MarineMax Inc (HZO) 2007 Q3 法說會逐字稿

Thank you very much, operator. Good morning everyone and thank you for joining this discussion, MarineMax's Fiscal 2007 Third Quarter. I'm sure that you've all received a copy of the press release that went out this morning, but if you have not, please call Linda Cameron at 727-531-1700 and we will fax or e-mail one to you immediately.

I would now like to introduce the management team of MarineMax, Mr. Bill McGill, Chairman, President and CEO and Mr. Mike McLamb, Chief Financial Officer of the Company. Management will make some comments and then will be available for your questions. Mike?

Thank you, Brad. Good morning, everyone and thank you for joining this call. Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality and weather, general economic conditions and level of consumer spending, the Company's ability to complete and integrate its acquisitions into existing operations and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission. With that in mind, I'd like to turn the call over to Bill.

Thank you Mike, and good morning everyone. I'd like to start this call by thanking our team for their extra efforts during this difficult period in our industry. As many of you know, the past 12 months has been a challenging period.

Based upon industry reports, the percentage decline in retail units is in the mid-teens in the segments in which we operate. While we are not certain what has caused the downturn, we believe that the biggest contributor is the week housing market and its trickle down effect on our buyers. It is fair to say that most dealers and manufacturers in our industry could not and did not accurately predict how far the industry would fall.

This has created modestly higher inventory levels than is needed in this soft environment. The inventory levels coupled with the conscious consumer, creates pricing pressure. As such, it is our belief that most dealers are buying less for the 2008 model year, which essentially starts now than they did in 2007. Accordingly, as we go through the next 12 to 18 months, the pricing pressure should start to ease.

We don't see any clear signs that 2008 is going to show any dramatic improvements in retail demand. Frankly, from what we hear, most dealers and manufacturers are assuming that retail demand will be down again in 2008, but in the low to mid-single digits. Based upon these thoughts, we will be buying less units and dollars in 2008 than in 2007.

Part of this strategy is due to our inventory levels being modesty higher than we wanted at June 30th. And part of it is representative of the retail environment. I do want to stress that our aging and mix of inventory is in relatively good shape.

Now let me comment specifically about our quarter. When we last spoke, we knew that retail was soft, which is why we adjusted our outlook accordingly. However, we did not expect to have a 9% decline in same-store sales. We were expecting more of a flat or slightly down quarter. This soft retail environment has had a serious negative impact to our earnings.

Not including the unusual gains and tax matters, our earnings per share came in at $0.50 per share, which obviously is disappointing to us. However, there is some positive progress we have made. I am very proud of our team for getting after the competition and driving significant market share gains during this difficult period.

As I stated earlier, for the past 12 months, ending June, retail units in the industry are reportedly down in the mid-teens. Over this same period, the MarineMax team was able to produce a 12% unit increase, obviously, taking significant market share. This is a great example of how well our team is executing our strategy of selling and delivering the boating dream.

I would also add that in the June quarter, we launched a marketing program around used boats called the World's Largest Online Used Boat Blowout. The marketing campaign had three purposes. Sell boats, convert lease to new sales and gather lease for our [king] to work for the future. The campaign was successful. We about doubled our lease through a relatively inexpensive online campaign, and incrementally, sold additional used boats.

We don't have a crystal ball to know when this difficult industry cycle is going to recover. But if history is a good indicator, the cycle will turn. But since that timing is allusive, we will do our best to manage our business to both moderate the negative impact in the near term, and to position ourselves for the future.

In the near term, we are focusing on driving sales to take market share, expansion of our higher margin businesses, managing expenses, growing the strength of our balance sheet and providing more services to our customers. In the 30 plus years I have been in the business, it has been proven that by leveraging our strategies and financial strengths, we become much stronger during industry recoveries.

MarineMax will expand our leadership role within the recreational boating industry, as history repeats itself and the buyers who have been delaying their purchase decision return.

I suspect the opportunities for us to grow through new brand expansion and potential acquisitions will continue to surface as we work through the time period. Nothing is expected in the near term, but we will continue to explore and to listen. However, it is hard to predict when such opportunities will come to fruition.

I'll now turn the call back over to Mike about a few comments on the quarter and fiscal 2007. Mike?

