MarineMax Inc (HZO) 2011 Q3 法說會逐字稿

Good day everyone and welcome to the MarineMax Inc. third quarter 2011 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 Mr. Brad Cohen of ICR. Please go ahead, sir.

Thank you, Operator. Good morning everyone and thank you for joining this discussion of MarineMax's 2011 fiscal third quarter results. I'm sure that you 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, Mr. Bill McGill, Chairman, President and Chief Executive Officer, and Mike McLamb, Chief Financial Officer of the Company.

Management will make some comments and then be available for your questions. And with that, let me turn the call over to Mike. Mike?

Thank you, Brad. 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 and 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. As seen in today's results, we have reported strong new boat sales for the third consecutive quarter. We are encouraged by the fact that our sales growth exceeds the data that is generally being reported by our industry. Despite industry challenges with a drop in already low consumer confidence, not to mention generally rising fuel prices for most of the June quarter, we continue to drive positive traffic and were able to achieve same store sales growth of 33%.

With increased new unit sales for the past three quarters, we replenished our availability of used boats and customers traded in their boats for new ones. For the first time this year, because of these trade-ins we had a slight increase in used boat sales over the prior year. From a pricing perspective, used boats continued to incrementally increase in value as the availability generally has tightened in the industry.

With increases in used boat pricing, consumers are rethinking their consideration of new boats when making their purchases and are more willing to trade-in their boats when they can realize higher trade-in values. As the industry continues to improve, we are starting to gain confidence that this positive momentum in new and used sales will build and prove to be sustainable as we move through the next few years.

However, given the seasonality of the business and the unstable microeconomic factors, there is most likely to be continued quarterly volatility. Still, a 33% same store sales growth in the quarter is significant and clearly show that our industry is alive and also shows the passion and desire that our customers have to be out on the water with their family and friends.

To this point it is worth mentioning that during the depths of the recession and through today, we made strategic decisions to not reduce in any way the things that we do for our customer. For example, we are doing more getaway trips with our customers, our mobile service efforts have increased. Our training classes for customers, or team members for that matter, have not been cut. We also launched more ways for us to stay in touch with our customers. We created a call center. We launched a rewards program for our customers. We enhanced the ability of our customers to reach us through the web offerings. We offered MarineMax Care which provides two annual services for new boat sales and so forth and so on.

We believe that these efforts are the main drivers for our strong double digit unit growth as compared to the unit growth the industry in general is reporting. Because these efforts kept our customers boating, it kept them happy and it has kept MarineMax involved with them as being part of our family. Of course these efforts have a cost. But we determined it was and still is the right long-term investment to drive share growth. We also believe that our one price pricing strategy in the brands we carry provide our strong team with added advantages over the competition and have further enhanced our unit growth.

On previous calls we commented that as our new boat business returns and drives boat sales to be a larger percentage of our overall revenues, our consolidated margins will be impacted. With the very strong boat sales driven growth that we expired this quarter, our higher margin businesses shrank as a percentage of the whole. This drives down margin percentages as compared to the relatively low boat sales quarter last year that we have when our higher margin businesses were a larger percentage. Additionally we incrementally sold more larger product this year versus last year which typically carries lower gross margin percentages.

There is good news of the fact that our product margins are still 300 to 400 basis points below historical levels. And therefore as we move forward in the recovery the opportunity to increase profitability remains compelling.

As stated earlier, our results for the June quarter in the segments in which we focus are in contrast to the industry reports. However, there are increasing reports that the industry has bottomed and unit growth is beginning to return. Most recent reports indicate flat to single digit unit growth in the June quarter. During the quarter we did generate incremental same store sales growth from the new brands that we added. We believe that the new brands like Nautique, Malibu, Bayliner and Mako will continue to drive sales as we grow with these brands.

In the future these brand additions along with the expansions we have made into new markets with our existing brands should yield greater same store sales growth opportunities. We are pleased that for another quarter we had an improvement in the aging of our inventory and we are comfortable with our inventory level and the ability of our manufacturing partners to adjust production if it is needed.

