MarineMax Inc (HZO) 2010 Q4 法說會逐字稿

Good day everyone and welcome to the MarineMax, Inc. fourth quarter 2010 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 Kate Messmer from ICR. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone, and thank you for joining this discussion of MarineMax's 2010 fourth quarter and fiscal 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 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 would like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act. These statements involve risks and uncertainties that may cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality in weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission. With that in mind, I would like to turn the call over to Bill.

Thank you, Mike and good morning everyone. Trends in the boating industry remain challenging, as noted in recent industry reports and reflected in our fourth quarter results. After dropping sharply in June, consumer confidence has been choppy, declining significantly in September and remaining relatively weak in October. We keep hearing from prospective buyers that they are hesitant to make a major purchase until they gain more confidence that the economy is improving. They are boating more with their families and enjoying the boating lifestyle, but they need to be more comfortable about the economy and security of their individual job or business before making a purchase.

Our fourth quarter sales proved to be disappointing and challenging. Especially given the importance of the quarter to many of our seasonal markets. Our team worked very hard in the face of consumer confidence and for their extra efforts and dedication to our customers I thank them. Given this backdrop we continue to carefully control our inventory levels and aging. The aging of our inventory continues to improve as evidenced by our margins.

Considering industry conditions, we have reduced our near term incoming boat purchases to ensure our level of inventory remains in line with what we are seeing at retail. As we previously communicated, we have shifted to a three times a year ordering process with our major manufacturers to provide us with more flexibility at matching purchases with retail activity. When we see retail pick up in a sustained fashion, we will increase our orders.

Our focus on inventory aging allowed us to report another quarter of solid margins in the mid 20% range. Recall that last year in the fourth quarter, we ran a companywide initiative to dramatically reduce our inventory levels which significantly impacted our gross margins. So, while our sales were down significantly this quarter compared to last year, our gross margin profit was actually more than 2.5 times greater. Our overall gross margin this quarter was not as high as in the June quarter, however, the underlying product margins on the boats we sold were fairly comparable.

This quarter we had a higher mix of boat revenue driven by larger boat sales and as you may recall, larger boat sales generally carry a lower gross margin. This mix shift was a primary cause of the margin decline from the June quarter. We have discussed before, the negative impact of repossessed boats and dealer failures on gross margins throughout the industry. While the industry level of repo'd boats has moderated substantially, if a large number of dealer failures occur this winter, we could experience near term gross margin pressure. But clearly it would help our long term competitive position and further market share gains.

Our last year inventory levels stood at approximately $189 million which is down from approximately $550 million at our peak and even down from the $206 million level that we achieved in the prior year following our big inventory reduction push. On a sequential basis, inventories were up a little, which is one of the reasons we reduced incoming boats as I mentioned earlier. From an industry perspective, inventory levels are better aligned with demand than last year and we believe that other dealers have also ratcheted down their purchases, which should continue to support a lower level of inventory in the channel.

Moving on to expenses, when adding back the equity compensation expense and removing the costs associated with storage that we closed, our expenses are down significantly from the prior year. They are also down as a percentage of revenue from the trends of the last few quarters but up slightly in dollars. As we have mentioned in the past, the 56 stores we operate today produced in excess of $1 billion in revenues in both 2006 and 2007. We believe this provides us with a significant opportunity for growth going forward without increasing our fixed costs.

On the financing front, just after the quarter ended we also added a $30 million line of credit for our Azimut's yacht business which complements $100 million facility we put in place in the June quarter. Both of these facilities are structured in a manner that increases our flexibility and reduces our costs from the previous facility we had. Our strong tangible net worth enabled us to achieve this financing in an environment which is still very challenging for borrowers, especially in our industry. We believe our ability to receive financing agreements as we have done is a competitive advantage and something that further strengthens our leading position.