Thank you, Bill. For the three months ended June 30, 2007, our third-quarter revenue was $380 million compared $421 million for the comparable quarter last year. Our same-store sales declined 9% or $36 million. The softness in same-store sales was felt in most markets and it was generally across the array of products and price points that we carry. It's hard to see the impact on the very high end like Hatteras and the Ferretti Group of brands, as well sell relatively few units. But our sales were down over the prior year.

Gross margin as a percentage of revenue dropped about 50 basis points to 23.3%. The decline in gross margins was due primarily to a decline in boat margins, partially offset by incremental improvements in our higher-margin businesses such as finance and insurance, service, parts and accessories.

Our selling, general and administrative expenses decreased $1.7 million to $63.5 million. However adding back the unusual items that we detail in the press release, namely the $1 million gain from the sale of our plane and $600,000 of excess insurance proceeds associated with the December 2006 snow and ice storm damage that occurred at our Missouri facilities, result in SG&A of $65.1 million, which is an increase of about 170 basis points over the prior year.

The majority of the increase in SG&A as a percentage of revenue is due to the drop in same-store sales beyond our expectations and expenses incurred such as additional incentives and promotions for our team and marketing dollars to drive the sales and market share gains that we had in the quarter.

Interest expense increased to $7.5 million due to the rising rate environment and additional borrowings primarily associated with the acquisitions we made last year. Our tax provision was $3.6 million, which translated to a 21% tax rate for the quarter. This reduced rate was due to the settlement of a tax position under an initiative offered by one of the states in which we conduct operations.

As a result of this settlement, we reduced income tax expense by $3.8 million. Without this reduction, the effective tax rate would have been about 41%. Going forward, our tax rate on an annual basis should approximate 40%.

Finally, our net income for the third quarter was $13.9 million or $0.73 per diluted share compared to $17.5 million or $0.90 per diluted share for the third quarter of fiscal 2006. However, backing out the unusual items I walked through and as I outlined in our press release, results in earnings per share of $0.50 for the June 2007 quarter.

Turning to our balance sheet, at quarter-end, we had $25.3 million in cash, compared to $28.2 million a year ago. Additionally, we have substantial cash in the form of unleveraged inventory as we utilize excess cash to reduce our inventory financing.

We ended the quarter with $492 million in inventory. On a same-store basis, excluding the inventory associated with the Cabo brand that we expanded with last October, our inventories were up approximately 9.5%, while our rolling 12-month same-store sales growth is 2.5%.

For model-year 2008, which starts now, we expect that we will buy approximately 20% less in units, which equates to approximately 15% less in dollars. This reduction in purchases will be felt as we move through the next 12 months. As Bill indicated earlier, we also believe that most dealers will be ordering less for this model year than last year, helping to ease the pricing pressure that occurs with too much product.

Customer deposits increased slightly year-over-year, but as we have said repeatedly in the past, our deposits are lumpy and not necessarily an indicator of future business. Our revolving line of credit stood at $340 million at the end of the quarter, which is up from the same period a year ago due mostly to the inventory increase I discussed earlier.

Overall, our balance sheet has gotten stronger year-over-year adding to our competitive advantages and allowing us to have greater flexibility when growth opportunities arise.

Now I will briefly discuss our guidance for fiscal 2007, which basically addresses our view for the September quarter that we are in. As we discussed last quarter, it is important to reiterate that we have very little visibility and we continue to feel the effects of the softer environment in just about every segment in which we operate.

While we are hopeful conditions will improve, it is extremely difficult for us to predict when that will happen. The summer is normally when we make 70% to 75% of our annual profits and it has continued to be challenging. Based on everything we know today, we are updating our fiscal 2007 guidance to $0.55 to $0.65 on a fully diluted basis, compared to the precious guidance of $0.45 to $0.65.

This guidance assumes that same-store sales will decline in the low single digits on an annual basis. This is modestly lower than the last guidance that we gave, but we have raised the lower end of the range due to our relatively better performance this quarter. Our range excludes the impact from the unusual items discussed this quarter, as well as the $0.06 per diluted share we recognized in the March quarter which arose from the proceeds of business interruption insurance due to Hurricane Wilma. And it also excludes any potential material acquisitions that the Company may complete.

While we are disappointed with this earnings outlook, it reflects the current industry conditions. I do think it's important to note that the September quarter last year was the first quarter that the industry experienced a large double-digit decline in retail unit sales. There is some thought that the industry won't decline that far again and will, in fact, stabilize. But until the end of this quarter, we will not know whether or not we have enhanced visibility into fiscal 2008. As such, we will provide guidance on fiscal 2008 when we update you for the September quarter.

