MarineMax Inc (HZO) 2013 Q1 法說會逐字稿

Please standby. Good day, and welcome to the MarineMax Inc first quarter 2013 earnings conference call. Today's conference is being recorded, and at this time I would like to turn the conference over to Brad Cohen. Please go ahead.

Thank you very much, operator. Good morning everyone, and thank you for joining us for this, our discussion of MarineMax's 2013 fiscal first quarter results. I'm 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 extension 10100 and she will fax or e-mail one to you right away. I would now like to introduce the management team of MarineMax; Bill McGill, Chairman, President and Chief Executive Officer; and Mike McLamb, Chief Financial Officer of the Company. Management will make some prepared -- some comments about the quarter, and then be available for your questions. With that I will pass the call to 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 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 10K 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. Let me start by sharing that with every quarter, we are growing more encouraged that the industry is gaining progress towards its long-awaited recovery. While the recovery may continue to have its ups and downs, we believe that the next several years should produce more widespread unit growth, especially in the hard-hit sterndrive and inboard segments. We are encouraged by the more than 8% increase in same-store sales our team produced in a quarter marked by significant headwind's, including the ongoing economic challenges, the fiscal cliff discussions and the presidential election.

Additionally, given our strong presence from Baltimore to Connecticut, our business was further impacted by the devastation resulting from Hurricane Sandy, which caused us to lose numerous selling and servicing days during the quarter. Specifically, the storm required most of our northeastern stores to shut down to prepare for the storm, and then most had to clean up and get the stores back to a functioning state after the storm. In the hardest hit areas, our team then turned their attention to finding and recovering customer boats. All the while tending to their own personal challenges that the storm [created] caused. Unfortunately, ten of our team members lost their homes, and four of our larger facilities suffered significant damage. There is no question that the affects of the storm in the respective communities still linger, and the recovery will take additional times as homes and property damage are repaired. However, our expectations are that these stores will be completely ready for business as we enter the busiest season for boat sales.

Historically, MarineMax has had ample experience preparing for, and overcoming, hurricanes and we leveraged this experience in minimizing damage to our Northeast facilities and our inventory. Besides the unavoidable damage to facilities and marinas, we had very little damage in the areas that we could control, such as our inventory. The damage that we have had to facilities is largely insurable. But we do have costs that we have incurred, either through idle or insufficient payroll dollars, or soft costs associated with the storm preparation and recovery, that ran through our P&L in the December quarter. While the storm clearly impacted our revenue in the Northeast, it is hard to quantify the full magnitude. Besides the lost traffic in our stores, we did have deal cancellation delays, until customers can get their businesses, homes and docks restored.

What is encouraging was the traffic and positive attitudes that customers at the New York boat shows, which occurred the first week in January. While the timing of the show was not the most advantageous, it was a good show for MarineMax, with encouraging results, and seeing [current] customers excitement to get out and go boating (technical difficulties) spring. The December quarter was our ninth quarter, in a row, of growth in new unit sales. Just about every category, and type of boat we sell, increased in the quarter, including sterndrive and inboard power boats. Over the last few years, we have seen boat pricing rise to close to near-normal margins, yet we are still trailing peak margins by about 75 basis points. Which we think is an opportunity for us to benefit from, as the industry returns to normal historic product margins.

In the December quarter, our decline in overall margin was largely driven by the sale of larger lower-margin boats, especially from Azimut line, which is up year-over-year in the quarter. Overall, based on the latest industry data, it is our belief that our unit growth in the categories which we operating -- operate, are exceeding that of the industry, which should result in additional market share growth. Furthermore, used-boat pricing is holding up well, and we believe the historical trends and relationships between the new and a used boat are returning. This should further drive customers to consider new product, and facilitate customers trading their current boat for new ones, and will ultimate result in new boat sales increasing as a percentage of total boats sold in the industry. From an inventory perspective, we are well positioned, heading into our busiest selling season. We have the right product across a greater selection of segments, than we have ever brought to the market before. Additionally, our manufacturing partners have given us a great lineup of new products this year. Our focus on adding new boat categories and [road] resources to our mix over the last several years, allows us to address even more customers boating needs, as well as meet what we believe will be increased demand in the Northeast.

MarineMax Vacations, our charter business, down in the BVIs, which we launched about 14 months ago, is on track with bookings, and we are pleased with its progress. While still very early in its evolution, we believe this is an offering that we can grow through our own database of customers, and one day will help to offset some of the cyclicality that comes with boat sales. As the year moves ahead, and hopefully some of the economic volatility subsides, MarineMax is poised to capture more business and meaningful improvements in our cash flow and profitability in 2013.

