MarineMax Inc (HZO) 2008 Q4 法說會逐字稿

Good day everyone, and welcome to the MarineMax Incorporated fourth 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 Miss [Nikki Sacks], please go ahead, ma'am.

Thank you, Misty. Good morning everyone, and thank you for joining this discussion of MarineMax's 2008 fiscal fourth quarter and full year results. 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 e-mail one to you. I would now like to introduce the management team of MarineMax, Bill McGill, Chairman, President, and CEO; and Mike McLamb, CFO of the Company. Management will make some comments and then will be available for your questions. Mike.

Thank you, Nikki. 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 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. As our press release on October 14 indicated, and as reiterated in this morning's release, the already difficult Marine Industry environment grew increasingly challenging as the September quarter progressed, due primarily to the unprecedented turmoil in the financial markets. Additionally, the multiple hurricanes that approached or hit many of our markets caused a delay in the ability to close a boat sale, since a consumer cannot secure insurance when a named storm approaches land. As such, a lender will not finance the boat sale, so, therefore, we can't deliver it.

To that end, with each storm-related delay came a more uncertain financial market as the days and weeks progressed. We believe the storm related delays impacted our quarter, as they shifted potential boat sales into an increasingly worse environment, causing a greater amount of cancellations that we would have not expected. The end result was a 45% decline in same store sales and greater losses than anticipated.

Given the deteriorating trends, we responded by meeting with our major suppliers and made further cuts to our forecasted orders for model year 2009. These reductions in orders, along with cuts previously made, allowed us to end fiscal 2008 with a slight decline in inventory dollars, despite the much larger than expected drop in retail sales during the quarter. We believe our current forecast of purchases will allow us to achieve greater year-over-year inventory reductions as this year progresses.

I am pleased to report that despite the significant drop in retail sales, our margins in our core products were not under significant pressure. Generally, the margins were modestly down, but they were stable. This has been a consistent trend for fiscal 2008 and generally speaks to the following items. First, the fact that dealers have broad territories. As such, there is not another dealer in close proximity carrying the brands we carry and providing warranty services to the customers. This makes it harder for a distressed dealer to impact our margins with comparative products and services. This is quite different from other retailers, where the same brands can be carried by dealers who operate in very close proximity to one another.

Second, consumers of high-end products will pay more for premium products, services, and experiences. Our customer-centric strategies are focused on taking care of our customers, ensuring they are enjoying the boating lifestyle. When we execute well on these strategies, we maintain higher margins.

And, lastly, manufacturers and dealers have a better handle on pipeline management than in prior significant downturns. The ability for dealers and manufacturers to work together and adjust production channels in a way they have and manage dealer inventories has helped to keep the margins at a higher level.

Another very important point that is not fully appreciated about the Marine Industry is that, again, unlike many other industries, the Marine Industry has never had a rush of retail liquidity facilitated by loan securitizations. In our industry, the banks have always held the paper. Today, consumers that can afford a boat can get financing, same as before. Sure, the banks are more cautious, but they are clearly lending, with similar down payments and amortization terms as before, as retail financing of premium boats has one of the lowest default rates.

Needless to say, we've been extremely focused on taking cost out of our business to better align our expenses with sales trends. During the fourth quarter, we reduced our SG&A expenses by over $10 million on a reported basis, and by more than $13 million when excluding the additional costs associated with store closings. However, it became obvious as the quarter progressed that we did not reduce our costs far enough, as retail sales fell further than we had anticipated. As such, we are taking additional steps to help ensure that our cost structure is more in line with retail sales.

Subsequent to the calendar year end, we have reduced our number of team members further and are re-evaluating our retail locations. Having said this, we are committed to not reducing the level of service or commitment that we have for our customers. It is a delicate balance, but we feel the actions we are taking will allow us to increase market share as fiscal 2009 progresses, by maintaining and growing a happy customer base, who we are teaching, servicing, and showing how to have fun with their families.

As you would likely imagine, with the financial market turmoil coming to a head in mid-October, our revenue in October was hit harder than in the September quarter. The encouraging news is that the cuts in orders that I eluded to earlier and the expense reductions we have been making muted the impact from the fallen sales. It is noteworthy to share that our inventory at the end of October has dropped approximately $45 million. While we do not expect significant improvement in the near term, we are encouraged that the steps that we are taking will enable us to withstand a harsh environment, and emerge as an even clearer choice for the boating enthusiast. I will now ask Mike to provide more detailed comments on the quarter. Mike.

