MarineMax Inc (HZO) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the MarineMax, Incorporated third quarter fiscal 2008 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Brad Cohen. Please go ahead, sir.

Good morning, Operator. Thank you, everyone, for joining this discussion of MarineMax's 2008 fiscal 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 she will fax or email one to you immediately.

I would now like to introduce the management team of MarineMax, Mr. Bill McGill, Chairman, President, and CEO, and 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 statement as defined in the Private Securities Litigation Reform Act of 1995. These statements involve 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 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'm sure it's no surprise to most of you when I say that the marine industry is experiencing one of its most challenging periods on record. Those of us that were managing marine dealerships in the early '70s rank the current softness second to then, when the availability of fuel was at risk. But other than that, this period is about as bad as anyone has seen with one big exception, and that is that we are seeing our customers out on the water enjoying their boats even more.

Our financial results are obviously disappointing, but largely reflect the pressures of the harsh, uncertain economy. We recognize that we cannot change the external environment. However, we are taking actions to improve the areas of our business that we can control, including strengthening our balance sheet and reducing our operating costs. To that point, I would note that our tangible net worth increased to $257 million in the quarter, and we experienced our biggest single-quarter dollar decline in expenses.

From a trend perspective, our sales deteriorated as the quarter progressed, except for a significant improvement during early June when we launched the Great American Boat Sale. Unfortunately, after the event ended, the decline in unit sales continued. We do believe that the event was successful, given that we drove incremental sales and generated many new prospects. However, it was not enough to offset the accelerating sales decline in what is traditionally one of the industry's largest retail months.

In the June quarter, we posted pro forma earnings per share before the non-cash charges of $0.18. This includes $0.03 relating to a few unusual items which Mike will comment on, and as expected, we did experience a slight decline in our gross margins. But overall, we have been pleased to see both our margins and our market share continue to hold up well, which we believe is a testament to our business model and the differentiated experience that MarineMax provides its customers, combined with their continued passion for the boating lifestyle.

While our inventory levels and that of the industry are higher than ideal, we believe the significant reduction we made in our boat orders, as well as production cuts from most major manufacturers have helped lead to more rational industry inventory levels than in prior downturns. We continue to expect that our inventory levels will fall below the prior year by the time we exit this fiscal year in September, and we are working diligently to manage our inventory by making further cuts for model year 2009.

We have also made progress on taking costs out of our business. It is worth noting that the expense reduction we achieved came with significant increases in marketing costs in the quarter associated with the Great American Boat Sale. It is difficult to get the full benefit of leverage given the significant drop in sales, but we have made progress and are taking further steps to help ensure we improve the expense structure of the Company as the industry works its way through this cycle.

As an example, and you saw in the press release, we are consolidating seven of our stores before our fiscal year is over, which is in addition to three that we have closed since this year started. In no case are we exiting a market. As such, we believe the closures will further strengthen the position and profitability of the neighboring stores and allow us to capture most of the sales from the stores that close.

Looking ahead, as we said last quarter, we are prepared and are planning to hold another major offsite selling event in late August. We have decided we will run another World's Largest Boat Sale, which has been very successful for the past two years. We believe it is critical to continue to take advantage of the opportunities we have to gain market share in this environment, as well as obviously do what we can to drive sales for the Company, which we believe will only have a slight impact upon our margins.

We recognize the risk and shortcomings of event selling, but feel in this current retail market the actions are warranted and beneficial for market share and inventory reductions at a time when most of our competitors cannot afford the extra marketing expenses.

While we expect continued challenges for the industry, we are encouraged that as we move forward into fiscal 2009 our manufacturers have provided us with arguably the best product portfolio we have had in over five years. To that point, having strong partnerships with the best brands has been a strategy of ours since our inception. In tough times, the best brands continue to support their dealers and end consumers with new products, marketing support, and superior warranties. With innovative products to sell, a strong team, and a compelling customer-focused operating model, we believe that we will continue to maximize our competitive advantages.

I'll now ask Mike to provide more detailed comments on the quarter. Mike?

Thank you, Bill, and good morning again, everyone. Usually, I start with revenue, but today I want to start with the goodwill and intangible asset impairment. In a nutshell, Statement of Financial Accounting Standards No. 142 requires that if a public company's valuation falls dramatically below its tangible net worth, the valuation of the company's intangible assets becomes difficult to support. The standard makes it very difficult to overcome the market value of a company. The extent of our valuation decline late in the third quarter made it impossible to maintain any valuation of our intangibles. As such, we took $122 million non-cash charge and wrote off the entire balance. Because our intangibles were tax deductible, the write-off gave rise to a large deferred tax asset. The deferred tax asset was subsequently reserved due to our financial performance, resulting in a very unusual tax rate for the quarter.

