West Marine reports mixed Q3 financial results
By Tom Kaiser
October 25, 2013
Filed under News
West Marine, the country’s largest specialty retailer of boating supplies and accessories, reported its third-quarter financial results showing pre-tax income down 23.2 percent compared to the same time last year.
For the period ending September 28, 2013, West Marine’s net revenues were $193.4 million, an increase of 0.7 percent compared to last year. Comparable store sales increased by 0.9 percent, partially due to using a new definition that now includes direct-to-consumer and wholesale sales channels.
The company reaffirmed its 2013 full-year pre-tax guidance, which predicts that its pre-tax income will be in the range of $15.5 million to $17.5 million, compared to pre-tax income of $24.3 million for 2013.
Matt Hyde, CEO of West Marine, bluntly said, “None of us are satisfied with this year’s results. This keeps us extremely focused on redirecting resources to higher-value work and investing to position West Marine to deliver steady, predictable, profitable growth.”
He continued by outlining the company’s plans to continue its expansion into ecommerce and repositioning the company into both a boat parts supplier and a lifestyle retailer.
“This repositioning is not a dramatic shift from the work we’ve been been doing for several years … what’s different is that we’re going to accelerate this evolution through our growth strategies.”
Beyond expanding its online retailing, West Marine has renovated a handful of stores to accommodate additional lifestyle products. The company is also working on a new website, as well as a new portal for its PortSupply.com business, which Hyde said is an outlet for growing the core products part of the company.
West Marine also opened three new flagship stores in Portland, Oregon, Virginia Beach, Virginia, and Newport Beach, California. Hyde said its Newport Beach location best exemplifies the company’s future retail strategies.
For the upcoming holiday season, the company is undergoing tests at 20 locations in an effort to increase holiday sales at large-format locations, but he added that the changes in these stores would likely not be enough to significantly impact the company’s overall 2013 performance.
From the release:
WATSONVILLE, Calif., Oct. 24, 2013 (GLOBE NEWSWIRE) -- West Marine, Inc. (Nasdaq:WMAR), the largest specialty retailer of boating supplies and accessories in the United States, today reported financial results for the third quarter ended September 28, 2013.
- Net revenues were $193.4 million, an increase of 0.7% compared to last year.
- Comparable store sales increased by 0.9%.
- Direct-to-Consumer sales were up 20.3%, driven by our strategic investments in eCommerce.
- Sales in our merchandise expansion categories (which include footwear, apparel, clothing accessories, fishing products and paddle sports equipment) were up 11.0%, with core usage-related product sales down 0.8%, compared to last year.
- Pre-tax income was $13.0 million, down 23.2% compared to pre-tax income of $17.0 million last year.
- The company is reaffirming its 2013 full-year pre-tax guidance, with pre-tax income expected to be in the range of $15.5 million to $17.5 million, compared to pre-tax income of $24.3 million for 2012.
- The company remained debt-free at quarter-end and has $105.9 million available on its revolving credit line at the end of the period.
Net revenues for the 13 weeks ended September 28, 2013 were $193.4 million, an increase of 0.7% compared to net revenues of $191.9 million for the 13 weeks ended September 29, 2012.
In line with our omni-channel focus, beginning in the first quarter, we changed the definition of comparable store sales to now include sales from our Direct-to-Consumer and wholesale channels. As before, store sales are included in comparable store sales in the fiscal period in which they commence their 14th full month of operations. Stores that were closed or substantially remodeled (i.e., resulting in an increase or decrease of 40% or more of selling square footage) are excluded. Using this new definition, comparable store sales for our third quarter increased by 0.9% over the same period last year. For the third quarter last year, we reported a 4.9% increase in comparable store sales. Using the new definition, our third quarter 2012 comparable store sales also increased by 4.9%.
Matt Hyde, West Marine's CEO, commented: "Sales showed modest improvement, driven primarily by higher growth from our strategies. During the third quarter we opened three Flagship stores, we achieved stronger sales in our merchandise expansion categories, and we experienced good momentum in our eCommerce business. These results reinforce our belief that we need to continue to invest in West Marine to deliver steady, profitable growth."
Net income for the third quarter was $6.3 million, or $0.26 per diluted share, compared to net income of $10.3 million, or $0.43per diluted share, for the third quarter last year. Excluding the impact of the $1.5 million valuation allowance recorded during the third quarter of this year, which resulted from a California tax law change, net income for the third quarter would have been $7.9 million, or $0.32 per diluted share.
