MarineMax, Inc. — Form 10-Q Summary
Business and period: The filing covers the quarter and six months ended March 31, 2013, the second quarter of fiscal 2013. MarineMax is a U.S. recreational boat retailer operating 55 locations in 18 states, with related service, brokerage, financing, insurance, parts and storage businesses. Results are unaudited.
Key financial results
| Metric | Three months ended Mar. 31, 2013 | Six months ended Mar. 31, 2013 |
|---|---|---|
| Revenue | $160.0 million, up 11.1% | $259.1 million, up 9.9% |
| Gross profit / margin | $37.7 million / 23.5% | $63.9 million / 24.7% |
| Operating income (loss) | $1.6 million | $(1.6) million |
| Net income (loss) | $0.3 million; $0.01 per diluted share | $(3.8) million; $(0.17) per share |
| Interest expense | $1.2 million | $2.2 million |
| Operating cash flow | Not presented for quarter | $(6.4) million |
At March 31, 2013, cash was $30.1 million, inventory $230.7 million, and current assets $286.0 million against current liabilities of $190.9 million (current ratio approximately 1.50). Short-term borrowings were $141.1 million; the company reported no long-term debt. It had approximately $24.3 million of additional borrowing availability under its inventory facilities and was in compliance with facility covenants.
Changes and drivers
- Comparable-store sales rose 11.8% in the quarter and 10.5% for the six-month period, driven by new and used boat sales and growth in finance and insurance, parts, accessories and service. Management cited improving economic and industry conditions, partly offset by poor weather and Hurricane Sandy’s lingering effects in northern markets.
- Gross margin declined from 23.9% to 23.5% for the quarter and from 25.4% to 24.7% for six months, primarily because sales shifted toward larger, generally lower-margin yachts.
- Quarterly SG&A rose 16.4% to $36.1 million, faster than revenue, increasing SG&A to 22.6% of revenue from 21.5%. Six-month SG&A rose 10.0% to $65.5 million, with its revenue share approximately unchanged at 25.3%. Drivers included sales commissions, insurance costs and promotional spending.
- Six-month operating cash use reflected a $13.6 million inventory increase, partly offset by a $9.7 million increase in customer deposits. Investing cash use was $9.6 million, including $4.6 million for an acquisition and $6.6 million for property and equipment, partly offset by insurance proceeds. Financing cash provided was $22.5 million, mainly from increased short-term borrowings.
Outlook, risks and unusual items
- Management gave no quantified earnings or revenue guidance. It said it expects its retailing strategies and market-share gains to support future revenue and intends to resume acquisitions and new-store growth when economic conditions normalize; these are forward-looking expectations, not assurances.
- The business is seasonal and sensitive to weather, discretionary consumer spending, economic conditions and access to customer financing. Inventory aging reduces borrowing-base availability, and the company depends on floor-plan facilities to finance inventory.
- Borrowings carry variable LIBOR-linked rates. Management estimated that a 100-basis-point rate increase would add about $1.4 million of annual pretax interest expense, based on the March 31 balance and stated assumptions. Foreign-currency movements may also affect imported product costs and sales.
- The company fully reserved its net deferred tax asset because of recent earnings and industry trends. The six-month period included $0.4 million of Hurricane Sandy insurance gains in operating cash-flow adjustments; related damage costs were largely offset by insurance proceeds.
- A lawsuit by former shareholders alleges breach of contract and seeks damages exceeding $10 million. Fraud claims were dismissed; MarineMax denied liability and believed the remaining claim would not materially affect its financial condition, results or cash flows. Management reported no material long-lived-asset impairment and effective disclosure controls.
Investor verification points
- Check whether comparable-store sales growth translates into improved operating profitability, given lower gross margins and higher quarterly SG&A.
- Monitor inventory levels, cash conversion, customer deposits, borrowing-base availability and compliance with facility covenants.
- Review the company’s exposure to variable interest rates, seasonal demand, adverse weather and consumer-credit conditions.
- Track the outcome and potential exposure of the remaining shareholder lawsuit, and assess the assumptions supporting the full deferred-tax-asset valuation allowance.
- Confirm whether planned acquisition and store-opening growth proceeds and whether management’s expected revenue improvement materializes.