In essence, any benefit from the write-off was not realized given the reserve. I will note that the intangible write-off has no negative implications to our debt covenants. For the three months ended June 30, 2008, our third quarter revenue decreased to $271 million from $380 million last year. Our same-store sales declined approximately 27% or just over $98 million compared with a 9% decrease in the same quarter last year.

Revenue from stores that are not eligible for inclusion in the same-store sales base decreased approximately $10 million. Unfortunately, most of the country was soft in just about every size category. Gross profit as a percentage of revenue declined approximately 50 basis points to 22.8%. This decrease in our overall gross margin was due to a slight decline in boat margins, as well as a mix shift towards our larger boat business, which was relatively flat in the quarter compared to the prior year. This was partially offset by a mix shift towards our higher margin finance and insurance, service, parts, and accessories businesses.

Our selling, general, and administrative expenses decreased approximately 19% or $11.9 million in the third quarter. However, excluding all the unusual items discussed in the press release, we experienced a reduction of approximately 17% in dollars versus the prior year. The dollar decrease in SG&A expenses is primarily due to the decline in the size of our workforce, as well as commissions and bonuses and plan changes to our team member benefit plan.

Specifically, we altered our vacation plan in a manner that provides that vacation does not need to be accrued for accounting purposes. As such, we had a large reduction to previously provided accrual. While the magnitude of the savings this quarter will not be repeated, smaller savings will be realized on a going-forward basis. These factors were partially offset by higher marketing costs as we ran our Great American Boat Sale.

We continue to examine our expense structure carefully to determine where we can take further cost out of the business and better align ourselves with the current pace of retail sales. As Bill mentioned, we have identified seven stores that will be closing and consolidating into neighboring stores this quarter. The cost savings from closing these stores, as well as the near-term charges associated with their closures, are still being quantified. However, we believe that the closures will strengthen the neighboring stores in the markets, providing for better leverage of the expense structure for the remaining stores.

Given the extent of marketing that we do, including offsite events, boat shows, and the Internet, we believe we will capture the overwhelming majority of the revenue from the closed stores and not lose any meaningful market share.

Interest expense decreased 36% to $4.8 million as a result of the more favorable interest rate environment. Additionally, during the quarter, we retired our various mortgage loans which had moderately higher rates than our line of credit. Finally, our reported net loss for the third quarter fiscal 2008 was $113 million, or $6.15 per share, compared to reported net earnings of $13.9 million or $0.73 per diluted share for the comparable quarter last year. As Bill mentioned, before the non-cash charge, our earnings per diluted share was $0.18, including $0.03 for the unusual gains noted in the release.

For the nine months through June, I'll touch on just a few highlights. First, our same-store sales were down 23%. Second, our margin decline of approximately 45 basis points year over year is generally due to the same factors as in the third quarter, a small contraction in our boat margins combined with a mix shift towards sales of our lower-margin, large-yacht products. I'm happy to report that in what is being characterized as one of the worst marine retailing environments, our product margins are holding up well.

Turning to our balance sheet, at quarter end, we had $21.6 million in cash compared with $25.3 million a year ago. As we have previously mentioned, we have a significant amount of cash in the form of unleveraged inventory as we utilize excess cash to reduce our inventory financing. We ended the quarter with $515 million in inventory, up about 5% from the comparable period last year. As we discussed last call, we had adjusted our purchases to be down approximately 25% in dollars for the model year that just ended June 30.

From October 1, our same-store sales have dropped as the year has progressed further than we anticipated and are now down 23% through June. Accordingly, while we have been focused on getting our inventory down, we did not achieve the desired result by quarter end. As we start the 2009 model year, we have aggressively lowered our expected purchases from manufacturers and currently expect to purchase approximately 40% fewer units than the 2008 model year. This is an approximate dollar reduction of 40%, as well, given the mix of models and the brands.

The model year essentially ends June 30 for most of our manufacturers, and we continue to believe that, given the reductions we have already made on orders to date, along with our expected purchases for model year '09, we should be able to achieve a lower inventory level at the end of this fiscal year which ends in September. Clearly, this is subject to retail trends, which have been difficult to predict of late.

Our property and equipment -- I would simply note that it's all 100% debt free due to the payoff of the mortgages that were still in place at the end of the March quarter. While we have talked about our real estate value upside in the past, I think it's now a clearer picture to understand the capital on the balance sheet with no debt on the 33 stores that we own.

Turning to liabilities, our customer deposits decreased approximately 69% year-over-year, but as we have said repeatedly in the past, our deposits are lumpy and are not necessarily reflective of current business trends. However, based on the trends at retail, the drop in our deposits should not be surprising. Overall, our tangible net worth now stands at $257 million or about $14 per share. While we would have rather not been required to write off our intangibles, we have been a company that has focused on tangible net worth since our inception. In a cyclical business, tangible net worth is what gives you the power to take advantage of growth opportunities and succeed in very difficult times.