The actions we have taken over the past two years to right side our business while simultaneously continue to focus on improving the experience our customers receive, is allowing us to consider various growth opportunities. We have recently expanded with two premier brands in the water-skiing and wake boarding arena. Specifically, we expanded with Malibu in Arizona and Nautique in Minnesota and Georgia. We have also expanded with Harris aluminum pontoon boats in several of our markets which is a segment in the industry that's doing pretty well right now. These recent brands expansions like ones that we did last year likes Azimut in Florida and Hatteras in Cabo and the mid-Atlantic and northeast, are helpful now, but will be even more meaningful as the industry begins to recover.

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, 2010, our revenue was $124 million, down approximately $83 million from the prior year. Our same store sales declined by 36% compared with a 41% increase in the same quarter last year. Revenue from stores closed that are no longer eligible for inclusion, the same store sales base was about $12 million. As Bill mentioned, last year in the fourth quarter we adopted an aggressive inventory reduction strategy which meaningfully boosted our same store sales in the face of an industry decline and also dramatically reduced our gross margins. Accordingly the comparison relative to last year is less meaningful.

I will note that we were able to generate an increase in revenue from the June quarter which seasonally other than last year, has never happened. Using historical percentages would have predicted a September quarter around $90 million. Gross profit as a percentage of revenue was approximately 24% in the quarter, up from only 6% in the prior year. In the June 2010 quarter, we reported 30% gross margins which was largely due to the mix shift in our business toward service, parts and accessories, finance and insurance and brokerage businesses which expanded as a percentage of our business, due to our focus and also reduced boat sales.

This quarter our revenue was up 8% sequentially from June, and we generally experienced an increase in larger boat sales which carry a lower margin. The increase in boat revenue as a percentage of total revenue combined with the fact that larger boats drove the increase, is the primary reason for the margin decline. Our selling, general and administrative expenses decreased approximately 32% or $14 million during the quarter to $31 million.

As Bill mentioned, our expenses are tracking better than the last few quarters, on a percentage of revenue basis, but came up some in dollars. The dollar increase is due to modest incremental marketing efforts which drove a sales increase in the June quarter in the face of tougher industry conditions along with an increase in variable compensation, namely commissions, resulting from the increased boat sales. I would note that the store closing costs that we incurred were primarily due to trueing up accruals for future leases on stores that we closed last year.

Given the continuing soft commercial real estate market, we lowered our assumed sub leasing expectations, which resulted in the bulk of the increase in the expense. As the press release noted, we reversed stock compensation on certain restricted stock units, whose performance criteria is no longer deemed probable. Interest expense decreased 75% to approximately $700,000 as a result of a reduction in our average borrowings on our line of credit, and the modestly less expensive facility.

Regarding income taxes, we did not recognize any material income tax expense or benefit and as we have discussed in the past, we will likely not do so until we return to sustained annual profitability. The net loss for the fourth quarter of fiscal 2010 was $1.8 million or $0.08 per share, which includes the benefit of $0.18 per share for the reversal of equity compensation expense as well as the added expense of $0.05 per share for the store closing costs. The loss is much better than our net loss of $33 million or $1.72 per share in the comparable quarter last year.

I won't add many comments about the year other than to note that our overall margins have come way up from the prior year. But I will add that our core product margins while much improved, are below the levels we experienced historically by 300 basis points to 500 basis points, depending on the brands in the categories. As we in the industry continue to improve aging and inventory levels, and the consumer gets more comfortable with their purchase decision, our margins have the opportunity to increase.

Turning to our balance sheet, at quarter end we had approximately $16.5 million in cash, but as we have mentioned in the past, our cash is a function of how much we want to leverage our inventory. We have substantial cash in the form of unlevered inventory. Our inventory at quarter end was $189 million, which is down approximately $17 million or 8% from the comparable period last year when we took aggressive actions to reduce our inventory. As Bill mentioned, the aging of our inventory is also much improved compared to where we stood a year ago as reflected through our 24% gross margin.

Turning to our liabilities, our short term borrowings were $94 million at year end, down 34%, from $142 million in the prior year. In early October we secured a new financing facility with CGI, a subsidiary of French bank, Societe Generale. The new facility provides for up to $30 million of floor plan financing for our Azimut's products. The facility has a one year term, but each advance can remain outstanding for 18 months. An advance is made on a specific boat that we acquire. The facility accrues interest at a rate of LIBOR plus 350 basis points. We must comply with certain balance sheet related covenants, specifically our current ratio must be greater 1.2 to 1, and our leverage ratio defined as all liabilities divided by our tangible net worth, must be less than 2.75 to 1.