Thank you, Bill. Good morning again, everyone. For the three months ended September 30, 2008, our fourth quarter revenues decreased to $166 million from $318 million last year. Our same store sales declined approximately 45%, or about $135 million compared with a 1% decrease in the same quarter last year. Revenue from stores that are not eligible for inclusion in the same-store sales base approximated $18 million. Softness we experienced was not isolated to certain markets or categories of products; it was generally soft everywhere.

Gross profit as a percentage of revenue declined about 100 basis points to 25.2%. This decrease in our overall gross profit margin was attributable to modest pressure on our boat sales, combined with lost margin in our service business. As boat sales dropped as fast as they did, we had excess hours available for our technicians, which resulted in reduced gross profit and service over the prior year. With the onset of winterization and storage activities, we can reverse the service margin trend.

Our selling, general, and administrative expenses decreased approximately 16%, or $10.7 million in the fourth quarter; however, as Bill said, excluding the store closing costs in 2008, we experienced a reduction of approximately 20% or $13.5 million versus the prior year. The dollar decrease in SG&A expenses is primarily due to a decrease in personnel costs, due to downsizing our work force as well as reduction in sales commissions and manager bonuses, along with many other cost areas. The store closure costs of about $2.8 million were in line with our previous estimates.

Interest expense decreased 34% to $3.6 million, as a result of the more favorable interest rate environment, a reduction in our average borrowings on our line of credit, and the early payoff of all of our outstanding long term debt, which had slightly higher rates. Keep in mind that we have a LIBOR base facility, as such, we, like many companies, experienced higher than historical rates in the quarter doing due to the increase in LIBOR. Finally, our reported net loss for the fourth quarter of fiscal 2008 was $11.1million or $0.60 per share, compared to reported net earnings of $6.6 million or $0.35 cents per diluted share, for the comparable quarter last year.

For the fiscal years results, I'll touch on only a few main points. First, our same-store sales were down 28%. Second, our margin decline of a little less than 60 basis points year-over-year is generally due to the same factors as in the quarter. I am pleased to see that even during this extremely challenging marine retail environment, our product margins have held up relatively well. During the year we did write off all of our tangible assets, as our market cap dropped well below our tangible net worth.

Lastly, we reported $1.02 per share loss before the intangible asset write-off, versus income of $1.04 per share in 2007. I think it's worth noting that our after-tax loss is about $7 million higher than our normal non-cash expenses, like depreciation and stock-based compensation. Meaning that during a very harsh environment, the Company did not eat substantial amounts of cash.

Turning to our balance sheet, at year end we had a little over $30 million in cash, which was about the same level as last year. Recall that as we have mentioned in the past, we have a significant amount of cash in the form of unleveraged inventory. We ended the quarter with about $469 million in inventory, down approximately 2% from the comparable period last year. This reduction in our inventory levels, despite the significant decline in sales, is due to our continued efforts to closely manage our inventories and reduce our purchases from manufactures.

As we mentioned our last call, we have aggressively lowered our expected purchases from manufacturers for the 2009 model year. On our last call, we indicated that we'd be buying about 40% less in units and dollars in model year 2009 from 2008. Now, due to the further reductions that Bill indicated, we are forecasting that we will purchase approximately 70% less in units and dollars in model year 2009 from 2008. This is a substantial reduction, and even with depressed retail activity, should yield sizable inventory reductions as we move through next summer and the selling season. I would further add that our manufacturing partners are being very helpful to us and all dealers by assisting in this process, through significant billed rate reductions, while still providing us with industry-leading and innovative products for the consumer, as well as supporting us in our retail activities.

On a matter related to inventory, I will note that our dealer agreement with the Freddie Group, including Bertram, expired on August 31. Pursuant to the terms of the dealer agreement, they are required to repurchase our remaining inventory at essentially our purchase price, less costs to repair and refurbish the products. By September 30, our year end, they had bought back very little product. But as of today, they have repurchased $27 million worth of product. There is another approximate $39 million that is in the process of being inspected so that both companies can agree on the repurchase price. As they repurchase this inventory, it will yield even further drops to our carrying levels of inventory.

Turning to our liabilities, our short-term borrowings increased on a year-over-year basis, due to the retirement of about $28 million in mortgages in our June quarter, the timing of payments to our suppliers, and the cash that we used in the business this year. Our customer deposits decreased approximately 81% year-over-year. The decrease is deposits is reflective of the soft environment as we exited the summer selling season.