We also believe that the industry inventory level remains in pretty good shape. During the quarter we made a strategic decision to spend additional marketing funds to ensure that we captured significant share in what was, and always has been, the largest quarter of the year. While this did result in greater SG&A spend, it definitely paid off. However, we will closely watch the balance between spend and share gain to be sure we maintain an optimal balance.

We exited the June quarter quite pleased with sales gains we have achieved. Through our sales initiatives and broader product offerings we are finding more ways to satisfy our customers, to attract new customers and overcome the man negative influences of this economy. I will 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, 2011, our revenue was $153 million, up approximately 33% or about $38 million from the prior year. Our same store sales increased a strong 33%. Our new unit growth was even greater than our overall same store sales growth. We experienced strong new unit sales in every market that we operate and across all segments that we carry. Florida was modestly stronger than other parts of the country.

Gross profit as a percentage of revenue was 25.5% in the quarter, down about 450 basis points from the prior year. As Bill said, but it is worth repeating, the year-over-year decrease in the margin percentage was directly the result of a shift in our revenue mix. With much stronger boat sales this quarter versus a year ago, our higher margin offerings like service, parts and accessories, finance and insurance fell as a percentage resulting in the overall drop in our margins.

Additionally we had growth in the larger boat sales which historically have carried a lower margin. Overall, our product margins did well in the quarter but we still have plenty of room to get them back to historical averages.

Selling, general and administrative expenses fell as a percentage of revenue by approximately 600 basis points compared to the prior year. On a dollar basis our SG&A increased 5.7%. The largest contributors of the injuries were increased commission associated with a large increase in boat sales and additional costs related to the expanding presence of our new brands and increased marketing spend in the largest quarter of the season.

The share gains we experienced in the quarter appear to be significant. We did have about $400,000 in extra expense associated with accelerated depreciation related to replacing our phone system with a new internet-based phone system which long term will be more cost effective.

Interest expense increased slightly to $837,000. Regarding income taxes, we had a tax benefit of $333,000 for the quarter compared to no income tax benefit in the prior year. Our effective income tax rate will remain essentially zero until we have annual profitability due to limitations on our net operating loss carry back availability.

Net income for the third quarter of fiscal 2011 was $3.4 million or $0.15 per share. This is a significant improvement over our net income of $512,000 or $0.02 per share last year.

I will only make a few comments about the nine-months ended June 30 results. First, our same store sales growth stands at 11%. Second, our margins have remained fairly constant even as we have increased our boat sales component which should imply that our product margins are doing okay. Third, we have essentially held expenses in check. In the nine months we have added over $8.7 million in gross margin dollars with a modest increase in expenses.

Turning to our balance sheet, at quarter end we had approximately $27 million in cash, up from $24 million last year. As we have said before, our borrowings and our cash are a function of how much we want to leverage our inventory. Our inventory at quarter end was $201 million. As Bill mentioned, the year-over-year increase in our inventory was mainly due to new product lines and the timing of the receipt of boats. The aging of our inventory continues to improve.

Turning to our liabilities, our short-term borrowings were $105 million at the end of June, up approximately 17% from $90 million at March 31, 2011, primarily due to the increase in inventory. Our line is up over the prior year and our accounts payable are down as a result of our new floor plan facility. With our new facility, manufacturer payables are applied directly to our line of credit.

In early June we announced an increase in our existing financing facility with GE Capital that provides us with $150 million of financing. The previous facility had a $100 million limit. The facility is a three-year term now expiring in June 2014 and it has two one-year options to renew. We must remain in compliance with certain balance sheet related covenants. Given the strength of our balance sheet, we do not foresee any issues remaining in compliance with the facility.

Our balance sheet is in great position and we ended the quarter with a current ratio of 1.68 and total liabilities of tangible net worth ratio of 0.79, both very strong ratios. Our tangible net worth stands at approximately $200 million. We own more than half of our locations which are all debt-free. We remain confident that we are well-positioned for driving additional cash flow generation and profitability as we leverage our financial strength and capture additional share as industry conditions continue to improve.