This facility follows our agreement in June for a new $100 million financing agreement with GE. Both facilities have the same covenants. We ended the quarter with a current ratio of 1.80 and total liabilities to tangible net worth ratio of 0.67. Both of these are very healthy balance sheet ratios and are far better than our required covenant levels. Our tangible net worth now stands at more than $200 million. We own more than half of our locations which are debt free. As we work through the current environment, we will keep a close focus on managing our inventory and expenses and we continue to believe that we are well positioned for cash flow generation and profitability as conditions start to improve.

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

Thank you, Mike. While the industry is still looking to start a long awaited rebound, it has been encouraging for us to see our customers out on the water more than ever. As evidence of this, our fuel sales are up substantially, compared to the prior year and participation in our customer events continue to be robust with our getaway events nearly always at capacity. Our customer's passion for boating is clear and we know this will translate into opportunities for us in the future.

While the bulk of our comments on this call have indicated that the industry is still soft, I will share a few very recent bright spots. Our Tampa and Atlantic City boat shows in September both were up over the prior years in unit and dollars. Also we just exited the Fort Lauderdale boat show, which ended this past Monday. As many of you know, this boat show is usually one of the largest shows in the world. I am happy to report that this show is also up substantially in units and dollars compared to last year.

While these are encouraging signs, we have much work to do to close the contracts we have written and make additional sales, following our open houses and demonstrations of the boats. Also, we need to remember that we have had positive signs over the last few years which did not lead to sustained industry increase. So, we need much more time and evidence to see the real status of the industry.

We believe that no one in the marine industry is better poised to take advantage of improving conditions than MarineMax. We also believe that considerable pent up demand is present and growing and will generate sizable boat sales when consumers feel more comfortable with spending. Our customers need to see signs that the economy is starting to get better. And we believe that once we start to see a sustained improvement in consumer confidence, that we will reap the rewards. We have and will continue to keep our focus on our customers and look for additional strategic opportunities during these times, such as expanding with brands and/or acquisitions.

MarineMax excels in superior customer service, product offerings and access to financing, which other dealers simply cannot offer. Our strategies of teaching, servicing and showing our customers how to enjoy the lifestyle of boating, is proven and remains our primary focus. And with that, operator, we will open the call up for questions.

(Operator Instructions) We will first hear from James Hardiman with Longbow Research.

Good morning. Couple of questions for you guys. Obviously the anecdotal commentary that the high end boats are bouncing back pretty nicely here, certainly seems like a positive. I was wondering if you could speak a little bit towards the fact that Brunswick and some other industry sources seem to suggest from a, industry perspective, the trend is the opposite. In that aluminum is dramatically outperforming fiberglass at least so far this year and that seemed to continue in the third quarter. Can you speak a little bit to why you guys are seeing different trends than what it appears like the industry is seeing?

James, I think it's primarily that the consumer that buys the larger boat and a lot of cases, they are financially on very solid ground. It's really more an issue of consumer confidence and concerns that maybe they have with what was happening in the country and what's happening in our economy and the world. So, it's had them tabled, and at the Fort Lauderdale boat show it was very encouraging to see the attitude of the customer was very, very strong about the next boat and looking for when they want to get to it. And we had a lot of discussions with prospective buyers who we believe are ready to pull the trigger once they see some very positive signs. We did business in smaller boats, medium sized boats and larger boats at the boat shows, which is very encouraging. So, larger boats are showing a definite rebound.

And James, I can tell you, some of our comments are specific to like the Hatteras and the Azimut brands, which are larger than what Brunswick may be generally referring to also.

Okay, perfect. That's helpful. I was hoping you could give us maybe some pieces to be able to figure out what the run rate for SG&A should be. If my math is right and once you pull out the stock comp reversal as well as the closing costs, SG&A was still up sequentially by about $4 million versus the third quarter. I guess the first question is, is that math right? Second question, how should I think about that going forward? It sounds like variable comp was a piece -- how should I think about that going forward? What's fixed? What's variable?

