West Marine Reports Q4 Loss Narrows; Comps Slip 4.8%

 

Adjusted to remove the impact of an extra week in the fourth quarter of 2008, our 2009 fourth quarter adjusted net revenues increased by $1.5 million, or 1.4%, and adjusted comparable store sales increased by 3.2%, versus the same period last year. Net loss for the fourth quarter ended January 2, 2010 was $12.8 million, or $0.57 per share. This compares to a net loss of $29.0 million, or $1.31 per share, for the fourth quarter last year.

 

 

Net income for 2009 was $12.4 million. This compares to a net loss for 2008 of $38.8 million, which included a $10.7 million pre-tax charge for store closures and other restructuring costs, a $2.9 million non-cash, pre-tax charge for impairment of long-lived assets, and the impact of a $23.2 million charge to provide a full valuation allowance against our net deferred tax assets.

 

Net revenues for the 52 weeks ended January 2, 2010 were $588.4 million, a decrease of $42.8 million, or 6.8%, from net revenues of $631.3 million for the 53 weeks ended January 3, 2009, primarily due to a decline of 3.6%, or $18.7 million, in comparable store sales. There was a further decrease of $27.1 million from store closures during fiscal year 2009, partly offset by $18.4 million of net revenues generated by new stores. Adjusted to remove the impact of the extra week in fiscal year 2008, fiscal year 2009 net revenues would have decreased by $36.8 million, or 5.9%, and comparable store sales would have decreased by $13.6 million, or 2.7%, versus last year.

 

Net revenues for the Stores segment decreased $26.4 million, or 4.8%, to $525.4 million in 2009, primarily due to an $18.7 million, or 3.6%, decrease in comparable store sales and a $27.1 million decrease attributable to store closures in 2008 and 2009. Partially offsetting these decreases was an $18.4 million increase from new stores opened in 2008 and 2009. The Stores segment generated $5.5 million of revenues in the first and extra week of fiscal 2008, which negatively impacted comparisons year-over-year.

 

Port Supply net revenues through our distribution centers decreased $10.5 million, or 26.7%, to $28.9 million in 2009, primarily due to lower sales year-over-year to two customer types, boat dealers and boat builders. We believe these customers were negatively impacted by the challenging economic environment and tight credit markets and we expect sales to these customers to stabilize during fiscal 2010.

 

Net revenues from our Direct Sales segment decreased $5.9 million, or 14.7%, to $34.1 million, due to decreased revenues from our call center channel, international customers and higher-priced discretionary items.

Gross profit decreased by $6.5 million, or 3.9%, to $160.9 million in 2009, compared to $167.4 million for 2008. Gross profit decreased primarily due to lower sales. However, gross profit increased as a percentage of net revenues by 0.8% to 27.3% in 2009, compared to 26.5% in 2008, primarily due to a 0.9% increase in product margin driven by more effective promotions, less clearance activity and a shift in revenues to higher-margin core boating categories, such as maintenance. Additionally, inventory shrinkage improved by 0.2%.

 

Improvements were partially offset by the deleveraging of 0.4% in occupancy expense. Occupancy is our largest fixed expense, and its impact on gross margin rate is largely driven by sales results and the fixed nature of the expense.

 

Selling, general and administrative expense decreased by $24.5 million, or 13.9%, to $152.3 million in 2009, compared to $176.8 million for 2008, and decreased as a percentage of revenues by 2.2% to 25.8% in 2009, compared to 28.0% in 2008. The decrease in selling, general and administrative expense primarily was due to $9.9 million in lower support and selling overhead, including a $3.2 million reduction in costs related to the now-settled SEC investigation, and $8.4 million in lower payroll, marketing and other variable expenses reflecting lower revenues.

 

Additionally, $5.5 million of decreased expenses related to stores closed in 2009. Expenses also were lower by $4.8 million due to favorable foreign currency translation gains compared to the 2008 fiscal year. Lower expenses were partially offset by $7.6 million in higher accrued bonus expense reflecting performance above budgeted expectations.

Store closure and other restructuring costs for 2009 decreased by $12.4 million, compared to 2008. During 2008, we recognized restructuring expenses of $10.7 million, consisting of $6.9 million for store closures, $0.1 million for Port Supply, $2.9 million for closing a distribution center, $0.5 million for repositioning the call center, and $0.3 million of severance costs for reductions in force at our Watsonville, California support center.

 

During the fourth quarter of 2009, we reached an agreement to sublease a location which had the largest associated termination obligation. The terms of this particular agreement were more favorable than what we originally estimated and resulted in a $1.7 million reversal in 2009 of the previously accrued estimated costs.

 

Expenses related to the impairment of long-lived assets were less than $0.1 million in fiscal 2009, compared to non-cash impairment charges of $2.9 million for 2008. The 2008 impairment charge primarily was due to 45 underperforming stores, of which 19 have been closed.

 

Interest expense decreased $1.5 million, or 65.5%, to $0.8 million in 2009, compared to $2.3 million in 2008. The decrease in interest expense was due to both lower interest rates and lower average outstanding bank borrowings in fiscal 2009, compared to fiscal 2008.

Our effective income tax rate for 2009 was a benefit of 29.7%, compared to a provision of 53.5% in 2008 or a total change of $16.4 million. The current year benefit of $2.8 million is primarily related to the recognition of fiscal 2009 tax net operating loss carry-backs realized through a recent change in federal tax laws. This change increased the number of years to which companies can carry losses back.

Geoff Eisenberg, West Marines CEO, commented: We are certainly pleased with our progress during 2009 and are delighted to report such a significant improvement in earnings and cash flow. Especially considering how difficult a year it was for the boating industry, I think its quite noteworthy that West Marine was profitable for the year.

The changes we made during 2008 and early 2009 helped position us to take advantage of changes in the competitive landscape, which included the liquidation of one of our primary national competitors, Boaters World. We also benefited from an increase in boat usage in some markets, continued strength in do-it-yourself type projects, plus positive Customer response toward our expanded product assortments and new store formats. Our Associate teams did an outstanding job improving our overall productivity, understanding and fulfilling Customers needs, increasing inventory turns, managing capital and positioning West Marine well for the future.