MarineMax Inc (HZO) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the MarineMax Inc. first quarter 2012 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, operator. Good morning, everyone, and thank you for joining this discussion on MarineMax's 2012 fiscal first-quarter results. I am sure that you have all received a copy of the press release that went out this morning, but if you have not please call Linda Cameron at 727-531-1700 and she will fax or e-mail one to you right away.

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 about the quarter, 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 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. I am proud of our team for producing over a 30% improvement in our fourth-quarter bottom line on a comparable basis. It was a quarter that largely saw declining unit sales for the segments of the industry in which we participate. The December quarter was our fifth quarter in a row of growth in new unit sales. Our unit growth, which is in contrast to the unit declines reported by the industry, comes on top of very strong unit growth in the December quarter of last year. The last reported data shows that we are gaining market share, and we are confident that the trend is continuing today.

Our sales came with higher margins in the quarter. As we had previously indicated, pricing is firming although it is still has a ways to go before we get back to our historical margins. We also were able to incrementally expand our higher-margin businesses like finance, insurance, service, storage and our parts and accessories businesses. As these businesses grow, they help to increase our consolidated margins. We had a modest increase in the absolute dollars of expenses when compared to the prior year on a comparable basis. While our SG&A expenses are slightly worse as a percentage of sales, they are better as a percentage of gross profit dollars.

For the quarter, we had generally better performing stores and departments than a year ago. As such, compensation income incrementally increases. Plus, our increase in boat sales gross profits results in incremental commission increase. Having said this, we are focused on managing cost and putting the Company in the best possible position to return to profitability. To that point, we did close one store during the quarter by consolidating it into a nearby operation. We continue to evaluate all our expenses with a long-term focus on not lessening what we do to keep our customers happy, and keep them boating.

We continue to put emphasis on the things that we can manage, like our expense structure and our higher-margin businesses. All of these businesses help our continued efforts to expand our reach beyond our current customer base and provide more stability from what has been a volatile marine industry.

These efforts should result in improved gross margins over time. While there has always been mix shifts that impact our gross margins from quarter to quarter, we believe that we can continue to make progress on our annual gross margins so long as we do not have a meaningful deterioration in the economy. We experienced a slight increase in inventory dollars from the September quarter. As we mentioned last call, we did reduce orders that impacted the quarter, resulting in a small or seasonal increase than would be historically expected.

The December quarter inventory was up from 2010, primarily due to the ramping up of stocking levels for new brands added to our stores; replenishing used boats from the trades we have taken; and, to a lesser degree, yachts added to our new business, venture MarineMax Vacations, which I will discuss in a minute.

We have made further reductions in orders that impact boats incoming for the March quarter. These reductions are more of a smoothing of orders than a statement of concern. The marine industry's manufacturers' improved ability to adjust orders today along with our trends, make us feel comfortable with inventory levels. Aging continues to be in good shape.

The success we have realized by expanding our higher-margin businesses led us to explore other opportunities that contributed -- that can contribute to our results in the future, while offsetting some of the cyclicality that comes with boat sales. In particular, one such item is MarineMax Vacation Charter. You have seen articles on MarineMax Vacations, a business we launched this October. While still in its infancy, it has received a fair amount of press in our industry. To date we have invested limited capital in the form of inventory and efforts to launch MarineMax Vacations. We realize that many of my existing customers already charter with their family and friends, and we can now capitalize on any opportunity to leverage our current customer base and provide them with another great MarineMax experience.

The business model which we are implementing, and has proven to be the most successful in the industry, has a third-party buying the charter boat and using the boat, or one similar, for charter vacations. We manage and maintain the boat and charter the vessels to others, offsetting their ownership expenses. The most popular destination is the British Virgin Islands, though we recently opened a base in Tortola, British Virgin Islands, and licensed a fleet of 13 new Dufour sailboats which are now ready for charter.

Our research shows that the charter business is less cyclical than our typical boat business, and should be beneficial and a profit center to MarineMax in the future. In the short-term, this endeavor will require some capital and additional expense in order to achieve its long-term return on investment. However, the P&L impact is not expected to be material in the near-term. We have hired select key managers, widely believed to be the best charter operators in the industry, to head this initiative for us.

With that update, 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 December 31, 2011, our revenue was about $92 million, down slightly from the prior year. Our same-store sales increase by 2.4% or $2.1 million, which was offset by $2.5 million from stores that were closed that are not eligible for inclusion in the same-store sales base. The increase in same-store sales was attributable to an increase in new unit sales for the fifth consecutive quarter. Our December quarter new unit sales are well above reported industry trends, which still show about a 10% decline in the segments that we operate. I will note, however, that the industry trends seem to have improved in the month of December.