I think the math if you take out the closing costs and so forth, you get a $2 million increase from the comparable number in the June quarter to $34 million roughly. We spent some more marketing dollars in the face of the sliding industry to produce the increase that we had. I think the low thirties, thirtyish to the low thirties, is the right expense level. I can tell you that we are working to get it below that. But that seems to be kind of where we have settled in on these, basically for all fiscal 2010. I think it's Bill alluded to in his prepared remarks, we had the ability to increase our top line from a fixed cost standpoint, which make up a little over a third of our expense structure, without incurring a lot of additional cost. Because the stores back in '06 and '07 did produce over $1 billion in revenue. So I would get -- we are certainly focused on the low thirties and even trying to get the number below that. But we also recognize that growing share and so forth in this environment is important which is why we increased our marketing spend a little bit during the quarter.

The variable comp, you guys have sort of gone back and forth a couple of times. Sometimes it's based purely on the top line and sometimes it's based on, sort of, profit dollars at the dealer level. Remind me where that is and how that should move in relation to sort of which line items?

It ties to both obviously. The higher boat sales you have, you are going to pay out more commission. The higher the gross margin the commissions also goes up. When you have the spike that we did in the June quarter and I say spike, it was a mixed change also, but our margins were pretty good in the June quarter as they are in this quarter for comparable product, but that generates an increase in the variable compensation.

Okay. So the variable comp increase was a more function of what happened in the June quarter than what happened in this quarter? Is that how I should think about that?

Then you get the sales increase in this quarter though. So, the sales increase drove it in this quarter and again there was also a general margin increase that's going on in our business, from let's say the March quarter to the December quarter which has increased the variable compensation. Which we highlighted in the June quarter. You get both things James, as sales goes up you are going to pay out more and as margins improve you pay out more also.

Then finally, obviously, you aren't really giving guidance for next year, but can you speak just in general terms in terms of whether or not you think you will be back to on the positive side from a profit standpoint? And if at all you can speak to what type of performance you would need to see from an industry perspective to get to that break even point?

James, we don't give guidance. I can tell you that every one in the company is focused on profitability for model year -- for our fiscal year 2011. And what was -- we mentioned it in the call, but what was really disappointing is, up through April or May we were pretty encouraged is what '10 would be and then it was like the bottom kind of fell out with consumer confidence and a lot our customers kind of tabled decisions and that type of thing during our summer season in a lot of the markets. We believe there -- it's something we are not going to take our eye off the ball on and we are going to do everything we can possibly do to achieve it. We just need a little bit of help with consumer confidence. And I think that there is some things that have been happening that should help with that, to get the consumer confidence up a little bit with our consumers.

Let me ask a question this way then. If we were to see flat sales from an industry perspective, it sounds like from what you are saying you expect to see continued gross margin improvement. I don't know if you are assuming much in terms of market share for the year and then SG&A I'm guessing would be -- I guess I don't know where SG&A would shake out. It sounds like maybe a little bit lower next year versus this year. How should I think about those things in a flat industry scenario?

If the industry is flat, James, we should be able to do much better than the industry and that is because the industry is smaller. You know, if the numbers are right, there has been approximately 2,000 dealers that have fallen out. The weak summer is probably going to generate some more failures at dealer level. So, the pie is small. Our opportunity to get a bigger piece which we are getting right now, continues and so that will be a market share opportunity. So the repo's play a lot on it. I mentioned that, when you are competing with companies that are in trouble, manufacturers that are in trouble and dealers that are in trouble, that's a tough one to compete with. But that's drying up and there may be a little bit more of it, but with just a little bit of help, we should do fine.

Great. Then just one last quick question. Store closure costs, is that pretty much done? Should I not - should I be assuming anything for that going forward? Or, how should I think about that?

I would not assume anything for that going forward.

Okay, great. Thank you, guys.

Thank you, James.

(Operator Instructions) We will now hear from Greg Mckinley from Daugherty.