With that update, I will ask Mike to provide more comments on the quarter. Mike?

Thank you, Bill, and good morning again everyone. For the three months ended December 31, 2012, our revenue increased about 8% to just over $99 million. Our same-store sales increased by more than 8%. Our growth was essentially across all categories of product, with a skew towards larger product. Geographically, Florida was clearly the strongest market, but most other markets were up as well. The Northeast market from Baltimore to Connecticut saw its boat revenue decline more than 9%, which gives you some sense of the storms impact.

An encouraging note is that the sport cruiser segment, which is generally comprised of 25 to 35 foot cabin boats, was significantly up in units for the quarter. This is an important segment, which to date, had been significantly trailing all other segments in the (technical difficulties) recovery. For the quarter, we grew gross profit dollars, but gross profit as a percentage of revenue decreased due to the mix shift to larger yacht sales. Our selling, general and administrative expenses decreased as a percentage of revenue but increased approximately $873,000. A significant portion of the increase in SG&A was an unusual spike in health and workers compensation insurance costs, and to a lesser extent, costs associated with the storm.

What is hard to measure is the amount of inefficiencies created by the storm, as its large scale was the first storm we have experienced that caused essentially all of our stores, from Miami to Connecticut, to batten down the hatches and prepare for the storm. Due to cash flows produced last year, interest expense decreased from less borrowings. The Company had no income tax benefit for the quarter. As previously stated, our effective income tax rate will remain essentially zero for the near term, primarily due to the availability of substantial net operating loss carry forwards, which are fully offset by a valuation reserve. Such NOL carry forwards now amount to more than $60 million. Overall, despite the headwind's in the quarter, we produced a slightly better quarterly loss of $4.16 million or $0.18 per share compared to a net loss of $4.21 million or $0.19 per share last year.

Now on to our balance sheet. At quarter end, we had approximately $15.4 million in cash. As a reminder, we also have substantial cash in the form of unleveraged inventory. Our inventory level at quarter end was about $227 million which was up slightly from last year. As Bill said, we are comfortable with our mix and levels of inventory. Turning to our liabilities, our short-term borrowings were about $123 million, down almost $7 million from the prior year. While we always say it is hard to get a good read on trends from our customer deposit liability line, I believe our balance at quarter end is a post 2007 high, which is certainly nice to see.

Our balance sheet is strong, and will continue to strengthen with increased cash flow as the recovery takes hold. We ended the quarter with a current ratio of 1.60, and total liabilities to tangible net worth ratio of 0.83. Both of these a very strong ratios. Our tangible net worth stands at almost $198 million. We own more than half of our locations, which are debt free, and we have no other debt, other than the inventory financing that we have. Before I provide a brief comment on January and current trends, I need to first remind everyone that the March quarter last year was a very strong quarter for MarineMax, where same-store sales exceeding 25%. That said, we expect January should finish up, positive relative to January a year ago. Keep in mind, that in this quarter, the critical month ends up being March, which is often as big as January and February is combined. So (technical difficulties) early quarter sales trends are positive, we still have a lot of work in front of us.

With that update, I'll turn the call back over to Bill.

Thank you, Mike. We are now in full swing with boat shows across the country. And based upon results of our January shows thus far, we are encouraged by sales trends and customer's excitement for the upcoming season. Our primary focus at shows has been displaying our big array of new products, and relaying to customers and their families how boating with MarineMax changes their lives by uniting them with their inner self, when they're out on that water, and also with others. MarineMax continues to be the one-stop solution for all of our customers boating needs. We have broad product assortment, and remain committed to growing our market share profitably.

We believe our retailing strategy of completely embracing our customers, and helping to ensure that they are enjoying and using their boats with their family and friends, is why our unit growth (technical difficulties) is returning faster than that of the industry. We will also look to continue to grow the business, not only from our brand and product line extensions which we undertook during the downturn, but also with accretive acquisitions that help broaden our reach and add strong additional markets where it makes sense. But we will only move forward if the terms are compelling, and contribute to our drive towards sustained levels of profitability.

In 2013, we expect customers will be even more excited to get back on the water, and are eager to do so in a new and/or bigger boat with favorable financing. The boating lifestyle is alive and well, and we are well-positioned to meet and exceed the needs of our customers. Our strategy of continuing to invest in our customer-centric strategies, and never cutting costs at our customers expense, continues to position MarineMax as the industry leader. Additionally, I would like to thank our team for their extra efforts during the quarter. Our results reflect their commitment to our customers, and their passion for our continued success.

