West Marine Takes $56.9M Goodwill Hit

West Marine, Inc. losses soared in 2007 due primarily to a non-cash write down of goodwill. The retailer of boats and boating supplies also restated earnings from 2005 forward due to inadequate reserves for workers compensation claims and other expenses.

The results reflect previously-disclosed significant events that impacted fourth quarter and full year results for 2007. Those events were:

• An updated assessment of goodwill in the fourth quarter which resulted in a non-cash impairment charge of $56.9 million pre-tax, or $2.25 per share after-tax. The after-tax, per share equivalent of this impairment charge reflects the non-deductibility for tax purposes of certain goodwill components;


• Continued cooperation with the previously-announced SEC investigation resulted in expenditures of $2.7 million pre-tax, or $0.08 per share after-tax;


• The departure of our former chief executive officer resulted in related severance costs in the fourth quarter of $1.3 million pre-tax, or $0.04 per share after-tax; and


• Management's ongoing evaluation of individual store performance resulted in a non-cash asset impairment charge of $0.9 million pre-tax, or $0.02 per share after-tax.

An additional factor impacting comparison to prior year was:

• Costs relating to West Marine’s store closure and restructuring in 2006, which affected both years. The previously-reported pre-tax expense impact was $14.5 million in 2006, or $0.46 per share, and there was an additional $0.6 million, or $0.02 per share, in 2007 as we adjusted store closure reserves to reflect revised market information.


• Net sales for the 52 weeks ended Dec. 29, 2007 were $679.5 million, compared to net sales of $716.6 million for the fifty-two weeks ended Dec. 30, 2006. Comparable store sales for the fifty-two weeks ended Dec. 29, 2007 decreased 1.9% compared to the same period a year ago.

Gross profit for the fifty-two weeks ended Dec. 29, 2007 was $194.9 million, a decrease of $12.2 million compared from the same period last year. For fiscal year 2007, gross profit as a percentage of net sales was 28.7%, a decrease of 20 basis points compared to 28.9% last year. The decrease was driven by occupancy expense which deleveraged due to the year-over-year decline in sales.

Selling, general and administrative expense for the 52 weeks ended Dec. 29, 2007 was $188.9 million, a decrease of $8.2 million compared to $197.1 million for the same period last year. The decrease was driven by the full year impact of the expense reductions associated with the 2006 store closure initiative, as well as other expense controls implemented in 2007, which were partially offset by expenses associated with the ongoing SEC investigation of $2.7 million and severance compensation paid to our former chief executive officer totaling $1.3 million. For fiscal year 2007, selling, general and administrative expense as a percentage of net sales was 27.8%, an increase of 30 basis points compared to 27.5% last year.

“West Marine’s financial results for 2007 reflected a challenging year in our industry,” said CEO Geoff Eisenberg. “Within this climate, we have focused on managing the business to weather this downturn and emerge as an even stronger company. We will continue to pursue initiatives and strategies that we expect to drive growth and profitability in the medium and long term.”

FOURTH QUARTER 2007

Net loss for the fourth quarter ended Dec. 29, 2007 was $65.7 million, or $3.00 per share, including the impact of the significant events. This compares to a net loss of $12.8 million, or $0.60 per share for the fourth quarter last year, which reflected $9.4 million, or $0.30 per share in store closure and other restructuring charges. Comparable store sales decreased 3.0% for the 13 weeks ended Dec. 29, 2007. Net sales were $118.3 million, a decrease of 4.6% from net sales of $124.0 million for the same period a year ago. West Marine operated 372 stores during the fourth quarter of 2007, compared to 377 stores during the fourth quarter of 2006.

EARNINGS RESTATEMENT

As previously disclosed in our 8-K filing earlier this week, in the course of finalizing its financial results for 2007, management determined that West Marine was underaccrued in its reserves for estimated workers' compensation claims. The company also performed a detailed review of other reserves and accounts, particularly those involving management estimates. As a result of this review, in addition to the workers' compensation liability adjustment, the company also identified several other adjustments which individually were not material but, in the aggregate, required correction in the company's previously issued 2007 quarterly and prior-period annual and quarterly financial statements. The 2006 results discussed in this release reflect the restatement.

The effect of the restatement on previously reported net income is as follows:

The impact on 2005 beginning Retained Earnings is a reduction of $2.4 million, reflecting the cumulative impact on net income for all prior years.

2008 EARNINGS GUIDANCE

For fiscal year 2008, West Marine currently estimates earnings ranging from $0.02 to $0.09 per share and a decrease in comparable store sales ranging from (5.0%) to (3.5%). Net sales are expected to range from $660.0 million to $670.0 million for fiscal year 2008. This earnings estimate does not reflect expense relating to the ongoing SEC investigation.