In general, however, we do agree with the growing consensus that the industry will be down in the single-digits. We also believe that by buying less, our balance sheet will continue to strengthen as we work through this environment. As always, we will keep you posted if we see any other material changes in the industry.

I will now turn the call back to Bill for a closing remark before we open it up for questions.

Thank you, Mike. As Mike indicated, our outlook for the remainder of the year, in 2008 is that the industry will remain challenging. To that end, as we have shared with you in the past, we plan to repeat our very successful World's Largest Boat Sale, which we first held last August. The event will again be held in August and we are hopeful we get similar or better results.

Now a comment about our customers. During this boating season, across the country, we are very busy with getaway trips and events with our customers. We are more involved with our customers than in years past and our customers are out on the water, enjoying boating with their family and friends. The industry may be down, but our customers seem to be boating much more.

With the strength of our balance sheet, our trained and motivated team members and unsurpassed customer-centric retailing strategies, I truly believe MarineMax is well positioned for the future. As in the past, these attributes will allow us to expand as opportunities arise, continue to capture market share and enable us to emerge from this challenging industry cycle with greater revenue and earnings potential than in the last cycle.

Despite the challenges that we have encountered, we have never wavered from our core operating principles. It is this discipline that we will continue to build and utilize as opportunities arise, allowing us to grow earnings into the future. The question is not if our industry will recover, but rather when. In the meantime, we will continue to focus on our team and customers and join the wonderful lifestyle of boating.

With that, we will now open up the lines for questions, operator.

Thank you, gentlemen.

(OPERATOR INSTRUCTIONS)

And our first question today is from Ed Aaron at RBC Capital Markets.

Thanks. Good morning, guys.

Good morning.

Good morning, Ed.

Couple of questions for you. So, Bill, in your prepared remarks, you mentioned that sales came in lighter than the expectations for the quarter, yet at the same time, you're now narrowing your earnings guidance toward the high end. I would think that one would go with the other. Could you maybe give a sense of where your somewhat more optimistic earnings outlook is coming from?

We don't have a crystal ball. It's still tough out there, Ed. And we're working our way through the inventories that should have been reduced further is we hadn't have had a negative same-store sales growth. But, we have no idea. We have no visibility what this quarter is going to be. I mean, it's the same old story that when the customers come out, we don't really know until the end of the day, until they make that purchase decision. And we've had a lot of fallouts along the way, as well, as people have delayed their decision.

But we think that the range that we're giving here is something that we can achieve. And we're going to focus on really just trying to reduce inventory and get rid of the '07s. Our industry -- the model year changes July 1 and that makes it really tough. It's one of the few industries that I know that makes product at the peak of the season, old. And so, we've got to fix that. And we're working with the manufacturers to do that as great partners. And hopefully, you'll see some progress for next year in that scheme.

But we understand that our biggest challenge right now is get rid of the '07s and get a clean slate for next year.

Hi Ed. Also, mechanically, when you work through it, with where the June quarter fell from an earnings perspective, just if you look at the range we've given, we do have enough confidence in our ability to make money in the September quarter to take the low end of the range out.

Yes.

I guess I was just wondering if there was anything on the expense side that came in ahead of year expectations in the June quarter. Because I'm assuming you brought the low end of guidance up was because you maybe made a little bit more money in the June quarter than maybe you thought you would've 90 days ago.

Well, we saw some progress on the expense line. Obviously, it's not showing in the numbers because when you start reducing expenses, it takes a while for they work through, especially if it's personnel changes and that type of thing as you do severance and the things that you need to do for the teams. So, we're running the business better than we did before, I'd say. And we're focusing on managing expenses. Understanding, we're not going to have up anything when it comes to the experience for the customer because that would hurt us in the long-term.

The margin pressure is probably slightly less than what we had anticipated on the boat side. And our higher margin businesses continue to do well, Ed. And that kind of had our margins going up a little higher than we had anticipated, too.

Okay. And where are we in that whole, kind of, range of peak-to-trough margins from a pricing perspective, using maybe the last peak and the last trough is (inaudible)?

From my perspective and the 10 years that I've been doing this, we haven't had a time in these 10 years that has been like 2007. This has been a very difficult year.

