West Marine Reports Second Quarter 2014 Results and Updates 2014 Earnings Guidance

        Print
| Source: West Marine, Inc.

WATSONVILLE, Calif., July 24, 2014 (GLOBE NEWSWIRE) -- West Marine, Inc. (Nasdaq:WMAR) today reported financial results for the second quarter ended June 28, 2014.

  • Net revenues were $236.5 million, a decrease of 0.1% compared to last year.
  • Comparable store sales decreased by 0.7%.
  • Pre-tax income was $32.4 million, compared to pre-tax income of $37.5 million last year.
  • Net income was $18.3 million, or $0.75 per share, compared to net income of $22.2 million, or $0.90 per share last year.
  • The company is lowering 2014 full-year guidance, with pre-tax income now expected to be in the range of $8.5 million to $11.0 million, compared to pre-tax income of $15.3 million for 2013.
  • The company remained debt-free at quarter-end.

Matt Hyde, West Marine's CEO, commented: "We were disappointed by second quarter sales, which were about flat to last year. At the product level, we saw the strongest increases in our merchandise expansion categories, including paddle sports and women's clothing, but sales of core products were soft. During the second half of the year, we'll continue to reduce operating expenses to drive nearer-term profitability, while continuing our careful investments in our strategic initiatives to drive long-term profitable growth."

Progress on our growth strategies year-to-date through the second quarter was as follows:

  • eCommerce: Sales from our eCommerce website were up 0.5% and represented 7.2% of total sales, the same as last year. We believe our eCommerce results so far this year were negatively impacted by implementation delays and fixes required in connection with the transition to our new eCommerce platform. We remain committed to our three to five-year goal for eCommerce to represent 15% of sales.
  • Store optimization: Sales through our optimized stores increased to 41.5% of total sales compared to 34.0% last year. This year-over-year increase supports our three to five-year goal to deliver 50% of our total sales through optimized stores.
  • Merchandise expansion: Sales in these product lines, which include footwear, apparel, clothing accessories, fishing products and paddle sports equipment, were up by 12.1%, with core product sales down 2.2%, compared to last year.

Net revenues for the 26 weeks ended June 28, 2014 were $349.8 million, a decrease of 0.3%, compared to net revenues of $351.0 million for the 26 weeks ended June 29, 2013. Comparable store sales decreased by 1.1% for the first six months of 2014 versus the same period last year. For the first six months last year, we reported a 4.0% decrease in comparable store sales.

Net income for the first six months was $7.3 million, or $0.30 per diluted share, compared to net income of $12.5 million, or $0.51 per diluted share, for the first six months last year.

Total inventory at the end of the second quarter was $243.6 million, a $6.5 million, or 2.7% increase versus the balance at June 29, 2013, and a 1.5% increase on an inventory per square foot basis. Inventory turns for 2014 were down 2.3% versus the first six months of last year.

Return on Invested Capital ("ROIC") for the 52-week period ended June 28, 2014 was 4.9%, which compares to 6.1% ROIC for the 52-week period ended June 29, 2013. ROIC based on GAAP net income was 3.2% and 6.6% for the 52-week periods ended June 28, 2014 and June 29, 2013, respectively. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the second quarter of 2014 was $37.2 million, compared to $41.4 million for the same period last year.

2014 Guidance

During the first half of 2014, our sales and gross profit results were lower than expected. Although we experienced solid gains in sales to our professional customers and in our merchandise expansion categories, our core product sales suffered and the shift in the product mix and customer type put pressure on our margins. Our core product sales tend to be dependent on boat-usage and include boat maintenance items, sailboat hardware, electrical parts and boating safety products. Consequently, we are lowering our previously-issued sales and earnings guidance for fiscal year 2014. We now expect pre-tax income in the range of $8.5 million to $11.0 million, approximately $7.0 million lower than our previously-communicated pre-tax income guidance. This will result in diluted earnings per share of approximately $0.19 to $0.25. Comparable store sales for full-year 2014 are now anticipated to range from down 1.0% to up 1.5%, with total revenues now expected to be in the range of $665 million to $680 million.We are now estimating EBITDA to be in the range of $27.5 million to $30.0 million. We anticipate capital expenditures for fiscal 2014 to be in the range of $28 million to $32 million.