Yes, thank you. Could you give us a sense for - you talked about you have moved to a three times per year inventory ordering process with your vendors. Obviously now we are heading into a seasonally slow time of the year. Given the purchase adjustments you have made as well as anticipated seasonal slow down, where do you think a reasonable place would be for your inventories to approximate at the end of your first quarter? Can you share with us any goals on that front?

I would -- I don't have the number in front of me as to where it ended last year. I know arguably last year we felt like we were probably light in some product going into the boat shows. I would assume around last year's number or down slightly from that, Greg I would think. I think more importantly is that we have the flexibility to bring in product as we need it and stop product if that's what retail is telling us to do which is what we did here this past quarter.

And we have been making adjustments on an almost weekly basis Greg.

Obviously we have objectives and goals internally as to where we are trying to get to. But, at any one point in time, it kind of depends on the shipments of product that just came in either from Europe or from manufacturers right then. We certainly want to be prepared for the boat shows.So, we always have product come in for that. The flexibility that we have now and honestly the great working relationship that we have with our manufacturers in regard to turning the valve on and off which is working well, gives us the flexibility to make sure we have the right product in-house.

Okay. I guess I was asking it just to get a better sense of the company's cash flow position and liquidity here heading into the seasonal slow down. With that as context, could you talk a little bit more about - I think you talked about some rules or restrictions around access to the $30 million Azimut line. How is that going to be used?

The Azimut line is specific to financing Azimut's product. There really isn't any rules or restrictions. As boats come in we can borrow against it. We can pay down the boats, we can reborrow. We have the GE facility also. I can tell you from the process of doing the GE facility and also the CGI facility,k access to capital is much better for companies like MarineMax with our tangible net worth position that it may have been a year ago or 18 months ago. I think the bigger challenge for us is the industry is inventory management, the point that Bill had mentioned. And I think going back again to the flexibility that we've got, if we don't see things happening at retail, then we are going to not bring in the product and that obviously improves liquidity within the company because we were going to sell something. And so, I think it's more of an inventory management focus than a, how do the lines work, from my perspective anyhow. When I think about it, Greg.

Okay. And then, so it sounds to me like, with your current credit facilities, access to capital is not that big of an issue. Have - and maybe just so I can understand it. Have you ever even got to the point where you think about needing to do any sale leasebacks on your own real estate or anything like that? Or is that so far down the road with the lines of credit you have available?

Yes, we are not in favor of sale lease backs with our unique properties and how we want to control then for a long, long time. We know we have the potential if we needed to, to bring cash in, but that's not what we would claim to do. What we would do is - I will give an example. We are taking on new product lines that we referred to, right.. So, let's say the industry does see an uptick and let's say we need additional lines of credit to fuel basically our sales. Based on again these last two facilities and the proposals that we received with other financing sources, I don't see access to financing to be a challenge. Again, I look to our balance sheet and kind of smile when I see the tangible net worth. That is really what allowed us to get the financing agreements in place that we have. It's the capital that we have in the company which is significantly greater than - our total financing commitment today is $130 million and we have $200 million in tangible net worth.

Okay, and then can you talk about the importance of boat shows for this time of year for you? What portion of your quarter gets written at a show? Just to give us context for how important the Lauderdale show, Atlantic City, Tampa, et cetera, and then Bill maybe just recap again the brands you have expanded and what you think that - what do you think the benefits of those are going to be?

Well, Greg, on the boat shows, the importance of boat shows sort of decrease for us, up until beginning, I would say, last year it became more important as a percentage of the sales that we generate and that is that consumers get out at boat show and get the juices flowing to even a greater extent. You end up making sales there. But they are very important to us and so far - thus far this fall they have shown some positive signs. Most of the boat shows occur beginning about January and run through March. So, we still have a lot of them ahead of us. We are managing our expenses for them. To do it right and be more effective in what we are doing without the big expenses associated with it.

