West Marine Comps Off 7.8% in Q2

West Marine, Inc. said net sales reached $226.7 million for the 13 weeks ended June 28, down 8.2% from net sales of $247.1 million for the thirteen weeks ended June 30, 2007. Comparable store sales declined 7.8% versus the same period a year ago.

“Our financial results for the second quarter of 2008 reflected the ongoing softness we’ve seen in boating activity and in the economy in general,” said Geoff Eisenberg, CEO of West Marine. “Our (pre-tax, pre-significant event) operating results were relatively good considering our sales shortfall, and are a strong indication that our team of associates is making excellent progress in managing our business during this challenging period.”

For the thirteen weeks ended June 28, 2008, for instance, WMAR said:

• Adjusted pre-tax income (excluding the impact of the significant events) was $29.2 million versus $33.4 million for the corresponding period last year.


• Adjusted net income (excluding the impact of the significant events) was $20.5 million and 93 cents per share versus $20.8 million and 95 cents per share last year.


• Reported pre-tax income (including the impact of the significant events) was $26.8 million versus $33.4 million last year.


• Reported net income (including the impact of the significant events) was $4.4 million and 20 cents per share versus $20.8 million and 95 cents per share last year.


• The pre-tax earnings decline was driven primarily by lower sales and partially offset by expense reductions.

The significant events impacting second quarter and year-to-date results for 2008 were:

• A $14.6 million non-cash full valuation allowance established against our net deferred tax assets. This entry was required by accounting rules based on recent earnings trends, and had no impact on pre-tax earnings. However, this charge reduced net income by $14.6 million and after-tax earnings per share by 66 cents for both second quarter and year-to-date results.


• Continued cooperation with the previously-announced SEC investigation required expenditures in the second quarter of $500,000 pre-tax, or 1 cent per share after-tax, with a year-to-date impact of our cooperation at $2.1 million pre-tax and 6 cents per share after-tax.


• Management’s ongoing evaluation of individual store performance resulted in a non-cash asset impairment charge in the second quarter of $1.9 million pre-tax, or 6 cents per share after-tax, with a year-to-date impact of $2.2 million pre-tax and 6 cents per share after-tax.

Net sales for the thirteen weeks ended June 28, 2008 were $226.7 million, compared to net sales of $247.1 million for the thirteen weeks ended June 30, 2007. Comparable store sales declined 7.8% versus the same period a year ago.

Gross profit for the thirteen weeks ended June 28, 2008 was $78.4 million, a decrease of $7.5 million compared to 2007. As a percentage of net sales, gross profit was 34.6%, a decrease of 20 basis points compared to the gross profit of 34.8% last year. The decrease in gross profit as a percentage of sales was primarily the result of occupancy costs that have a disproportionate impact on gross profit as sales decline. Product margins were up slightly year-over-year, and we also benefitted from reduced inventory shrinkage levels.

Selling, general and administrative expense (SG&A) for the quarter was $48.9 million, a decrease of $2.3 million compared to $51.2 million for the same period last year. Expenses de-leveraged by 90 basis points, at 21.6% of sales. Included in SG&A was the previously-mentioned $500,000 in SEC cooperation expense and a $800,000 unfavorable impact of Canadian foreign currency exchange. Excluding these items, expenses decreased by $3.6 million and de-leveraged 30 basis points, driven by the impact of lower sales.

Significantly higher income taxes versus last year were driven by the $14.6 million valuation allowance established during the quarter, based on guidance provided in Statement of Financial Accounting Standards (SFAS) No. 109 and considering recent losses. This charge will have no impact on cash flow or future prospects, nor does it alter our ability to utilize such assets in the future.

“With our very healthy balance sheet, focused management of assets, solid cash flow and strong liquidity position, we believe West Marine remains in good shape to not only ride out these challenging times, but also win additional market share as we improve our ability to succeed in the short and long term,”  Eisenberg said.

2008 Earnings Guidance Update

West Marine also announced today that it is revising its full year 2008 earnings guidance downward, from a previously-communicated earnings range of $0.02 to $0.09 per share to a revised after-tax loss range of $0.32 to $0.42 cents per share. The revised range does not include the following:

Non-recurring charges of $0.37 per share in connection with a restructuring of the business, which includes: 

• closures of underperforming stores;  


• the closure of one of three distribution centers;  


• implementing staffing and service model changes in the Port Supply wholesale business;  


• closing of the Largo, Florida call center; and  


• expense cuts and process streamlining in support and overhead functions. 


• A decrease in our anticipated effective tax rate to 3.2% because of limitations on our ability to benefit from loss carrybacks, with an impact of $0.43 per share.


• The $14.6 million non-cash valuation allowance recorded in the second quarter, with an impact of $0.66 per share.

Including the above items, West Marine anticipates an after-tax loss of $1.78 to $1.88 per share. As previously disclosed, the impact of the ongoing SEC investigation is not being included in guidance but will be reported separately.

For the year, comparable store sales are expected to decline 7.0% to 8.5%, versus the previously-communicated decline of 3.5% to 5.0%. Total company sales are expected to range from $625 million to $635 million, versus prior guidance of $660 million to $670 million.

In further explaining the lower guidance, Eisenberg said, “We do expect continued softness in our industry in the near term, and we believe the best approach for us is to be conservative in our market outlook, and aggressive in our internal change-management. We have been actively re-engineering our business and expect that these initiatives will improve our company. We will use this downturn to our advantage and become a stronger, more focused organization for the benefit of our customers, associates and shareholders.”