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

Thank you.

(Operator instructions)

Kevin Ruth, Raymond James.

Could you give some color on sales trends that you are seeing in January? Specifically as it relates to the cruiser category?

Hi. Hey, Kevin, yes, this is Mike. Our trends in cruisers are continuing from the December quarter. So, we had a good December quarter with cruisers, and thus far, what is under contract, and expected to close in the near-term, and under contact and to close later in the quarter, is also positive. Which is, again, those of us that have followed the industry, that is a great sign.

And the good news out there, Kevin, is that if you look at the cruiser segment, it has been down and it is starting to recover for us. But, what is important is people that are in cruisers right now, and are desiring to have cruisers to go family boating, they're still out there and there's still boating. And so it is just the aging of the fleet is the real opportunity here. So we are starting to see some movement.

All right. Thanks guys.

Thanks, Kevin.

(Operator instructions)

Jimmy Baker, B. Riley

Hey guys, it's Marcelo Choi in for Jimmy. I know you guys said that you couldn't quantify the storm damage to December quarter. In terms of the top line, are you guys still seeing a negative impact there for the March quarter?

I would tell you it is probably a little too early to jump to that conclusion yet. We are certainly having customers come in with their insurance checks, albeit slow.

Albeit slow. Insurance companies are not real quick to hand the checks out, but they will.

Probably the best -- the New York boat show was a reasonably good boat show. I think Bill probably mentioned that, and or generally mentioned that. As that is evidence, we are not seeing the softness really right now because it's from I don't think. We will need to get through the rest of the quarter to see how it all plays out, and are people's docks rebuilt, are they not rebuilt. Where do they stand with their insurance. Because there is a process that you got to go through to get your claim filed, and all that.

And we enter the Atlantic City boat show next week. And I think that will be a very good indicator for us as to how many people show up with their checks. We are excited to enter that show next Thursday. I think it is Thursday through Sunday, Wednesday through Sunday.

And just a follow-up, when would you expect the impact from Hurricane Sandy to turn into a tailwind for your business?

We should see some benefit from it this year. How much is more a function of how long it takes the insurance companies, and also people to get some of the infrastructure rebuilt. But, I think we will see benefits from it over the next two to three years for sure. So it is a little hard to say, is it going to be a significant impact to the performance in the Northeast this year, or is it more next year. We will have to wait and see.

Fundamentally, you would expect kind of June quarter-ish would be the single biggest benefit I would think this year. But Bill is right, there could be -- its probably going to benefit or impact us positively for a little while.

Great. That's very helpful. Can you share some feedback from your early-season boat shows, both in terms of categories and geographies of strength?

Well, Atlanta was a very good show for us. It was a good show, but it was also a show that's got tracking like the industry's showing. We had a very good pontoon, outboard pontoon show. We had a very good Houston show. And traffic was down in both of these shows, however, we had a good show.

Buyers were [up], or percentage of buyers (multiple speakers)

And we commented on New York. And we were in Kansas City with the show, and it turned out very well. We are going into Minneapolis this Thursday, and so we're excited about that. We're doing something a little bit different at the shows, this year, and that is we've got a theater like we have been doing in some of our mall locations. So we have got a theater in the middle of the show, and basically to, so we can emotionally relate to people the benefits of boating, of what it does to change their life, and also that of the life of their families. And it seems to be working very well. We're having very positive comments about it.

So we're thinking that a few less boats, the theater is sort of the focal point of it. And what we're seeing is, maybe if the family, the wife is walking by and she sees a little video clip of a family out on the water and what it means to them, and the next thing you know, we have stimulated that emotional part of her brain to say, wow maybe we ought to be doing this. So we are taking a different approach. We're looking different, than we have in the past.

And just the other -- We have been in a bunch of shows, some larger, some smaller. Another major market, Cleveland, was a great show on a year over year basis in terms of boat sales. And I think, if I remember right, traffic was probably down there also. But a good show.

And Hartford. So we are in a bunch of shows, and a bunch more coming. Of course the big show is Atlantic City coming up, and Miami coming up in mid February.

Great. Just one last question. Do you guys have a preliminary expectation for your tax rate in fiscal year '14?

I think it ultimately depends on where the Company's earnings are. I'm stating the obvious. If you go back in time, when we had taxable earnings, we were in the high 30%s, around 40%, as an effective tax rate.

Okay, great. Thank you so much guys.

(Operator instructions)

Greg McKinley, Dougherty and Company.

