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2009 second quarter highlights:
-- Earnings per share were $1.46, compared to $0.20 for the same period last year which included $0.72 per share of non-recurring, non-cash charges.
-- Net revenues were $215.4 million, a decrease of 5.0% compared to last year. Comparable store sales decreased 1.0%.
-- Income before taxes was $32.3 million, a $5.5 million increase compared to the same period last year.
-- Selling, general and administrative ("SG&A") expense decreased $8.4 million, or 17.2%, compared to last year.
-- Cash from operating activities year-to-date was $45.3 million, an increase of $29.0 million compared to last year.
-- Long-term debt at quarter-end was $18.0 million, a decrease of $33.0 million, or 64.7%, compared to the same period last year.
-- Credit facility availability was more than $115.0 million at quarter-end.
Geoff Eisenberg, West Marine's CEO, commented:
"We are extremely pleased with our operating results for the second quarter. Our profitability and cash flow increased significantly, and we dramatically lowered debt.
"While the boating industry overall has continued to struggle, we believe we've benefited from an uptick in boat usage in many markets, a movement towards more "do-it-yourself" projects, and very good Customer acceptance of our product line expansions. We've also been positively impacted by the demise of a large competitor.
"New boat manufacturing and sales have been soft, and that has had an adverse effect on our Port Supply (wholesale) division. But the relative strength in retail, which has been better than we anticipated, positively impacted our results.
"Our Associates have performed incredibly well, and while productivity increases have positively impacted our financial results, we are equally excited about our progress towards providing exceptional service to Customers.
"All of our key strategies (from optimizing real estate with larger, more dominant stores to expanding our West Marine brand merchandise) are multi-year initiatives, but the initial results give us confidence that we're on the right course."
2009 second quarter results
Net revenues for the thirteen weeks ended July 4, 2009 were $215.4 million, a 5.0% decrease compared to net revenues of $226.7 million for the thirteen weeks ended June 28, 2008. Comparable store sales declined 1.0% versus the same period a year ago. Comparable store sales for the second quarter 2009 benefited by $8.4 million, or 4.2%, because of a favorable fiscal calendar shift from fiscal year 2008. West Marine's sales typically build week-over-week leading up to the peak of boating season, and the fiscal calendar shift meant there were more peak season days (including the July 4th holiday) in the second quarter of this year, which benefited comparable store sales.
Gross profit for the thirteen weeks ended July 4, 2009 was $73.1 million, a decrease of $5.3 million compared to 2008. As a percentage of net revenues, gross profit decreased by 0.7% to 33.9% compared to gross profit of 34.6% last year. The decrease in gross profit as a percentage of revenues primarily resulted from higher unit buying and distribution costs given the reduced inventory levels. Additionally, we experienced deleveraging of store occupancy due to lower revenues and the relatively fixed nature of these expenses.
SG&A expense for the quarter was $40.5 million, a decrease of $8.4 million, or 17.2%, compared to $48.9 million for the same period last year, and expenses as a percentage of revenues decreased by 2.8% to 18.8%. Drivers of the expense savings include: a $4.7 million decrease in selling and support overhead and a reduction in costs related to the recently-settled SEC investigation; and a $3.3 million reduction in payroll, marketing and other variable expenses reflecting lower revenues.
There were no impairments in the second quarter of the year versus $1.9 million last year in impairment charges for 32 stores.
Interest expense in the second quarter of 2009 was $0.3 million, a decline of $0.5 million from last year due to lower interest rates and reduced debt levels.
Income tax benefit for the second quarter was $0.2 million. A full valuation allowance was taken against our net deferred tax assets during this same period last year. The impact of the valuation allowance this year keeps our effective tax rate close to zero.
Earnings per share for the second quarter were $1.46 as compared to $0.20 last year. Last year's earnings included charges on a per share basis of $0.66 for the valuation allowance and $0.06 for asset impairments. The remainder of the increase was primarily due to lower SG&A expense and a favorable change in effective tax rates.
2009 year-to-date results
Net revenues for the twenty-six weeks ended July 4, 2009 were $316.3 million, a 6.9% decrease compared to net revenues of $339.9 million for the twenty-six weeks ended June 28, 2008. Comparable store sales declined 2.9% versus the same period a year ago. Comparable store sales for the first half of 2009 benefited by $13.3 million, or 4.4%, from the fiscal calendar shift described above.