Overall, our tangible net worth now stands at approximately $250 million, or about $13.50 per share. We own 33 of our stores, which have no outstanding mortgages. Against the back drop of difficult economic conditions, our significant tangible net worth, including our large, unleveraged real estate position, helps give us strength to weather this environment.

Let me comment on our debt compliance. As we have indicated on previous calls, the threshold of our fixed charge coverage ratio has been reduced for the next three quarters to 1.10 from 1.25. While we have taken additional steps to maintain our compliance with this and other financial covenants, there is an increasing risk that the Company could violate the fixed charge coverage ratio in the future. As such, we have been in discussions with our banks to modify or amend our facility. Why I do not have substantive details to provide at this time, we are working diligently with our lenders to arrive at a solution that is reasonable. We will certainly let you know once any modifications occur. And now I'd like to turn the call back over to Bill for some closing comments.

Thank you, Mike. I want to briefly mention a few positives. Over the past several weeks, we announced that we have expanded with a few of our existing brands into new markets. Specifically we expanded with Hatteras and Cabo in New York and New Jersey. Previously we carried Hatteras and Cabo in Florida, and Hatteras in Texas. We also announced that we expanded with Azimut in Florida, where before this expansion, we carried Azimut from essentially Baltimore to Maine.

For those of you who are not familiar with these brands, they are [our] brand product, and are very well respected and appreciated by boaters. We are now the only dealer that can offer powerful, large boat brands in the northeast and Florida. We believe this is a big opportunity, as boaters between these two markets migrate extensively with larger products. Now they have the same service provider in both markets. This should give us a significant competitive advantage for the customer looking for this type of product.

While the economy has affected our customers' purchasing ability, it has not affected their passion for the boating lifestyle. We will continue to focus on operating our business to be able to effect those areas that we can control, including offering the best products and superior service to our customers, while taking steps to reduce our expenses and right size our business commensurate with the current rate of sales. I remain as confident as ever in the long-term future of MarineMax and that our unique customer-focused business model and initiatives to make ourselves a leaner organization, will only improve our growth profile when the market turns.

Our customers are still out on the water with their families, and they're actively boating, indicating that when the economy flattens and begins recovery, our business should be very strong. We will continue to keep our customers' focus on teaching them, servicing them, and showing them how to have fun. I want to thank our team members for their patience, their sacrifices, and extra efforts, during these challenging times. Right sizing our business to the economy is not easy or fun, but our team is committed to each other, our customers and our shareholders. And with that, Operator, we'll open the call up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Ed Aaron with RBC Capital Markets.

Thanks. Good morning, guys.

Good morning, Ed.

Can I infer from your impaired remarks that same store sales were maybe down in the month of October, in something along the lines of a 50% to 60% range, while margins were barely stable? Would that be a fair characterization?

Yes. It was definitely down worse than the 45%, and the range you threw out there is reasonable, Ed. What happens when boat sales drop that fast in a month like that, and you're doing winterization and storage activities, you actually have an opportunity for margins to even do a little bit better than they may have the year before at the gross margin line, overall consolidated, because of the mix change in business, but, yes, the big picture you're right. Sales were a little tougher than they were in the September quarter.

Okay. Thanks. And on the Ferretti distribution agreement expiring. I guess I'm looking for a little more color as to why it was not renewed. Was there maybe some conflict with Azimut that made them pull back? Can you give us a sense of what the sales impact of that's going to be over the in the next 12 months, maybe by giving us a little bit of a frame of reference for what Ferretti sales you did over the last year?

Honestly, we could not come to terms with Ferretti that we were comfortable with, in terms of moving forward. Kind of a neat thing, I don't know how many of you saw their press release, but instead of giving their products to other dealers in the United States, they've decided to own it themselves and to go to market themselves. So what that means for us, is we actually have income opportunities, if our customers do want to buy a Ferretti product, we can still facilitate that through Ferretti and be paid a commission without having the store costs, the marketing costs and so forth tied up in the brand. So that's why the dealer agreement was not renewed. Ultimately we could not come to terms that we were comfortable with moving forward.

As for revenue, I don't have the Ferretti revenue right in front of me, but in 2008, it must be around $50 to $60 million I would think, which is what approximately the inventory was. It's typically a one-time turns product. So I'm pretty sure that is pretty close to the impact on '08. Now, keep in mind that that business, like all businesses, has been trending south during the year, so it's not like it's been a big loss in the last six months, if you follow me.

