Mike, if you could just expand a little bit regarding your inventory buys? And I guess a related question is, do you feel good now after the World's Largest Boat Sale here, about your sub-34-foot inventory levels?

What we said on our July call, on that call we basically had wrapped up most of our commitments with our manufacturers. There were only a couple that were open, and we said if you look at all the manufacturers that we do business with, we were going to be buying in the high-single-digit, less in the way of dollars, 7%, 8%, 9%.

And that's still consistent today and that's across the board, not any one manufacturer is going to come in across the board. I would say the World's Largest Boat Sale only helped from an inventory perspective. Obviously, when you move that many units, it moves a lot of the '06 product, as your '07 are coming in, which was what it was focused on. So we feel relatively comfortable with where our inventory is today.

And the aging in that inventory is also good, Tim.

Okay, because we've heard some things through the industry that in general, the agings, as you would anticipate as the market slows, the agings maybe crept up a couple of months on a year-over-year basis for the industry as a whole. So how is your aging again, comparable year-over-year or it moves around a little bit?

I would say if you look at, like our core brand of Sea Ray, our product is a little fresher today than it would have been a year ago, incrementally fresher.

Okay, okay. And again you guys are seeing a little bit in Brunswick, mentioned it before, but thoughts at this point on Zeus, and then also, you really didn't say too much about [Freddie]. Any commentary there?

Tim, I don't know if you got a chance to write on Zeus, and I know a few investors did.

Yes, we did.

Incredible is probably the right word. It is a game changer, as we see it, with the technology. And we support it, and we want to see it accelerated into our products, because we believe it's probably one of the most customer-friendly improvements that we have seen in years.

As you saw, Zeus, someone with 5 minutes of explaining what it does and how it works can maneuver a boat in currents and winds into a very tiny spot in the dock, and that includes sideways. So we are excited about its smaller horsepower to give better performance, so that means less fuel -- fuel burned, better speed and less weight, and more cabin space as the boats are designed around [the Zeus drive]. So we are excited about it.

Okay.

Tim, your question on Freddie, I would say Freddie continues to go according to plan from our perspective. Again, with its high-end nature, that business up there remains pretty decent.

Yes.

Okay. Thank you, gentlemen.

Thank you.

[Tom Lightcap] with [Value Holdings] has our next question.

Hi, good morning. Could you just give a little more explanation on the change in guidance for next year? I know, you said there was an issue with the operating margins. But can you just dig into that a little bit more?

Yes. I can comment that we came in at the low end of the range here for the year, which was down at 208 versus 213, which again is about $1.5 million at the pretax level. So we would take it down $0.05 for that. And then when we look at the lack of flow through in the September quarter and the extra effort that we've had to put forth to have the same store sales growth, plus being another month into it, we have changed our view on the operating margin for '07.

Where in the July call we said that it would be up incrementally we are saying it's going to be flat to perhaps up incrementally, but it's more likely to be about flat.

So is that more a product of, say, increased marketing expense or is that coming more in from the gross margin perspective that you have to discount the boats?

It's probably going to come a little bit in both areas, which is also consistent with what we said in July. Just to keep the product moving and to keep taking sharing and have the mid-single-digit same-store sales growth.

And again in the whole scheme of things you are talking 3.5 -- $3 million on a pretax perspective from a company that last year had $222 million in SG&A expenses.

All right. Yes, not that big of a deal. As far as your kind of internal forecasts go, are you looking for a greater percentage of sales to come from the services, the brokerage, and the F&I units?

Yes, that -- Tom, that continues to grow every year, year-over-year. And just to give you a little example, where Fort Lauderdale boat show was an accessory display this year, and we did pretty good business with the accessories within our Sea Ray display.

So we are drawing the [P&A], the F&I continues to do very well for us in the finance and insurance, and service has grown to a large extent this year. And the good news is there is upside in all three of those high-margin businesses. And so as we continue to improve it across the country, we will see even better results going forward.

So it's -- that's the good news, and so you can give up a little bit in the growth boat margin, and if you can offset it with the higher-margin businesses, which is what you -- you're seeing in the results here.

And I know you don't break out sales by geography, but can you just give a little bit of commentary on how sales looked across the country?

I'd tell you that with what we did from a marketing perspective and the coordination, which was nationwide, we had pretty good response to the World's Largest Boat Sale, and just about everywhere.

And everywhere.

There was -- there isn't any place that stands out in my mind as saying, "Oh, jeez, sales are off there." We actually saw some progress in Ohio, which is a market that we've talked about in past calls as being a little sluggish, but I'd say that 14% came pretty evenly --

Across the board?

-- throughout the country.