Investor Conference Call

West Marine will hold a conference call and webcast on Thursday, July 24, 2014, at 1:00 p.m. Eastern Time (EDT) to discuss its second quarter 2014 results. The live call will be webcast and available in real time on the Internet at westmarine.com under "Investor Relations." Participants may also dial (888) 756-1546 in the United States and Canada and (706) 634-1041 for international calls. Please be prepared to give the conference ID number 70995698.

An audio replay of the call will be available July 24, 2014 at 4:00 p.m. EDT through July 31, 2014 at 11:59 p.m.EDT. The replay number is (855) 859-2056 in the United States and Canada and (404) 537-3406 for international calls. The access code is 70995698.

About West Marine

Founded in 1968 by a sailor, West Marine, Inc. has grown to become the largest omni-channel specialty retailer exclusively offering gear, apparel and footwear and other waterlife-related products to anyone who enjoys recreational time on or around the water. With 281 stores located in 38 states, Puerto Rico and Canada and an eCommerce website reaching domestic and international customers, West Marine is recognized as the dominant waterlife outfitter for cruisers, sailors, anglers and paddle sports enthusiasts. West Marine has everything you need for your life on the water. 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 risks related to continued unseasonably cold weather, rainy and windy boating season, expectations related to our earnings and growth in profitability, particularly in a delayed boating season, expectations and projections with respect to our ability to execute on our strategic growth strategies, expectations related to our ability to manage our assets, reduce our operating expenses and drive ROIC, and our expectations for full-year 2014 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 second quarter of 2014 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 28, 2013, as well as the discussion of critical accounting policies in our Form 10-K for the year ended December 28, 2013. 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 accounting principles generally accepted in the United States ("GAAP"), specifically EBITDA and ROIC. We believe that EBITDA provides a clearer picture of operating performance of the business, given the significant investments we are making in the growth of the business, by eliminating the effects of depreciation and interest expense. EBITDA is not a measure of financial performance under GAAP and may not be defined and calculated by other companies in the same manner. We believe that 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.

West Marine, Inc.    
Condensed Consolidated Balance Sheets    
(Unaudited and in thousands, except share data)    
     
     
  June 28, 2014 June 29, 2013
ASSETS    
Current assets:    
Cash  $ 38,934  $ 45,773
Trade receivables, net 10,970 10,008
Merchandise inventories 243,588 237,100
Deferred income taxes 4,276  5,292
Other current assets 22,149 23,533
Total current assets  319,917  321,706
     
Property and equipment, net 79,595 65,663
Long-term deferred income taxes 4,829  7,910
Other assets 3,595 3,381
TOTAL ASSETS  $ 407,936  $ 398,660
     
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 50,242  $ 43,259
Accrued expenses and other  46,988  45,508
Total current liabilities  97,230  88,767
     
Deferred rent and other 16,020 16,521
Total liabilities  113,250  105,288
     
Stockholders' equity:    
Preferred stock, $.001 par value: 1,000,000 shares authorized; no shares outstanding  --   -- 
Common stock, $.001 par value: 50,000,000 shares authorized; 25,004,808 shares issued and 24,315,919 shares outstanding at June 28, 2014, and 24,387,175 shares issued and 24,356,285 shares outstanding at June 29, 2013.  25  24
Treasury stock  (9,128)  (385)
Additional paid-in capital  206,149  198,812
Accumulated other comprehensive loss  (556)  (662)
Retained earnings  98,196  95,583
Total stockholders' equity  294,686  293,372
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 407,936  $ 398,660
     
Note - Certain prior period balances have been revised, primarily to reflect immaterial corrections for the treatment of certain cash consideration received from vendors.
         