Makes sense. Then, just on your efforts to maybe come to terms with your lenders, I understand you're not in default right now, but can you give us just some sense of how bad it would have to be over the next couple of quarters, in terms of the overall business environment, according to your model, to put you in the default? And then are there any contingencies that you're exploring in the event that you can't come to terms with your creditors?

You know, Ed, it's hard to really put metrics around what it would take to be in default. I think our fixed charge coverage ratio, it's in our dec documents. Each of you guys run models where I think you will definitely see there's an increasing risk, whether it's the December quarter, the March quarter, or the June quarter where it's going to be harder and harder and harder for the Company to stay in compliance.

I think more realistically, the Company will reach agreements with its lenders. I do think our lenders are being good business partners for MarineMax. I don't think that they necessarily want the Company to be in default. I don't think they want to go down the road of them trying to sell $470 million worth of boats. I think that this Company is far better at doing that and taking care of our customers and our team members, and I think they understand that, and I would think that we will get an agreement done before we would be in default on our agreement.

And I guess even if we then did go and default, I would probably then say the same things that I'm saying to you now, that we would work out a solution with our lending group that is reasonable, and our Company, unlike some others in our industry that have gone under, we have a sizable amount of capital in the organization, and our challenge ultimately is to get our inventories going down and to right size the business as Bill talked about. We understand that challenge. That's why we reduced our orders even further, and as we go through the selling season, everybody on this call knows that you don't sell a ton of boats during the wintertime, but certainly as March comes forward and the selling season, we're look forward to sizable reductions in our inventory and our balance sheet, as I'm sure our lenders are as well.

One last question before I turn it over. On the retail credit, you seem pretty comfortable with the availability that's out there, but the commentary that I think Brunswick made on their last call and the commentary that, anecdotally, the dealers would be sharing, I guess would suggest that maybe things are a little bit tougher than you're seeing, and I'm just trying to reconcile that a little bit.

I think clearly the banks are a little more cautious than they would have been a year ago. The auto approval loans that used to go up to $150,000 or whatever they may have gone up to at each institution, those brackets have all been lowered, so that now when we submit paperwork, you actually have a person reviewing all the documentation and making decisions, and in this heightened environment, you get more questions back to our stores. But I believe pretty firmly that if a customer today has come to look at a boat and if they can afford a boat, they're getting financed and done. That's not an issue. I really think what the bigger issue is, I think the overall industry, I think, recognizes this, but they need to recognize it, is the buyers don't have the liquidity and the balance sheet that they used to have, and the buyer that bought a 34-foot boat two years ago who wants to buy a 44 today, he may need to buy a 38 or a 40, because of his own personal challenges, not because of the retail bank's challenges.

Okay.

And our next question comes from Joe Hovorka with Raymond James.

Thanks, guys. Actually a couple of questions. First, a clarification. You said your inventory was down by the end of October, I think you said $45 million?

Yes, $45 million, that's October over October, Joe.

Okay. So it's not down 45 from September?

It's not sequentially. It's 45 million from the October of last year.

Got it. Okay. And if I recall, inventory actually goes up between now and the end of December, right?

That's correct. Right.

So we were higher than we were at the end of September?

You know, I actually don't believe we are. We're probably about flattish or something like that. I don't think it's gone up.

Okay. And you talked about 70% reduction in our purchases in model year '09. Obviously you're not going to be purchasing any Ferretti without the dealer agreement. The ex-Ferretti, what does that number look like?

That number actually, I don't have that, Joe, in front of me. That is ex-Ferretti. That is ex-Ferretti.

Yes, that's ex Ferretti. That's ex-Ferretti, okay.

Great. And then if I look at your P&L for a full year '08, you did 885 in revenue, you go back to '04, you did 763, and you were profitable on a 763 revenue basis. I know a lot of things have changed, more stores and things like that. I guess my question is when you're talking about your further cost reductions, are you looking at a cross structure that may be more similar to the '04, '05 time period where you could be nicely profitable and at $850, $885 million revenue base, or is it something else? How should we think about that?

I think ultimately, the same thing you're looking at is the same thing that we're looking at, what the size of the Company was, how much money we made back then. We are a different Company today than we were back then in terms of our footprint. We're in more markets, we have more stores, and so forth. Which is kind of the comment Bill made, about just, we don't believe we are going to exit any market. We are looking at all of our stores and so forth. But we recognize what you're saying, and we're certainly looking to how can we get the business back at that type of an expense structure.

