MarineMax, Inc. (HZO)
F3Q10 Earnings Conference Call
July 29, 2010 10:00 AM ET
Kate Messmer – IR
Mike McLamb – EVP, CFO and Secretary
Bill McGill – Chairman, President and CEO
James Hardiman – Longbow Research
Joe – Raymond James
Pete Mahon – Dougherty
Tim Conder – Wells Fargo
Steve Bowman (ph) – Divistar Capital
Dan Mendoza – Prospect Capital Advisors
Good day everyone and welcome to the MarineMax Incorporated third quarter fiscal 2010 earnings conference call. Today’s call is being recorded.
At this time for opening remarks and introductions, I would like to turn the conference over to Ms. Kate Messmer with ICR. Please go ahead.
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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?
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 risks and 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.
Thank you, Mike and good morning everyone. I am pleased to report that MarineMax was profitable for the quarter albeit a slight profit. Given the continued soft economy and the weak consumer confidence, I am proud of our team for delivering profits on such low volumes. As a result of the progress we made over the past year and a half against our key initiatives, we were able to achieve profitability on a low level revenue that we have ever experienced in our history.
Our focus over the past two years has been centered on three main areas. First, lowering our inventory substantially, which has now put us on a position to be able to report higher boat margins. Second, meaningfully reducing our cost structure through a dramatic store count reduction from 93 to 56 locations and scrutinizing every area of expenditures in our business. And third, our long-standing but increased efforts towards growing our service, parts, storage, brokerage and F&I components of our business, all of which generate much higher margins than boat sales. The increasing margins on our core products namely boats and the expansion of our higher margin businesses as a result of our sales allowed us to report the highest quarterly margin we have ever reported. This combined with the expense reductions we have made allowed us to report a slight profit in the quarter.
Our inventory levels now stand at approximately $180 million, which is down from approximately $550 million at our peak. Overall industry levels and the industry are also much better aligned with demand allowing for a more stable pricing environment supported of improving gross margins.
Our aging has also dramatically improved and we were able to keep our inventory levels very low even with our same stores sales decline. Our inventory did increase modestly on a sequential basis as we wanted to make sure that we keep our inventory fresh by introducing select new models to our product offering.
We have been producing healthy gross margins on sales of newer miles of boats, which is encouraging. While boat margins are still below the levels we typically achieved before the current recession, they have moved steadily up this year.
We have spoken before about the negative impact of repossessed boats and dealer failures on the gross margins, while the industry is still experiencing higher than historical levels of repo boats, the level in the marketplace has improved greatly, which has also helped to improve margins.
Another key area of focus for us is expenses. Last year we took the necessary steps to streamline our store count remove other expenses from our cost structure in order to lower our overall cost. This in turn has allowed us to report three quarters in a row of SG&A expenses in the $30 million to $32 million range excluding the debt write-off cost this quarter. While some of our variable cost 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 margins when sales recover.
We continue to monitor our cost structure very closely looking for additional opportunities to reduce cost and improve processes helping to keep our expenses at low levels. I will add that the 56 stores we operate today produced in excess of $1 billion in revenue in the years 2006 and 2007. This fact combined with the dealer failures and the incident that the industry has experienced and the tough wholesale financing market, which is expected to continue should enable us to grow our business substantially without adding to the store count as revenues increase.