What's really difficult, Ed, is -- I mean, we've got more -- I mentioned it on the call, here. We've got more getaway trips than we've ever had in the history of the company. I was just at our Clearwater store yesterday for a sales meeting and, as I'm getting ready to leave, the lady that takes care of our getaway trips for our customers is working feverishly to get some customers on these getaway trips. So, I mean, they are like booked up.

And so, the customers are out boating. And they are boating passionately and enjoying this lifestyle. It's just they are delaying their decision to move up to the next bigger boat or to move forward. But they are out boating. The passion for boating has not changed. And I know that the unit count in sales in down for our industry, but in the segment in which we operate, we don't see it. We're not seeing it and we don't hear it from the customers.

But what we are hearing and seeing is "I need to wait." Or they'll go ahead and make the decision and then they'll come back with an excuse of "Something came up. I need to put it off for a few months." Or whatever. And so, I think that that's probably the best news is that we're not in a failing industry here that's going to go away. The passion for boating, if anything, is greater, is what we are seeing.

I mean we had a big rendezvous down at Ocean Reef down in the Keys. We had 75 boats there -- customers with their families -- that were there. And they are spending money for the fuel. They're spending money for the docks and they are having a great time. And you don't hear any negatives about what's going on in the world.

We've got Aquapalooza going on right now, which is all across the country. And, in some cases, hundreds of boats that are rafting up and enjoying this event called Aquapalooza. You would think that boat business is at an all time peak. So, the good news is people are still boating. And with that, they'll come back with vengeance when it comes back because they've delayed the decision and when they decide, "Okay, I feel more comfortable now," feeling better about whatever it is that's got them slowed down. They'll come back and make the decisions and move forward.

Yes. Aquapalooza certainly sounds like more fun than earnings season.

Yes. I hear that.

One more -

For an earnings caller, we have to announce that we haven't brought it back to where we want it to be yet.

One more question for you, if I could. When you look at the inventory a year out from now, can you give us some framework of where you expect to be? And within that, presumably, you have some targeted inventory turn numbers. Your inventory turns are little bit lower than where they have been historically. Are you managing to a certain dollar inventory number a year out or certain inventory turn ratio? That's it for me. Thanks.

We honestly manage our inventory, Ed, on a daily basis by looking at the age of it. We have it bracketed by store, by category, by product line. And we look to make sure that we're selling the older product first. And the aging of our product is very consistent with where it's always been. It's definitely not in real bad shape these days.

From an inventory turn perspective, inventory turns this year are pretty close to last year. We'd like them to get back closer to 2.5, 2.75, even move into 3 times into the future. I think with what we're buying less from the manufacturers this year with some of the reasonable assumptions ability that the industry could do. If you look at our June 30th balance 2008, we would be hopeful to have a reduction certainly in the inventory from where it is today. The exact magnitude of that is a little bit of a speculative guess. But, just doing the math, something in excess of 10% is probably realistic, if not more than that in terms of a reduction.

And that being said, we've got to take our hats off to Brunswick, in particular, for stepping up and saying, "Hey, we need to do the right thing. And let's back off on commitments for '08 so that we can bring this back in line." And that being said, nobody knows what's going to happen to the marine industry or the economy for the next 12 months. So why gamble on that it's going to recover. Because indications are it's not. But at the same time, we've all got to do a better job managing that inventory because if you look at our interest line, it's way up. So there's quite a bit of earnings power there that if we just had a little more demand created by a better -- being on the right side of the supply-demand curve.

Our next question comes from the Steven Rees at JP Morgan.

Hi. Thank you. I just wanted to ask on SG&A, you made some pretty significant investments over the last four quarters. And this quarter, if you back out some of the one-time expense items that were relatively flat on a dollar basis, how should be think about that spend, going forward, assuming no acquisitions and assuming that the sales environment remains tough? Do you feel like you need to spend more on a dollar basis year-over-year?

No. I don't think we need to spend more on a dollar basis. The question is percentage of sales -- what's going to happen from that perspective. I think from a dollar perspective, we've probably about [anniversaried] and seen all the investments that we'll be doing for next year.

Okay. And then on the gross margin performance -- obviously much better than last quarter's decline. How sustainable do you think is a 50 basis point decline going forward?