Let me say a word on our debt compliance. Towards late June, we paid off our mortgages to help ensure we stayed in compliance, since the current maturities counted against our fixed charge coverage ratio. As it turns out, we would've been in compliance anyhow. As you may recall, the threshold of our fixed charge coverage ratio gets a temporary reduction for the next four quarters to 1.10 from 1.25. The actions we are taking, including the store consolidations, the reduction in purchases, and further line-by-line expense reductions are being done to put the Company in the best possible financial position and help the Company remain in compliance with its debt covenants. Obviously, the main unknown is what will retail hold in the foreseeable future.

And now I'd like to turn the call back to Bill for some closing comments.

Thank you, Mike. While we recognize that these are difficult times, we do not believe they are indicative of a change in the consumers' passion for boating. In fact, we've been seeing even greater participation in our getaway events and our customers using their boats as much as ever. We recently completed Aquapalooza boating events in all of our markets with over 6,000 boats and about 32,000 people having fun on the lakes, rivers, and bays across our markets.

Just as we witnessed families staying closer to home following 9/11, it appears that as a result of the current economy and fuel prices, families are again staying closer to home and making the best of this situation by enjoying boating with their family and friends.

We will continue to focus on operating our business to be able to deliver the best products, the best services, and the best boating experience for our customers while controlling our expenses to better align ourselves with the current rate of sales. The strength of our balance sheet will allow us to not only weather this environment, but continue to support our growth opportunities.

We are convinced that if the current economic conditions continue, that many opportunities for MarineMax to gain even market share will be there. I remain confident as ever in the long-term future of MarineMax and believe that our unique customer-focused business model and initiatives to make ourselves a leaner organization will only improve our growth profile when the market does return.

Our business may be impacted by consumer confidence and the economy, which makes our business cyclical. However, our team and customers' passion for boating is not cyclical. We are selling boats. We're servicing our customers, and we're showing them how to escape the stress in their lives and have fun with their families and friends. Our message to our team members is to get involved even more with our family of customers in teaching them, servicing them, and showing them how to have fun and escape all the negative news about the economy, fuel, and the elections.

We'd now like to open the call up for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS.) And we'll go first to Ed Aaron with RBC Capital Markets.

Thanks. Good morning, guys.

Good morning, Ed.

Good morning.

Hey, couple questions for you. So, first, you mentioned a good amount of innovation for the 2009 model year, but it seems like the aging of the inventory that's already out there is a little bit of a problem, and I'm wondering if having good innovation for '09 will make it tougher to sell the '08 and prior year models at a good margin. Can you just make some comments on that?

We don't believe it will, Ed. Number one, as you know, there's been some plant shutdowns, so the '09s are slow coming. But, additionally, there's also a price premium on some of the new product like Axius and Zeus and also we're adjusting our pricing, as well, in order to put the attractiveness to the '08s that are there. But, the new innovation is -- a lot of is -- some of it's cosmetic, some of it's with new models, but at the end of the day we don't believe it'll interfere with our ability to move through the inventory.

The other thing, Ed, to that point is the price points and the margins and so forth that you're going to put on the innovative product may be different than the current price points we have on a 2008 as an example.

And the new products actually help drive the traffic and interest level into the stores and then at that time we can take care of selling the lifestyle of boating and talk them into the boat that they need to buy.

Okay. Thanks. And then I wanted to also ask about the consolidation of the stores that you mentioned. Can you just give us a little bit of a sense of what markets those seven stores are in, whether they were -- stores individually were profitable or not and also if they were owned facilities, how much do you think you can get for them in the sale process?

Ed, in some of these stores, we've been looking at them for a few years and saying maybe we should consolidate it anyway. And a perfect example of that is our Tampa store, which is right next to our major -- one of our largest stores, Clearwater. And they -- our state put an interstate and pretty well hid the store away from the retail public, except for a boat sticking up in the air. And so that was kind of like a no-brainer, something that we did need to do and being we have a service yard in St. Pete, it does make sense. We do own that property and we don't believe it'll be any issue and what we own it on the books for is way below probably what the current market value is.

Up in Green Brook it's a lease facility and just out of the city in New Jersey and we're doing more and more business down at Liberty Landing, which is on the water looking at Manhattan and so we judged that consolidating the Green Brook efforts into there made sense. And a little bit the same thing in Arlington out in Texas. We've got a beautiful store that we built out on I-35, and so we judged that we didn't really need Arlington because we have a marina and a large store that will support that.

Tower Park is more of a seasonal location out in California, and we may go back into a location down in the delta during the season. St. Louis River store, we all know what happened to St. Louis this year with the major floods and it's a very -- it was an outpost store anyway. Oakdale, Minnesota is a leased facility and we decided that with the other stores that we have, Bayport, which is a marina, and also Rogers, which is a major store on the interstate, that consolidating would make sense.

