West Marine Inc., which on June 29 agreed to be acquired by a private equity firm, reported basically flat earnings before charges in the second quarter as fewer markdowns offset a small sales decline.
Net revenues were $247.2 million, a decrease of 1.7 percent, while comparable-store sales were down 1.2 percent. The net decline also reflects store closures.
Pre-tax income was $36 million, slightly down from $36.4 million last year in the comparable period. The latest quarter include expenses of $1.4 million associated with the pending merger as well as a $0.6 million charge related to the reclassification of accumulated foreign currency translation balances to SG&A expense as a result of cessation of operations in Canada. These charges were partially offset by a $1.1 million credit related to a supplier refund for prior-year over-billing. Adjusting for these unique events, second-quarter pre-tax profit improved by $0.7 million.
Net earnings slid to $21.2 million, or 84 cents a share, from $21.6 million, or 86 cents, a year ago. Adjusted for the one-time expenses and credit, earnings were $21.9 million, or 86 cents, in the latest period.
Gross margin improved to 36.5 percent, compared to 35.5 percent as lower promotional and clearance activity along with lower professional sales as a percentage of revenue resulted in an improved margin. SG&A expense increased year over year by $1.4 million, primarily due to $1.4 million of merger-related expenses.
EBITDA was down slightly to $41.9 million against $42 million.
Inventory at the end of the quarter was $243.4 million, down $10.2 million compared to the same period in 2016. As of July 1, cash and cash equivalents totaled $113.3 million compared to $89.6 million at the same point in 2016.
In the merger, Monomoy Capital Partners agreed to pay $12.97 per share in cash, representing a total equity value of approximately $338 million. The price represented a premium of 34.4 percent closing price of its common stock on June 29.
The company has received anti-trust approval for its merger. Closing of the transaction remains subject to other closing conditions, including approval of a majority of West Marine shareholders. A special meeting of stockholders to vote on the merger will be held in the third quarter of this year. If approved, the merger is expected to close shortly thereafter.
The company is no longer hosting quarterly conference calls with analysts due to the pending merger. It has also suspended payment of cash dividends.
Photo courtesy West Marine