Gross profit for the twenty-six weeks ended July 4, 2009 was $95.0 million, a decrease of $5.9 million compared to 2008. As a percentage of net revenues, gross profit increased by 0.3% to 30.0% compared to gross profit of 29.7% last year. The increase in gross profit as a percentage of revenues primarily resulted from better product margins due to a reduction in promotional and clearance activity, and a shift in sales mix to higher margin product categories, which was partially offset by higher unit buying and distribution costs and deleveraging of store occupancy costs on lower revenues.
SG&A expense for the first six months was $77.4 million, a decrease of $18.3 million, or 19.1%, compared to $95.7 million for the same period last year, and expenses as a percentage of revenues decreased by 3.7% to 24.5%. Drivers of the expense savings included: a $9.3 million decrease in selling and support overhead and a reduction in costs related to the recently-settled SEC investigation; a $7.0 million reduction in payroll, marketing and other variable expenses reflecting lower revenues; and a $2.8 million reduction related to closed stores.
There were no impairments this year versus a non-cash impairment charge last year of $2.2 million related to 36 stores.
Interest expense for the first six months was $0.6 million, a decline of $1.0 million from last year due to lower interest rates and reduced debt levels.
Our income tax provision, driven by state taxes, was $0.2 million for the first six months of the year.
Cash generated by operating activities during the first six months of the year was $45.3 million, which was 178% higher than the corresponding period last year due to increased net income and efficient inventory management.
WEBCAST AND CONFERENCE CALL
As previously announced, West Marine will hold a conference call and webcast on Thursday, July 30, 2009 at 9:00 AM Pacific time to discuss second quarter 2009 results. The live call will be webcast and available in real time on the Internet at www.westmarine.com in the "Investor Relations" section. The earnings release will also be posted on the Internet at www.westmarine.com in the "Press Releases" section on the Investor Relations page. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast.
Interested parties can also connect to the conference call by dialing (800) 341-6235 in the United States and Canada and (706) 634-1041 for international calls. Please be prepared to give the conference ID number 21526070. The call leader is Geoff Eisenberg, West Marine's President and Chief Executive Officer.
An audio replay of the call will be available July 30, 2009 at 11:30 AM Pacific time through August 6, 2009 at 8:59 PM Pacific Time. The replay number is (800) 642-1687 in the United States and Canada and (706) 645-9291 for international calls. The access code is 21526070.
ABOUT WEST MARINE
West Marine, the largest specialty retailer of boating supplies and accessories, has 342 company-owned stores located in 38 states, Puerto Rico and Canada and two franchised stores located in Turkey. Our call center and Internet channels offer customers approximately 50,000 products and the convenience of exchanging catalog and Internet purchases at our store locations. Our Port Supply division is one of the largest wholesale distributors of marine equipment serving boat manufacturers, marine services, commercial vessel operators and government agencies. For more information on West Marine's products and store locations, or to start shopping, visit westmarine.com or call 1-800-BOATING (1-800-262-8464).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements concerning statements that are predictive or express expectations that depend on future events or conditions that involve risks and uncertainties. These forward-looking statements include, among other things, expectations relating to our financial results and our ability to effectively execute on our key initiatives, control operating expenses, and improve cash flows and our balance sheet in continued challenging market and industry conditions, as well as facts and assumptions underlying these expectations. Actual results may differ materially from the preliminary expectations expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors, including those set forth in West Marine's annual report on Form 10-K for the fiscal year ended January 3, 2009. Except as required by applicable law, West Marine assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.
West Marine, Inc.
Condensed Consolidated Balance Sheets
(Unaudited and in thousands, except share data)
July 4, 2009 June 28, 2008
ASSETS
Current assets:
Cash $ 17,691 $ 12,422
Trade receivables, net 8,521 9,876
Merchandise inventories 229,278 277,063
Other current assets 17,575 22,170
Total current assets 273,065 321,531
Property and equipment, net 57,183 64,539
Intangibles, net 135 173
Other assets 3,159 3,243
TOTAL ASSETS $ 333,542 $ 389,486
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,024 $ 65,569
Accrued expenses and other 49,058 51,815
Total current liabilities 98,082 117,384
Long-term debt 18,000 51,000
Deferred rent and other 9,758 8,328
Total liabilities 125,840 176,712
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares authorized; no - -
shares outstanding
Common stock, $.001 par value: 50,000,000 shares authorized; 22 22
22,251,565 shares issued and 22,220,675 shares outstanding at July
4, 2009; and 22,049,113 shares issued and 22,021,541 shares
outstanding at June 28, 2008.
Treasury stock (385 ) (366 )
Additional paid-in capital 175,581 172,427
Accumulated other comprehensive income (loss) 397 (266 )
Retained earnings 32,087 40,957
Total stockholders' equity 207,702 212,774
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 333,542 $ 389,486
West Marine, Inc.
