MarineMax Inc (HZO) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the MarineMax Incorporated third quarter fiscal 2009 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 Ms. Kate Messmer of ICR. Please go ahead, ma'am.

Thank you, Operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's 2009 fiscal third quarter 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 email 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, Kate. 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 reduce its inventory and related financing; 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.

During the June quarter, the marine retailing environment continued to be adversely impacted by the soft economy, more restrictive retail lending practices, and shaken consumer confidence -- all caused by general uncertainty. In addition to these macro factors, we also face challenges brought about by dealer failures and repossessions of boats previously sold, which creates short-term dumping of products, resulting in margin pressure.

Despite these challenges, I am pleased that we've made significant progress towards our stated goals of reducing expenses and inventory during the quarter.

We are able to report another substantial reduction in expenses with a decline of approximately $17 million in the quarter on a comparable basis versus the prior year. In fact, we generated 17% more revenue in our June quarter than our March quarter, and our expenses were only up 3%, after excluding unusual items in both periods. Keep in mind the March quarter reflected substantial cost savings as well.

Our improved cost structure reflects the actions we've taken to downsize our business in response to weaker retail demand. Specifically, the savings we've realized have come from reducing the number of team members, closing stores, and looking for opportunities to lower our costs in just about every area of our business.

The team member reductions continue to be the most difficult decisions to make, as they impact families, but unfortunately, are necessary during these difficult times. We closed nine stores during the quarter, bringing us to a total of 65 stores compared to the 87 this same time last year.

We continue to evaluate our footprint on a market-by-market, store-by-store basis to make sure we achieve the optimum balance between serving our customer base and achieving the necessary throughput for our stores. Additionally, we continue to make significant progress in reducing our inventory.

Despite the challenges that I mentioned earlier, we were able to further reduce our inventory by another $60 million from the end of March. To date, we have reduced our inventory about $175 million on a year-over-year basis.

We continue to pursue aggressive margin strategy to drive down our inventory levels. However, we weren't able to get aggressive as we would have liked to have gotten, until the last part of the quarter, after we secured an amendment to our credit facility. With the amendment in place, we now have more flexibility to drive sales, and are very focused on further reducing our inventory levels by the end of the September [fourth] quarter.

As we stated on our last call, we believe the strategy of reducing inventory and the related borrowings will better position MarineMax to capitalize on the opportunities that may come about, due to the many challenges that our industry faces. It also positions us for better earnings potential when the conditions begin to improve.

While the current environment has led to ongoing pressure on our sales, the actions we have taken to improve our inventory and expense levels has allowed us to generate strong cash flows. By reducing our inventory through June, we have generated over $100 million in cash from operations. This, coupled with less purchases, has allowed us to reduce our outstanding borrowings by $154 million on a year-over-year basis.

Please keep in mind that the only debt we have is the inventory financing through our line of credit, with no long-term debt whatsoever. With considerably more near-term flexibility under our current bank agreement, we expect to continue to drive down inventory in the fourth quarter.

With all this sobering talk, I think it's important to emphasize how supportive our manufacturers have been, as we work to right-size our inventories. They are providing sales incentives that help us drive sales and lower the inventory levels.

They also continue to be great partners by supporting us with the best products available, including continuing to develop exciting and innovative new models. We have known for years that we pick the best manufacturers to do business with, and their actions during this difficult environment further confirm it.

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

Thank you, Bill, and good morning, again, everyone.

For the three months ended June 30, 2009, our third quarter revenue was $151 million compared to $271 million last year. Our same-store sales declined approximately 39% or about $95 million compared with the 27% decrease in the same quarter last year. Additionally, revenue declined approximately $25 million from stores closed that are no longer eligible for inclusion in same-store sales base.

Generally, during the quarter, we continued to experience softness across all of our markets and segments that we participate. Gross profit as a percentage of revenue decreased approximately 130 basis points to 21.5%. The decrease in our overall gross profit margin was largely due to our more aggressive pricing to drive inventory reductions. As Bill mentioned, given the flexibility afforded by our amendment, we expect to continue this aggressive stance throughout the September quarter.

Our selling, general and administrative expenses decreased approximately 24.5% or about $12.6 million during the quarter. However, the current quarter includes about $2 million of unusual expenses for store closing costs, and we also had about $400,000 of loan closing costs associated with our recent amendments.