For our quarter, no region in the country stood out in either direction, good or bad. Although we did experience some softness in southeast Florida, which we attribute to a Ft. Lauderdale boat show which was adversely impacted by weather.

Gross profit as a percentage of revenue increased to about 28% in the quarter, up from 25.6% last year. But keep in mind that last year we had a $560,000 benefit in gross profit from the favorable resolution of matters associated with exiting a relationship with a manufacturer. Our improvement this year was driven by higher margins on new boat sales and increases in revenue in all of our other higher-margin businesses, as Bill said.

While our margins are incrementally improving each quarter, we are still a few hundred basis points below our historical averages on boat sales. We believe, over time, we will revisit those historical averages.

Our selling, general and administrative expenses increased approximately 4.1% or $1.1 million during the quarter, to $28.5 million. But, again, last year, SG&A benefited approximately $650,000 from the relationship that we exited, as I noted earlier. As such, SG&A on a comparable basis increased about $500,000. The largest driver of the overall increase in SG&A was an increase in compensation as a result of increased unit sales and margins.

Interest expense increased to approximately $1.2 million, as a result of the increased borrowings from higher year-over-year inventory levels. 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 first quarter ended December 31, 2011, was $4.2 million or $0.19 per share, compared with a net loss of $4.7 million or $0.21 per share last year. However, as I indicated in the December quarter last year, we had a benefit of $1.4 million. Most of the benefit flowed through SG&A in cost of goods sold, as I noted. But about $200,000 was recorded last year in revenue. Excluding the benefit, the Company's net loss for the three months ended December 31, 2010, was $6.1 million or $0.27 per share compared to this year's $0.19 per share.

Turning to our balance sheet, at quarter-end we had approximately $13.8 million in cash. As we have mentioned in the past, our cash balance is a function of how much we leverage our inventory. We have substantial cash in the form of un-levered inventory, not to mention our debt-free real estate. Our inventory at quarter end was $225 million. We are comfortable with inventory at this level as we head into the seasonally important March and June quarters. Our orders or more front-end loaded this year than last year. We did address those orders down during the quarter, and will watch inventory closely to help ensure it is aligned with anticipated retail activity.

Turning to our liabilities, our short-term borrowings were $130 million at the end of December, up 38% from the prior year, primarily due to the increased inventory. We ended the quarter with a current ratio of 1.57 in total liabilities to tangible net worth ratio of 0.89. Both of these balance sheet ratios remain very, very strong. Our tangible net worth stands at over $192 million. We own over half of our locations, all of which are debt free. Many of these locations are waterfront, or on busy highways.

Our well-capitalized balance sheet has been a competitive advantage in this environment as many dealers today -- excuse me, as many dealers today do not have the ability to buy adequate inventory. We do believe that our available inventory improvement retailing strategies have combined to produce greater results for MarineMax than the industry has seen today.

In closing, while it is usually the smallest month of the quarter, January is finishing ahead of last year with strong unit growth. While this is encouraging, I need to stress again that January is a small month and we need to keep that in perspective. While some early signs are showing improvement in our industry, we have seen these signs before. We need to see meaningful improvement in the key quarters of March and June before feeling a bit better. Regardless, we certainly plan to do all we can to continue to build on the progress we are making.

I will now turn to call back over to Bill for some closing comments.

Thank you, Mike. Running our business with a focus on our customers, MarineMax boating experience during these challenging times, is truly an investment in our expectations -- that are not very expensive -- which are not very inexpensive. But we feel they are absolutely critical for the long-term.

While the economy begins to strengthen, we have positioned MarineMax as one of the one-stop solutions for all of their boating needs. In this environment, we are demonstrating that our focus on higher-margin businesses such as service, parts, and accessories; brokerage, finance and insurance can contribute to improved performance. In addition to Mike's comments on January sales, I would like to add a little more color by indicating that most of the boat shows we are participating in have been up, and in some cases, significantly up. However, attendance has been all over the board. We are not sure how to sort through that disconnect. But for now, we will take the sales and be happy and move on.

Some of the best news from the shows is that customers and visitors to the shows are very passionate about the boating lifestyle, and appeared to be even more anxious to get their family into this great recreation.

With our proven retail strategies and strong balance sheet, we are quite enthused about the future. The customer is starting to return. And with our expanding offerings, our passionate team and our continued focus on our customer-centric strategies, we expect to continue to grow our market share.

And with that, operator, we will open the call up for questions.

