MarineMax Inc (HZO) 2011 Q4 法說會逐字稿

Welcome to the MarineMax Incorporated Fourth 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. Please go ahead, sir.

Thank you very much, operator. Good morning everyone and thank you for joining this discussion of MarineMax's 2011 fiscal fourth 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 can 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 Mr. Mike McLamb, Chief Financial Officer of the Company.

Management will make some comments and then be available for your questions. Mike?

Thank you, Brad. Good morning everyone, and thank you for joining this call. Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act. These statements involved 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'd like to turn the call over to Bill.

Thank you, Mike, and good morning everyone. As we look at fiscal 2011, we made progress in many areas of our business. But late in our fourth quarter, sales got off track for a profitable year. Business trends were encouraging but slowed as the second half of the quarter progressed.

There is no question our business was impacted by the confluence of market volatility and the negative news flow from around the world. The sharp decline in consumer confidence, which hit new lows in August, certainly impacted our results for the quarter.

However, as I said earlier, we did make progress with market share gains and expanding margins during this quarter. We actually had solid new boat unit growth for the fourth consecutive quarter, albeit at a slower pace than our first three quarters.

Our growth is in contrast to the preliminary industry data that suggests fiberglass, stern-drive, and in-board boat sales, which are really the core of our business, were down nearly double digits for the quarter. Our better-than-industry sales results suggests that our market share gains are continuing, and we incrementally grew our product margins despite facing the challenges brought about by the softer environment.

We also saw a pickup in used boat sales in the fourth quarter as availability of our used inventory improved due to the increase in trades we took from our new unit growth in the past four quarters.

At the beginning of the fiscal year, we commented that we believed we hit bottom in the summer of 2010. Four quarters in a row of new unit sales growth reaffirms that belief. We believe the industry is in much better shape today than in 2008 and 2009 from an inventory pipeline standpoint.

Inventory in the industry is at low levels, which is helping our margins and that of the overall industry. Nonetheless, we believe the industry's recovery will be at a slow pace, and accordingly we must keep our operations and our inventory and our costs aligned.

During the year we strategically expanded with key brands in select markets. These brands provide us with incremental opportunities to satisfy even more customers with boats that are different from our core brands. Some of the brands we expanded with like Bayliner and Mako helped us better address the increasing desires of a new family of customers who want to spend less yet enjoy the boating lifestyle.

We also expanded with aluminum product in select market for the same reason. We added Nautique and Malibu in several markets for customers with a wake and ski passion. Additionally, we expanded our geographic footprint with many of our existing brands, which helps us to better leverage our cost structure and marketing dollars.

During 2011, we completed a key geographic acquisition in Florida. Specifically, we added Panama City and the surrounding area to complement the rest of our presence in the panhandle. This acquisition is proving successful and strengthens our presence in Florida. Florida is the number one dollar volume state for boating and is showing signs of recovery.

We also felt it was prudent to revisit our expense structure. In addition to reviewing every major expense category for potential reductions, we also revisited our store footprints. After considering store performance, store cost, market share, proximity to other stores, and other variables, we determined we should trim our store count. We concluded to close three smaller stores as we ended the summer selling season, bringing our store count to 54.

We also further analyzed our inventory and orders and determined we should trim and delay incremental incoming boats until we see the results from the winter boat show season, which is just beginning. While we cannot control the weather, the economy, or consumer confidence, we are committed to managing those areas of business which we can control.

As we look ahead we still have substantial opportunities to capture and drive profitability in the coming years as product margins are still about 300 basis points below historical levels. We will find additional ways to drive customers into our stores and will ensure that MarineMax experience is highly satisfaction -- satisfying.

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 September 30, 2011, our revenue was $119.8 million, down approximately 3.7% or about $4.6 million from the prior year. Our same-store sales decreased 2%.

As Bill mentioned, our new units were up in the quarter. Specifically they were up in the mid-single digits but varied by brand and by category. While we were glad we produced another quarter unit growth, it was tougher and lower growth than the strong double-digit growth we experienced each of our previous three quarters.

Our overall revenue was primarily down from less large yacht sales due we believe to timing. Overall the large yacht business seems to be doing fine as evidenced by our healthy increase in customer deposits on our balance sheet.

Gross profit as a percentage of revenue was about 25% in the quarter, up about 90 basis points from the prior year. The year-over-year increase in the margin percentage was primarily the result of higher margins on new boat sales and slight incremental improvement in our higher-margin businesses like service, finance and insurance, and parts and accessories.