Likewise, the June 2008 quarter had about $2.6 million of unusual gains for items like business interruption insurance, canceled interest rate swaps, and changes to our benefit plans. When factoring in these items, we have actually reduced our expenses by about 33% on a year-over-year basis. And as Bill mentioned, our expenses were close to flat sequentially for March, while raising revenue 17%.

Interest expense decreased approximately 29% to $3.4 million as a result of a reduction in our average borrowings on our line of credit. As for income taxes, it is important to note, as we have mentioned in the past, our loss carryback is limited by the current tax law. As such, the tax benefit we recorded during the quarter was minimal. This significantly increased our reported losses. If the tax loss carryback law is changed, we'd be able to substantially increase our benefit.

Finally, our reported net loss for the third quarter of fiscal 2009 was $9.2 million or $0.49 per share, compared to a reported net loss of $113 million or $6.15 per share for the comparable quarter last year. Remember that last June we wrote off all of our goodwill, resulting in a very large non-cash charge.

For the nine months through June, I'll comment on just a few items. First, our same-store sales have declined about 44% compared with the 23% decrease in the comparable period last year. Second, our margin decline on a year-over-year basis is primarily due to the same factors that affected our June quarter results. Third, we reduced expenses by about $53 million on a comparable basis when factoring out the unusual items in both periods.

Turning to our balance sheet, at quarter end, we had approximately $13.8 million in cash. Keep in mind that the amount of cash we have at any point in time is a function of how much we leverage our inventory. As I've stated before, we have substantial cash in the form of unleveraged inventory.

We ended the quarter with $340 million(Sic-see press release) in inventory, which is down approximately $175 million from the comparable period last year. There is an even greater reduction on a unit basis, as our total units in inventory, as of June 30, were down over 50% on a year-over-year basis from the prior-year.

We believe that we will continue to achieve reductions in inventory as we move through the fourth quarter. We are prepared to continue our aggressive stance on margins, as we feel the payoff is higher margins and profit when the industry recovers.

The extent of the margin pressure is hard to estimate, given the many variables that come into consideration and difficulty predicting demand; but we do plan to be aggressive in driving sales to get our inventory levels down.

Additionally, as we have mentioned in the past, our dealer agreement with the Ferretti Group expired last August, requiring them to repurchase our remaining inventory at essentially our purchase price less cost to repair and refurbish the products. Ferretti has repurchased, or we have sold, approximately $41 million of this inventory through June 30, and we have just under $30 million in remaining -- in inventory today that they are still required to repurchase.

We are in ongoing discussions with their management about completing their contractual obligation to repurchase the remaining boats that we own. We are also continuing to aggressively market the boats. We remain optimistic that we will continue to make progress converting the Ferretti Group inventory into cash, either through their repurchases or by us selling the product.

Turning to our liabilities. The cash we have generated through reducing our inventory, combined with lower purchases, has reduced our related inventory financing by $154 million on a year-over-year basis. Keep in mind the only debt we have is the debt that finances our inventory.

We are in compliance with the new terms of our financing facility, which provides that the Company can lose $40 million of adjusted EBITDA, as defined through the end of September. We are able to add back store closing costs and losses on specific brands no longer carried by the Company, as defined in the agreement. As a result, the amendment provides us with increased flexibility to operate our business and navigate through these difficult economic conditions.

Our tangible net worth now stands at approximately $210 million, which is considerably higher than our current market cap. We own 33 of our stores, which have no outstanding mortgages. In what has proven to be a challenging nine months of the fiscal year, we were able to generate an excess of $100 million of cash from operations, largely due to the inventory reductions.

We believe the potential for sizable cash flows will continue, as we proactively manage the balance sheet. Our current ratio, and total liabilities and tangible net worth ratio have improved on a year-over-year basis as well.

Before I turn the call over to Bill, I will add that while July is reportedly another challenging month for marine retailers, our sales trends have improved compared to July last year. I can't state the degree that our sales have improved, as we're still closing the month and a lot of our deals close around month-end; but the fact that we are up is encouraging.

Having said that, we are very aware that one month does not make a trend, and we recognize that we are being more aggressive, which is helping to drive business. Accordingly, I expect margins to contract when the month is completely closed. Regardless, it is nice to see an up month after so many consecutive declines.

However, for those of you modeling the business, it's way too early to take this comment and think that August, September, or another out period will repeat July's trends. Our inventory and related financing levels have also continued to drop, as we move through July.