I would add that so far July looks like it will be up double-digit in units for the month but not as strong as the June quarter. Obviously we need to work hard to keep the momentum going for the entire quarter. While we have seen three quarters in a row of double-digit new boat sales, we all should expect some ups and downs as the industry works its way out of this historically difficult environment.

With that background on the quarter, I will turn the call back over to Bill.

Thank you, Mike. It sure is good to see new unit sales up for the third consecutive quarter. We felt we hit bottom last summer and based on the track record so far this year it looks like we did just that. This was our strongest quarter in recent years and we aim for MarineMax to continue its share growth in the future. Our team is committed to providing our customers with a great boating experience and helping the company drive improved results as we move ahead.

We have spent a great deal of time improving our product offerings, implementing leading retail strategies that help us capture market share and driving increased cash flow. While the business may still be lumpy quarter-to-quarter, we believe that the worst is behind us and our results are going to continue to show improvement.

As I mentioned earlier, we have remained focused on our strategies and investments to support our customer in their boating lifestyle. Over the years I have found that when our customers boat with their family and friends, their passion for this lifestyle gets stronger and stronger. Our team is helping our customers enjoy this boating with MarineMax more so today than ever. Our customers have been anxiously but cautiously waiting for more positive economic news. And our strong same store sales support that statement. As our customers continue to boat with family and friends, the MarineMax family will be a vital part of that equation.

As we enter a time when customers are more focused on trading or upgrading their boats, no one in the industry is better positioned than MarineMax to serve customer needs and help them find the boat of their dreams. Our getaway trips this summer are standing room only and our service teams are busier than ever helping our customers prior to enjoy the many water activities and events that are available in their community.

As we have said many times, our industry may be cyclical but our customer's passion for boating as an escape and family bonding experience is not cyclical. And with that being said, Operator we will open up the call for any questions.

Thank you. (Operator Instructions). We will take a question from James Hardiman with Longbow Research.

Good morning guys, congratulations on some really impressive sales momentum here. A couple of questions sort of with that 33% same store sales number in mind. Obviously no matter how you tease things out you guys had a great quarter from a top line perspective. I was hoping you could give us just a little bit more color on the underlying momentum of the Florida markets since obviously you guys have probably better insight than anybody into that market. But obviously you had the delta negative last year, positive presumably this year from the oil spill.

But ultimately once we get past sort of that oil spill comp do you think that Florida is still a market that is going to be trending positively and better than the rest of the industry?

James, thank you for your comments, but we do see recovery occurring in the Florida markets. We believe we would have seen even a greater increase from the northern markets but as we have heard from many different sources the weather has been an issue. And spring, well summer was late coming, spring was kind of missed in a lot of the northern markets. So we had our challenges there, so I think they would have been stronger as well.

But we see Florida as coming back. I can tell you as we mentioned, our participation in our getaway events is standing room only and so the customers are really out there boating. So we just need a little help from what's going on with our current government.

It goes to reason, James, that Florida is going to be bouncing back maybe even stronger and faster than the rest of the country just given that it was the first to fall. I mean really as a big market in our industry, it started falling in late '06/early '07, whereas the rest of the country maybe didn't fall until late '07/early '08.

Even though our unemployment data is still higher than the country on average --

And the housing is still a challenge.

Housing is a challenge. And I don't want to take away from the rest of the country, meanwhile Florida was stronger. We had strong double-digit same store sales growth outside the state also.

They would have been stronger if the weather had cooperated a little better in the northern markets.

For sure.

Very helpful. And then just a couple other sort of intricacies of the quarter. Can you talk a little bit about pricing on a year-over-year basis? It sounds like small boats were a big part of the mix a year ago and maybe there was a little shift this year. And then how much, can you help quantify or maybe just give us some anecdotal color on how much of the contribution came from the new boat branches you brought in.

I can add just a couple of comments and Bill you can certainly follow up. But I think the new brands added maybe single digit same store sales growth, maybe 3% to 5%, something like that.

