West Marine Q2 Sales Slip 5%; Earnings Up

West Marine reported net revenues for the thirteen weeks ended July 4, 2009 were $215.4 million, a 5.0% decrease compared to net revenues of $226.7 million for the thirteen weeks ended June 28, 2008. Comparable store sales declined 1.0% versus the same period a year ago. Comparable store sales for the second quarter 2009 benefited by $8.4 million, or 4.2%, because of a favorable fiscal calendar shift from fiscal year 2008.

Gross profit for the thirteen weeks ended July 4, 2009 was $73.1 million, a decrease of $5.3 million compared to 2008. As a percentage of net revenues, gross profit decreased by 0.7% to 33.9% compared to gross profit of 34.6% last year. The decrease in gross profit as a percentage of revenues primarily resulted from higher unit buying and distribution costs given the reduced inventory levels. Additionally, we experienced deleveraging of store occupancy due to lower revenues and the relatively fixed nature of these expenses.

SG&A expense for the quarter was $40.5 million, a decrease of $8.4 million, or 17.2%, compared to $48.9 million for the same period last year, and expenses as a percentage of revenues decreased by 2.8% to 18.8%. Drivers of the expense savings include: a $4.7 million decrease in selling and support overhead and a reduction in costs related to the recently-settled SEC investigation; and a $3.3 million reduction in payroll, marketing and other variable expenses reflecting lower revenues.

There were no impairments in the second quarter of the year versus $1.9 million last year in impairment charges for 32 stores.

Interest expense in the second quarter of 2009 was $0.3 million, a decline of $0.5 million from last year due to lower interest rates and reduced debt levels.

Income tax benefit for the second quarter was $0.2 million. A full valuation allowance was taken against our net deferred tax assets during this same period last year. The impact of the valuation allowance this year keeps our effective tax rate close to zero.

Earnings per share for the second quarter were $1.46 as compared to $0.20 last year. Last year’s earnings included charges on a per share basis of $0.66 for the valuation allowance and $0.06 for asset impairments. The remainder of the increase was primarily due to lower SG&A expense and a favorable change in effective tax rates.

Geoff Eisenberg, West Marine’s CEO, commented:

“We are extremely pleased with our operating results for the second quarter. Our profitability and cash flow increased significantly, and we dramatically lowered debt.

“While the boating industry overall has continued to struggle, we believe we’ve benefited from an uptick in boat usage in many markets, a movement towards more “do-it-yourself” projects, and very good Customer acceptance of our product line expansions. We’ve also been positively impacted by the demise of a large competitor.

“New boat manufacturing and sales have been soft, and that has had an adverse effect on our Port Supply (wholesale) division. But the relative strength in retail, which has been better than we anticipated, positively impacted our results.

“Our Associates have performed incredibly well, and while productivity increases have positively impacted our financial results, we are equally excited about our progress towards providing exceptional service to Customers.

“All of our key strategies (from optimizing real estate with larger, more dominant stores to expanding our West Marine brand merchandise) are multi-year initiatives, but the initial results give us confidence that we’re on the right course.”

2009 year-to-date results

Net revenues for the twenty-six weeks ended July 4, 2009 were $316.3 million, a 6.9% decrease compared to net revenues of $339.9 million for the twenty-six weeks ended June 28, 2008. Comparable store sales declined 2.9% versus the same period a year ago. Comparable store sales for the first half of 2009 benefited by $13.3 million, or 4.4%, from the fiscal calendar shift described above.

Gross profit for the twenty-six weeks ended July 4, 2009 was $95.0 million, a decrease of $5.9 million compared to 2008. As a percentage of net revenues, gross profit increased by 0.3% to 30.0% compared to gross profit of 29.7% last year. The increase in gross profit as a percentage of revenues primarily resulted from better product margins due to a reduction in promotional and clearance activity, and a shift in sales mix to higher margin product categories, which was partially offset by higher unit buying and distribution costs and deleveraging of store occupancy costs on lower revenues.

SG&A expense for the first six months was $77.4 million, a decrease of $18.3 million, or 19.1%, compared to $95.7 million for the same period last year, and expenses as a percentage of revenues decreased by 3.7% to 24.5%. Drivers of the expense savings included: a $9.3 million decrease in selling and support overhead and a reduction in costs related to the recently-settled SEC investigation; a $7.0 million reduction in payroll, marketing and other variable expenses reflecting lower revenues; and a $2.8 million reduction related to closed stores.

There were no impairments this year versus a non-cash impairment charge last year of $2.2 million related to 36 stores.

Interest expense for the first six months was $0.6 million, a decline of $1.0 million from last year due to lower interest rates and reduced debt levels.

Our income tax provision, driven by state taxes, was $0.2 million for the first six months of the year.

Cash generated by operating activities during the first six months of the year was $45.3 million, which was 178% higher than the corresponding period last year due to increased net income and efficient inventory management.

West Marine, Inc.