MarineMax, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2011; filed August 5, 2011. Financial statements are unaudited. Amounts below are in millions except per-share data.
Business context
MarineMax operated 57 recreational-boat retail locations in 19 states, selling new and used boats and related products and services. Brunswick-manufactured new boats represented about 41% of fiscal 2010 revenue; Florida represented 54% of fiscal 2010 revenue. The business is seasonal and sensitive to discretionary consumer spending.
Financial results
| Metric | Three months ended June 30, 2011 | Year-over-year comparison | Nine months ended June 30, 2011 | Year-over-year comparison |
|---|---|---|---|---|
| Revenue | $153.2 | Up 32.7% from $115.4 | $361.1 | Up 10.8% from $325.9 |
| Gross profit / margin | $39.1 / 25.5% | Margin down from 30.0% | $89.5 / 24.8% | Margin unchanged |
| SG&A | $35.2 | Up 5.7%; 23.0% of revenue vs. 28.9% | $93.1 | Up 0.6%; 25.8% of revenue vs. 28.4% |
| Operating income (loss) | $3.9 | Improved from $1.2 | $(3.7) | Improved from $(11.9) |
| Interest expense | $0.8 | Up from $0.7 | $2.5 | Down 21.9% from $3.2 |
| Net income (loss) | $3.4; $0.15 diluted EPS | Up from $0.5; $0.02 diluted EPS | $(5.8); $(0.26) per share | Compared with $4.3 income; $0.19 diluted EPS |
| Operating cash flow | Not separately presented | — | $4.9 | Down from $83.5 |
Quarterly revenue growth was mainly due to higher comparable-store sales, supported by additional brands and more aggressive marketing. Boat sales made up a larger share of revenue, reducing the mix contribution of higher-margin brokerage, finance and insurance, service, parts and accessories. For the nine months, higher new-boat sales were partly offset by lower used-boat sales, which management attributed to reduced used-boat availability.
The nine-month comparison is affected by a $19.2 million tax refund benefit recorded in fiscal 2010 following a change in tax law. The company reported a $0.3 million tax benefit in the 2011 period. It stated that its net deferred tax asset remained fully reserved based on recent results and industry trends.
Balance sheet, liquidity and debt
- At June 30, 2011, cash was $27.0 million, inventory $200.9 million, total current assets $254.9 million and current liabilities $151.8 million. The resulting current ratio was approximately 1.68.
- Short-term borrowings were $105.2 million, up from $93.8 million at September 30, 2010. The company reported no long-term debt. Stockholders’ equity was $199.9 million.
- Cash increased $10.5 million during the nine months. Operating cash flow of $4.9 million and financing inflows of $12.4 million were offset in part by $6.8 million of investing outflows. The prior-year operating cash flow benefited from inventory reductions and collection of the tax refund.
- In June 2011, the company amended its GE Commercial Distribution Finance facility, increasing the commitment from $100 million to $150 million and extending maturity to June 2014, subject to possible extensions. It also had a $30 million CGI floor-plan facility for Azimut inventory. Combined additional borrowing availability was about $47.3 million, subject to borrowing-base limits.
- Both facilities have leverage and current-ratio covenants; MarineMax reported compliance at June 30, 2011. The GE facility rate was one-month LIBOR plus 383 basis points; the CGI rate was LIBOR plus 350 basis points. Management said existing capital resources should fund operations for at least 12 months, except potentially for significant acquisitions.
Outlook, risks and unusual items
- Management said market-share gains, retail strategies and steps taken to address weak market conditions could support future revenue and earnings potential. It gave no quantified earnings or revenue guidance and said the timing and severity of economic weakness remained uncertain.
- Management intends to resume acquisitions and new-store growth when more normal economic conditions return. It reported no significant acquisitions in the years through fiscal 2010 or to date in fiscal 2011, while nine-month 2011 investing cash flows included $2.3 million used to acquire inventory and equipment in a business acquisition.
- Risks include economic weakness and reduced consumer confidence, the cyclical luxury-boat market, customer access to financing, inventory aging and borrowing-base constraints, dependence on floor-plan lenders, manufacturer/dealer-agreement changes, and concentration in Florida and Brunswick brands.
- Operations are seasonal and exposed to weather, including storms and adverse boating conditions. All short-term debt carried variable rates; management estimated a 100-basis-point increase would add about $1.1 million to annual pretax interest expense, based on period-end borrowings and stated assumptions. The company was not then hedging its euro exposure on Italian products.
- Legal actions arose in the ordinary course; management did not expect them to materially affect financial condition, results or cash flows. No long-lived-asset impairment was recognized at June 30, 2011.
Most important facts for investors to verify
- Whether comparable-store growth and new-boat sales can continue, and whether used-boat supply recovers.
- Whether revenue growth can translate into improved gross margin despite the shift toward lower-margin boat sales.
- Inventory aging, borrowing-base availability, covenant headroom and continued access to both floor-plan facilities.
- The sustainability of operating cash flow, given the sharp decline from the prior-year period and increased inventory.
- Exposure to consumer credit conditions, Florida markets, Brunswick brands, variable interest rates and euro movements.
- Deferred-tax-asset valuation and the effect of the prior-period $19.2 million tax refund on comparisons.