(Operator Instructions). Greg McKinley, Dougherty & Company.

I wonder if you could talk a little bit more about your margin outlook going forward. Obviously, there was a big benefit this quarter from mix shift, maybe to a greater degree than what we had seen in recent quarters. Could you talk a little bit about how you think that may or may not sustain going forward?

And then, secondly, on relatively flat revenues, we saw a little higher SG&A. Perhaps that was due to margin improvements, gross margin improvements? But how should we think about operating expenses relative to revenues in 2012?

From a margin perspective, it is hard from a quarter-to-quarter base, to conclude one way another because of the mix shifts that you have talked about. But we have said now for probably four or five of these calls, that we believe on an annual basis -- if you look at our margins on an annual basis, we have the opportunity for those margins to continue to incrementally increase. Not meteorically, but incrementally increase.

Part of that is because the mix shift in our higher-margin businesses, which is getting better each quarter, a little bit better. But part of that is the industry just continued to return to a more normal pricing structure, which is taking time. And so, I think if you look on an annual basis, our aim is that our margins this year will be a little bit higher than they were last year. And the same thing with the next year.

But when I look at our -- back on your SG&A question -- when I look at the quarter, when you normalize gross margins for the one-time benefit of last year, I think our gross margins in dollars are up something like $2.7 million year-over-year. And our expenses, if you normalize those, those are up about $479,000 year over year. Which is not too bad a trade-off, I don't think, from a ratio perspective. That comes with higher-margins. As we get higher margins, the way commissions work, the way our comp plan works, you are going to get some incremental increase in expenses. So, if you just have a revenue increase, you may not get much of an expense increase. But if margins go up, you are going to get an incremental expense increase.

Hopefully, that helps you a little bit there, Greg.

Yes, thank you.

Phil Anderson, Longbow Research.

Congratulations on a good quarter. First, just wondering -- the store closure this quarter, does that pretty much bring an end to the store closures that you guys have identified to this point?

I would tell you that we are constantly looking at leases as they are coming due. That was a leased facility. In this environment, we do not see any major reductions in stores or even multiple reductions at this point. But we will continue to evaluate any leases that come due and make sure that we have the right footprint for the -- for what we are feeling at retail.

And sales, to that point -- we feel pretty comfortable with the locations that we have -- understanding that in '06 and '07, when our revenues were a little over $1.2 billion, that these stores which are currently open, 52 of the 54 contribute over $1 billion of that revenue in those two years. So it is important that we keep those stores open. And we believe they are part of our future, and part of what brings this thing back as the economy starts to recover.

Okay. And during the first quarter here, the industry numbers I have seen seem to suggest that December was significantly better than the month leading up to it. I'm just wondering if you saw that in your year-over-year momentum across your portfolio of stores?

We saw the statistics that you are seeing from an industry perspective. I guess I would say our quarter probably gained a little bit of strength as we went through it. We had, as I mentioned, the weather that impacted the Ft. Lauderdale Boat Show, which was the end of October, probably put a little bit of a damper on some of the business in November. I would say yes, we probably did see a little bit of pick up in December.

Okay, that covers all my questions. Thank you.

Jimmy Baker, B. Riley & Company

I was hoping you could talk a little bit more about your boat show-related spending this season compared to a year ago. And maybe what other events you are seeing as attractive opportunities to deploy marketing dollars.

What we are seeing is, is that we as a Company have elected to spend less on the shows. Understanding that, in a lot of cases, the sales that we are making are people that are in our database that we had either sold to, or had been talking to as well. So we as a Company have a focus on making the shows look more impactful or better, and spending less on them.

An example of that was the New York show. I don't know if you all were there, or anyone on the call, but the display was absolutely spectacular. And the truth is, both we and our partner, Sea Ray, spent less in setting it up. And we had a few nice boats there, which reduced our expenses. And we had a very good show. So we are keeping our focus there.

We still believe that the greatest marketing tool that we have out there is what we do with our customers -- that we call getaways, where we take them to Block Island or the Bahamas or the destinations on Lake of the Ozarks or where ever it may be, and get them out boating and involved with their families, with other families. And that is the most powerful tool that we have for repeat and referral business. So we continue to keep those growing with the Company, and doing more and more events with our customers, which is really what it is about.

And boat shows are primarily something that we almost have to be at, because most of the industry is there. And I think many on the call heard me say before that God kind of creates everybody equal at a boat show -- from the standpoint of the boat is shiny and glistening, and the rest of the story of what you see when you visit the dealership. Do they have captains? Do they have mobile service trucks? Do they have events for their customers, et cetera? Perhaps are not there, but they don't show up at the boat shows. So we will continue to participate in boat shows. And we will continue to put our best foot forward there, and look as good as we can. But at the same time, we will continue to put the money towards doing things with our customers as the primary marketing tool that we have.

