MarineMax, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2015; comparisons are to the corresponding 2014 periods. The filing is unaudited. MarineMax operates 54 retail locations in 16 states and sells boats and related products and services.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $231.8 million, up 8.1% from $214.4 million | $562.1 million, up 22.0% from $460.6 million |
| Comparable-store sales | Up 9.5% | Up 23.2% |
| Gross profit / margin | $57.0 million / 24.6%; prior year $54.2 million / 25.3% | $136.7 million / 24.3%; prior year $118.9 million / 25.8% |
| Operating income | $16.0 million; prior year $12.6 million | $19.0 million; prior year $9.3 million |
| Net income | $14.9 million; prior year $11.5 million | $15.5 million; prior year $6.2 million |
| Diluted earnings per share | $0.59; prior year $0.47 | $0.61; prior year $0.25 |
| Operating cash flow | Not presented for the quarter | $8.2 million; prior year $11.9 million |
Quarterly SG&A was $41.0 million, down 1.5%; nine-month SG&A was $117.7 million, up 7.4%. SG&A as a share of revenue declined to 17.7% from 19.4% for the quarter and to 20.9% from 23.8% for the nine months. Interest expense was $1.1 million for the quarter and $3.5 million year to date, both higher than the prior-year periods.
Financial position and liquidity
- At June 30, 2015, cash and cash equivalents were $47.4 million, inventories $257.6 million, total assets $444.5 million, and stockholders’ equity $258.8 million.
- Short-term borrowings were $137.4 million; the company reported no long-term debt. It had approximately $30.9 million of additional borrowing availability under its inventory financing facility and was in compliance with its covenants.
- The facility has a $235 million commitment, subject to borrowing-base availability, and matures in August 2017, with two possible one-year extensions subject to lender approval. Outstanding borrowings bear interest at 345 basis points above one-month LIBOR; the rate was approximately 3.6% at June 30.
- Year-to-date investing cash outflow was $3.3 million, primarily for property and equipment, partly offset by real-estate sale proceeds. Financing cash inflow was $14.7 million, including $13.0 million of net borrowings, partly offset by $1.9 million of share repurchases. Cash increased $19.6 million to $47.4 million.
Material changes and unusual items
- Revenue growth reflected comparable-store gains and boat sales: used boats were a key driver in the quarter, while new and used boat sales contributed to year-to-date growth. Store closures reduced reported revenue by approximately $2.8 million in the quarter and $4.2 million year to date.
- Gross margin declined as boat sales, including larger and traditionally lower-margin boats, made up a greater share of revenue; higher-margin brokerage, finance and insurance, service, parts, accessories, and storage represented a smaller share.
- Quarterly SG&A benefited from a $1.6 million gain on real-estate sales. Nine-month investing cash flow included $3.6 million of real-estate sale proceeds. A $6.0 million exchange of a note receivable for property and equipment was a non-cash transaction.
- Although the company reported net income, it recorded no income tax expense or benefit. It reported tax losses and maintained a full valuation allowance against deferred tax assets. Management said substantially all of the allowance might be reversed as early as September 30, 2015, if profitability and other evidence support realization; a reversal would result in an income tax provision.
Outlook, commentary, and risks
Management attributed comparable-store growth partly to improving economic and industry conditions, and said its retailing strategies and market-share gains could support future revenue and earnings potential. It plans to accelerate growth through acquisitions and new-store openings as conditions improve, but gave no quantified financial guidance. Management believed existing capital resources would fund operations for at least the next 12 months, except in the case of possible significant acquisitions.
- Results are exposed to the cyclical recreational boating market, consumer confidence and discretionary spending, and weather; the business is seasonal and has significant operations in Florida.
- Boat inventory levels and aging affect working-capital needs and borrowing-base availability. The company relies on its inventory facility, which is secured by substantially all personal property, and access could be affected by lender capacity, credit conditions, or covenant compliance.
- A 100-basis-point increase in rates on the June 30 short-term debt balance would increase annual pre-tax interest expense by approximately $1.4 million, assuming no mitigating actions or additional manufacturer interest assistance.
- Foreign-currency movements can affect the cost and competitiveness of products sourced from European and Chinese manufacturers; the company was not then using currency hedges.
- Manufacturer and dealer agreements, particularly for prominent brands, and inventory valuation are additional risks. Management reported no long-lived-asset impairment and said ordinary-course legal matters were not expected to have a material adverse effect.
Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal controls reported during the quarter. The filing notes that controls cannot provide absolute assurance.
Important facts for investors to verify
- Whether sales growth and comparable-store momentum continue, and whether the sales mix keeps pressuring gross margins.
- Whether operating cash generation improves, given year-to-date cash flow declined despite higher net income and inventory and receivables increased.
- Inventory quality, aging, and borrowing-base availability, including the company’s capacity to meet facility curtailments and covenants.
- Whether the deferred-tax-asset valuation allowance is reversed and the resulting income-tax provision and earnings impact.
- Whether the real-estate gain is nonrecurring and how future facility investment, acquisitions, and repurchases affect liquidity and returns.