West Marine reported net revenues for the fourth quarter ended Dec. 31, 2011 were $113.4 million, an increase of $6.1 million, or 5.7 percent, compared to net revenues of $107.3 million for the corresponding period last year.


Comparable store sales increased by $3.5 million, or 4.3 percent, versus last year. Net loss for the fourth quarter of 2011 improved to $14.0 million, or 61 cents per share compared to $19.8 million, or 88 cents per share, for the comparable period, due primarily to the income tax benefit recorded during the quarter as a result of the valuation allowance release during fiscal 2011.


Full year income soars
For the full fiscal year ended Dec. 31, the retailer said pre-tax income for fiscal year 2011 was $21.2 million, 49.0 percent higher than pre-tax income of $14.2 million in fiscal year 2010, which ended Jan. 1, 2011. Net income for the year was $29.7 million, or $1.27 per diluted share. This was an improvement of $16.5 million compared to net income in 2010 of $13.2 million, or 57 cents per diluted share.


 

“Our strong results for 2011 reflect continued progress in executing our focused strategies to drive higher sales and profit and position us very well for 2012,” said CEO Geoff Eisenberg. “Due to the success of our many initiatives, from our new store formats to our new merchandise assortments, we have a great deal of optimism about our future.”


Net revenues for the fiscal year 2011 were $643.4 million, a 3.3 percent increase over net revenues of $622.8 million for the fiscal year 2010. Comparable store sales increased 2.3 percent versus last year.


 

Wholesale fulfillment through retail stores drives profits

The primary driver of growth was increased sales to Port Supply (wholesale) customers through  store locations as part of  ongoing efforts to better serve this group and to leverage  store facilities.

 

Real estate activity connected with real estate optimization strategy drove a net $8.9 million increase in net revenues as stores opened during the fourth quarter of 2010 and during 2011 generated $39.9 million in net revenues, whereas stores closed during these same periods effectively reduced net revenues by $31.0 million. The majority of the closures were a result of an ongoing strategy to evolve into having fewer, larger stores.


Gross profit for 2011 was $185.0 million, an increase of $9.4 million compared to 2010. As a percentage of net revenues, gross profit increased by 0.6 percent to 28.8 percent, compared to a gross profit margin of 28.2 percent last year. The increase in gross profit margin primarily was due to a 0.3 percent reduction in unit buying and distribution costs and a 0.2 percent improvement in inventory shrink.

 

Additionally, increased revenues allowed us to leverage   relatively fixed occupancy expenses by 0.1 percent. These improvements were partially offset by lower raw product margin, down 0.1 percent, driven by a shift in revenues to lower-margin categories, such as electronics. 
 

SG&A declines 140 basis points as percentage of revenues
Selling, general and administrative (SG&A) expense for the fiscal year ended Dec. 31, 2011 was $162.9 million, an increase of $2.1 million, or 1.3 percent, compared to $160.8 million for last year. SG&A decreased as a percentage of revenues to 25.4 percent in 2011, compared to 25.8 percent in 2010.


Drivers of the higher SG&A expense included: a $2.6 million loss contingency accrual related to a recently-finalized software license audit; $1.3 million in higher information technology spending, including costs to implement  new point-of-sale and order entry systems; a variable selling expense increase of $1.2 million primarily due to higher store payroll supporting the higher sales year-over-year; a $700,000 increase in benefits costs, including higher year-over-year health care claims; and a $600,000 unfavorable impact versus last year of foreign currency exchange.

 

These increases in SG&A were partially offset by a $4.4 million reduction in accrued bonus expense in 2011 due to increased bonus target thresholds reflecting improved performance expectations when compared to the target thresholds for fiscal 2010.


 

Interest expense increased $300,000, or 44.1 percent, to $900,000 in 2011, compared to $600,000 in 2010. The increase in interest expense was due to both higher commitment fees and higher average interest rates, although average outstanding bank borrowings were lower in fiscal 2011 compared to fiscal 2010.


 

The effective income tax rate for 2011 was a benefit of 39.8 percent, compared to a provision of 7.2 percent in 2010. The year-over-year change in   effective tax rate primarily was due to   valuation allowance release during fiscal 2011, which had an impact of $15.7 million.


Net income for 2011 was $29.7 million, or $1.27 per diluted share, compared to $13.2 million, or $0.57 per diluted share, last year.

Total inventory at the end of 2011 was $193.4 million, which was an $8.2 million, or 4.1 percent, decrease versus last year, and a 4.9 percent decrease on an inventory per square foot basis. Inventory turns for 2011 were up slightly versus last year.

 

Fiscal 2012 Guidance
Our earnings guidance for 2012 currently assumes that the market for boating supplies and related merchandise will remain relatively flat. We anticipate total sales to be in the range of $660 million to $676 million with comparable store sales growth of 0.5% to 2.5%. Pre-tax income is projected to range from approximately $23.0 million to $26.0 million.

 

WMAR's effective tax rate has been significantly affected over the past several years by a valuation allowance that had been put into place against its deferred tax assets in 2008 and then released during 2011.

 

In order to provide better perspective into  earnings-per-share (“EPS”) performance expectations for 2012, we are comparing them to 2011 EPS adjusted to reflect  anticipated effective tax rate of 39.5%. For 2012, we expect EPS in the range of $0.59 to $0.67, which is an increase of 7% to 22% when compared to adjusted 2011 EPS of 55 cents. Reported EPS for fiscal 2011 was $1.27.


We are targeting approximately $21 million in capital spending for 2012, with the majority driven by investment in   real estate optimization strategy.

                 West Marine, Inc.
        Consolidated Statements of Operations

        (Unaudited and in thousands, except per share data)
                                                                                                 13 Weeks Ended
                                                                                     Dec. 31, 2011              Jan. 1, 2011
                                                                            —————————  —————————
        Net revenues                                                        $ 113,394      100.0 %       $ 107,309      100.0 %
        Cost of goods sold                                                     92,613        81.7 %           88,766       82.7 %
                                                                                ——-       —– —        ——-      —– —
            Gross profit                                                       20,781        18.3 %           18,543       17.3 %
        Selling, general and administrative expense                 39,608        34.9 %         38,285       35.7 %
        Restructuring costs (recoveries)                                     57        0.1 %              (46)       0.0 %
        Impairment of long lived assets                                        –       0.0 %                –         0.0 %
                                                                                ——-       —– —        ——-       —– —
            Loss from operations                                       (18,884)     -16.7 %         (19,696)    -18.4 %
        Interest expense                                                      252         0.2 %              223         0.2 %
                                                                                ——-      —– —        ——-      —– —
            Loss before taxes                                             (19,136)    -16.9 %         (19,919)    -18.6 %
        Benefit for income taxes                                          (5,184)      -4.6 %           (13     -0.2 %
                                                                                ——- —  —– —       ——- —  —– —
            Net loss                                                        $ (13,952)    -12.3 %       $ (19,785)    -18.4 %
                                                                            === ======= ===  ===== ===   === ======= ===  ===== ===
        Net loss per common and common equivalent share:
            Basic                                                             $   (0.61)                   $   (0.88)
            Diluted                                                           $  (0.61)                  $   (0.88)
        Weighted average common and common
          equivalent shares outstanding:
            Basic                                                                22,911                       22,606
            Diluted                                                              22,911                        22,606