That is helpful. And Bill, can you provide any quantitative metrics on your getaways, or just even qualitatively color in terms of either increase in attendance or better conversion? Maybe what kind of trends you are seeing at those events?

In the past couple of years, it has been over 1000 events that we do for our customers. And some of those are a little weekend event that, perhaps it's a raft out on an island or out in the middle of a lake or whatever the case may be. And others are two-week trips, like to the Bahamas, and boats that range from a dozen to 150 on one of these trips. And so they are pretty expensive. And at the same time, it is a cost to us. Because, as an example, we provide the lead boat and the expenses for the family that is leading it, which in a lot of cases, is a sales team member with their family. And we are doing meetings ahead of time, get together with everybody that is going, to make it an exciting, fun time. So there is an expense associated. We plan on growing it, and continue to grow it.

Most of them were overbooked or at least booked to 100% for this last year, with a waiting list. And so we are expanding them in every chance that we can. And we are looking at it as really the best thing to get repeat and referral customers. Because the excitement that comes from a family when they are anticipating it, and then when they go on it and then when they come back, they are telling all of their friends and associates about this wonderful time that they had. And of course the kids are screaming, when can we go again, mom and dad? So it truly works.

That is helpful. I appreciate the color. This nice and consistent uptick you are seeing in new boat volume -- I'm hoping maybe you could speak a little bit about the mix of trade-in customers there, versus first-time boat buyers or other non-trade-in customers, and maybe how that compares with the historical balance?

I think the uptick that we have seen for five quarters in a row now, the mixes to what we see are going to be trade or new. It really almost depends on the size of the boats. We are seeing an uptick in the below-24-feet. Usually, down there, you don't see a whole lot of trades. So a lot of those are going to be new to boating. As you go from 25 to 35, which we are starting to see an uptick in that category, which has been actually slow. But we are seeing an uptick there. That is going to be repeat buyers. And just about everything above that, which is also seeing a bit of an uptick, would all be repeat.

So it kind of goes across the segments. I think I would certainly just add the color, that it does seem like we are getting more new buyers in, based on the strength of the below-24-feet. And that is probably some of the unit data that even the industry is seeing. I think the unit data is largely driven by the smaller boats, obviously, because there is more units down there.

And the consumer was confused the last two or three years with some of the low used-boat pricing, you know, repos and people that were wanting to sell their boats. And so they were tempted into the used boat business. And used-boat prices have improved. And as a result, the shift is going back to new boat sales. We also saw -- or we are seeing there is a lot more interest in aluminum pontoon boats here recently than there has been in previous years. And I think some of that speaks to, people are looking for the greatest value for their dollar that they can get. And so a 24 foot pontoon boat -- you can put 15 people on it. And you cannot do that on a same-sized Runabout.

So there is some things going on. We are in different times, and the consumers have shifted somewhat. But that being said, they are also more and more concerned about, what am I going to get for my dollars as far as the boating experiences is concerned. And so, they are expecting -- and we have measured this through surveys, that people are very focused on someone, the dealer, helping them select the right boat; teach them how to use the right boat; service them second-to-none; make it seamless and not a hassle; and at the same time, get involved with them and show them how to have fun in using their boats.

That is very helpful. Last question for me, just on inventory here. You mentioned you are comfortable with your inventory levels. Should we take that to mean that you feel like you have the right balance of new versus used, and large versus small product? Or do you see a need to make some adjustments there?

No, I think we are comfortable at the balance of the segments that you just said and just across the inventory. I think we are watching it closely and making sure that what we have is aligned with retail. And we are making adjustments daily, in terms of, if you see a trend where maybe something is not moving as well as you thought it was, but then another product is moving greater. We are swapping models and swapping manufacturing slots, just to try to keep the inventory as optimal as possible.

(Operator Instructions). It appears we have no further questions today.

With that, I would like to turn the call back over to our presenters.

Okay, thank you, operator. And thank you, everyone, for your continued interest in supporting MarineMax. I would also like to thank, again, our team members for their hard work and passion for our business. It is truly through their efforts that we can call ourselves the leading boat retailer in the country. Mike and I are available today if you have any additional questions. And so, thank you very much everyone.

And, again, ladies and gentlemen, that does conclude today's call. We do thank you for your participation and ask that you have a wonderful day.