West Marine Narrows Q4 Net Loss on Slight Sales Decline

West Marine, Inc. fourth quarter net sales slipped 0.8% to $123.8 million, compared to net sales of $124.8 million for fourth quarter last year. Comparable store sales for the fourth quarter of 2006 increased 0.2% compared to the same period a year ago. Net loss for the fourth quarter ended December 30, 2006 was $6.0 million, or a loss of 28 cents per share, excluding a $9.4 million pre-tax, or 29 cents per share after-tax, charge for store closures and other restructuring costs, compared to a net loss of $12.5 million, or 59 cents per share, excluding $14.3 million of pre-tax, or 41 cents per share after tax, unusual charges for the fourth quarter last year.

As previously disclosed, West Marine will restate previously issued financial statements to reflect corrections in capitalized indirect inventory costs. Adjustments for the first three quarters of 2006 and for fiscal year 2005 are reflected in the financial data presented in this press release.

Pre-tax income for the fifty-two weeks ended December 30, 2006 was $4.2 million, excluding a $14.5 million charge for store closures and other restructuring costs, in order to better reflect the operating results of the ongoing business, compared to pre-tax income of $9.5 million, excluding unusual items totaling $14.3 million, for the same period last year. Net loss for the fifty-two weeks ended December 30, 2006 was $7.1 million, or 33 cents per share, compared to a net loss of $2.3 million, or 11 cents per share for the same period last year. Earnings for fiscal year 2006 were 12 cents per share, excluding store closures and other restructuring costs of 46 cents per share.

Net sales for the fifty-two weeks ended December 30, 2006 were $716.6 million, compared to net sales of $692.3 million for the fifty-two weeks ended December 31, 2005. Comparable store sales for the fifty-two weeks ended December 30, 2006 increased 2.4% compared to the same period a year ago.

Gross profit for the fifty-two weeks ended December 30, 2006 was $206.3 million, an increase of $3.9 million compared to the same period last year. For fiscal year 2006, gross profit as a percentage of net sales was 28.8%, a decrease of 40 basis points compared to 29.2% last year. The decrease was driven by a change of $8.4 million, or 120 basis points, in capitalized costs and allowances as a result of lowering our inventory levels. This 120 basis point decrease in gross margin was partly offset by better initial product margin and improved inventory shrinkage. Gross profit for fiscal year 2005 also included a $2.9 million pre-tax charge for reducing inventory value.

Selling, general and administrative expense (“SG&A”) for the fifty-two weeks ended December 30, 2006 was $195.7 million, a decrease of $4.4 million compared to $200.1 million for the same period last year. SG&A for fiscal year 2005 included $10.6 million for cancelled software development projects and discontinued use of a trade name. SG&A as a percentage of sales for fiscal year 2006 was 27.3%, a decrease of 160 basis points compared to 28.9% last year. Excluding unusual items, SG&A leveraged slightly compared to last year as a result of cost cutting initiatives implemented throughout 2006, partially offset by targeted investments in initiatives intended to improve profitability over the long-term.

Cash provided by operating activities increased to $53.4 million for the full fiscal year 2006, compared to $44.2 million last year. Free cash flow increased to a record high of $38.7 million for the full fiscal year 2006, compared to $12.2 million last year. Free cash flow, defined as net cash from operating activities less capital expenditures, indicates the amount of cash generated during the year that is available for expansion or repayment of debt. Merchandise inventories were reduced by $23.9 million, or 8.6%, to $254.0 million at the end of fiscal year 2006, compared to $277.9 million at the end of 2005, as West Marine continued to improve its merchandising and supply chain strategies.

Peter Harris, Chief Executive Officer of West Marine, commented, “The results our team of nearly 5,000 talented, passionate West Marine associates delivered in 2006 demonstrate continued focus on the customer and progress in making structural changes to improve the business, even in this tough boating industry climate. We are very proud of what was accomplished during the year and believe that we are well positioned to provide broad targeted merchandise assortments, service beyond customers' expectations, and the convenience of multi-channel retailing, yielding growth in revenues and profitability.”

For fiscal year 2007, West Marine currently estimates earnings ranging from 45 cents to 55 cents per share and an increase in comparable store sales ranging from 1% to 2%. Net sales are expected to range from $706 million to $716 million for fiscal year 2007, also reflecting growth in our Port Supply wholesale and Direct Sales (including Internet) business segments.