MarineMax, Inc. (HZO)

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Marinemax (HZO)

Q4 2010 Earnings Conference Call

November 4, 2010 10:00 am ET


Kate Messmer – Investor Relations

William McGill – Chairman, President, CEO

Michael McLamb – Chief Financial Officer


James Hardiman – Longbow Research

Gregory Mckinley – Dougherty & Company LLC

Michael Fox –Park City Capital



Good day everyone and welcome to the MarineMax Incorporated fourth quarter 2010 earnings conference call. Today’s call is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to Miss Kate Messmer from ICR, please go ahead ma’am.

Kate Messmer

Thank you, Operator. Good morning everyone and thank you for joining this discussion of Marinemax's 2010 fourth quarter and fiscal year 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?

Michael 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 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.

William H. McGill Jr.

Thank you Mike and good morning everyone. Trends in the boating industry remain challenging as noted in recent industry reports and reflected in our fourth quarter results. After dropping sharply in June, consumer confidence has been choppy, declining significantly in September and remaining relatively weak in October.

We keep hearing from prospective buyers that they are hesitant to make a major purchase until they gain more confidence that the economy is improving. They are boating more with their families and enjoying the boating lifestyle but they need to be more comfortable about the economy and security of their individual job or business before making a purchase.

Our fourth quarter sales proved to be disappointing and challenging especially given the importance of the quarter to many of our seasonal markets. Our team worked very hard in the face of consumer confidence and for their extra efforts and dedication to our customers I thank them.

Given this backdrop, we continue to carefully control our inventory levels and aging. The aging of our inventory continues to improve as evidenced by our margins. Considering industry conditions, we have reduced our near-term incoming boat purchases to ensure our level of inventory remains in line with what we are seeing at retail.

As we previously communicated, we have shifted to a three-times-a-year ordering process with our major manufacturers to provide us with more flexibility at matching purchases with retail activity. When we see retail pick up in a sustained fashion we will increase our orders.

Our focus on inventory aging allowed us to report another quarter of solid margins in the mid 20% range. Recall that last year in the fourth quarter we ran a companywide initiative to dramatically reduce our inventory levels which significantly impacted our gross margins. So while our sales were down significantly this quarter compared to last year, our gross margin profit was actually more than two and a half times greater.

Our overall gross margin this quarter was not as high as in the June quarter. However, the underlying product margins on the boats we sold are barely comparable. This quarter we had a higher mix of boat revenue driven by larger boat sales and as you may recall, larger boat sales generally carry a lower gross margin. This mix [shelf] is a primary cause of the margin decline for the June quarter.

We had discussed before the negative impact of repossessed boats and dealer values on gross margins throughout the industry. While the industry level of repo boats has moderated substantially, if a large number of dealer affairs occurred this winter, we could experience near-term gross margin pressure but clearly it would help our long-term competitive position and further market share gains.

Our last year inventory levels stood at approximately 189 million which is down from approximately 550 million in our peak and even down from the 206 million level that we achieved in the prior year following our big inventory reduction push.

On a sequential basis, inventories were up a little which is why one of the reasons we reduced incoming boats as I mentioned earlier. From an indiscrete perspective, inventory levels are better aligned with demand than last year and we believe that other dealers have also rationed down their purchases which should continue to support a lower level of inventory in the [chart].

Moving on to expenses, we are [narrowing] back to equity compensation expense and removing the costs associated with stores that we closed, our expenses are down significantly from the prior year. They are also down as a percentage of revenue from the turns of the last few quarters but upsizing in dollars.

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