West Marine, Inc. operating results for the fourth quarter and full year 2005 were further reduced, compared to previously-released preliminary results, by an additional $6.6 million pre-tax, non-cash impairment charge related to internal software costs no longer expected to provide a future benefit.
Net loss for the fifty-two weeks ended December 31, 2005, was $2.2 million, or ($0.10) per share, compared to net income of $25.5 million, or $1.20 per share, for the same period a year ago. Total pre-tax, non-cash impairment charges in 2005 related to uncompleted software development projects were $8.6 million, including a $2.0 million charge included in the previously-released preliminary results.
Net sales for the fifty-two weeks ended December 31, 2005 were $692.3 million, compared to net sales of $683.0 million for the same period a year ago. Comparable store sales for the fifty-two weeks ended December 31, 2005 decreased (2.2%) compared to the same period a year ago. Comparable store sales are defined as sales from stores that have been open at least thirteen months and where selling square footage did not change by more than 40% in the previous thirteen months.
Net loss for the fourth quarter ended December 31, 2005 was $21.5 million, or $1.01 per share, including an $8.6 million pre-tax, non-cash impairment charge related to uncompleted software development projects, compared to a net loss of $3.4 million, or 16 cents per share, for the fourth quarter of 2004. Net sales for the fourth quarter of 2005 were $124.8 million, compared to net sales of $118.1 million a year ago. Comparable store sales for the fourth quarter of 2005 increased 3.9% compared to the same period a year ago.
Eric Nelson, West Marine's chief financial officer, stated, “It is important to note that despite reporting a net loss for 2005, West Marine's cash flow improved significantly compared to last year. Cash from operations more than doubled, from $18.6 million in 2004 to $44.2 million in 2005. Accordingly, free cash flow also improved, from a negative ($5.9 million) in 2004 to a positive $12.2 million in 2005. Free cash flow is a non-GAAP measure, defined as cash flows from operating activities minus capital expenditures. Management believes that free cash flow is useful for evaluating our financial condition because it represents the amount of cash provided by operations that is available for investing or for repaying debt. A reconciliation of free cash flow to net cash provided by operating activities, the closest measure calculated in accordance with GAAP, is included in this press release.
“Also, our fourth quarter and full year 2005 results include four significant non-cash items. First, we recorded an $8.6 million pre-tax charge, or ($0.25) per share after-tax, for cancelled software development projects. Second, we reduced inventory value by $2.9 million pre-tax, or ($0.08) per share after-tax, for aged, excess and obsolete merchandise that we expect to sell below our cost. Third, we incurred a $2.0 million pre-tax charge, or ($0.06) per share after-tax, for discontinuing our use of the BoatU.S. tradename. Last, we recorded an $0.8 million pre-tax charge, or ($0.02) per share after-tax, for the unamortized portion of loan costs in connection with replacing our bank line of credit.”
Regarding 2006 earnings guidance, Mr. Nelson said, “We currently project net sales for the fiscal year ending December 30, 2006 ranging from $740 million to $745 million and comparable store sales ranging from 1.5% to 2.0% for the 52-week period then ending. We currently estimate earnings for fiscal year 2006 ranging from $0.15 to $0.18 per share.
“These estimates reflect the costs associated with initiatives started in 2005 and continuing in 2006, as well as new initiatives for 2006 that will produce increased sales and profits for years to come. We will discuss our earnings guidance for fiscal year 2006, as well as factors related to our fourth quarter and full year 2005 results, in our webcast and conference call today.”
Non-GAAP financial measure -- Free cash flow
(Unaudited) (Unaudited)
2005 2004
---- ----
Net cash provided by operating activities $44,232,000 $18,593,000
Less: purchases of property & equipment (32,046,000) (24,507,000)
Free cash flow $12,186,000 $(5,914,000)
============ ============
West Marine, Inc.
Condensed Consolidated Statements of Operations
For the 13 Weeks Ended December, 31 2005 and January 1, 2005
(Unaudited and in thousands, except per share amounts)
13 Weeks Ended 13 Weeks Ended
December 31, 2005 January 1, 2005
----------------- ---------------
Net sales $124,805 100.0% $118,079 100.0%
Cost of goods sold, including buying
and occupancy 104,311 83.6% 84,299 71.4%
----------------- ---------------
Gross profit 20,494 16.4% 33,780 28.6%
Selling, general and administrative
expenses 53,582 42.9% 39,230 33.2%
----------------- ---------------
Loss from operations (33,088) -26.5% (5,450) -4.6%
Interest expense, net 1,703 1.4% 1,153 1.0%
Charge for unamortized portion of
loan costs 792 0.6% 1,419 1.2%
----------------- ---------------
Loss before income taxes (35,583) -28.5% (8,022) -6.8%
Benefit for income taxes (14,096) -11.3% (4,593) -3.9%
----------------- ---------------
Net loss $(21,487) -17.2% $(3,429) -2.9%
================= ===============
Net loss per common and common
equivalent share:
Basic and diluted $(1.01) $(0.16)
Weighted average common and common
equivalent shares outstanding:
Basic and diluted 21,185 20,853
