MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2020. Financial statements are unaudited. Unless noted otherwise, amounts below are in millions of dollars.
Business context
MarineMax is a U.S. recreational boat and yacht retailer, with 59 retail locations in 16 states at quarter-end. It also operates brokerage, service, storage, financing and insurance-related activities, yacht charters, and Fraser Yachts. The company completed the acquisition of marine software developer Boatyard in February 2020.
Financial performance
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue | 2020: $308.5; 2019: $303.6, up 1.6% | 2020: $612.6; 2019: $545.5, up 12.3% |
| Gross profit / margin | $78.8 / 25.5%; prior year $74.2 / 24.4% | $158.8 / 25.9%; prior year $137.7 / 25.2% |
| Operating income | $9.7; prior year $10.2 | $25.3; prior year $19.2 |
| Net income | $5.1; prior year $5.3 | $14.1; prior year $10.2 |
| Diluted EPS | $0.23; prior year $0.23 | $0.64; prior year $0.44 |
| Operating cash flow | Not separately reported for the quarter | $(18.6); prior year $(62.2) |
Quarterly gross margin improved, but higher SG&A—up 7.9%—contributed to lower operating income and net income. Management attributed the quarterly SG&A ratio increase to revenue being lower than expected as COVID-19 impacts emerged, and higher SG&A dollars primarily to acquisitions. For the six months, comparable-store sales rose 11.6%; revenue and gross profit growth reflected boat sales and higher-margin businesses, including Fraser Yachts.
Six-month operating cash use improved from the prior year, but remained negative, principally reflecting inventory investment and lower accounts payable. Investing cash use was $5.1; financing provided $49.6, mainly from net borrowings. Cash increased $25.9 to $64.4 during the six months.
Liquidity, debt and balance sheet
- At March 31, cash was $64.4, inventory $506.9, current assets $616.5 and current liabilities $446.4.
- Short-term borrowings were $362.9, up from $312.1 at September 30, 2019; the company reported no long-term debt. Additional borrowing availability under the inventory facility was approximately $26.3.
- The amended floor-plan facility provides commitments up to $440.0, subject to borrowing-base availability, and matures in October 2022, with two one-year extensions subject to lender approval. The company reported compliance with its covenants at quarter-end.
- Operating lease liabilities totaled $42.5. Adoption of the lease accounting standard in October 2019 added approximately $44.0 of lease liabilities and $42.1 of right-of-use assets.
Outlook, risks and unusual items
- COVID-19 prompted temporary closures of certain locations or departments, cost-saving measures, reduced manufacturer orders, delayed or reduced capital spending, and furloughs. Many stores were fully or partly operational by the filing date; the company also described virtual appointments and private showings.
- Management could not determine the pandemic’s eventual magnitude or duration. It stated that existing capital resources and cash generated from sales were expected to meet liquidity and capital requirements for at least 12 months, except for possible significant acquisitions.
- Management cited seasonality, weather, discretionary consumer spending, manufacturer and product concentration, and access to inventory financing as risks. A 100-basis-point increase in variable borrowing rates was estimated to add approximately $3.6 of annual pretax interest expense, based on quarter-end debt.
- The company increased its inventory valuation allowance from $2.2 at September 30, 2019 to $3.9 at March 31, 2020. It reported no long-lived-asset impairment and concluded a quantitative goodwill impairment test was not required at quarter-end.
- In March, the company repurchased 60,236 shares at an average $7.83 per share under a new authorization for up to 10 million shares through March 31, 2022.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect. No quantified earnings or revenue guidance was provided.
Important facts for investors to verify
- How post-quarter COVID-19 developments affected store operations, demand, comparable sales and cash generation.
- Whether inventory levels, borrowing-base availability and covenant headroom remain adequate as inventory ages and sales change.
- Whether the company’s 12-month liquidity expectation remains supportable, including the effects of capital actions and any acquisitions.
- How gross-margin gains from higher-margin businesses compare with ongoing SG&A, acquisition and financing costs.
- Whether inventory valuation allowances, goodwill and other asset valuations require revision as economic conditions evolve.