Condensed Consolidated Statements of Operations
(Unaudited and in thousands, except per share data)
13 Weeks Ended
July 4, 2009 June 28, 2008
Net revenues $ 215,371 100.0 % $ 226,681 100.0 %
Cost of goods sold 142,278 66.1 % 148,270 65.4 %
Gross profit 73,093 33.9 % 78,411 34.6 %
Selling, general and administrative expense 40,529 18.8 % 48,926 21.6 %
Store closures and other restructuring costs (26 ) 0.0 % - 0.0 %
Impairment of long lived assets - 0.0 % 1,897 0.8 %
Income from operations 32,590 15.1 % 27,588 12.2 %
Interest expense 302 0.1 % 762 0.4 %
Income before taxes 32,288 15.0 % 26,826 11.8 %
Provision (benefit) for income taxes (200 ) -0.1 % 22,385 9.8 %
Net income $ 32,488 15.1 % $ 4,441 2.0 %
Net income per common and common equivalent share:
Basic $ 1.46 $ 0.20
Diluted $ 1.46 $ 0.20
Weighted average common and common equivalent shares outstanding:
Basic 22,187 21,972
Diluted 22,234 21,985
26 Weeks Ended
July 4, 2009 June 28, 2008
Net revenues $ 316,336 100.0 % $ 339,944 100.0 %
Cost of goods sold 221,332 70.0 % 239,048 70.3 %
Gross profit 95,004 30.0 % 100,896 29.7 %
Selling, general and administrative expense 77,413 24.5 % 95,747 28.2 %
Store closures and other restructuring costs 51 0.0 % - 0.0 %
Impairment of long lived assets - 0.0 % 2,163 0.6 %
Income from operations 17,540 5.5 % 2,986 0.9 %
Interest expense 633 0.2 % 1,608 0.5 %
Income before income taxes 16,907 5.3 % 1,378 0.4 %
Income taxes 197 0.0 % 14,598 4.3 %
Net income (loss) $ 16,710 5.3 % $ (13,220 ) (3.9 )%
Net income (loss) per common and common equivalent share:
Basic $ 0.75 $ (0.60 )
Diluted $ 0.75 $ (0.60 )
Weighted average common and common equivalent shares outstanding:
Basic 22,152 21,933
Diluted 22,188 21,933
West Marine, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited and in thousands)
26 Weeks Ended
July 4, 2009 June 28, 2008
OPERATING ACTIVITIES:
Net income (loss) $ 16,710 $ (13,220 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 8,363 9,460
Impairment of store assets - 2,163
Impairment of long-lived assets - 54
Share-based compensation 1,187 1,083
Tax benefit from equity issuance - (89 )
Deferred income taxes (603 ) 14,568
Provision for doubtful accounts 245 215
Lower of cost or market inventory adjustments 1,646 1,662
Loss on asset disposals 122 119
Changes in assets and liabilities:
Trade receivables (2,942 ) (3,387 )
Merchandise inventories (8,323 ) (30,418 )
Other current assets (1,206 ) (701 )
Other assets (275 ) 194
Accounts payable 22,711 30,372
Accrued expenses and other 6,802 4,039
Deferred items and other non-current liabilities 830 153
Net cash provided by operating activities 45,267 16,267
INVESTING ACTIVITIES:
Purchases of property and equipment (6,401 ) (9,138 )
Proceeds from sale of property and equipment 16 21
Net cash used in investing activities (6,385 ) (9,117 )
FINANCING ACTIVITIES:
Borrowings on line of credit 34,595 51,303
Repayments on line of credit (63,595 ) (52,603 )
Proceeds from sale of common stock pursuant to Associates Stock 345 444
Buying Plan
Treasury shares acquired (19 ) (18 )
Proceeds from exercise of stock options 52 1
Net cash used in financing activities (28,622 ) (873 )
Effect of exchange rate changes on cash (42 ) 19
NET INCREASE IN CASH 10,218 6,296
CASH AT BEGINNING OF PERIOD 7,473 6,126
CASH AT END OF PERIOD $ 17,691 $ 12,422
Other cash flow information:
Cash paid for interest $ 645 $ 1,648
Cash paid (refunded) for income taxes 422 (2,462 )
Non-cash investing activities:
Property and equipment additions in accounts payable 94 435
SOURCE: West Marine, Inc.
West Marine, Inc. Tom Moran, 831-761-4229 Senior Vice President and Chief Financial Officer
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