And Warwick, Rhode Island is the seventh one and that's a leased facility and more of a seasonal location also and we feel that we can handle that from adjacent markets. So, I hope I gave you a little color there, Ed.

You did. Thanks. I have some more questions, but I'll get back into queue.

Okay. Thank you.

And next we'll go to Steven Rees with J.P. Morgan.

Hi. Thank you. Just on the three stores that you have closed year to date, can you just talk about the sales retention levels that you've seen at other stores in the area and what gives you confidence that (multiple speakers) --

Well, the third one just closed in mid-June, another California store. The retention rate's been very high, and I think, as I said in some of the prepared remarks, the way that we go to market today is a lot different than it was ten years ago in terms of the amount of offsite events that we do. The Internet, obviously, is a much different driver of leads than it was ten years ago. And so our projections are and our thought process is where you have the stores that Bill mentioned, we believe we're going to capture just about all that revenue and not lose any meaningful share in the markets. And that seems to be true from the couple that have closed so far.

And we'll just continue to do a lot of offsite events, which will help make up for not having a store presence there, and obviously, as part of our strategy, we do a lot of mobile service, so it's very important that we take care of these customers in the markets where we're not anymore with a servicing location. So, we'll do it from a mobile standpoint.

Okay. And then just on the SG&A declines, you said to expect something slightly lower than the 17% this quarter going forward, but yet you're closing more stores. Can you just sort of talk about that and your expectations going forward for SG&A?

I don't -- actually, I don't think I said that, Steven, or I don't think that's in the prepared remarks. Our goal is to continue to take cost out of the Company, and we're certainly looking every line as we have for the last 18 months. We're redoing it, looking line by line. As Bill talked about the store closings to take additional costs out. we would hope to continue to be successful in that regard. I think in the September quarter, I mentioned I've not quantified the cost savings of the store closes. We also haven't quantified the costs that we will incur, but there will be some leasehold improvements that get written off and perhaps some accelerated lease payments and so forth in the September quarter. I don't think it's going to be a number that's going to be real, real material given MarineMax's size and so forth, less than $2 million I would think in terms of the costs that we would incur. We just haven't quantified all that yet, but I think when you look at '09, our goal is to continue to take cost out of the business.

Great. Thank you very much.

We'll go to Laura Richardson with BB&T.

Hi. I also wanted to ask some questions related to the store closings and how it's going to impact things like the comp sales. Do you see any offset to the comp sales decline from these store closings?

The theory would be is that it would actually benefit the neighboring stores from a comp sale perspective. I haven't necessarily thought through the impacts of a comp sale, Laura, but it should benefit the neighboring stores.

And Mike, is there, from the closings you've done thus far, have you seen a typical comp sales gain or is it all going to offsites and do those get counted in comps, any offsite sales, or that's a different sales line?

Yes. The store that basically runs the offsite, which is within a geographic region of proximity to the stores where those sales go to, in this environment, we have not gone back to see is the comp up or down. In general, our market share's doing well, which is telling us that when we've closed a store, we've still done well for market share which means we're getting more than our fair share of revenue in the marketplace. It's hard to see a comp improvement in this environment.

Now, that I understand. I'm just trying to figure out what the magnitude of the decline should be in the fourth quarter, and I know it's hard to predict, although last quarter on the call you did talk about what trends were in the current quarter.

Yes, I can speak to that. It's July 31, so the month's done, and trends are continuing to be fairly challenging for the industry. The industry, depending on the data you go grab, but if you look at the markets that we're in and for the type of brands that we sell, most of the industry data out there says it's down 30% to 35% in units for the June quarter, and I would echo that it sounds about right to us. And I think you're going to see those trends continuing in July and I wouldn't be surprised if that's what happens for the quarter.

If you think of what's happened the last 12 months, the September quarter last year -- the industry was down something like 10%, 11% or thereabouts in units and we were down like 2% in units. The December quarter, the industry fell, I'm going to say, 20%, 25% and we had a big drop in units. The March quarter, the industry was down 25%, 30%. We had a big drop in units. June quarter, you know the results now (multiple speakers) --

Right.

-- industry, so the theory is is that this quarter's going to be a pretty rough quarter because it's kind of the last big quarter. And then the question remains is, what happens in the December quarter, March quarter, June quarter, September quarter? Is the industry going to still see drops of the magnitude that we've experienced today or is it going to begin to lessen? We would obviously hope that it will lessen.

Yes.

Yes. Okay. Thanks, guys. I might get back in the queue for more questions.

Thank you, Laura.

And we'll go next to Hayley Wolff with Rochdale Securities.

Hi there, guys.

All right. Hey, a couple questions. First, assuming that we see some permanent shift in the size of the marine market, what does that do to your long-term footprint? And then what's your appetite for acquisitions in some of these markets where you have distressed dealers? And then second question has to do with inventory. Given the timing shift in product launch from Brunswick, what does that mechanically do to your inventory levels as you push orders back a quarter?

