MarineMax, Inc. (HZO)

HZO 
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MarineMax Inc. (HZO)

F4Q09 (Qtr End 09/30/09) Earnings Call Transcript

November 5, 2009 10:00 am ET

Executives

Kate Messmer – IR, ICR

Mike McLamb – EVP, CFO and Secretary

Bill McGill – Chairman, CEO and President

Analysts

Greg McKinley – Dougherty & Company

Ed Aaron – RBC Capital Markets

Presentation

Operator

Good day everyone and welcome to the MarineMax Incorporated fourth quarter fiscal 2009 earnings conference call. Today's call is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to Kate Messmer of ICR. Please go ahead.

Kate Messmer

Thank you, operator. Good morning everyone and thank you for joining this discussion of MarineMax's 2009 fiscal fourth quarter and year-end results. I am sure that you've all received a copy of the press release that went out this morning. But if you have not, please call Linda Cameron at 727-531-1700, and she will fax or e-mail one to you.

I would now like to introduce the management team of MarineMax, Bill McGill, Chairman, President and CEO; and Mike McLamb, CFO of the company. Management will make some comments and then will be available for your questions. Mike?

Mike McLamb

Thank you, Kate. Good morning, everyone, and thank you for joining this call.

Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined in the Private Securities Litigation Reform Act. These statements involve uncertainties that may cause actual results to differ materially from expectations. These risks include, but are not limited to the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.

With that in mind, I'd like to turn the call over to Bill.

Bill McGill

Thank you, Mike, and good morning everyone. As you saw in our press release this morning, we made substantial progress executing our planned strategy of reducing inventory levels during the September quarter. I am very proud of our team’s accomplishment. We believe better alignment with supply and demand as well as improved ageing of our inventory will be key factors in helping to restore profitability to MarineMax. As such, we launched and executed on a planned strategy to finish 2009 with much lower inventory levels and better ageing. While we believe that our inventory reduction in related sales undoubtedly led the industry, we also believe that inventory levels had come down substantially for all dealers and manufacturers, which is an important step towards improving the health of the marine industry in the overall pricing environment.

During the quarter, we drove inventory down almost 40% or $134 million from the June quarter. This is the largest sequential reduction to date and this resulted in a very large year-over-year reduction of $263 million or about 56%. The reduction of inventory allowed us to generate substantial cash flows from operations and drive a 41% increase in same-store sales. This is the first same-store sales increase we have reported in more than two years. We generated this increase in sales at a time when industry data is still suggesting decreased sales overall. As such, we believe we have taken market share during this challenged time period, which ultimately will yield future sales for MarineMax as incremental customers we have now added trade into larger and newer products.

As planned, we adopted an aggressive pricing strategy to drive sales and improve our inventory position as we took advantage of the enhanced flexibility under our amended credit agreement, which we discussed in our June quarter call. While this aggressive selling greatly impacted our gross margin for the quarter and our net loss, we believe it was the right strategy. Additionally, it is important to note that the pricing actions we took were largely on our older inventory, our inventory for brands that we no longer carry.

We believe that fresher, current products will lead to improved margins going forward. As an example, the 2009 Sea Ray that we sold during the September quarter had comparable margins to the 2008 that we sold in the September quarter of last year. This implies that we can earn solid margins with fresh, current products even in this environment by focusing on the MarineMax lifestyle of boating and less on price.

I don’t want to overstate our same-store sales growth because we are very aware that our pricing strategy, which is not sustainable drove the increase, but it is an encouraging sign. Don’t lose sight of the fact that our average unit-selling price typically exceeded $110,000. The fact that we were able to generate such an increase in same-store sales speaks to the willingness of customers to spend and perhaps to some initial signs of easing in this very tough environment that we have been operating in for the past two years.

Our second goal as we closed fiscal 2009 was to get our operating costs in line with the reduced level of business. Accordingly we closed an additional 11 stores during the quarter bringing us to a total of 55, which is down from 93 stores at peak. By and large, a high percentage of the stores that we closed were smaller locations where we have other stores in the general market area. We did however close our Northern California and Utah stores and are no longer in those markets. In both of these cases, the market had been so extremely hit by the economic softness, we felt it was prudent to focus our efforts and resources in markets that will have a greater potential for upside. In the future, we will evaluate these markets and consider reentering them if the long-term potential warrants. We believe that for the foreseeable future, the industry will be more focused on inventory ageing and improving inventory turns. As our sales gradually improved from an inventory capacity perspective, we may not need the same-store count as we had before.

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