And, but at the same time that they are very, very important for us, as well as the events. The events start slowing down. That's when the boat shows become even more important. I mentioned that our customers are out on the water more and that seems counter - kind of counter to what's going on in the economy right now. But this value of boating to be able to escape and get away from it and also to enjoy your family is just proven out to be even stronger and stronger. They are very important and at one point in time they were in the neighborhood, I'm pulling a number here, of around 30% of our business occurs at the boat show.

We would write contracts for about 20% on an annual basis. I would say in the current quarter, it's been anywhere from 15% to 33%, depending on the strength of the Fort Lauderdale boat show and a couple other ones. It's more meaningful in this smaller quarter.

Then similarly important in the March quarter as well?

There's so many shows in March. You get a pretty good influx of boat show --

Even bigger portion of your March quarter sales?

That's probably true. Yes, I would say it's true.

And what happens, Greg, is that we -- we will contract customers that we talk to at last year's Miami show, this time of year. And the people that we spoke with at Fort Lauderdale, it may be next summer in a lot of cases before we get a chance to sell them a boat. It's not just what you contract. It's the relationships you create and enforce at the shows.

Great. Thank you. And then just one last follow-up. Mike, you talked about a desire to further reduce SG&A dollars. If we were in -- do you see enough additional reduction opportunities such that if revenues actually grew next year we could still have a decline in total SG&A dollars? Or is that not -- would that not be possible given your commission structure?

It would depend on the growth and the revenue. If revenue goes from $450 million to $500 million, it is going to be real hard. We're going to every landlord. We are looking at every phone bill, every expense that goes to the company. Again, I think many on the phone have heard us say this before. That's how we have gone from over $200 million expenses, down to roughly $125 million or thereabouts. So we were going through that process again. It would sure be our goal that we would not have an increase, but I think realistically the way our comp structures work with the commissions on boat sales, it's going to drive an increase. Then as the company gets into profitability as departments within the company get into profitability, our comp plans also pay a percentage of that profitability. You get an increase happening there as well.

I think, Greg, when we have those discussions it's going to be a much more positive discussion.

Because comps are growing for the right reasons or expenses are growing for the right reasons.

And we are also adding some expenses with some strategic items we are doing like adding new brands and some other things that we are doing in the company to take advantage of these opportunities that are in the industry right now.

And to Bill's point, these brand expansions that were listed in the press release, they came in the late part of the summer and so really the benefit of all of the different brands we have talked about, we will even kick in more as we get into a deeper part of the fiscal year.

Thank you.

Thank you.

We will now go to Michael Fox with Park City Capital.

Good morning, Mike. Good Morning, Bill.

Good morning Mike. How are you?

Good, thank you how are you guys doing?

Good.

Can you talk a little about the financing environment from the customer perspective and what you are seeing there?

Yes, it's much better than it got to in 2009. You may recall that things got pretty tight. Banks want the retail paper. Rates are competitive. It's -- the retail financing environment I would characterize as not the primary issue that the industry faces today. Now, don't get me wrong, there are still people that would like to buy a boat today that don't qualify for various reasons. They probably would not have qualified two years ago either. But retail financing is much better than it have been, Mike.

Okay, great. Can you talk about the used market there and kind of what you are seeing in the inventories and the demand for those used boats?

Our inventory is in great shape as far as used are concerned and actually we are out in some cases buying boats where they make sense. That being said, the values have been increasingly -- I mean have been increasing here recently Mike, and it's because demand is greater and the supply is becoming less. We keep looking for opportunities there. Our team is all over it. The customer is moving somewhat away from the let's make a incredible deal mind set that they were in a year ago, and realizing that the market is starting to dry up and that the unbelievable deals that were there are no longer there with the repo's. So, it's helping the used market and it will also help our new sales.

I think it's important. There have been a lot of used boat sales during the last couple of years that have taken business away from new boat sales arguably. And as those late model used boat sales dry up, at least there is some industry expectations that it's going to help to pick up the new boat sales.

Right.

Then you mentioned that the rebound has been a little bit later and a little bit softer, and over the winter you could see some dealers go away. How big of a magnitude, I know it's tough to predict, but how big do you think that could be and could that be an opportunity to pick up some used inventory or even some more - new inventory or more locations? Or would you just look at it as a way to kind of steal share without doing anything?