Well, first of all, Hayley, on the current market and opportunities there, we're seeing opportunities that are coming up all the time. We struggle right now for our shareholders to make an acquisition at this time because we're trading below tangible book value and not many people want to sell below tangible book value.

Right.

So -- but, there are some opportunities coming up with real estate that we're taking a hard look at, and there's going to be some opportunities for some markets probably coming out of this for -- that will be there when it does start to make more sense for the Company for us to do it. But, there's a lot of dealers hurting right now. There's a lot of them that do not have the financial strength to endure this, and business is down. There's no doubt about that, and as the inventories work their way out, the pie is getting smaller and it's incumbent upon us just to make sure we get a bigger piece as we go through it and we'll come out of this.

And you heard me say in the beginning -- I keep saying this over and over and over again, and I guess I probably always will say this and that is our customers are out on the water. I mean, we've got marinas, and this will surprise you or a lot of people on the call, is we have marinas that sell fuel. Not all of our locations, but many of them do, and actually, fuel sales are up in gallons, not dollars. I mean, that's -- obviously that could happen, but actually up and so I think it's because -- I know it's because we're calling our customers and say, "Come on. Let's go boating." And so that's the good news. They're there. They have not lost their passion for this wonderful recreation. I'm seeing myself doing the same thing. I don't think I've skied more in my life because that's my stress relief -- is to get out on the water. So, I'm out enjoying it with my family and trying to escape and also with our customers and so that's really the great part of it.

You heard me talk about Aquapalooza. We had like 1,500 boats on Lake of the Ozarks all rafted up in this huge cove, 1500 boats. And everybody was having a blast and there was no discussion about the news or fuel prices or anything else that was going on. And we're taking trips to the Bahamas, 160 boats -- 60 boats, people heading off. There's a trip that just left this weekend for Block Island in New York out of New Jersey, and so that's the good news. So, it will be there, and when it comes to SG&A, we're being very careful not to take anything away from our customers. Because our customers are our future and it's a responsibility that we also have to them to make this the best experience it can be and so we're not going to be cutting any corners as we see it that takes away from what we're doing for our customers.

Hayley, you mentioned something about the -- if the market declines, what do we do from a footprint perspective. And obviously, we're not on that page yet that it's going to decline permanently, but if it would, obviously we'd have to make sure we have the right number of stores and infrastructure and so forth. The one thing I'd point out is the -- we're on the high end of the industry, and I'm very glad we're on the high end of the industry, but if you look at the brands that we carry, they all do pretty well in Europe and other markets where fuel is $8 a gallon. And granted, it may be a smaller market, but there's a lot of dealers over there that make pretty good money and live a nice lifestyle, so there's definitely -- always will be a market for boaters here.

Okay. And then on inventory, just the mechanics of -- if Brunswick pushes out, its new product launches what does that do to your inventory levels?

It literally -- Brunswick, as everybody on the call probably knows, they've done staggered closings of their plants. The month of July -- a bunch of their plants are closed. Some in August they're closed, and so we're receiving very little product right now, which makes sense. We applaud their moves and that, obviously, is going to slow down some of the new product launches. To one caller's question, though, we've got some inventory we can sell, so that's not necessarily a negative thing. So, we think it all makes sense, and we are thankful we're in partnership with strong players like Brunswick that can do things like that to support their dealers in their retail network.

Can you give us some sense of what's in the inventory in terms of aging?

Inventory has modestly gotten worse from an aging standpoint, but it is modestly. It's probably 5% worse in terms of what's over a year today versus a year ago and it was in decent shape a year ago. That may or may not surprise you, but our company -- we have a lot of things in place to help move the oldest boat first. We're really focused on a unit level within our company, not so much on inventory turns overall as we are on aging and on the unit level. So while the aging's a little bit worse, which is probably expected, it's not much worse.

Okay. Thanks a lot.

Thank you, Hayley.

We'll go to James Hardiman with FTN Midwest Securities.

Good morning. A couple quick questions here just to close the loop here on the inventory. If you had to think about, at least directionally, what the market value of that inventory on your books currently is -- historically, you've sort of said 25% above book. I would assume it's come down a little bit, but your margins are hanging in there. Should we basically look at that 22%, 23% margin level and say that's a realistic markup for the inventory if you were to look at market value of that stuff?