Yes. Not a whole lot.

Not a whole lot.

Because they were just getting inventory into the field.

Just getting to be ramped up. But from a margin perspective to your anecdotal point, if you look back at June quarters, I mean this 25.5% that we posted in this quarter, historically, is very high. I think it is the highest that I show and maybe the one quarterly back when, but that should imply to everybody that the underlying product margins on the boats that we are selling are doing reasonably well.

I mean they are not back to historical averages as Bill said, they are still 300 to 400 points below, but when you compare what we sold a boat for this year and what we sold it last year, for the most part they are pretty comparable. Some are up, some are down, but they are fairly comparable overall, with a view towards margins slowly incrementally increasing.

And we have got a concerted effort to make sure that the boats are priced correctly for the market with our one price strategy which we call it "This Boat as low as" on the stickers that we put on the boat. And our consumers are really accepting that and are very pleased with it. We are pricing the boat to the market and we are being straight-forward with them without negotiation, not only on the boat price but also on the trade price. And they appreciate that.

And we believe that that will continue to help us because at the end of the day what people are looking for today is really the best price. And so we are trying to do the best price we can for the market to price the boats correctly. So that is helping, also, James.

But to the pricing question, I'm just curious. I mean obviously I want to be comparing apples to apples. The industry you are saying is flat to maybe up a little bit. That's a units number. Your 33% is a dollars numbers. What kind of a pricing benefit if any did you get versus sort of a unit number that the industry is reporting on.

I would say it would be very small and incremental. We are getting more for the boat but it is an incremental change, not a meteoric change.

Right.

Great. Very helpful. And then just last question, the July commentary that you gave, was that sort of an overall same store sales number or was that a new boat sales number? What was that exactly again?

It's not a same store sales number. We don't calculate that before the end of a quarter. But it is a unit, what is going on from a unit perspective. From our perspective we think units are really what you all should be watching. Are more people buying new boats and so forth? And today we still have some time to close out July but we are looking at a double-digit increase for the month of July. I will say it is not as strong as June was but that is fairly consistent with all the commentary that we have made and others have made that this recovery is going to be a little bit lumpy.

Sure.

But we certainly have the momentum going and our team is working real hard to take care of our customers and sell as much product as we can. At a good mark.

A significant mark, yes.

Excellent. Great job, guys. Thanks.

All right. Thank you, James.

(Operator Instructions). Our next question comes from Greg McKinley with Dougherty.

Good morning. Could you, you made a comment that product margins are still 300 to 400 basis points below historic levels. Can you remind us of the differential at the trough of the market -- how far below did they used to be?

Greg, it's Mike. Thanks for the question. Back in 2009 we were probably, gosh, 1,200 points below.

Yes.

We were selling, the market was at single-digit margins which normally --

With a lot of pressure from the repo market was a big driver.

Yes. And the used boat market has fallen. And it has put a lot of pressure on everything. So we started recovering overall pretty quickly in 2010. Our December quarter, the first quarter of 2010 had pretty good margins. Once we got the repos cleaned up and the overhang of the inventory cleaned up it started recovering. And then it is incrementally getting better.

I think what is happening though still within the industry is, and I probably said this on the last call, but the scars are still so fresh on the minds of all dealers, including ourselves, of what '08/'09 felt that when we have a deal on a boat -- do we walk away from it or do we take it? And I think overall that is what is still keeping our margins down below the historical average.

But I think the longer we are away from the financial meltdown of '08 and '09, the more confidence the industry is going to have to search for that next customer or the confidence they are going to have to say to the customer, no, you have to pay this price. And that is what we are seeing. We are seeing margins rising as confidence is coming back within the industry.

Now in terms of your operating expenses for the quarter, obviously there is an element there of variable selling expense for commissions, but you also indicated that you chose to invest more in marketing. So, how did the consumers see that -- what form did that take place? And can you maybe give us a sense for how much incremental dollars you have spent and is that something that we should continue to expect from you as you maybe see the market bounce off the bottoms here?

