MarineMax, Inc. — Q1 fiscal 2013 Form 10-Q
Reporting period: Three months ended December 31, 2012, compared with the three months ended December 31, 2011. The company is a U.S. recreational boat retailer with 52 locations in 18 states. Unless stated otherwise, figures below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Revenue | $99.1 | $91.8 |
| Gross profit / margin | $26.3 / 26.5% | $25.6 / 27.9% |
| SG&A / revenue | $29.4 / 29.7% | $28.6 / 31.1% |
| Operating loss | $(3.2) | $(3.0) |
| Interest expense | $1.0 | $1.2 |
| Net loss / diluted loss per share | $(4.2) / $(0.18) | $(4.2) / $(0.19) |
| Cash used in operating activities | $9.8 | $16.2 |
| Cash used in investing activities | $1.5 | $1.1 |
At December 31, 2012, cash was $15.4 million, inventory $226.8 million, and short-term borrowings $123.4 million; the company reported no long-term debt. It had approximately $36.4 million of additional borrowing availability, subject to borrowing-base limits. Current assets were $260.4 million and current liabilities $163.2 million (a calculated current ratio of approximately 1.60). The company reported compliance with its credit-facility covenants.
Material changes and management commentary
- Revenue rose 7.9%; comparable-store sales increased 8.3%. Management attributed growth to new and used boat sales, newer brands, brokerage, finance and insurance products, and service. Hurricane Sandy adversely affected some Northeastern stores.
- Gross profit increased 2.8%, but gross margin declined 1.4 percentage points, primarily because sales mix shifted toward larger, generally lower-margin yachts. SG&A rose 3.1% in dollars but declined as a share of revenue through expense leverage.
- Operating loss widened slightly, while lower interest expense helped net loss per share improve to $0.18 from $0.19.
- Operating cash use narrowed year over year. In Q1 FY2013, inventory growth and seasonal decreases in payables and accrued expenses were partly offset by higher customer deposits, including deposits on large yachts sold on order.
- Cash decreased by $8.2 million during the quarter. Financing activities provided $3.1 million, mainly from increased short-term borrowings; investing activities included $2.8 million of property and equipment purchases and $1.3 million of insurance proceeds related to Hurricane Sandy.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance was provided. Management said it expects steps taken to address weak market conditions to support future revenue and intends to resume acquisitions and new-store growth when economic conditions normalize. It cautioned that the period’s results are not necessarily indicative of future results.
- The business is seasonal and exposed to discretionary spending, economic and credit conditions, weather, and the cyclical recreational boating industry. Florida represented 49% of fiscal 2012 revenue. New Brunswick boats accounted for approximately 47% of fiscal 2012 revenue, creating manufacturer concentration risk.
- Inventory is financed through floor-plan facilities: a GE facility with a commitment up to $150 million and a CGI facility with a $30 million commitment. Borrowing availability depends on eligible inventory, inventory aging, and lender funding. Both facilities have financial covenants; the company was compliant at quarter-end.
- All short-term debt bore variable rates tied to LIBOR. Management estimated that a 100-basis-point rate increase would add approximately $1.2 million of annual pretax interest expense, assuming no mitigating actions or additional vendor assistance. The company was not using foreign-currency hedges at quarter-end.
- The inventory valuation allowance increased from $2.8 million at September 30, 2012, to $3.7 million at December 31, 2012. Deferred tax assets were fully reserved; accordingly, no income tax benefit was recorded despite the quarterly loss.
- A lawsuit by former shareholders alleges breach of contract and fraud and claims damages exceeding $10 million. Most earlier claims and the claims against certain directors and officers were dismissed; the company intended to seek dismissal of the re-alleged fraud claims and believed the case would not have a material adverse effect. The filing also describes ordinary-course legal matters that management did not expect to be material.
- Management stated that existing capital resources should fund operations for at least 12 months, except for possible significant acquisitions. Disclosure controls were judged effective at a reasonable-assurance level, with no material quarter-end change in internal controls reported.
Important facts for investors to verify
- Whether comparable-store growth continues and whether gross margins recover after the shift toward larger, lower-margin yachts.
- Inventory aging, valuation allowances, seasonal cash needs, and remaining borrowing-base capacity under the floor-plan facilities.
- Compliance with credit covenants, availability and cost of lender financing, and exposure to variable interest rates.
- Developments in the shareholder lawsuit and any change in management’s assessment of potential financial impact.
- Effects of economic conditions, weather, and reliance on Brunswick brands and Florida markets.