Well you've got a couple of things going on in the gross margin. I think it's important to understand that when you've got a 9% decline in same-store sales, which obviously is boat-driven because of the average size of our selling prices, you all know that financing, insurance, parts and accessories and service and so forth did not decline. They are growing. So you get a benefit at the gross margin line when you have a decline in same-store sales or when same-store sales slow.

But I think overall -- and this is a crystal ball comment -- a lot of it depends on if we're right in terms of what dealers are buying for '08. If they are buying less and if the pipeline begins to cleanse itself of some of the older products -- if all that happens, which hopefully it will, there'll be an opportunity that pricing pressure reduce and then obviously our margins could come up accordingly.

Okay. And just finally on the overall discounting you're seeing, how much of that is coming on year-end versus, perhaps, incentives from the manufacturers? And has it changed at all this year versus last?

There's probably a little bit of an up-tick from the manufacturers side of it this year versus last. But it's -- in the whole scheme of materiality, I'd say it's relatively consistent.

Okay. Great. Thank you, Mike.

Thanks.

Our next question is from Laura Richardson at BB&T.

Yes, thanks. Hi, guys.

Hi, Laura.

Just following up on that gross margin question and the inventory discussion, too. Now should we expect some gross margin impact in the fourth quarter and until you work down those '07 inventories?

I'd say you're absolutely right, Laura. And we are realizing that we need to take our licks now, if we're going to take them. So go ahead and if we have we have to give up the margins to move the products right now, we need to do it. So, I'd say yes.

Okay. So the Boat Sale could be a good opportunity for that, the World's Largest Boat Sales being even larger than last year presumably?

Right. And this is a great time for you to buy a boat. So, we'll get right with you.

I'll think about it. I'm like the customer, though, putting off purchases.

That's baked into the guidance, Laura. Obviously, if you do the math, we're expecting a big reduction from last year's earnings.

Okay. And then in that persists a little bit into next year until you work through those inventories, obviously -- the gross margin?

I think that's possible.

I think it's how well we do this quarter and moving out the '07s.

Okay. And then thinking ahead to next year -- and I know you're not giving guidance for obvious reasons on next year, yet. But just in the past, has there ever been a year where the industry has been down, even single-digits, and you guys have had earnings increase without acquisitions?

In the past? I think I would have to go back and look. I would assume the answer to that is yes.

Yes.

I did not prepare for that question. I'm assuming the answer is yes, Laura. Because I know the industry was down in '02, '03 and we had earnings increases without acquisitions.

That's correct.

Yes.

Yes. Okay. So would it be fair then to sort of look at those years as a basis for modeling '08?

I think -- I would tell you from my perspective those years are not near as difficult as the environment we're in now.

And you know, the latest news on housing is it continues to slow. And we believe that is a big driver, especially in Florida, where it's been the most impacted by this housing-condo snag that we're in. So, I think some of it depends on the turn there, but at the end of the day, we're more focused on boating and our customers.

And they're resilient. And we've said that in the past. People may delay their decisions. And boaters are very resilient from the standpoint that pretty soon, they get fed up with saying, "Enough is enough. I'm not waiting on it. Let's just go do it."

Okay. Thanks, guys.

Thank you.

Thank you.

Our next question comes from Jonathan Cramer at Cowen and Company.

Good morning, guys.

Good morning.

Quick question on the competitive environment, what you're seeing with other dealers, and if there's any rationalization going on?

What do you mean by that, Jonathan? Are you talking about it in terms of pricing or -- ?

Pricing, yes pricing would be a good start.

I'd say on the competitive environment, based on the market share gains that we're taking, I think most of the dealers and the markets that we're in are probably hurting far worse than what we are.

And we're seeing in a few instances, they're starting to drop out of business.

Right, in some markets. Even in markets we're not in, we've been hearing about dealers going out of business. But the pricing pressure was probably greatest like in March and April and sort of eased up a little bit as we went into the June quarter. It's still there.

Those other dealers have a greater inventory concern than we do and they obviously don't have $370 million in capital like we have. And so they can't be as aggressive. They can't go open up a new store. They can't go do World's Largest Boat Sale and do all the things that we can do to drive business. So I think from that perspective, our strategy of taking share and flexing our muscles is paying off exactly as we thought it would.

Great. And just one other question. What are you doing to trying to contain costs?