I think the biggest spend is probably over the internet.

Right.

We did do localized cable, localized print, direct mail. We just got very aggressive -- billboards and some other stuff in the marketplace. We wanted to really capitalize on share during this quarter. The magnitude of it would be north of $1 million from a spend perspective, how much of that was incremental to the prior year, it would be probably close to that level.

It's not our intention to be spending that each quarter. Our belief is that our expense structure, all things considered, is going to be around that $30 million, $31 million, in that range per quarter. The only thing that you would then add to that would be, as our boat sales recover, you are going to start adding incremental sales commissions to that. And if we determine that we feel there is a need, either for share gain or because we are sensing softness or something else that we need to ramp up the marketing bus again, we would do that. But that is not what the plan is basically.

Yes, okay. Thank you. And then I wonder if you can just recap for us the different brands that brought into the portfolio. I guess regionally where you plan to use those brands and sort of the timing of rolling those out.

Well we have launched Mako in a bunch of our markets which is a tractor marine Bass Pro Shop brand, a very powerful brand name. And it gives us an entry level fish boat, basically something that we needed in our portfolio. And so most every location we are in it made sense to have the fishing boats, we have launched it. So that is all the salt water markets and some of the inland markets, the Great Lakes, etc.

And it was kind of slow ramping it up because the inventory that we needed and getting it into the stores and the training that was necessary with the team etc. We have launched Nautique in Minnesota, George, Chattanooga, Tennessee and on the west coast of Florida. And as such we are seeing that that is working very well. We actually had a team and made some sales at the Masters Ski Tournament as an example. And so it is being very well accepted, a premium brand, as well as Malibu we have out in Arizona. And that is going very well, as well as in Missouri and Kansas.

So we are seeing some very positive upsides and some new buyers and new customers to our family. Additionally the Bayliner is being launched in a lot of our markets and we piloted this about a couple of years ago. Began the pilot in New York, really how this Bayliner fit within our stores with Sea Ray and at the end of the day we have that model figured out we are convinced. And as inventory starts coming in I think we will see some upside there but if the customers have shifted somewhat as far as their wallets are concerned, we can offer a premium product called Bayliner built by Brunswick into people that are less -- they want to spend a little bit less and it is less contented then the quality Sea Ray product that we sell.

So that is going very well.

So is that Bayliner fully rolled out at this point?

It is fully rolled out. We are still training our team, completing marketing plans and so forth. So when we think it is something fully rolled out we generally say it probably takes right around that 2.5-year to 3-year mark where everybody in the community knows you have got it and so forth. It takes them a while to ramp it, to ramp up.

But what we are absolutely convinced is that it can work within the same store with the Sea Ray product. And it actually complements Sea Ray sales and vice versa. Bayliner gets complemented by the fact that not everyone in today's time wants to step up and spend the money for the highly featured benefited Sea Ray products.

Greg, the other thing that is pretty beneficial also is where we have expanded with existing brands. And I know we have gone through on other calls, but whether it is Hatteras and Cabo in New York or Azimut in Florida or Meridian in the Chesapeake or Boston Whaler in Fort Myers and Naples and other markets -- no one could really see the benefit of that as the industry was dropping. I think we will start seeing more of the benefit of that now that the industry's bottom is beginning to recover.

And we are seeing good growth with Azimut product and as we basically have it on the eastern seaboard of the United States. So that is going very well as a lot of our Sea Ray customers are migrating into that product.

Thank you.

Thanks, Greg.

Thank you, Greg.

And it appears we have no further questions at this time. Mr. McGill, I would like to turn the conference back over to you for any additional closing remarks.

Okay. Thank you, Operator, and thank you everyone for your continued interest and support in MarineMax. As always, I would like to thank, again, our team members for their hard work and for their passion for our business. Through their efforts we are the leading boat retailer in the country.

Mike and I are available today if you have any additional questions, please give us a call. And a thank you for everyone for being on this call.

That concludes today's conference. Thank you for your participation.