Joe, our fixed costs are higher than they were then. We have more locations, more marinas, that type of thing. We have markets that we want to continue to be in, and so managing the Company for the cash flow is probably as important as anything we can be doing, versus trying to get the profitability where it was in that year.

How much would your fixed cost be up, let's say '08 versus '05 so we could kind of get a judge of - -

You know, I don't have that. What I can tell you just as a general rule, Joe, is that our fixed costs have historically been about a third of our - - I mean our real fixed costs have been a third of our SG&A structure almost every year. And so just take a third of what they were then and a third of what they were in '08, and you're probably close. Maybe not exactly, but you're close.

All right.

And the other thing that we're challenged with is we have a lot bigger customer base today than we did in '04. And we've got to take care of our customers as well.

Right. Let me ask it one other way, then. Do you think you could get the cost structure to the point where you can be profitable on an $850 million revenue base?

Long-term, yes.

Long term being?

The Company would be challenged in the very near term to be doing that for sure.

Got it.

You know, with the current level of business, at least the way it's trended in October and was doing in November. That being said, we had a pretty decent Ft. Lauderdale Boat Show, considering our expectations were pretty low, being they were on the advent of the elections, but clearly attendance was down at the Ft. Lauderdale Boat Show, Joe, but at the end of the day, the buyers were still there and we were making sales. So I think we were a little surprised at the level of business we did at the Lauderdale show, understanding it was down from what it was last year.

But I take it down less than kind of the September, October numbers you're talking about?

It wasn't down as far as October was.

No.

And I don't think the contract amounts were down as far as the September quarter was. Keep in mind, we're looking at contracted amounts, not closings. The challenge is to get everything closed.

The interesting thing, Joe, and you've heard us say this a hundred times, but when you walk the show and you talk to customers and we talked to a lot of them, I met a lot of our customers and potential customers and they're still as excited and passionate about this thing called boating as ever. And as I said, we did over a thousand get away events last year, so the customers are still out boating with their families and, just walk out on the water at this time of year in the Florida markets or even some of the northern markets, and you see a lot of the boaters still out there enjoying it. So, that's our hope for the future is that they're going to be there lined up ready to get that new boat.

Okay. Great. Thanks, guys.

Thank you.

Our next question comes from Steven Rees with JPMorgan.

Hi. Thanks. Can you just maybe talk anecdotally about the you success in closing the stores this quarter and your ability to retain the customers? And then maybe as you look across the system, how many more markets are you in where you do have more than one unit serving that area?

You know, the September quarter closings, a lot of them came as August was wrapping up or even in the beginning of September. I would say based on the data that we have, which is very limited, we've done a very good job at keeping our customers and at taking care of our customers. We do daily fan scores with our customers and customer satisfaction type of scores, and I don't think we're seeing a whole lot of negative news coming from the closures that we've done.

All of the stores that we've closed have been like satellite or adjacent stores to what we have. So we're able to pick up what we're doing for our customers at the other stores. So it's really just kind of bringing it in to get some of the cost down, but at the same time, understanding we need to keep taking care of our customers, and so we haven't really exited any markets. So we're not abandoning our customers for sure.

Okay. And then can you just talk about if you're seeing a pick up in the rate of closures among some of your smaller competitors in any market?

We're seeing quite a bit of fall out, and it's happening almost daily, and there probably will be more, if this continues to look bad for a while, the softness, we really need to hit bottom and we believe there's two inflection points in our business, one is when it hits bottom and people say that's as bad as it's going to get, Steven, and the other one is, oh, my gosh, it's coming back. And both of those will help our business. But in the interim, as dealers get out, that presents, I think, opportunities for us. And so the pie may get smaller, we just need to keep getting a bigger piece. And we've been doing that. We've been growing market share through this and we anticipate doing the same thing.

The interesting thing about the customers is that you would think that as dealers go out, that it would put a lot of pressure on our margins that I spoke about in the beginning and the thing is, which it's important to understand that why people are buying this boat, boating lifestyle for their family, they want a positive experience. So they want it from somebody that's going to be there in the future to take care of them, and they want it from a product that will support what they want to do. So having a premium experience and a premium product is critical, and even though there will be some [dumping] of product, as dealers exit, we believe that we can hang on to the quality customers as we go forward.