Tom Lightcap And to that point again, I know you have already been asked about acquisitions on the call this morning, but when you guys are thinking about new acquisitions going forward, are you going target any specific region in the country, or are you just looking to get the best price you can, wherever that may be?

Well, it's -- obviously it has a little bit to do with price, but mostly it has to do with the team and the market that we're moving into. And there is -- all of the major markets that we are not in, and including some markets that we're in, but not completely in, are potentials.

And so we are not in the Midwest, we're not in LA in a big factor -- in a big way, and we are not in the Tennessee valley or the -- even the Chesapeake to the extent that we could be. And we are not in the Great Lakes regions, except for Ohio.

So as they make sense, and that's really the way we look at it, is it needs to make sense for us. And being we are the only acquirer, there is no one else out there that's really making acquisitions, we can be patient and wait until things are aligned the way they need to be, so that it's a benefit to us. And that we make sure we've done our due diligence, and that the people part of it is either ready on our perspective or their team is ready to be part of MarineMax.

So we can't really tell you where it will be, but when it happens, it will make sense for our shareholders and we'll make sure that we've done our due diligence and capitalized on the best time.

Great. Thanks, guys. I appreciate it.

Thank you.

Justin Boisseau with Gates Capital has our next question.

Yes, I was hoping you could talk about a little bit about the cash flow from operations you expect next year. I know last -- previously you had said you thought it would be solid in '07?

Yes, the easiest way to think about our cash flow from operations honestly is take net income, add back depreciation and amortization, deduct the maintenance CapEx, which I just talked about a couple of minutes ago. Then you also need to add back the stock option expensing, which is going to be -- if it was 3.5 this year it's probably going to be in the low 4s next year.

Our balance sheet, really, as we add inventory, we have the ability, and actually usually do, leverage it dollar for dollar. So that's kind of flush -- not really a drain on working capital from that perspective.

Okay, thanks.

Strong cash flow.

[OPERATOR INSTRUCTIONS]. And now at this time we will take a follow-up question from Ed Aaron and RBC Capital.

Thanks. Hey, I just want to circle back on the buyback commentary. You didn't mention in your script, but my recollection is it's the first we have seen in quite some time, if ever, as I recall it. Do you kind of have -- do you have plans on buying back stock on a regular basis [multiple speakers] going forward or was that just more being opportunistic with [dotcom]?

Ed, we actually got approval -- I'm going a little from memory, probably about a year ago right now, maybe in November. And then we actually bought some shares back in -- I'm going to say it was probably the June quarter. We probably bought back 100,000 shares or thereabouts in the June quarter.

Then the -- we kind of have a tight buyback window when we are allowed to do it and we bought it back again in August. And the main purpose for it is really to offset some dilution by options -- option to DSPP. And so I think you will see us in the marketplace from time to time buying it back.

I don't think you are going to see us doing like a real capital changing event. It's really just meant to offset some of the dilution and so we buy back the stock. Certainly when it's under pressure it often makes sense to buy it back.

Sure.

And I think we'll continue to do that.

Okay, one other question. Just looking back at the last several years, so call it during the most recent boating cycle, do you believe there was a meaningful change in the number of boat dealers out there, either up or down?

I would say, Ed, that it really hasn't changed a whole lot. One of the difficulties with our industry is that the barriers to entry are pretty low, but that being said, it's also the biggest problem that we have in our industry from a customer perspective because they really receive a lot of hassles from a lot of these little mom-and-pop dealers that only shove you off the dock or hook up your trailer and say "Good luck."

So I would say that the number really hasn't changed. There's still probably around 5,000 marine retailers out there today, us being one of them.

Would you expect that if we continue to see some weakness that we'll see an increasing amount of dealer attrition over the next year or two?

I would say that there are some dealers that are really struggling right now. And in fact, I spoke to several that I know and so it's a very challenging environment for a lot of the dealers. And what's happened to customers, and you know this very well, Ed, is that, they are out of this, "I'll do it myself."

It's more of "I want you do it for me and I want you to show me how to use it. I want you to get my whole family involved and I want you to show me how to have fun with it too." And that's our strategy, and not many do that. And to do that, it costs money. So to really deliver to the customers, you have to invest in those customers, and most of our industry doesn't really do that.

But I would say that there will be quite a few that pull out, but back to what I originally said, it's pretty easy to get back in. Go open up a gravel lot or an old vacant building and go to some manufacturers that have a tin building somewhere and throw the boats on there and upset some more customers.

All right. Thank you.

And gentlemen, there are no further questions at this time.

I would like to thank everyone for participating in our fourth quarter conference call and web broadcast this morning. Mike and I are available after the call to answer any questions you may have. And we thank you for your continued support and belief in MarineMax. See you on the next call.

And that does conclude today's teleconference. We'd like to thank everyone for their participation and wish everyone a great day.