What we did, we kind of went through this a little bit in the April call. It's as basic as going line-by-line, store-by-store, person-by-person, activity-by-activity and trying to make sure that for the environment that we're in, we're investing the right amounts, spending the right amount, not more than we need to, not less than we need to. Because it kind of goes both ways if it's at a time when we can take significant share and we've seen that.

And we have taken some steps, whether it's in terms of some team members, which obviously is difficult, or in some other areas of the company to reduce expenses. All of the benefits of that, you don't see it in the June quarter because some of it kind of got bled through the first couple of months of the quarter. And we'll continue to look at that again. As we're trying to get a read for how '08 is going to be -- ?

With that being said, we're doing more for the customer.

Absolutely.

We haven't reduced the spending towards the customer, so we're doing many more getaway trips. We're doing a lot more Women on Water, Children in Boating, seminars, to things that really help our customers and help us grow market share and really invest into our future.

One of the biggest things that we could do, if you look at our P&L that comes up from our view on inventory, is we have a cost-or-carry the interest line, which is pretty straightforward as to how that's calculated. But there's also other expenses that you guys don't necessarily see in the SG&A line, which is the maintenance and the taking care of our products.

In some regards, our boats are like elephants. You've got to feed them everyday. You've got to keep them clean, polish them and so forth, clean the bottoms. And with the reduction of inventory that we're doing, with the less purchases we're doing in '08, there ought to be some ability from that perspective also.

And a lot of it ties to that view on what retail is going to be and also what the purchasing is going to be. The marketing spend for '08 ties to it. Everything does. So there's should be some opportunities in '08, if the industry [spot] in '08 turns out to be correct.

Okay. Great. Thanks a lot.

Thank you.

Our next question is from Anthony Lebiedzinski with Sidoti and Company.

Good morning. A couple of questions. The first, you're almost a full month into this quarter. Can you give us some color as to how your sales trends are shaping up so far?

I would say that it's still a challenging environment out there. We're out there trying to make it happen everyday. A lot of events going on to create the sales. There's not a whole lot of trend differences that we're seeing right now to hang our hat on. And this is a very important quarter. I've said it in my prepared remarks that this is the first quarter that a year ago that the industry really fell. It fell 13 or 14%. Before that, it was down a point or two, up a point or two. And so getting through this quarter, getting through the month of August where we have the World's Largest Boat Sale is really important to foresee what '08 may hold.

Yes. And looking at the third quarter sales, can you give us a break down between units versus selling price, how that was?

Our average unit selling price dropped in the quarter. Units were down slightly. And the AUP dropped in the quarter primarily because, as I mentioned, we had less of the [big buck] activity, the Ferretti, the Hatteras activity -- modestly less there. So it did drop the AUP. I don't have the number right in front of me, but it's normally around 100, 105 and then it dropped below 100 in the quarter.

And then, also, I was curious if you saw more weakness in Florida, than in other parts of the country.

Florida is one of the more challenging environments, as you guys have all read about with the housing industry. I think our team down here has done an awesome job getting after it. We do very good job with getaways and all the events with our customers. I think we're creating the business down here.

If you look nationwide, Florida and Northeast are probably about the two -- ?

Hardest head.

Hardest head. It's almost easier to talk about where it's not soft, like Texas and the mountains states, which are doing much better than the rest of the country. Every place else is still a little bit --

California is still a challenge.

It's interesting with all the news on Wall Street and Wall Street hitting 14,000 and all of this stuff. You would think that everybody on the phone and other people would be wanting to buy boats these days. But I'm telling you, from every dealer that we talk to in the Northeast, it's a soft environment up there.

Unfortunately.

You've got to crack that code.

So Texas did this fairly well despite all the flooding over there?

Texas? Our Texas business is making it happen and we're selling products. We've seen some issues with some of the flooding, but for the most part, our business over there is doing okay. And the same with the mountain states --

Most of the flooding was to the west.

That's right.

Out towards Austin, and all.

Got it. And lastly, for your September quarter, are you guys expecting a 40% tax rate?

Yes.

About 40%, yes.

All right. Thank you.

Thank you.

Our next question comes from Jed Ellerich at A.G. Edwards.

Hi, guys. I just have a couple of quick questions. What's a reasonable expectation for the industry to balance inventories and retail sale-through to get to that clean slate you guys reference earlier? Any opinion you have on that? And then also, could you comment on both sales by size and whether you think the weakness has crept up into increasingly larger boats? It seems as though that was the implication of your Hatteras sales decline comment earlier on the call. Thanks.

