MarineMax, Inc. (HZO)

HZO 
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Marinemax, Inc. (HZO)

F2Q10 (Qtr End 03/31/10) Earnings Call Transcript

April 28, 2010 10:00 am ET

Executives

Kate Messmer – IR

Mike McLamb – EVP, CFO and Secretary

Bill McGill – Chairman, CEO, and President

Analysts

Hayley Wolff – Rochdale Securities

Greg McKinley – Dougherty

Ed Aaron – RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the MarineMax Incorporated second quarter fiscal 2010 earnings conference call. One note that today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Kate Messmer with ICR. Please go ahead.

Kate Messmer

Thank you, Operator. Good morning everyone and thank you for joining this discussion of MarineMax's 2010 fiscal second quarter results. I'm 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 would 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 would like to turn the call over to Bill.

Bill McGill

Thank you Mike and good morning everyone. The results of our team’s efforts over the past year to substantially reduce our inventory levels and improve its aging, rationalize our store count, reduce our overall expense structure, were all evident in our March quarter as our net loss and balance sheet improved significantly compared to the prior year.

From a top line standpoint, we were hoping to continue our first quarter trend of positive same-store sales. While we do believe we took additional market share we did face the challenges of unfavorable weather in many of our markets that dampened our results, as well as the continued softness in the overall industry demand.

As you may have seen, some industry sources indicate that unit sales were down in the 20% range for January and February. While our boat shows were generally encouraging during that time, the data suggest that the marine industry recovery is likely to be gradual.

From a positive standpoint, we've been able to produce more consistent gross margins now that our inventory levels and those of the industry have come down substantially. In that regard, the industry is in much better shape than a year ago.

Inventory aging has dramatically improved and a good portion of our sales were from more current products which carry higher gross margins. Thus for each incremental sale, we are generating more gross profit dollars than we were in prior quarters when we had to sacrifice our margins to drive revenue as we reduced inventory.

Even with our same-store sales under pressure, we were able to further reduce our inventory levels in the March quarter when compared to the December quarter and the prior year. Normally as we prepare for the summer selling season inventory builds in the March quarter, but our efforts to tightly manage inventory have allowed us to make further progress in reducing during the quarter.

Along with more stable gross margins and lean inventories, we reported another sizable reduction in our expenses. Last year, we took the necessary steps to streamline our store count and removed other expenses from our cost base, and this in turn has allowed us to reduce our SG&A expenses to approximately $30 million run rate for the past two quarters.

We are continuing to carefully review every line item and expenditure to keep our costs down and reduce them where we can. While some of our variable costs will come back as sales return, many of the initiatives that we implemented to reduce our cost structure are sustainable and should allow us to achieve higher operating margins as sales recover.

We now operate with 56 stores compared to 93 in the peak of 2007. We believe we are positioned to drive more business through each of the stores, better leveraging the fixed cost base of each location. With the failure of competitive dealers in our industry, we are seeing customers willing to travel further to our existing stores without the need for the secondary locations we had in the past.

We believe that our current footprint in our markets will be sufficient for growth as the ability of new dealers to be added is made more difficult by the tough wholesale credit environment and the recent trend from banks to require more equity be invested in the inventory for all dealers.

Industry reports are that approximately 1,400 marine dealers had failed in the past 18 months. With the many failures, the glut of the repossessed new boats has presented a challenge to us from a sales and margin perspective. The good news is that we right-sized our inventories and the repossessions are drying up as evidenced by our margin improvement.

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