West Marine, Inc.        
Condensed Consolidated Statements of Income      
(Unaudited and in thousands, except per share data)      
         
  13 Weeks Ended
  June 28, 2014 June 29, 2013
Net revenues  $ 236,483 100.0%  $ 236,750 100.0%
Cost of goods sold 154,205 65.2%  149,487 63.1%
Gross profit  82,278 34.8%  87,263 36.9%
Selling, general and administrative expense  49,715 21.0%  49,612 21.0%
Income from operations   32,563 13.8%  37,651 15.9%
Interest expense 115 0.1% 114 0.0%
Income before income taxes  32,448 13.7%  37,537 15.9%
Provision for income taxes 14,144 6.0% 15,295 6.5%
 Net income  $ 18,304 7.7%  $ 22,242 9.4%
         
Net income per common and common equivalent share:      
         
Basic  $ 0.76    $ 0.92  
Diluted  $ 0.75    $ 0.90  
         
Weighted average common and common equivalent shares outstanding:    
Basic 24,142   24,248  
Diluted 24,314   24,587  
         
  26 Weeks Ended
  June 28, 2014 June 29, 2013
Net revenues  $ 349,821 100.0%  $ 350,994 100.0%
Cost of goods sold 242,620 69.4%  238,417 67.9%
Gross profit  107,201 30.6%  112,577 32.1%
Selling, general and administrative expense  93,756 26.8%  91,114 26.0%
Income from operations   13,445 3.8%  21,463 6.1%
Interest expense 223 0.0% 223 0.0%
Income before income taxes  13,222 3.8%  21,240 6.1%
Provision for income taxes 5,933 1.7% 8,727 2.5%
Net income  $ 7,289 2.1%  $ 12,513 3.6%
         
Net income per common and common equivalent share:      
         
Basic  $ 0.30    $ 0.52  
Diluted  $ 0.30    $ 0.51  
         
Weighted average common and common equivalent shares outstanding:    
Basic 24,141   24,098  
Diluted 24,418   24,476  
         
Note - Prior periods have been revised, primarily to reflect immaterial corrections of cash consideration received from vendors which were previously reported as a reduction of advertising under Selling, general and administrative expense and are now reflected as a reduction of Cost of goods sold.
     
West Marine, Inc.    
Condensed Consolidated Statements of Cash Flows    
(Unaudited and in thousands)    
     
  26 Weeks Ended
  June 28, 2014 June 29, 2013
     
OPERATING ACTIVITIES:    
Net income  $ 7,289  $ 12,513
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization 8,683 7,446
Share-based compensation 1,803 1,659
Excess tax benefit from share-based compensation  (225)  (841)
Deferred income taxes  479  1,159
Provision for doubtful accounts 71 39
Lower of cost or market inventory adjustments 1,263 880
Loss on asset disposals 220 104
Changes in assets and liabilities:    
Trade receivables (4,600) (3,324)
Merchandise inventories (41,815) (48,641)
Other current assets (2,789) (5,505)
Other assets (228) 98
Accounts payable 28,717 23,698
Accrued expenses and other 9,795 5,313
Deferred items and other non-current liabilities 750 1,335
Net cash provided by (used in) operating activities 9,413 (4,067)
     
INVESTING ACTIVITIES:    
Proceeds from sale of property and equipment 20 4,311
Purchases of property and equipment (16,032) (15,133)
Net cash used in investing activities (16,012) (10,822)
     
FINANCING ACTIVITIES:    
Borrowings on line of credit 1,165 2,810
Repayments on line of credit (1,165) (2,810)
Payment of loan costs    
Proceeds from exercise of stock options 1,308 2,855
Proceeds from sale of common stock pursuant to Associates Stock Buying Plan 318 383
Excess tax benefit from share-based compensation 225 841
Treasury shares acquired  (4,723)  -- 
Net cash provided by (used in) financing activities (2,872) 4,079
     
Effect of exchange rate changes on cash (3) 41
     
NET DECREASE IN CASH (9,474) (10,769)
     
CASH AT BEGINNING OF PERIOD 48,408 56,542
CASH AT END OF PERIOD  $ 38,934  $ 45,773
Other cash flow information:    
Cash paid for interest  $ 148  $ 146
Cash paid for income taxes, net of refunds of $1,391 and $30 (528) 579
Non-cash investing activities:    
Changes in property and equipment additions in accounts payable (461) (1,514)
     
Note - Certain prior period balances have been revised, primarily to reflect corrected treatment of cash consideration received from vendors.
 