With that said, I will now turn the call back over to Bill for some closing comments.

Thank you, Mike. As we continue to navigate our Company through this challenging environment, our industry-leading position should offer opportunities for us to consider expanding into new markets and/or leveraging our existing brands. We continue to pursue marketshare gains aggressively and evaluate other potential growth opportunities.

I want to also reiterate that MarineMax has amassed substantial, tangible net worth over the years, which provides us with the financial strength to weather this storm and emerge as a stronger company when industry growth returns. We are working to capitalize on our competitors' weaknesses and take the necessary actions to transform MarineMax into a leaner organization, both in terms of inventory and also expense levels.

I am confident that these actions will put MarineMax in a position for even stronger growth when the economy begins to recover.

As we approach and plan for fiscal 2010, the challenges facing the retail boating industry are expected to exist for the foreseeable future. While glimmers of economic hope are reported more frequently now than several months ago, it seems clear to most that recovery will take longer than typical recessions.

Retail financing, while incrementally improving, is still harder to secure than it has been, and continues to make it difficult for us to close deals. The less favorable retail lending environment also impacts our ability to drive financing and insurance profits, which, as you know, have historically been one of our highest margin businesses.

We believe that dealer failures are likely going to escalate as we head into the winter. Again, this will challenge us on the margin line and our marketshare on a short-term basis, until the pipeline of deeply discounted repossessions are sold.

On the other hand, these challenges that confront the industry should very well turn into long-term benefits for MarineMax. This could be the recession that leans the industry of too many manufacturers and too many dealers that do not deliver the proper experience to the customer.

As dealers fail, we will likely be presented with opportunities to expand. Also as dealers or manufacturers fail, the potential for growth to our long-term marketshare opportunities should substantially increase, along with other potential benefits.

As we are in the middle of the boating season, we are pleased to see that our customers are still out on the water, boating. As we and our customers know, boating provides a much-needed escape and a great family recreation. And it's actually more affordable now than it's been in recent years, due to relatively low gas prices and dockage fees. Certainly, our customers' passion for boating remains strong, and it is likely leading to pent-up demand that we hope to capture, as the economy and consumer confidence improves.

I am proud of our team's extra efforts to stay focused on our tactical task at hand, while delivering the boating dream to our customers.

Also, as we approach 2010 during this perfect storm in the world economy, we are running our business to be prepared for the worst, but yet hope for the best. While we realize that hope is not a strategy, we are prepared to weather this storm. And to repeat a popular quote -- life isn't about how to survive the storm, but how to dance in the rain.

And with that, Operator, I'll turn the call back over to you for questions.

Thank you, Mr. McGill. (Operator Instructions). Joe Hovorka, Raymond James.

I just want to confirm -- you said July retail was actually up?

First of all, thanks for asking the question, Joe. I thought we did such a good job with the script that we'd address everybody's questions. But, yes, July will end up for us -- I don't know to the degree that it's going to be up.

Usually, you guys ask us that question and I wanted to be proactive and say it in the script. And I also wanted to put a lot of caveats around it, that we are driving business pretty hard. We're being aggressive. But, July will finish up for MarineMax.

Okay, that was my next question. So, part of it is, you've increased the amount of discounts in July versus what you did in the June quarter?

Yes, that is fair to say.

Fair to say.

Yes, Joe, we're being very aggressive to move the inventory out. And basically, any buyers or potential buyers we have, we're making sure they do not leave; that they receive the deal of a lifetime, in some cases.

And the comps, as you went through the June quarter, I'm assuming June was the best of the three months?

You know what? They were all pretty close to the same, to be honest with you. There wasn't any events during the June quarter a year ago to make us have an easier or a harder comp this year. They were all in that 35% to 40% down.

I know there's some statistics out there saying that some data points to June maybe being a little bit better than the prior-year, but I think it was pretty much the same. And for us, as it had -- each of the months were about the same, Joe; I apologize.

Okay. Great. Thanks, guys.

(Operator Instructions).

I think we did such a good job, Bill.

With that, I'll do the closing statement, Operator.

So, thank you, everyone, for your continued interest in supporting MarineMax. I would also like to thank our team members for their hard work and their passion for the business and serving our customers during these challenging times. They are truly the key to our industry-leading position.

Mike and I are available today, if you have any additional questions. Thank you, everyone.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.