What I look at, James, is that -- this has been described as the worst retail market probably since the early '70s, and our margins, basically brand to brand, category to category, are doing reasonably well. They're down a little bit. And in this environment where admittedly the industry has somewhat too much inventory, not a disaster level I'd say, but somewhat too much inventory, our margins are holding up well, so I'd say that's a reasonable assumption that that would be the right number. Now, what you've got to factor into that is what happens as the inventory starts making progress -- excuse me, as the industry starts making progress on getting the inventory reduced, which I do believe that with the dramatic cuts that you're hearing from people like Brunswick and other manufacturers, you're going to start seeing and hearing about even more declines as we go through 2009. Of course, it all depends on what retail does, but as you go through '09, there's at least a thought that maybe you see margins begin to tick back up, especially with the innovation. We're not necessarily planning or modeling that, but that certainly would be in the cards if you get inventory in the right balance with --

Supply.

Yes, supply and demand.

Great, and then second question here, which is somewhat related. You talked about that $14 tangible net worth which is a lot easier to look at now with the write-down. Obviously, if you add in the incremental value of your real estate, clearly the incremental value of your inventory, it's a much bigger number, a lot higher than the $7 share price that we're currently trading at. Are you getting a lot of heat from shareholders hoping that you'll look to monetize some of these assets, and how long realistically can you stay at these share price levels before you would consider doing something about it? And is there something inherent -- some inherent advantage in terms of holding on to that -- some of those assets, particularly the real estate?

Well, I was going to chuckle and tell you that we're doing all we can to monetize the inventory. And I think we are and our market share shows that, but our -- we've got -- we've been asked this question a lot over the years about what do we do with that asset, and we've had sale leaseback ideas and other type of things that have been presented, but our problem is really not capital. We have a lot of capital for a company our size. And when you're in the marine business, when you have a waterfront highway store, I mean, that's nirvana and we want to control that forever. We don't want to lose that potentially down the road, so if we needed cash -- we would simply remortgage the properties if we needed the cash. I don't see that scenario playing out.

Obviously, we're not happy with where the stock price is. We've certainly had discussions about the Company buying back more shares of its stock. All of this increased uncertainty, causes some reason to pause there, you know, where's the market really going? Where's the macro market going? But that's something that gets discussed more and more certainly within the management team and at the board levels of the Company.

Our debt agreements, they're all public documents, do have some restrictions on what we can buy back and how fast and so forth, so we'd have to get our lenders to be flexible from that perspective, and you guys know the banking environment. They're not running around being as flexible as they used to be a couple years ago. So there's a couple gating issues there, but the main thing we're focused on now is just putting the business in the best possible position to -- from a financial perspective.

Great. Thanks, guys.

Thank you.

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

Thanks, guys. A couple questions. One is the -- what have you spent in CapEx so far year-to-date, and what do you expect to do for the full year?

Maintenance CapEx is around $4 million and it is almost every year. I don't have the number handy and I'll get it before we're done with the call. The maintenance CapEx and I don't think we've opened up a whole lot, I know we did some -- it's probably $7 million, Joe.

For the full year?

Yes.

Okay. And looking at SG&A going into 2009, you've got the store closures basically this quarter and next. Should we see a further drop in dollars, not as a percentage of revenue, but in dollars in SG&A in '09? Is it fair to take the second half what you're going to do and kind of annualize that or --

Well, it's certainly the Company's goal to get a dollar drop in SG&A as we go through '09.

And through the first two quarters, you had -- refresh me on what you had done on SG&A for the first two quarters of this year. You were just starting the progress, is that correct?

Well, we actually started in late 2007. The March quarter of 2007, if you go back and look at the transcript, we talked about some expense initiatives and so forth, which actually the September quarter of last year was the first quarter where SG&A actually did not go up. It equaled the prior year. The December quarter we had some reduction. The March quarter we had further reduction, then we've actually had the greatest reduction in terms of dollars in this quarter. And part of the dollar reduction here is because the sales are down as far as they are. But, the sales were down about the same distance in March, so you can see if you compare March until now, we're definitely making progress and our plan is with the store closings and consolidations into neighboring stores and leveraging those stores, getting the inventory down. Further line by line action plans is to continue to take cost out of the Company.

And it's fair to say the March and the June SG&A numbers should have a -- it should drop further because you didn't have store closures in March and June, correct?

That's correct.

Correct.

Okay. And even go back, I guess, to December, as well. And then you talked about the seven store closures and some of those are owned locations. Do you anticipate selling the land under those anytime this year or next year?

We're -- I think two of the ten that we closed from the beginning of the year until now are owned. We're probably going to sell one of them. We're not 100% sure on the second one, although we may sell the second one. I will tell you on the one that's being sold, which is a Northern California store, it's on our books for around $1 million and we do have a contract for something like $1.9 million or thereabouts on the store already.

Book value you said $1 million and then you've got a contract for $1.9 million?

Correct.

Okay. And do you know what the Tampa location's on the books at?

I don't recall. I know that the market value even with the highway is well above what it's on the books for.

Okay. And then one last question. I know the manufacturers have been assisting on moving retail. Can you kind of compare what they're doing this year versus what they did same quarter last year? Is it higher or lower (multiple speakers)?

