MarineMax, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011. The filing also reports unaudited results for the quarter ended September 30, 2011. Figures are in U.S. dollars.
Business context
MarineMax operated 54 recreational-boat retail locations in 19 states. It sells new and used boats and provides service, storage, brokerage, financing and insurance-related products. New Brunswick boats generated approximately 48% of FY2011 revenue; Florida accounted for 50%.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $480.9 million | $450.3 million |
| Gross profit / margin | $119.5 million / 24.9% | $110.8 million / 24.6% |
| Operating loss | $8.4 million | $13.2 million |
| Net income (loss) | $(11.5) million | $2.5 million |
| Diluted EPS | $(0.52) | $0.11 |
| Cash from (used in) operating activities | $(14.7) million | $40.2 million |
Revenue rose 6.8%, including an 8% increase in comparable-store sales. Gross margin improved modestly, while the company returned to a net loss; FY2010 net income included a $19.2 million tax refund related to a tax-law change. FY2011 operating cash use primarily reflected a $28.7 million increase in inventory, partly offset by higher customer deposits and lower manufacturer receivables.
At September 30, 2011, cash was $19.4 million, working capital was $97.7 million, and current assets and liabilities were $260.0 million and $162.2 million, respectively. Short-term inventory and working-capital borrowings were $118.8 million, up from $93.8 million a year earlier; the company reported no long-term debt. It had approximately $53.2 million of additional borrowing availability and was in compliance with facility covenants. Inventory was $219.6 million, versus $188.7 million a year earlier.
For the September 2011 quarter, revenue was $119.8 million and net loss was $5.7 million, compared with revenue of $124.4 million and net loss of $1.8 million in the September 2010 quarter.
Material changes and management commentary
- Same-store sales increased 8% after declining 17% in FY2010. New-boat sales improved, while used-boat sales declined because fewer used boats were available.
- Gross margin increased to 24.9%, which management attributed primarily to improved industry inventory conditions and better boat-sale margins.
- Average new-boat selling price fell approximately 13% to $126,000. New boats represented 60.6% of revenue, versus 54.4% in FY2010; used boats represented 19.0%, versus 24.0%.
- SG&A rose 3.2% to $127.9 million, partly from higher sales commissions and boat-show marketing. FY2011 included about $750,000 of store-closing and lease-termination costs.
- Management said acquisitions and new-store openings remain strategic priorities but expects to resume growth through them when economic conditions normalize. It provided no specific FY2012 revenue or earnings guidance.
Risks, contingencies and unusual items
- MarineMax remains exposed to a weak, cyclical discretionary-spending market, tight customer credit, inventory markdowns, and seasonal and weather-related demand. Management cited manufacturer support, potential margin pressure and covenant compliance as concerns if economic weakness persists.
- Borrowings are variable-rate and inventory-secured; aging inventory can reduce borrowing availability. A hypothetical 100-basis-point rate increase was estimated to add approximately $1.2 million in annual pretax interest expense.
- Dependence on Brunswick is significant: approximately 48% of revenue came from new Brunswick boats, and the filing highlights dealer-agreement, product-supply and manufacturer-performance risks.
- The company recorded a full valuation allowance against net deferred tax assets, totaling $50.8 million at year-end. It reported ongoing environmental monitoring and remediation at certain properties, but did not believe identified environmental matters or ordinary-course litigation would materially affect results.
- The company reported effective disclosure controls and internal control over financial reporting; Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the 8% comparable-store sales increase and improved boat margins are sustainable, particularly given lower average selling prices and the weaker September quarter.
- Inventory quality, aging and turnover, and whether borrowing-base availability and facility covenants remain adequate as inventory and borrowings rise.
- Whether operating cash flow improves after the FY2011 inventory build and whether the reported $53.2 million borrowing availability remains accessible.
- How continued losses, the full deferred-tax-asset valuation allowance, and reliance on a concentrated set of manufacturers affect future profitability and growth.
- Progress toward any resumed acquisitions or store openings, and any changes in environmental remediation, legal contingencies or credit conditions.