MarineMax, Inc. — Q3 FY2014 Form 10-Q
Business context and period. The filing covers the quarter and nine months ended June 30, 2014, in MarineMax’s fiscal year. The company operates 55 recreational-boat retail locations in 18 states and provides related service, brokerage, financing, insurance, and storage offerings. Its recently launched British Virgin Islands yacht-charter business was not material to results.
Financial performance
Amounts below are in millions, except per-share data. Comparisons are with the corresponding 2013 period.
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $214.4 vs. $175.8; up 22.0% | $460.6 vs. $434.8; up 5.9% |
| Comparable-store sales | Up 22.1% | Up 5.3% |
| Gross profit / margin | $54.2 / 25.3%, vs. $46.8 / 26.6% | $118.9 / 25.8%, vs. $110.7 / 25.5% |
| Operating income | $12.6 vs. $13.8 | $9.3 vs. $12.1 |
| Interest expense | $1.1 vs. $1.2 | $3.1 vs. $3.4 |
| Net income / diluted EPS | $11.5 / $0.47, vs. $13.6 / $0.56 | $6.2 / $0.25, vs. $9.8 / $0.41 |
Quarterly sales growth reflected new-boat sales, including new brands, and gains in brokerage, parts and accessories, storage, and charter services. Management also cited improving industry conditions. Quarterly gross margin fell as boat sales formed a greater share of revenue, reducing the mix of higher-margin services and related products; aggressive pricing in response to early-quarter inclement weather also weighed on margin. Nine-month gross margin improved, which management attributed to better boat-sale margins and commission-structure changes.
Prior-year SG&A included an approximately $7.0 million benefit from the Deepwater Horizon Settlement Program. Excluding that item, SG&A increased 4.0% for the quarter and 3.8% for the nine months; SG&A as a share of revenue declined in both comparisons. The prior-year tax benefit of approximately $1.0–$1.1 million arose from a favorable state tax settlement; 2014 reported no income-tax benefit or expense. The company maintained a full valuation allowance against net deferred tax assets.
Cash flow, balance sheet, and debt
- Operating cash flow: $11.9 million provided in the nine months, compared with $0.4 million used in 2013. The 2014 result reflected net income and seasonal increases in payables and customer deposits, partly offset by higher inventory and receivables.
- Investing and financing: Investing used $6.0 million, primarily for facility improvements; financing provided $12.2 million, including $8.6 million of net short-term borrowings. Cash increased $18.1 million to $41.8 million.
- Liquidity: At June 30, current assets were $305.0 million and current liabilities $177.9 million, implying working capital of approximately $127.1 million and a current ratio of 1.71. Inventory was $234.3 million.
- Borrowings: Short-term borrowings were $131.0 million; the company reported no long-term debt. Its floor-plan facility has a commitment of up to $205 million, subject to borrowing-base limits, with approximately $24.7 million of additional availability. The June 30 borrowing rate was approximately 3.6%; the facility matures in June 2016, with two possible one-year extensions subject to lender approval.
- The company reported compliance with its facility covenants: leverage ratio not above 2.75:1 and current ratio above 1.2:1. Inventory aging and required curtailments can reduce borrowing capacity. A 100-basis-point increase in variable rates was estimated to add approximately $1.3 million in annual pretax interest expense, absent mitigating actions or additional manufacturer assistance.
Outlook, risks, and contingencies
No specific financial guidance was provided. Management said it expects to pursue acquisitions and new-store openings more actively when economic conditions improve, believes its retail strategy can support market-share gains, and expects existing capital resources to fund operations for at least 12 months, except in the event of possible significant acquisitions. Results are seasonal and exposed to weather, consumer confidence, economic conditions, and discretionary spending on luxury goods. Florida generated about half of fiscal 2013 revenue. The company also identified dependence on key manufacturers and dealer agreements; Brunswick new-boat sales represented approximately 38% of fiscal 2013 revenue and Azimut new boats approximately 13%.
A lawsuit by former shareholders of an acquired dealer alleges damages exceeding $10 million. The court granted summary judgment for the company; plaintiffs appealed, with oral argument scheduled for August 21, 2014. The company stated it believed the case was without merit and would not materially affect its financial condition, results, or cash flows. Management also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether strong quarterly comparable-store sales growth can be sustained and whether the lower quarterly gross margin reflects a continuing sales mix or pricing issue.
- Inventory levels, aging, and borrowing-base availability, given the company’s dependence on floor-plan financing and limited reported additional availability.
- The effect of seasonal demand, weather, consumer spending, and economic conditions on future sales and liquidity.
- Exposure to major boat manufacturers and the status and outcome of the appealed shareholder lawsuit.
- The effect of the full deferred-tax valuation allowance and any future tax expense or use of net operating loss carryforwards.