MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2012. Amounts are in U.S. dollars; financial statement amounts below are shown in millions unless noted. The filing is unaudited.
Business context and reporting period
MarineMax is a U.S. recreational boat retailer, operating 53 locations in 18 states and a yacht-charter facility in the British Virgin Islands. It sells new and used boats, parts and accessories, and related services and finance and insurance products. The company identified Brunswick as a significant manufacturer relationship: new Brunswick boats represented about 48% of fiscal 2011 revenue. Florida accounted for 50% of fiscal 2011 revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2012 | Nine months ended June 30, 2011 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $153.2 | $151.3 | $361.1 | $387.1 |
| Gross profit | $39.1 | $40.3 | $89.5 | $100.2 |
| Gross margin | 25.5% | 26.6% | 24.8% | 25.9% |
| Operating income (loss) | $3.9 | $5.6 | $(3.7) | $6.0 |
| Interest expense | $0.8 | $1.0 | $2.5 | $3.4 |
| Net income (loss) | $3.4 | $4.6 | $(5.8) | $2.7 |
| Diluted EPS | $0.15 | $0.20 | $(0.26) | $0.12 |
- Revenue and margins: Third-quarter revenue declined 1.2%; nine-month revenue increased 7.2%. Nine-month comparable-store sales rose 9.2%. Management attributed higher gross margins primarily to improved new-boat margins and inventory conditions.
- Expenses and earnings: Third-quarter SG&A fell 1.6% to $34.7 million. Nine-month SG&A increased 1.2% to $94.2 million, while SG&A as a share of revenue fell to 24.3% from 25.8%. The 2012 periods included a Gulf Coast Claims Facility payment, offset by severance and store-closing charges; amounts were not specified in the provided filing text. Interest expense rose, primarily because of higher average inventory borrowings.
- Cash flow: For the nine months, operating activities provided $23.5 million, versus $4.9 million in 2011; investing activities used $3.9 million versus $6.8 million; financing activities used $5.8 million versus providing $12.4 million. The 2012 operating cash inflow was primarily associated with a $20.5 million inventory reduction, partly offset by higher receivables. Cash increased $13.9 million to $33.2 million.
- Balance sheet and liquidity: At June 30, cash was $33.2 million, inventory $199.1 million, current assets $259.4 million, and current liabilities $155.1 million. The current ratio was approximately 1.67. Total assets were $361.2 million and stockholders’ equity $201.7 million.
- Debt and facilities: Short-term borrowings were $111.8 million; the company reported no long-term debt. Additional borrowing availability under its inventory facilities was about $36.2 million, subject to borrowing-base limits. The company was in compliance with facility covenants at June 30. In July 2012, the main floor-plan facility maturity was extended to June 2015 and the $30 million CGI facility maturity to August 2013.
Material changes, outlook, risks and unusual items
- Nine-month results improved from a net loss to net income, with higher revenue, gross profit and operating income. Third-quarter revenue was slightly lower year over year despite comparable-store sales growth, partly because of sales of larger boats in the prior-year quarter and changes in stores outside the comparable-store base.
- Management gave no quantified earnings or revenue guidance. It said acquisitions and new-store openings remain strategic priorities and may resume when economic conditions are more normal. Management believes its retailing approach and cost measures can support future revenue and growth, but cautioned that timing and effectiveness are uncertain.
- The recreational boating business is seasonal and cyclical, and luxury-boat demand is exposed to consumer confidence, economic conditions, weather and regional factors. Inventory aging can reduce borrowing capacity; the company also depends on lenders’ ability to fund its facilities. A 100-basis-point increase in variable rates was estimated to raise annual pretax interest expense by about $1.1 million, assuming no mitigating actions.
- Other risks include dependence on manufacturer and dealer agreements, particularly significant Brunswick brands, and currency fluctuations affecting European-sourced products. The company was not using foreign-currency hedges at June 30, 2012.
- The company fully reserved its net deferred tax asset based on recent earnings and industry trends. It reported no fiscal 2012 long-lived-asset impairment. It disclosed a lawsuit seeking damages exceeding $7 million; management considers the claim without merit and does not expect a material adverse effect.
- Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether comparable-store growth and margin improvement continued after June 30, and how much the claims payment and one-time charges contributed to reported SG&A.
- Current inventory aging, borrowing-base availability, facility covenant headroom and the terms and continued availability of floor-plan financing.
- Exposure to Brunswick and other key manufacturers, including any changes to dealer agreements or incentive programs.
- The amount and potential financial effect of the Gulf Coast Claims Facility payment, severance and store-closing charges, and the pending lawsuit.
- Whether the fully reserved deferred tax assets, consumer demand and seasonal working-capital needs affect future earnings and cash generation.