From a percentage perspective, it's really not a greater percentage or if it is, it's just incrementally greater. I think what's more important is that they're there helping us and -- which is very appreciative and really all the manufacturers that we do business with have been fantastic through this environment.

Okay.

But I'd say it's incrementally greater. Honestly, if sales would've been higher maybe it would've been a greater percentage. But, part of it is the sales aren't there, so it's just incrementally a little bit greater.

Got it. Thank you, guys.

Thank you, Joe.

And we'll go to John Harloe with Barrow Hanley.

Let me just get two numbers from you all. What depreciation and amortization was for the quarter and what the same-store sales are by month, which you've done in the past.

It's -- D&A's about $2.5 million before the -- obviously, the write off of the intangible.

Okay.

For the quarter, and same-store sales, we don't normally give them by month, but we have been giving more color. In the month of April, we had talked on our May call was down in the high teens, and so you can -- if you just do the math, May and June would've been down north of 30% or 30% to get you to a 27% overall. And the way it kind of fell, I think Bill made some comments to this, May was slipping towards late May. We launched our Great American Boat Sale, which was in partnership with Bass Pro Shops, which went pretty well. We actually saw a pretty decent up-tick in units and business was decent during that first 15 days of June, then it just fell precipitously towards the end of June. And so one question is did we pull the business forward? What'd we do? But, the -- May and June were very soft, John.

Okay. I'll follow up with some other stuff offline. Thank you.

Thank you.

We'll go to Ed Aaron with RBC Capital Markets.

Thanks. Just a couple of quick follow-ups here. Usually in the fourth quarter you get a manufacturer rebate that's based on the amount of, I guess, sales or orders that you did and I was hoping to get a sense as to how that's going to affect your fourth quarter numbers. And secondly, Mike, what's the maximum rate of same-store sales decline that you think you can endure in the fourth quarter and still have inventory down by the end of the year?

Let me take the first one. The -- every fourth quarter, every September quarter, all of our backside money as we call it, which are these bonuses you achieve if you basically comply with your forecast of manufacturers which -- you set the forecast out 12 months earlier. And we've obviously set a forecast 12 months ago and then we've basically been cutting it about every month throughout the year. And our manufacturing partners -- many of them have stuck with us and we are receiving a good chunk of that backside money, although there is a haircut on it because it costs them money when they have to buy the parts and so forth and all that type of stuff. But, so it will raise margins in the quarter. It is a smaller number this year than last year, but it will raise margins like it does every September quarter, which is why we have the highest gross margins in the September quarter.

The highest same-store sales rate decline that we can have -- I haven't actually done that math, Ed. Part of it is the manufacturers are not shipping us boats for July and some for August which is nice. I would assume that if we're around the neighborhood we are now, that we'd have the possibility of having a decline because of the reductions from the manufacturers and the order reduction that we're taking. Actually, it could probably be worse than what it is right now and we'd still be in a position to be in a decline. I just haven't done the math, Ed.

But the incoming valve is pretty well shut off. So --

Right.

-- so any sales should help to reduce inventory.

What happens, so everybody's real clear on this, when we say we're going to cut 40% of manufacturers' orders, that doesn't necessarily translate into a 40% reduction in inventory because we take trades. And so you've got to keep that in mind, so sometimes if you're doing math and you're projecting things out -- when I've talked to some investors and analysts, they'll say, "Well, why did your inventory do this?" And the answer is is on our larger product we take trades on probably 50% or more of everything we sell above 30 feet.

Right.

So, it's a balance between estimating what you're going to trade, cutting orders, and that's why the dollar reduction we're ordering for '09, it's north of 40% down and that's a massive reduction in orders.

Sure is. And then lastly, Mike, you kind of spoke directionally about the month of July. I figure I might as well just ask you for the actual same-store sales number. Never hurts to ask.

Actually, the way our business works, we have July 31 -- we have, seriously, a tremendous amount of deals that are in the queue to close. Some are big. Some are small. I would tell you that the quarter same-store sales decline or thereabouts is a good guess, but I don't have the final number right now, but it's going to be down 27%, 30% in that neighborhood.

All right. Thanks for the clarity.

Thank you.

(OPERATOR INSTRUCTIONS.) We'll go to Laura Richardson with BB&T.

Hi, everybody. My follow-up again -- can you help, guys, with what one-time items we might be seeing in the fourth quarter? I mean it sounds like there might be a gain on real estate if you -- are you actually going to sell that California property in the fourth quarter?

I don't -- we don't know for sure. I said we have a contract on it. We don't know for sure if it's going to go through in the fourth quarter. What I do anticipate is for sure a charge in the fourth quarter that actually isn't 100% quantified. My chief accounting officer's to my left. We're still trying to quantify it, but the -- I believe it's less than $2 million. Probably a lot less than $2 million, but we haven't quantified it yet. In terms of writing off leasehold improvements, costs to move assets, the -- what you do is when you close a store is you expense any lease payments that go into the next fiscal year into the current month that you close it, and so we have to go through all that analysis to get the charge in there.