West Marine
Reconciliations of Non-GAAP Information 
Net Income to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
(Unaudited and in millions)
 
  13 Weeks Ended 13 Weeks Ended 26 Weeks Ended 26 Weeks Ended
  June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013
         
 GAAP Net Income  $ 18.3  $ 22.2  $ 7.3  $ 12.5
         
Add Back:        
Interest Expense  0.1  0.1  0.2  0.2
Depreciation and Amortization  4.6  3.7  8.7  7.4
Income Tax Expense  14.1  15.3  5.9  8.7
   18.9  19.2  14.8  16.4
         
EBITDA  $ 37.2  $ 41.4  $ 22.1  $ 28.9
         
         
  Estimated 52 Weeks Ended  
  Fiscal Year 2014 December 28, 2013  
  Low High    
Estimated/Reported GAAP Net Income  $ 4.7  $ 6.0  $ 7.8  
         
Add Back Estimated/Reported:        
Interest Expense  0.4  0.5  0.4  
Depreciation and Amortization  18.3  18.4  15.0  
Income Tax Expense  4.1  5.1  7.5  
   22.8  24.0  22.9  
         
Estimated/Reported EBITDA  $ 27.5  $ 30.0  $ 30.7  
         
West Marine, Inc.        
Reconciliation of Non-GAAP Financial Information        
Return on Invested Capital ("ROIC")        
(Unaudited and in thousands)        
         
  52 Weeks Ended
June 28, 2014
 52 Weeks Ended
June 29, 2013
 
GAAP net income reported for fiscal years 2013 and 2012, respectively    $ 7,837    $ 14,719
Add: Net Income reported for first two quarters of 2014 and 2013, respectively    7,289    12,513
Less: Net loss reported for first two quarters of 2013 and 2012, respectively    12,513    15,873
GAAP net income for the 12-month period ended June 28, 2014 and June 29, 2013, respectively    2,613    11,359
GAAP income tax (benefit) expense reported for fiscal years 2013 and 2012, respectively    7,472    9,738
Add: Income tax expense reported for first two quarters of 2014 and 2013, respectively    5,933    8,727
Less: Income tax expense reported for first two quarters of 2013 and 2012, respectively    8,727    10,716
Add back: Adjusted GAAP income tax    4,678    7,749
Adjusted GAAP income before taxes    7,291    19,108
Less: income tax expense at 44.9% 3    3,272    8,574
Adjusted net income    $ 4,020    $ 10,534
         
Add back:        
Interest expense  433    620  
Rent expense (fixed)  49,417    45,551  
Total  49,850  27,481 1  46,171  25,453 1
         
         
Net income after adjustments and after-tax add backs (numerator)  $ 31,501    $ 35,987  
         
Total Capital:        
         
Long-term debt 2    $ --     $ -- 
Operating leases capitalized at 8x annual rent expense    395,336    364,408
Total stockholder's equity 2    285,296    266,654
Less: Cash and cash equivalents 2    (42,697)    (44,413)
Total Capital (denominator: long-term debt + operating leases capitalized at 8x annual rent expense + total stockholders' equity - cash and cash equivalents)    $ 637,934    $ 586,650
         
         
ROIC  4.9%    6.1%  
ROIC using GAAP net income   3.2%   6.6%
         
1 Total after-tax add backs after applying 2014 YTD tax rate.        
2 Calculated as the average of the five most recent quarter-end results.        
3 Q2 2014 YTD effective tax rate is 44.9%.        
West Marine, Inc.
Tom Moran, Executive Vice President
and Chief Financial Officer
(831) 761-4229