On the surface it looks like selling, general, and administrative expenses increased a lot in dollars and as a percentage of revenue during the quarter. However, last year we had a reversal of almost $4 million in stock-based compensation. When considering this and store closing costs in each period, our dollar level of SG&A is about the same in both quarters.

Given our drop in revenue for our 2011 fourth quarter, SG&A increased as a percentage. Most of the increase was due to our conscious decision to keep the marketing push going through the important summer selling season. From a market share perspective it seems to have paid off.

That said, as we look to the future marketing is an area we are expecting reductions in spend. We believe we can accomplish this primarily through boat show-related reductions. As we expanded with brands in 2011, we increased show costs as part of the new brand launch. We think we can rein that in for fiscal 2012. As an example, we've reduced our cost over 20% for the Ft. Lauderdale Boat Show, which just ended this past Monday.

Interest expense increased to $972,000 due to greater outstandings on our lines of credit. In the quarter we had an income tax benefit of $34,000 compared to $169,000 in the year-ago period. As we have said in the past, our effective income tax rate will remain essentially zero until we have annual profitability due to limitations on our net operating loss carryback.

The net loss for the fourth quarter fiscal 2011 was $5.7 million or $0.25 per share compared to a net loss of $1.8 million or $0.08 per share last year. But when factoring in the unusual items I mentioned earlier, our loss in the current quarter was $5.2 million or $0.23 per share compared to a loss of $4.6 million or $0.21 per share last year.

For the year I will note only a few things. Our full-year results are highlighted by the progress we made in achieving 8% same-store sales growth from strong double-digit unit growth. We incrementally increased gross margins, greatly reduced the pre-tax loss, and achieved higher market share. Obviously we are all working hard to achieve annual profitability.

Now under our balance sheet, at yearend we had approximately $19 million in cash, up about 17% from last year. As we have previously stated, our cash is a function of how much we leverage our inventory. Our inventory at yearend was about 220 million. The year-over-year increase in inventory was primarily due to the expansion of new product lines and the timing of the receipt of boats. The aging of our inventory continues to improve.

Turning to our liabilities, as I said earlier it's nice to see customer deposits up, which again generally points to a healthy larger-boat environment. Our short-term borrowings are about $119 million at yearend, up approximately 27%. The increase in short-term borrowings was due to the increase in inventory.

Our balance sheet is solid. We ended the year with a current ratio of 1.60 to 1 and total liabilities to tangible net worth ratio of 0.86. Our tangible net worth now stands at approximately $195 million. We own more than half of our locations, which are all debt free, and we have no other long-term debt.

As we work through the current environment we are focused on positioning ourselves to improve our costs and drive additional cash flow generation in the upcoming fiscal year. We believe the worst is behind us and our industry is slowly recovering. We are optimistic that certain of our markets, perhaps like Florida, may be poised for a better recovery in 2012 than 2011, but only time will tell for sure.

I would add that while the December quarter tends to be our smallest revenue quarter, the month of October was slightly ahead of last year's results in total revenue but it was well ahead in units. There will certainly be volatility in the business from a quarter-to-quarter perspective, but with our commitment on aligning our operations and expenses with the current consumer sentiment, MarineMax is positioned to grow its industry-leading position.

With that background of the quarter and year, I'll turn the call back over to Bill.

Thank you, Mike. Earlier Mike mentioned the Ft. Lauderdale Boat Show, which ended this past Monday. The show, which is one of the largest in the world, was unfortunately impacted by a lot of rain on Saturday and Sunday. A very encouraging sign, however, was that Thursday and Friday were the busiest that they've been in many many years.

Our team is working hard to follow up on the many leads and prospects we received from the show with customer open house events planned this weekend and later to give prospective buyers a chance to view and demonstrate the portfolio of products in better weather conditions.

Our performance over the past four quarters reaffirms the strength of our core strategies, our ability to continue gaining market share, which should translate into long-term value for our shareholders as we move ahead. We are taking the appropriate measures to manage the areas of the business that we can control and continue to explore additional strategic opportunities that will help us drive increased cash flow.

Given the current environment in which we are operating, we are proud of our team for what they are accomplishing.

You have heard us speak about our market share gains. During the quarter we were recognized for model year 2011 as having the top-four market share districts among all Sea Ray dealers in the country. Additionally, our customer satisfaction is world class as we service and interact with them.

As we have always mentioned in the past, there is seasonality to the marine business, and our business can be volatile on a quarter-to-quarter basis, but our long-term targets remain intact. Going forward we expect to recover and capitalize on every opportunity in order to deliver profitable earnings, as there is still significant opportunity to improve future performance.

