MarineMax, Inc. — Q1 FY2017 Form 10-Q
Reporting period: Three months ended December 31, 2016; comparisons are to the three months ended December 31, 2015 unless noted. Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context
MarineMax is a recreational boat and yacht retailer, also providing brokerage, service, parts, storage, charter, financing, insurance, and extended-service products. It reported 56 retail locations in 16 states at December 31, 2016; MD&A separately says it had 62 locations in 17 states as of the filing date. The quarter is seasonally softer in many markets, typically with higher inventory and floor-plan borrowings.
Financial performance and liquidity
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $226.9 | $169.5 |
| Gross profit / margin | $53.1 / 23.4% | $41.6 / 24.5% |
| Operating income | $6.0 | $2.7 |
| Interest expense | $1.6 | $1.2 |
| Net income | $2.6 | $0.7 |
| Diluted earnings per share | $0.11 | $0.03 |
| Cash used in operating activities | $43.2 | $55.6 |
- Revenue grew 33.8%; comparable-store sales increased 27.9%, contributing $47.2 million of the increase, while stores outside the comparable-store base contributed approximately $10.1 million net.
- Gross profit rose 27.7%, but margin declined 1.1 percentage points. Management attributed the decline mainly to a higher proportion of lower-margin boat sales, including larger boats, versus brokerage, finance and insurance, service, parts, and storage.
- SG&A increased 20.9% to $47.1 million, but declined as a share of revenue to 20.8% from 23.0%, reflecting revenue growth, operating leverage, acquisitions, and higher performance-related compensation.
- At December 31, cash was $37.1 million, inventory $363.6 million, current assets $429.4 million, and current liabilities $268.2 million. Current ratio was approximately 1.60.
- Short-term inventory and working-capital borrowings were $213.5 million, with approximately $76.2 million of additional borrowing availability. The company reported no long-term debt and was in compliance with credit-facility covenants.
- Operating cash outflow primarily reflected inventory growth and seasonal declines in customer deposits and accrued expenses. Investing cash outflow was $3.6 million, mainly for facility improvements; financing cash inflow was $45.3 million, primarily from net borrowings.
Material changes and unusual items
- Net income increased to $2.6 million from $0.7 million; diluted EPS rose to $0.11 from $0.03. The prior-year tax provision was revised upward by $201,000 following adoption of stock-compensation accounting guidance; the filing reports a 40.9% effective tax rate for the current quarter and 52% for the prior-year quarter after that adjustment.
- Inventory increased to $363.6 million from $322.0 million at September 30, 2016, while short-term borrowings rose to $213.5 million from $166.6 million. Cash declined by $1.5 million during the quarter.
- The company repurchased 148,055 shares during November at an average $15.82 per share. The repurchase table also contains figures that appear inconsistent with the stated program authorization; see investor verification items below.
Outlook, risks, and contingencies
- No numerical earnings or revenue guidance was provided. Management said existing capital resources should fund operations for at least 12 months, except potentially for significant acquisitions, and intends to pursue acquisitions and new locations as economic conditions permit.
- The $300 million inventory financing facility matures in October 2019, subject to lender-approved extension options. Its rate is 345 basis points over one-month LIBOR; a hypothetical 100-basis-point rate increase would add approximately $2.1 million to annual pretax interest expense, based on quarter-end borrowings.
- Key risks include the cyclical, seasonal and weather-sensitive nature of recreational boating; discretionary spending and luxury-market exposure; reliance on manufacturer and dealer agreements; inventory aging and borrowing-base limits; and variable interest rates. Florida generated approximately 55% of fiscal 2016 revenue. New Brunswick boats accounted for approximately 40% of fiscal 2016 revenue.
- Management expects adoption of the new lease standard to materially increase reported assets and liabilities, largely from operating leases for retail locations. It did not expect the new revenue-recognition standard to have a material impact, subject to its continuing evaluation.
- The company reported ordinary-course legal matters and did not believe they would materially adversely affect financial condition, results, or cash flows. It reported no long-lived-asset impairment at December 31, 2016.
Important facts for investors to verify
- Reconcile the repurchase disclosure: it reports 148,055 shares bought at $15.82, but also shows 2,342,000 shares in the publicly announced-plan column despite a stated authorization of up to 1.25 million shares and 973,545 remaining.
- Clarify the location-count difference: 56 locations in 16 states at quarter-end versus 62 locations in 17 states as of the filing date.
- Monitor inventory levels, aging, seasonal cash use, floor-plan availability, covenant compliance, and interest-rate exposure.
- Assess whether the boat-sales mix and larger-boat transactions continue to pressure gross margin, and track the expected balance-sheet effect and implementation timing of lease accounting.