MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2011; comparative period is the three months ended December 31, 2010. Unaudited consolidated results. Dollar amounts below are in millions unless stated otherwise.
Business context
MarineMax is a U.S. recreational boat retailer, with 54 retail locations in 19 states and MarineMax Vacations in the British Virgin Islands. It sells new and used boats and related products and provides service, brokerage, financing, insurance, and storage offerings. New Brunswick boats represented about 48% of fiscal 2011 revenue.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Revenue | $91.8 | $92.2 |
| Gross profit / gross margin | $25.6 / 27.9% | $23.6 / 25.6% |
| SG&A / percentage of revenue | $28.6 / 31.1% | $27.4 / 29.8% |
| Operating loss | $(3.0) | $(3.9) |
| Interest expense | $1.2 | $0.8 |
| Net loss / loss per share | $(4.2) / $(0.19) | $(4.7) / $(0.21) |
| Operating cash flow | $(16.2) | $0.6 |
| Investing cash flow | $(1.1) | $(0.9) |
| Financing cash flow | $11.7 | $1.1 |
Revenue declined 0.4%; comparable-store sales increased 2.4%, partly offset by a $2.5 million impact from stores outside the comparable-store base. Management attributed comparable-store growth to new boats, brokerage, finance and insurance, and service, parts and accessories, partly offset by lower used-boat sales. Gross margin improved with higher margins across product categories and a larger contribution from higher-margin activities. The prior-year quarter included a favorable $0.7 million inventory-repurchase resolution that benefited gross margin; it also included a $0.7 million receivables benefit that reduced SG&A. Higher interest expense reflected increased inventory-related borrowings.
Liquidity, debt and balance sheet
- At December 31, cash was $13.8 million, inventories were $224.7 million, and total assets were $363.1 million.
- Short-term borrowings were $130.2 million; the company reported no long-term debt. It had approximately $38.9 million of additional borrowing availability, subject to borrowing-base limits.
- Current assets were $260.5 million and current liabilities $165.6 million. The implied current ratio is approximately 1.57, compared with the facility covenant minimum of greater than 1.2; the company reported compliance with its credit-facility covenants.
- Cash fell $5.6 million during the quarter. Operating cash use primarily reflected inventory growth and seasonal declines in accounts payable and accrued expenses; financing inflows were mainly additional short-term borrowings.
- The company’s amended GE facility provides up to $150 million and matures in June 2014; the CGI facility provides a $30 million commitment and was extended through August 31, 2012. Both are inventory financing facilities with variable LIBOR-based rates.
Outlook, risks and unusual items
- No quantitative earnings or revenue guidance is provided. Management said it expects its retailing strategies and actions to address weak market conditions to support future revenue and market-share gains, and plans to resume acquisitions and store openings when economic conditions improve. These are forward-looking expectations, not assured outcomes.
- Management described continued weak consumer spending and tight customer credit as adverse to results. The business is cyclical and seasonal, with generally lower sales and higher inventory and borrowings in the December and March quarters outside Florida; weather can also affect demand and operations.
- Credit access and variable interest rates are material risks. The filing estimates that a 100-basis-point increase in rates on quarter-end short-term debt would add about $1.3 million to annual pretax interest expense, assuming no mitigating actions. The company was not then using foreign-currency hedges.
- Inventory valuation allowance rose from $3.4 million at September 30 to $4.0 million at December 31. Management reported no long-lived-asset impairment for fiscal 2012 to date. Deferred tax assets were fully reserved, and the quarter had no income tax expense or benefit.
- A lawsuit filed January 26, 2012 by former shareholders seeks damages exceeding $7 million over alleged delays in lifting stock-transfer restrictions. The company considers the case without merit and does not expect a material adverse effect.
- Management reported disclosure controls and procedures effective at the reasonable-assurance level and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether inventory levels, aging, and seasonal sell-through support the $224.7 million inventory balance and the related borrowing base.
- Available facility capacity and covenant headroom, including the effects of inventory curtailments, LIBOR changes, and facility terms or extensions.
- Whether gross-margin improvement and comparable-store growth persist after considering the prior-year favorable items and higher SG&A.
- The potential effect of the shareholder lawsuit and any developments in the case.
- Whether continued weak consumer demand, customer financing conditions, weather, or manufacturer concentration materially affect sales and liquidity.