Our confidence remains high for our long-term future growth, and our unique customer-focused business model and initiatives to make ourselves a leaner organization will only improve our growth profile as the market recovers.

Our customers' passion for boating and their participation has not subsided, and we have a great team in place to help drive bottom line profits as we begin fiscal 2012. We look forward to the continued strength of our customer-centric strategies, our brands, our balance sheet, and our exceptional team as we start the new fiscal year.

And with that, operator, we'll open it up for questions.

Thank you. (Operator Instructions). We'll go to Greg McKinley with Dougherty.

Yes, good morning. I wonder if you could talk -- first of all, did you notice any regional trends where certain parts of your store base performed much differently than the whole? And can you talk about trends that occurred during the quarter? You suggested that sales momentum abated in the second half of the quarter. I wonder if you could give us a little more detail on that?

Well, Greg, the Northeast in particular appeared to be lining up for us real well going up through a good part of July, and as well as Florida was showing some very very good signs.

But in reality we were seeing it everywhere as we were entering July. And then I think it was all the debt discussions, which followed with a downgrade, and then all the Europe talk, and it seemed to -- didn't seem, it locked up a lot of our customers.

And we had customers that delayed their purchase decisions. We had others that -- a few that even cancelled their decisions as a result of what was going on.

And you've heard us say that -- many many times that uncertainty is our biggest enemy in our business, and of course there's been a lot of uncertainty with the market bouncing all over the place as well. And so what we were saying going into July what looked like was very very encouraging signs that hey this thing is coming back.

So we threw a lot at it as far as marketing and extra efforts, more events with our customers, et cetera to get them even more excited, and then it was like somebody turned off the light switch towards the end of July, which was just heartbreaking to all of us.

But it's beginning to show signs of coming back. We saw a very very positive attitude in Ft. Lauderdale, especially the two days when it wasn't raining, the first two days, and we were on track for an unbelievable show. But here came the weather and here came the snow up in the Northeast, which I think cost us some customers coming south for the weekend as well. So that's --.

I just would add that even though Bill's right, it slowed down, we did generate new unit growth again during this quarter, which is pretty encouraging and consistent with our thought last year that the industry bottomed.

I think for the overall quarter, the Northeast was probably still our strongest region, Greg. Florida, because of the -- we mentioned during the prepared remarks that we had a little bit larger -- excuse me, less larger boat sales in the quarter and that would impact Florida more, we think that's again more due to timing. Florida seems to be finding its sea legs, which is important to us and important to the industry.

Okay. Thank you. And then, Mike, can you talk a little bit about cost reductions between I guess leases, personnel, and you referred to just general cost reductions, which I'm assuming refers to reduced marketing expense that you commented on? In dollar terms, how much do you think you've pulled out of the cost structure for fiscal '12?

Well I'll tell you, Greg, it's every line item in the P&L. Again, I know you've heard us say that again, but it's personnel, it's leases, it's phones, it's everything. We commented that we closed the three stores, and we're trying to position ourselves to be in a better position for profitability for 2012 assuming a slower tougher recovery.

But if you assume that -- if you look at our numbers you would assume that we're trying to target to get our expenses down closer to $120 million that we were this year. And that will kind of give you a magnitude of what we're looking at from an expense cut perspective.

Okay.

And that's coming -- you know, we talked about the three store closures. It's a little bit there, it's a little bit marketing. We did reduce some team members. It's a little bit everywhere within the business just given the reality of a longer slow recovery for the industry.

Thank you.

(Operator Instructions). We'll go to Joe Hovorka with Raymond James.

A couple quick questions. One, you mentioned that you were cutting your purchases from some of the manufacturers. Do you have a magnitude of how much you're cutting those purchases by at this point?

Joe, I don't -- we obviously know what we've cut and the dollars we've cut. I don't think that's the most important thing. I think the most important thing is that we now have the ability to be more fluid in our purchases and in our cuts.

As you know, you've been following the industry for a long time, it's no longer that annual commitment process. We look at things throughout the year on a trimester basis, three times a year. So we have a bunch of different opportunities to adjust purchases depending on what we're seeing at retail, either up or down.

We did adjust some down in the September quarter -- at the September quarter yearend. We've adjusted some down slightly since then. And we're looking out to boats that are coming in February, March, April, and May where we have obviously a lot of product coming and a lot of opportunity to still make reductions if we need to or to increase it.

So I think the more relevant thing for all of us is just our ability to adjust inventory as dictated by customer demand. I'd tell you overall we feel pretty good. We're probably a little heavier than we'd like to be, but not a lot heavier. And we have the ability to adjust that as we go through the wintertime here.