The other thing, Steven, that the closures give us an opportunity to do, of some other dealers, is to increase our service business. And moreso than ever, we're going after those customers to take care of whatever boat they may have to eventually convert them to a MarineMax customer down the road. And maybe today they can't afford to buy a new boat perhaps, some of those customers I was eluding to earlier, but we can take care of them and bring them as a part of our family to get them when times do recover to be a customer of a new product of ours as well.

Okay. Thanks for that color. Finally, you're talking about ordering 70% less in units in dollars in 2009. Is there anything different this year that gives you more flexibility to change that number as you move throughout the year, in case trends do get meaningfully worse?

I would say that the manufacturers,particularly Brunswick, where we get the Meridian and Sea Ray and Boston Whaler and Hatteras, will be able to turn the [boughs] back up some if the business does improve as we progress through the year. That being said, if it continues down, they have the ability to adjust it down also, as painful as that is.

Okay. Great, thank you very much.

Thanks, Steven.

Our next question comes from Laura Richardson with BB&T.

Hey, everybody. A lot of my questions have been asked, so I'm just going to follow up on a few that have been asked already. And to the discussion about being profitable at a certain level of sales, is it fair to assume in fiscal '09 - - I mean, number one, you were talking about $850 million in sales, but it sounds like the way Q1 is going, the rest of the year would have to be flat for you to even be $850 million in sales?

As a Company, we've got lots of models just like people on this call have lots of models, and we're focusing on ultimately the cash flow of the Company for fiscal '09; Bill said it as the number one thing we're looking at. We've got our non-cash recurring charges are a little north of $20 million before tax, and we're looking to manage the business where we don't eat substantial amounts of cash. Actually, with the inventory reductions, on a cash flow statement basis, we're actually going to produce a fair amount of cash if the inventories drop, which they should, year over year.

My models show that, too. I was going to ask that as my next question. Okay. To the income statement, it sounds like to put it in simple terms, it's going to be hard to even be break even in fiscal '09, is that fair to say?

I think so much of that depends on retail, and I think all of us are trying to guess what's going to happen, but based on most news reports, it is certainly a choppy environment.

And that's complicated, Laura, with now in off season. So it's hard to judge what next season will be.

Right, right. Okay, and that's fair. And then the other thing, so if inventory especially is cut a lot, then yes, the cash flow should be better. I'm still having a hard time figuring out where you want inventory to be at the end of next year, putting all these parts together we're talking about.

We've never given a specific target, and I don't think we're going to give a specific target here, but certainly substantially lower than where it is today.

Yeah. I mean could it be down 20% or 25% or more than that? I just have no idea what to aim for.

If you just assume kind of given a rough retail year for 2009, and recognize that the Company can't have zero inventory. You have to have inventory. And if you hear what we're buying, which is a huge amount less, you should model where you're going to get a fairly sizable reduction in the equity coming September 30. The reason why I don't want to throw out a number, even a percentage, is I don't want to either disappoint someone or, what is it, under promise and over deliver either. We're certainly focused on having a very sizable reduction in our inventory come September 30.

It's very obvious we need to right size the inventory to sales. So that says it should be coming down and coming down quite a bit.

But the way we do that is we need to be obviously taking advantage of every opportunity we have every day in our stores to ensure we're not losing any sales, make sure our market share is going up, but the main control valve for the industry is the production side. We and our suppliers have really made a dramatic change in what we were planning on producing as recently as - - the numbers that the dealers wanted in July and August has changed obviously, and the manufacturing partners have climbed right on board of that and have dropped their build rates dramatically, and that includes all the manufacturers that we do business with and a number of manufacturers that we don't do business with. You guys have all read that everybody in the industry is dropping their production counts down. And then with the Ferretti inventory eventually leaving the balance sheet, that provides even another chunk that comes off when you look at a year-over-year comparison.

Okay. That makes sense. And then just two other questions. So is it fair to assume that the cash that's generated from the lower inventory will be used to pay down the credit line?

Yes.

And how much cash do you want to keep around just to have on hand?

You know what we do, honestly, as I've said on calls before, we always take our cash and pay it against our line. It's the best use of our money right now, in terms of where the interest is and all that type of stuff. So we look at it as the equity in our inventory, how much cash do we have on the balance sheet. We certainly want to maintain a very healthy amount of cash. At September 30 we had - - it was about $100 million between our inventory and our short-term borrowings. We don't need $100 million, but it's nice to have $50, $60 million that helps the Company get through difficult times, when you recognize that during 2008 we only really ate $7 million of cash.

