West Marine Q3 Income Jumps Following Restructuring; Cuts FY Guidance

West Marine third quarter net income increased 81% to $5.3 million, or 24 cents per share, for the thirteen weeks ended September 29, 2007 compared to net income of $2.9 million, or 14 cents per share, for the same period last year. Comparable store sales increased 0.3% and net sales were $187.5 million, a decrease of 4.1%
from net sales of $195.6 million for the same period a year ago.

Net income for the third quarter last year included a $1.5 million pre-tax, or four cents per share after-tax, charge for store closure costs. West Marine operated 372 stores during the third quarter of 2007, compared to 402 stores during the third quarter of 2006.

Net income for the thirty-nine weeks ended September 29, 2007 was $14.1 million, or 64 cents per share, compared to net income of $5.2 million, or 24 cents per share, for the same period last year, which included a $5.1 million pre-tax, or 15 cents per share after-tax, charge for store closure costs. Comparable store sales decreased 1.7% for the thirty-nine weeks ended September 29, 2007. Net sales were $561.4 million, a decrease of 5.3% from net sales of $592.8 million for the same period a year ago.

Peter Harris, West Marine’s chief executive officer, stated, “Despite continuing challenges arising from lower boat usage and boating market softness, the company has reported earnings progress year over year. This growth reflects the results of continuing improvements in store merchandise assortments, store teams focused on customer service and steps to reduce costs. Results also reflect a previously discussed change in the timing of compensation-related expense accruals which have a favorable impact on the quarter and year to date comparisons with last year until the fourth quarter. Sales results vary dramatically by geographic area and channel as we observe the impact of promotions, local economic conditions, seasonality and changing customer needs and wants.”

West Marine is revising its full year 2007 earnings guidance downward to be in the range of 14 cents to 18 cents per share compared to 12 cents for full year 2006, excluding 2006 store closings and other restructuring costs, the impact of which was a negative 46 cents last year. The previously issued 2007 guidance range was 24 cents to 34 cents per share. For the year, comparable store sales guidance is narrowed to a decrease of between 1.5% and 2.0%. Previous guidance reflected a decrease of between 1.5% and 2.5%. Sales in the direct channel are anticipated to be lower than previously forecasted, yielding total company sales of approximately $681 million to $684 million as compared to previous guidance of $683 million to $688 million. In addition to lower sales, the guidance reduction also reflects a reduction in gross profit margins, and higher than anticipated expenses.

In further explaining the lower guidance, Harris said, “We continue to invest with gross margin in promotions, inventory freshness and pricing to maintain our strong and improving long term market position. Port Supply store sales remain strong and are at a lower margin than sales directly to boaters in the retail channel.

“While having implemented the aggressive and successful expense reduction activity of the last year, expenses for the year are higher than previously forecasted. Revised guidance includes additional legal and administrative costs related to our earlier restatement of prior years’ earnings. Additionally, the direct channel has experienced higher than planned costs and slowed implementation of anticipated customer facing and infrastructure website improvements. At a higher expense, we are processing more merchandise through our distribution centers to stores as we distribute more lower-priced merchandise to achieve the same sales, and keep store shelves more full for customers.”