Net revenues for the 39 weeks ended September 28, 2013 were $544.4 million, a decrease of 2.3% compared to net revenues of $557.0 million for the 39 weeks ended September 29, 2012. Comparable store sales decreased by 2.3% for the first nine months of 2013 versus the same period last year. For the first nine months last year, we reported a 3.5% increase in comparable store sales. However, using the new definition, our first nine months 2012 comparable store sales would have increased by 3.2%.
Net income for the first nine months was $19.7 million, or $0.80 per diluted share, compared to net income of $26.6 million, or$1.12 per diluted share for the first nine months last year.
Total inventory at the end of the third quarter was $222.2 million, a $9.1 million, or 4.3%, increase versus the balance at September 29, 2012, and a 3.3% increase on an inventory per square foot basis. Inventory turns for 2013 were down 0.6% versus the first nine months of last year.
We are reaffirming our expectation for pre-tax income to be in a range of $15.5 million to $17.5 million. Excluding the impact of a California tax law change that required us to record a valuation allowance of $1.5 million, our diluted earnings per share is expected to be in the range of approximately $0.37 to $0.42. Our GAAP diluted earnings per share is expected to be in the range of $0.31 to $0.36. Comparable store sales for full-year 2013 are anticipated to be down 2.0% to 4.0% (using our new definition for comparable store sales outlined above), with total revenues expected to be in the range of $650 million to $660 million. We anticipate capital expenditures for fiscal 2013 to be in the range of $25 million to $29 million.
Share Repurchase Program
Under our previously announced share repurchase program, we repurchased 48,859 shares of our common stock in open-market transactions for $0.5 million during the third quarter, at an average price of $11.21 per share. As of September 28, 2013, we had $9.5 million remaining under our current share repurchase authorization.
About West Marine
West Marine, Inc. is the largest specialty retailer of boating supplies and accessories in the United States, with 289 company-operated stores located in 38 states, Puerto Rico, Canada and five franchised stores located in Turkey. Founded in 1968 by a sailor, West Marine has grown to become a leading omni-channel retailer for boaters – from power cruisers and sailors to anglers and paddle sports enthusiasts – and offers gear, apparel and footwear for anyone who enjoys recreational time on or around the water. The company's wholesale channel is one of the largest distributors of marine equipment serving boat manufacturers, marine services, commercial vessel operators and government agencies. For more information on West Marine, Inc. its products and store locations, visit westmarine.com or call 1-800-BOATING (1-800-262-8464). West Marine's stock is traded on NASDAQ under the symbol WMAR.
Special Note Regarding Forward-Looking Statements
This press release includes "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995), including statements that are predictive or express expectations that depend on future events or conditions that involve risks and uncertainties. These risks and uncertainties include, among other things, expectations related to our earnings and profitability, expectations and projections with respect to our ability to appropriately invest in, and execute on, our strategic growth strategies, expectations related to our ability to manage our assets, and our expectations for full-year 2013 results, as well as facts and assumptions underlying these expectations and projections. In addition, the results presented in this release are preliminary and unaudited, and may change as we finalize our financial statements. Actual results for the third quarter of 2013 and the current fiscal year may differ materially from the preliminary expectations expressed or implied in this release due to various risks, uncertainties or other factors, including the risk factors set forth in West Marine's annual report on Form 10-K for the fiscal year ended December 29, 2012, as well as the discussion of critical accounting policies in our Form 10-K for the year ended December 29, 2012. 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.
Non-GAAP Financial Information
This release references certain financial information not calculated in accordance with GAAP, including adjusted net income and Return on Invested Capital ("ROIC"). We believe adjusted net income provides meaningful supplemental information for our investors regarding the performance of our business and facilitates comparisons with prior periods by removing the impact of the valuation allowance that resulted from a recent change in tax law. We believe that Return on Invested Capital ("ROIC"), as presented in the accompanying financial tables, is a meaningful measure of our efficient and effective use of capital. ROIC is not a measure of financial performance under GAAP and may not be defined and calculated by other companies in the same manner. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management has reconciled both non-GAAP financial measures to the most directly comparable GAAP financial measure in the tables set forth below.
More information on West Marine’s financial results can be found at http://phx.corporate-ir.net/phoenix.zhtml?c=61950&p=irol-irhome.