We are evaluating the opportunities as they come up and some of them have presented themselves. Others they didn't make any sense and we walked away from them. There probably will be more failures. I think a lot of it depends on what occurs over the next three or four months in our economy. As to how many more will occur. If you take 2,000 out of the 5,500 dealers, it's been significant. And we are getting calls from dealers that are struggling right now. We are evaluating them and if it's a great deal then we will for surely look at it. If it's a good deal then we have to say maybe we need to be a little more cautious. We will continue to look at those and as well as the inventories that are there and we have picked up some inventories from some of our manufacturers where those situations have occurred.

Okay, great. Then you guys have done a great job managing inventory and bringing down inventory as sales have been soft over the last couple of years and the production companies have done the same. Can you just talk about the flexibility that the industry has when things do come back and when consumer confidence does improve and that pent up demand starts to materialize, How quickly do you think the industry and you guys, can ramp up inventory to meet demand? I know it depends on how quickly demand comes back. Can you talk about that a little bit? It seems that everyone focuses on kind of the downside and the current environment, but at some point things might improve and can you just talk about the industry's ability to meet that demand if it comes back strongly?

Mike, you are absolutely correct. It's a very good question and it's one that we have asked our primary manufacturers and primarily it's Brunswick. And the answer to the question is, yes, they will be able to respond and they have the ability, probably better than almost anyone out there, to do so. And there was a little bit of a concern with some of the suppliers to the manufacturers and I think they are getting a little healthier and so I think the ability to meet our needs of inventory is not going to be an issue. And some cases that's a good problem to have because when it does occur, because margins should dramatically increase when that happens because supply and demand kicks in. I would say not an issue with the companies that we deal with in being able to respond better than most of the industry and I would say step up and meet our needs.

But, to that point, as we came out of the '01 recession when people would ratchet it down, our manufacturers did respond faster and our market share grew faster than coming out of that time period.

Okay, I know it's difficult to predict and no one really knows what is going to happen to the cycle. But just given your experience in the industry and you're on the ground talking to customers every day. Do you think it will be, when consumer confidence does return, do you think it will be kind of a quick ramp up given all the pent up demand or you think it will be a slow build over couple years to get the cycle back going?

Well, if you ask me what I'm hoping for, is that it will be a pretty good recovery. I think it's anybody's crystal ball as to how long it will take. But it doesn't have to recover dramatically for us to, I believe, reap the benefits. Because as I mentioned, the pie is smaller and we are positioned from a financing capability, et cetera and balance sheet and structure, I mean, I didn't talk about our team very much on the call, but our team is unbelievably passionate about what we are doing and our customers. Our customer satisfaction is at an all-time high during these times and you would think that when times are tough and people are watching their dollars it can be more critical. At the end of the day we are doing an outstanding job of taking care of our customers and keeping them as raving fans. So, it will - consumer confidence, if it starts to improve and some good news comes out, I think it will help feed upon our ability to really capitalize on it.

Right. Okay. Then just one last one. Mike, I'm sure you have done a lot of sensitivity analysis and this question was kind of asked earlier. Have you -- can you talk about what sales level you would need to get to break even? I know It depends on the mix and everything like that. But kind of a ballpark or a range?

I mean honestly, and I know we don't give guidance but I think this is just a mathematical exercise. If our margins and our mix of our business are similar to what they were in the June quarter on an annual basis, 30% times $400 million is $120 million in GP and you get $120 million of expenses, you are close to break even. If our margin mix is more like it is this quarter, we are going to need another $50 million in revenue. We are not that far from break even. I know there is a loss. It's not far from where we are right now.

Right, right. Okay. Great. Thank you for all of the color and taking all of my questions.

Thank you, Mike.

That is all the questions we have at this time. I will turn the call back to Mr. Bill McGill for closing or additional remarks.

Thank you, and thank you everyone for your continued interest and support in MarineMax. What I'd also like to thank our team members for their hard work and passion for our business. It's truly due to their efforts that we can call ourselves the leading boat retailer in the country. Mike and I are available today if you have additional questions. Thank you.

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