Okay.

But there will be some charge for closing the stores and then, obviously, we'll get some benefits going forward from that.

Okay. And so there could be that real estate gain? There's going to be a store closing charge. Anything else that you know of at this point?

No, and we do apologize for the handful of unusual items we've had for the last two years with insurance and so forth and now this hedge gain on the interest rate swaps.

Oh, and I was going to ask about that, too. The -- in the press release, it said there was $0.03 for insurance and --

Interest rate swaps.

Okay, and that was -- was the interest rates swap an additional to the $0.03 or that was included in the $0.03?

No, the $0.03 includes those two items. We had a gain and we paid off our mortgage, so the $0.03 includes both those items.

Okay. Thanks.

Thank you.

We'll go to James Hardiman with FTN Midwest Securities.

Just a real quick follow-up and I apologize if you already answered this. I don't think you did, but in terms of the debt covenants, as you look forward, it sounds like you made some moves to be pretty comfortable in terms of those covenants. But, as you look forward, what would have to happen for those to be in jeopardy once again? How bad would things have to get before you might trip up some of those?

I think you have -- you have a two-fold equation on there. The first one, obviously, is retail. The second one is do our margins continue to hold up reasonably well, which we think by ordering less we put ourselves in the best possible light from that perspective. Certainly, if unit declines continue the way they have for the next 12 months, I think that's going to be a serious issue for us. So, if it's down substantially -- if units still decline but they're a lot less than they are now, we should be okay. I'm not giving you exact answers, James, because it's kind of a moving target with the different elements within the P&L. If we do a much better job on SG&A, then units could decline further. If we don't do as good a job, then units can't decline further. I would tell you that we've got the step-down in the ratio that started this quarter for the next four quarters, which gives us a lot of breathing room, especially with the retirement of our current maturities of our long-term debt. But, the Company's got to execute on its plans, the inventory reduction, store closings, and line-by-line expense reductions to continue to put us in the best position to stay in compliance.

Okay, and just real quick, in the past you've been able to renegotiate some of those covenants. Is there any chance that would be a possibility or is it pretty much as is?

I'd be willing to bet that most of our wholesale lenders are listening to this call, and I appreciate the question. I think they're all going to be more than willing to renegotiate our covenants. But, I think we're going to have some discussions with our banks about that. I think when you look at the tangible net worth on the balance sheet, we're different than anybody else in this business in that we have a lot of capital and our banks have been phenomenal partners on both the wholesale and the retail side and I expect that they will at least listen to management's suggestions and requests for some modifications and hopefully we'll be able to make some changes, but there's no guarantee of that.

Great. Thanks.

Thank you.

We'll go to Steven Rees with J.P. Morgan.

Hi, thanks. Just on the timing of the closures, will they all be physically closed in the fourth quarter, and then if you could give us a sense of the annual revenues from these stores or maybe just directionally how they stack up on a per-store basis versus the system.

They are all going to be closed in the September quarter and the annual revenues from the stores are probably around $35 million to $40 million, in that range.

Okay.

And as we said, we expect to capture the lion's share of that through neighboring stores.

Perfect. Thank you very much.

And we'll go to Hayley Wolff with Rochdale Securities.

Hi, guys. You may have already mentioned this and I could've gotten caught up in inventory math, but the seven stores that you're closing, can you give us what the fixed costs are from those stores?

We haven't -- I don't have all that stuff quantified right now, Hayley.

Okay. Any ballpark numbers or --

I'd be -- I'd give you a number that's probably not accurate. Bill actually mentioned them by name, and they are in the 10-K in terms of the square footage and the leases --

Right.

-- and all that type of stuff. If I had to guess, it's -- I'd be guessing. I'd be fearful to throw out a number right now.

Okay. I appreciate that. And then even if you were to be in violation of one of your debt covenants, the banks, my sense is, wouldn't pull, but rather you'd get some kind of a penalty, which is 300 basis points.

Well, if you go into default and if you actually don't have any cure or any successful discussions with your banks and you go into default, our line of credit, I think, has a default rate in there, which goes to prime plus 300, I'm pretty sure.

Okay. All right. Thank you.

Thank you.

Thank you.

That does conclude our question and answer session. At this time, I'll turn the conference back to our presenters for any additional or closing comments.

Thank you, everyone, for your continued interest and support in MarineMax. I'd also like to acknowledge our team and express our gratitude for their continued commitment to our customers and their extra efforts expended during these challenging times. They continue to work hard and remain passionate about our future and continued success as we do. Mike and I are available today if you have any additional questions. Please give us a call. Thank you.

That does conclude today's conference. Thank you for your participation. You may disconnect at this time.