West Marine, Inc. earnings reached 29 cents per share for the third quarter ended October 2, 2004. Third quarter earnings would be $0.32 per share if not for a $1.2 million, or $0.03 per share, charge for accelerated amortization of loan costs. The charge represents the
unamortized portion of loan fees and other capitalized costs associated with our then-existing bank credit facility, which we terminated in connection with our entry into a new credit agreement on October 14, 2004. Management believes that reporting earnings per
share excluding accelerated amortization of loan costs is meaningful to investors because it allows comparisons with operating results for periods that do not include such a charge.
Net income was $6.2 million in the third quarter, compared to net income of $8.1 million, or $0.39 per share, a year ago. Net sales for the third quarter were $183.1 million, a decrease of 4.6% versus sales
of $191.9 million last year. Comparable store net sales for the third quarter decreased 7.7% 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 income for the thirty-nine weeks ended October 2, 2004 was $28.2 million, or $1.33 per share, compared to net income of $21.7 million, or $1.08 per share, for the same period a year ago. Earnings for the first nine months of 2004 would be $1.36 per share if not for
the $1.2 million, or $0.03 per share, charge for accelerated amortization of loan costs in connection with a new bank credit facility. Net sales for the first nine months of 2004 were $564.9 million, an increase of 5.4% over sales of $536.0 million for the same
period last year. Comparable store net sales for the thirty-nine weeks ended October 2, 2004 increased 1.1% compared to the same period a year ago.
John Edmondson, West Marine's chief executive officer, stated,
“Although we achieved our mid-September earnings guidance, the third
quarter was a disappointment to us. While we had already noted the
continuing softness in customer spending that we first observed in the
latter part of June, September sales were lower than we expected.
Contributing factors were: the calendar shift from 53 weeks in 2003 to
52 weeks in 2004, rising fuel prices that may have detrimentally
affected sales nationwide due to reduced boating participation, and
four hurricanes that had a more pronounced and widespread impact than
we had anticipated.
“For October, month-to-date comparable store sales are consistent
with our previous fourth quarter guidance of flat to -2%. Our guidance
for the fourth quarter remains the same: we estimate sales ranging
from $119 million to $121 million and a loss per share ranging from
($0.11) to ($0.08). For the full year 2004, we currently expect to
report sales ranging from $684 million to $686 million and earnings
per share ranging from $1.25 to $1.28.”
As for other fourth quarter 2004 events, on October 14, we entered
into a new, 5-year, $190 million credit agreement with a group of
lenders that offers West Marine lower fees, more liberal covenants and
fewer restrictions on our business activities, such as making
acquisitions, than our prior, 3-year, $175 million loan agreement. At
West Marine's option, the new credit facility provides up to $50
million in additional financing, which could be used for making
acquisitions. We expect that the $1.2 million charge for accelerated
amortization of loan costs, which we booked in the third quarter, will
be mostly offset by gains on real property that we plan to sell during
the fourth quarter this year.
West Marine, Inc.
Condensed Consolidated Statements of Income
For the 13 weeks ended October 2, 2004 and September 27, 2003
(Unaudited, in thousands except per share amounts)13 Weeks Ended 13 Weeks Ended
October September
2, 2004 27, 2003
---------------- ----------------Net sales $183,115 100.0% $191,916 100.0%
Cost of goods sold, including
buying and occupancy 126,305 69.0% 134,127 69.9%
--------- ------ --------- ------
Gross profit 56,810 31.0% 57,789 30.1%
Selling, general and administrative
expenses 44,135 24.1% 43,084 22.4%
--------- ------ --------- ------
Income from operations 12,675 6.9% 14,705 7.7%
Interest expense 1,387 0.8% 1,487 0.8%
Loss on extinguishment of debt 1,172 0.6% 0 0.0%
--------- ------ --------- ------
Income before taxes 10,116 5.5% 13,218 6.9%
Income taxes 3,946 2.1% 5,155 2.7%
--------- ------ --------- ------
Net income $6,170 3.4% $8,063 4.2%
========= ====== ========= ======Net income per common and common
equivalent share:Basic $0.30 $0.41
Diluted $0.29 $0.39Weighted average common and common
equivalent shares outstanding:Basic 20,794 19,867
Diluted 21,229 20,561Stores open at the end of period 365 339