But we also, Joe, see ourselves positioned to an advantage over most of the competition out there because what we're -- what we're hearing from some of our lending sources is that a lot of the industry is not stocking inventory at sufficient levels, even where business is today in some regards.

And so we don't want to get caught without having enough inventory or to look like we're going out of business, which is far from the truth. We want to make sure that we have the right inventory, and to that point we are very satisfied with the aging of our inventory and also the models that we have available in the Company.

So we're feeling much better, but as Mike said, we're managing it on a daily/weekly type basis with the manufacturers to make sure we're making the right decisions there.

When you talk to this floor plan or this finance company and they tell you that about the competitors, are they -- are they not stocking enough boats because of a lack of availability of credit or a desire not to use their full line of credit? That is, if they wanted to purchase more could they?

I think it's a combination of both. In some regards they're tapped out on their floor plan availability. In others they're just being extremely cautious and not as interested in growing the business from a boat sales standpoint and basically hunkered down and surviving.

Well it's the curtailments also they put in place, Joe. If you remember, when was it, '09 or '08, all the banks kind of changed from 100% flooring to, depending on the time periods, 90%, 80%, 70%. And some of these dealers who have been weathering the storm for a long time don't have the equity to put into a boat to be able to buy a boat. That's probably the bigger piece of it I think. They can't put the down stroke down, which I think does give us a competitive advantage.

It's like even Ft. Lauderdale Boat Show, a lot of boats down there were factory owned, and they're all going back to factory right now whereas our boats in the market place. We can show them to customers.

And sell them.

And sell them.

Do you have a target for your day's inventory? If you feel you're a little heavy here do you -- is there a turns number you want to get to or --?

Yes. Actually, Joe, yes. We spent a lot of time looking at the -- every single unit. We manage our inventory on a unit-by-unit basis, and our turns last year were probably around 1.5 times, which we think is too low. We used to be, as you recall, closer to 3 times, and then that began to slow. We took on some larger product, which we knew, but ultimately we want to be back 2.5 to 3 times.

I think in this environment with the production capabilities of the manufacturers, that's going to be really hard because it's taking the manufacturers longer to get us boats and therefore the dealer kind of needs to have a little bit more stock than they otherwise would like to.

But we're eyeing that two turns for the first goal. I don't believe we'll hit it this year, but we'll get some place between 1.5 and 2 this year is the goal.

Okay. Great. Thanks guys.

Thank you, Joe.

And we have a follow-up question from Greg McKinley.

Yes. Thank you. I just again wanted to revisit operating expenses and understand -- I know we've talked in the past variable versus fixed nature of your operating costs. If we try to look at 2011 versus 2010 excluding things like the reversal of compensation expense in last year's fourth quarter, it looked like sort of core operating expenses increased a couple million dollars year-over-year in '11 versus '10.

That's right.

With maybe a $30 million revenue increase. I just want to understand with these reductions that you've now undertaken, should we expect that variability not to be occurring because we can actually be closer to $120 million of cost at flat-type of revenues, or are we -- would modest revenue growth drive us north of the current-year call it $129 million?

Yes. I think that to pick a number -- if next year repeats this year, we want to be closer to $120 million.

Okay.

And still achieve the revenue that we've got this year. As the revenue begins to grow, kind of like you saw this year, we do have commissions, we do have stuff like that that comes into play. And so as revenue grows you're going -- we're going to be north of the $120 million just simply because of the commissions that we pay out and probably some other incremental costs that come into it.

But I think it would be -- I think the expense increase we had this year was a -- was a reasonable expense increase for the top line growth. We'd like it to have been less. We'd like to have done some other stuff perhaps at the start of the year knowing how the whole year has turned out, but we're doing those things now to try to get the cost structure down.

So, just real quick, back of the envelope, if we're close to $120 million at current call it $480 million of revenues and we're more or less a breakeven from pre-tax -- income from operations at about $480 million is ballpark?

Yes. Subject to margin assumptions and subject of any market share improvements. And then the wild card is what happens from a macro environment perspective as well.

Yes. Thank you.

Thanks Greg.

Thank you, Greg.

And that will conclude today's question-and-answer session. I'll turn the conference over to you, Mr. McGill, for any closing remarks.

Thank you, operator, and thank you everyone for your continued interest and support in MarineMax. As always, I'd also like to thank again our team members for their hard work and passion for our business. Due to their solid efforts we are leading the -- we are the leading boat retailer in the country. Thank you.

And that will conclude today's conference. You may now disconnect.