In the terms of the clean slate, I would tell you you're looking, probably at the earliest, at the end of the next model year, which would be June of '08. Next summer with the selling season, I don't think you'll -- just because of the sheer units, there's not enough units sold between now and then to get everything right sized. And I think manufacturers bringing down production, some reasonable sales expectations, the dealers doing what they're supposed to do, the manufacturers doing what they're supposed to do and -- And we really only have a couple of months to move out the '07s in a lot of our markets because the seasonality of our business in the North slows way down as you get to the Northern markets.

And the weakness -- the size comment. I made the comment that, for the most part, we're seeing softness across all the array of products. It's very difficult to conclude that the Ferretti group has slowed or that the Hatteras product has slowed. Factually, and I do want to point out factually, we did record less revenue. There is a backlog in both of those type of boats that we sell -- those models, those brands that we sell.

It does appear that the speed of growth in the backlog, perhaps, has slowed a little bit. But again, you're talking about so few units that it's hard to get a real good read, there.

And this is not the peak selling season.

Yes, this is not the peak selling season. The one category that I'm pretty sure Brunswick mentioned on their call, which was the sport cruiser category -- 28 to 26 to 34. That one seems to be probably the softest single category within the industry. It doesn't really matter what market you're in. And everybody is scratching their heads exactly what happened to that buyer. Did they overextend themselves? What is the makeup of that buyer that's driven the softness?

The good news from our perspective is our manufacturer has got some great new products coming out for us to put in front of customers this year, to hopefully counter some of that downward trend because as we all know, new products sell.

Okay. Great. Thanks for the clarity, guys.

Thanks, Jed.

Our next question is from [Tom Lightcap] from Value Holdings.

Hi, good morning. Just wondering if you can give an update on the acquisition front. Do prices seem to be coming down in the industry space [weak]? And are you looking to build up on acquisitions going into next year?

As we have always continued to do, Tom, we'll probably continue to keep our focus on when it makes sense for us. Then we'll pull in the acquisitions. I'd say that there probably will be some opportunities coming up as a result of what's going on. That being said, the primary candidates -- the ones with the same culture that we have, most of them are not in bad financial shape and they want to wait it out until times get better so they can sell their business for a little bit more to us because their earning will be returned.

All of them understand that we're in the cyclical business and that we'll come back and it'll come back with vengeance. There will be some opportunities and we continue to look at those. That being said, it's not just dealerships, it's also service opportunities as well as marinas opportunities and additionally in [bulkerage] as well. So, we've got out feelers out. We're talking to a lot of people and even partnerships, as well, as marina service yards and that type of thing.

So we'll keep the feelers out and when they make sense, we will do them, but it's not something we're pushing real hard because, obviously, we need to run a good business. And when it makes sense, we'll do it. All right. Great. Thanks. Good luck in this quarter.

Thank you.

Thank you.

And our next question is from Renee Reynolds at Gilder, Gagnon, Howe.

Hi, good morning. Just a quick question for you. Can you quantify what percentage of your sales comes from California and Florida? And then just where the Northeast fits in there, as well?

I think we've often commented that Florida, on an annual basis, is just under a half of our business -- a little bit -- maybe 45% or something like that. During this quarter, it would drop, because you've got all of the northern stores coming alive. And I don't have that right in front of me, but it'd be lower than 45%, maybe 35 to 40%, something like that.

The Northeast would be our second largest region, which would be the area that we define, basically from Baltimore through Rhode Island. I don't have that percentage, but it's probably in the neighborhood of 20%, something like that.

And then California would be less than 10% of our business. It's not as big as the Northeast or Florida is overall.

And do those regions account for a larger percent of your big boat sales like the Hatteras lines?

Well, we only carry Hatteras in the state of Florida and Texas. So the answer to that would be yes, just because of where we have the distribution. And I'd say yes even with the Ferretti Group of products that we have. More of that product is sold in southeast Florida than anywhere else in the country.

Okay. Thank you very much.

Thank you.

And ladies and gentlemen, this will conclude our question and answer session for today. I'd like to turn it back to Mr. McGill for closing remarks.

We'd like to thank everyone for participating in our Third Quarter Conference Call today and also the Web broadcast. Mike and I are available after this call if you have any questions you may have. And we thank you for your continued support and belief in MarineMax. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude the conference. And you may now disconnect your phone line.