Thank you. Can you talk a little bit about sales contributions by boat categories? So you mentioned that you had strong unit growth in your sport cruiser segment. What had that been in the previous quarter or two? And does what you saw in December represent a big trend change for that category? And then, can you comment on, maybe, some of the more value-oriented brands you added to the portfolio here? And how big of a difference had they made recently to sales trends?

I can comment on cruisers, if I'm going from memory. I'm pretty sure I mentioned on the March call, last year, that we saw growth in cruisers. I think in the June and the September quarters, we were probably down single digit in cruisers, whereas the industry was probably down double digit, like in the teens, in cruisers. So I think we finished last year down single digit, whereas the industry, again was down 15%, something like that. The increase that we've got in cruisers in the December quarter, you got to preface it with its a small quarter to begin with --

Yes.

But I recognize that when I look at it, it is a meaningful shift in business. It looks like there is something more there than just a couple of units increasing on top of a small number. It is a decent sized number last year growing to a significantly bigger number this year. Then that trend is continuing into January. Which is, it looks like there's something beginning to percolate there on the cruiser side which is encouraging. Then we're, with the other value brands we have taken on, we continue to see unit growth in those brands on a year over year basis, whether it is Bayliner or some of the other [tracks] that we have taken on. Pontoons --

Yes, both Crest and Harris are good, have doing very well at the shows, their pontoon boats, mercury powered. So they are starting to add. So we are at shows, and we can pretty well meet the needs of most anyone attending the show. And soon we will have jets, jet boats from Brunswick in the form of Sea Ray brands, and also Bayliner. We are excited about that as well as more outboard runabout deck boats coming from both Sea Ray and Bayliner. So, we are excited about the future. A lot of new products, and new sales in a lot of regards, and we're seeing a lot of excitement about a lot of the new products, including the new 37 Venture outboard powered [boat] by Sea Ray.

Now, in the December quarter you had mentioned that sales in the Northeast, boat sales in the Northeast segment, were down about 9%, and that Florida was by far your strongest market. Can you give us a sense for, excluding the Northeast, how did the store-base comp during the quarter? So we can maybe have a better understanding for just market share gains and overall trends excluding Sandy implications?

It would have been double-digit. I was doing some rough calculations, 12%, 13% same-store sales growth or thereabouts. Low double digits.

Okay. And so you are positive here in January, versus what you indicated, a very strong performance in the year ago quarter, March is the most important month here. Can you give us a sense of magnitude? Are we modestly positive? Are you seeing enough follow-through here where you're feeling this is not just sort of squeaking along at nominal revenue growth, there's something more happening?

I think what we do when we look at our numbers, is we also look at did we have any unusual contracted boat sales last year? Anything large? And when you factor it all in, we keep concluding that the industry is recovering, and that it is going to gain strength in 2013. That it is going to have its up and downs. I think we all know that. When the next round of fiscal cliff discussions come about, it's going to make consumers pucker up for a little while, than they will come back and they'll buy their boats. But I think our message is that the industry is recovering, and 2013 should be a greater unit year than 2012. The question is, is what's the magnitude and I think we need to work through some more quarters on that, Greg.

Okay. And then just (multiple speakers)

And we're hearing very, very positive comments from people at boat shows. So, I think the whole attitude is let's get on (technical difficulties). We kind of know what we have going on here from a tax standpoint, from the next four years. And so let's get out and go boating with their family and enjoy it. So we're hearing that more and more from customers at boat shows. So that will really start to drive it, as people have a little more visibility, and a little less unsurety about where the future is.

Thank you. And then just last question on your operating expense structure. It has been relatively fixed, despite some revenue improvements. As we see the market recover a little bit more here, are there any trigger points such as employee compensation hurdles and bonuses that we should be aware of that might make that vary more with gross profit dollars? Or should we still expect that to remain relatively fixed?

I think once we really start breaking out, when I say breaking out having meaning -- very meaningful increases in revenue, we're going to have an expense increase, if for no other reason, commissions and comp plans to your point. I think everyone in the Company is very focused at looking at every area to gain leverage. That doesn't take away from the experience we provide our customers. And we continue to look for those areas to find leverage. But at some point in time, you'll see roughly 1/3 of our expenses, which tend to be more variable, will start to creep up. But I do think it will be less than historically you would have seen at MarineMax. I think we will gain more leverage than we historically would have.

Thank you.

And at this time, I would like to turn the conference back over to management for any additional or closing remarks.

Okay. I would like to thank everyone for your continued interest and support in MarineMax. Mike and I are available today if you have any additional questions. So thank you everyone.

And this does conclude today's presentation. We thank everyone for their participation.