Okay. And then last question, so it sounds like more store closings could occur in 2009, fiscal '09?

We're looking at every market. We ask ourselves how do we take care of the customers in that market? How do we not lose share? If we have multiple stores, can we afford to have multiple stores and so forth. So we're kind of going through that process again right now, given the softness we've experienced as the quarter wrapped up.

Okay. Any more color on that like roughly, how many stores you might even think about consolidating?

No.

It sounds like you want to stay in all the markets you're in?

A rule of thumb that we used to talk about on these calls is we like average store sizes of around $10 million, and we've always had an average store size of north of $10 million or right thereabouts. If you go back to one of the caller's comments back in '99, '01, '02, '03, I think we were around $10 million, and depending on where our retail outlook is, that at least makes us think about the number of stores, but it doesn't necessarily mean you would close down to that level. We don't want to vacate any of the markets that we're in. They're all good markets.

And we have inventory to move.

We have inventory and customers to serve.

Thanks, guys. Good luck.

Thank you.

Our next question comes from Greg McKinley with Dougherty.

Thank you. Just a quick follow up. Can you remind us, you said that Ferretti has repurchased $27 million, did that occur in your fiscal '08 year, or that is since the year ended?

Most of that came in October. Very little was bought back in our fiscal year, and low single digits was bought back in our fiscal year '08, and then everything else was bought back in October.

Okay. And then $39 million additional is being inspected for repurchase right now?

That's correct.

Okay. And then just a quick tax question. You still look like you're carrying, although modest, some deferred tax assets. Will the Company be able to continue to book, I guess, benefits in lost quarters if there's emerging uncertainty about its ability to utilize those if profitability isn't near term visible?

Greg, I'll tell you, we have, I'll call it, enormous deferred tax asset reserves.

Okay.

To your point, like when we wrote off our good will, a lot of that is tax deductible and we did not recognize any benefit when we did that in the June quarter.

Okay.

And really what you're seeing on there is very limited expected realization. Under the FASB, it's very hard to take a benefit when you have the financial, the goodwill write off basically that we have, it's hard to recognize a financial benefit.

Okay. So would you even anticipate recording a provision or I mean a benefit at all in '09 if losses continue?

There would be some benefit, but it would be decreasing, I think, throughout 2009.

Okay. Thank you.

Our next question comes from James Hardiman with FTN Midwest Securities.

Thanks. Good morning, guys.

Good morning, James.

Couple of quick questions for you. I think most of my questions have been answered. In terms of your performance versus the overall, let's say, power boat market, typically or historically, you guys have outperformed the market pretty meaningfully. Last couple of quarters, your numbers as a Company have been a little bit lower than what we've seen nationwide from boat sales. I'm assuming the vast majority of that is just geography. You guys do business in the markets that are particularly hard hit. Is there anything beyond that that is contributing to that, is that sort of mixed impact, meaning you guys sell higher price point boats and those are doing worse, is there anything else that I'm missing as a part of that? And as we move forward, obviously the million dollars question is where overall retail is going to be in 2009. Is there anything that you're seeing that would give you any indication as to whether you will be a little bit better than the market, in line with the market, a little bit worse than the market, as we move forward?

James, it strictly has to do with the hard hit markets that we're in as to why our numbers show a little less than the industry did for last year. But if you take Florida as the market, we continue to grow share, even though that it's a very hard hit market, and it's a pretty - - it's one of the largest markets that we're in, obviously, with probably over 40% of our business coming out of Florida. So it strictly has to do with it's a market-based type thing. If you take southeast Florida as an example, one of the hardest hit markets that we're in, our market share is greater than 40%, as an example. So that tells you what's happening with everybody else pretty well in that market for the boats that we sell.

James, I think the overall point is that our market share, based on the reported data, continues to incrementally increase, which would tell you that we're doing better, as Bill said, than the other dealers in our marketplaces. We would expect as '09 plays out, we'll have even higher market share at the end than we do today.

I guess part of the question is as you look forward, is there any reason to think that Florida has stabilized, that once we begin to comp against some really bad numbers from this year and last year, that your overexposure to Florida will not be as much of a drag next year as it was this year, or is Florida continuing to be in free fall here?

No. I can tell you that first of all, we have declines everywhere, but the decline in Florida was a little bit less magnitude than the decline in some of the other markets to your point. I do want to point out that it was still a fairly significant decline, it just was less than other markets.

Okay. And then in terms of your inventory, can you give us a little bit of color on the aging of that inventory, how much of it is '09, '08, '07, and at this point does that make a big difference in terms of how much you're able to sell those boats for and ultimately the impact on margins?

I don't have a breakdown in front of me of '09, '08, '07. I know that when you look at what's under a year old, which is the stats that we look at, it's worse today than it was a year ago, and that's for two reasons, one because of the environment, two because we're not buying boats. If you do the math, pursuant to the calculation, if you stop incoming boats, you're going to have more that age over a year just through the calculation. If you look at where we were a year ago to today, it's not like it's gone from, let's say, 80% were less than a year old, to now it's only 50% less than a year old. It's gone from like 80% were less than a year old, to something like 72% are less than a year old now. So it has incrementally gotten worse for the two reasons I mentioned. One, we've really cut down on new boats and when you take the numbers out of the numerator, it hurts the calculation as well.

Okay. And the '09s, is there meaningful innovation in the '09s that would make it a lot more difficult to sell an '08 versus an '09 at this point?

There are some new Zeus and Axius models in '09 that we are purchasing and have purchased, so that the impact of not having the [pot] is not going to hurt us. So, you know, we feel comfortable with it. Obviously most of the inventory is '08, because we just moved into '09 and we did so reducing orders, but, we'll work our way through it, and we don't believe it will have a big impact on our margins, as we said earlier in the call, because at the end of the day, we don't have the competitive nature of another dealer that's selling new products next door to us of the same brand and, also we keep our focus with our team and our customers on the boating lifestyle. So we're able to sell in '08 even though the '09s are there. And historically we've done that as well. We've always carried over a pretty substantial inventory of '08s because of the slowness of the '09s coming in in the past in previous years.

And with the production reductions, if you will, there's very few '09s coming in. So our job is to continue to sell the '08s that we have.

Great. And then last question I'm going to ask, in terms of your real estate, I know you've in the past made the point, I think consistently that, it's worth owning and controlling your dealerships and the real estate surrounding your dealerships. Given where the share price is, given the risk of defaulting on covenants, does that shift your priorities even a little bit? I mean I guess the question is if it were an issue of defaulting on those covenants, would you consider monetizing some of those real estate assets to avoid that, or are you still sort of the same attitude as before?

Well, the challenge is that our covenant is an operating covenant. So it really doesn't matter if we were to sell real estate or to do anything other than to fix the operation. So as long as the operations are struggling, you can still default on the covenant.

Wouldn't that allow you to pay back some of that debt?

It would allow you to pay it back, but you would still be in default. And so our thoughts on our real estate have been pretty consistent for a long time, which is while our properties are arguably maybe not in their highest and best use to maybe a hotel chain or something like that, they are very special properties if you're in the boat business. Most of them are on highways and they're on the water, which is nirvana in our industry and we've looked at sale leasebacks over the years and other ways to monetize it, where I think if we needed the cash, we would go put mortgages on the property again, which admittedly is probably a little more difficult in today's environment than it would have been a year ago, but I do believe we still have the ability to mortgage our properties and to bring cash into the Company and to pay down the inventory financing facility, if we need to or for liquidity in the Company.

Okay. So we would likely see some of that before we'd see a default on the covenants, is that a fair characterization?

I don't know if I'd word it quite like that. I mean I think that if you started today putting mortgages on property, it's going to take you, I mean I'd guess the time, 45, 60 days, 90 days, something like that.

Right.

That crosses the quarter end. The question is what's November retail and December retail going to be, which we don't know that today. You know, I would go back to the comments that I made on our overall debt and with some of the questions that came up. We're working diligently with our lenders, they are being good partners. We'll continue to push that ball down the field and try to amend the facility that we're currently in compliance with.

Great. Appreciate it, guys.

Thank you.

That's all the time we have for questions. At this time I'd like to turn it back over to your host for closing remarks.

Thank you, everyone for your continued interest and support in MarineMax. I would also like to acknowledge our team and express my gratitude for their continued commitment to our customers during these challenging times. They continue to work hard and remain passionate about our future and our continued success.

In closing, I'd like to take a moment to acknowledge Veteran's Day, by saying thank you to the Veterans who are part of our MarineMax family and to all Veterans who have and are serving our great Country. Mike and I are available today if you have any additional questions. Thank you.

This concludes today's conference. Thank you for joining us and have a wonderful day.