West Marine, Inc. today released unaudited operating results for the second quarter of 2010.


2010 second quarter highlights:



•Income before taxes was $36.0 million, a $3.7 million, or 11.5%, increase compared to the same period last year. This is West Marine’s seventh consecutive quarter of improved operating results versus the corresponding quarter of the prior year.


•Earnings per share for the second quarter were $1.52, compared to $1.46 for the same period last year.


•Earnings per share year-to-date were $1.12, compared to 75 cents for the same period last year.


•Net outstanding borrowings as of the end of the second quarter were $2.5 million, a decline of 86%, from the end of the second quarter last year.


•Approximately $138.4 million was available for borrowings under the company’s credit facility at quarter-end.


Geoff Eisenberg, West Marine’s CEO, commented: “I think it’s noteworthy that Q2 of 2010 was the seventh consecutive quarter in which we delivered improved operating results versus the corresponding quarter of the prior year. We are pleased with these results, especially since the second quarter is West Marine’s busiest of the year. As we continue to evolve our company, the sales and earnings results we experienced during the first half of 2010 give us confidence we’re on the right track.”


2010 second quarter results


West Marine’s income before taxes for the thirteen weeks ended July 3, 2010 was $36.0 million, an increase of $3.7 million, or 11.5%, from income before taxes of $32.3 million for the 2009 fiscal second quarter.


Net revenues for the thirteen weeks ended July 3, 2010 were $233.4 million, an increase of $18.0 million, or 8.4%, compared to net revenues of $215.4 million for the corresponding period last year, with comparable store sales increasing by $17.3 million, or 9.4%, from last year.


Stores opened during 2009 and the first two quarters of 2010 increased revenues by $9.9 million versus last year. During the quarter, the company opened its fifth Flagship store, located in Newport, Rhode Island. There were also three large-format stores opened in Florida, located in Jensen Beach, Stuart and Ft. Walton Beach. Stores closed during these same periods generated revenues of $8.8 million during the second quarter of last year. The majority of the closures occurred in connection with our on-going real estate optimization program.


Sales during the second quarter appeared to benefit from changes in the competitive landscape, as well as from favorable weather in the Northeast. It also appears that the boating market was somewhat stronger overall, with more people using their boats more often than during the same period last year. A higher share of the overall sales growth came from the Port Supply wholesale business, particularly through sales to wholesale Customers at store locations. West Marine’s store model, in which both retail and wholesale Customers are actively served at these locations, has generated additional revenue and helps leverage fixed costs at our stores.


West Marine’s mix of business in the Southeast during the second quarter was impacted by the effects of the Gulf oil spill. While not significant, there was a decrease in sales of merchandise to recreational boaters and fishermen in that area; however, this was offset by increased sales of products to those connected with fighting the spill.


Gross profit for the thirteen weeks ended July 3, 2010 was $82.5 million, an increase of $9.4 million compared to the same period of fiscal 2009. As a percentage of net revenues, gross profit increased by 1.4% to 35.3%, compared to gross profit of 33.9% last year. The increase in gross profit as a percentage of revenues primarily resulted from a 0.9% impact of lower unit buying and distribution costs. Additionally, gross margin benefited from improved shrinkage results (0.2%) and leveraged occupancy expenses (0.2%) off of increased revenues given the relatively fixed nature of these expenses.


Selling, general and administrative (“SG&A”) expense for the quarter was $46.2 million, an increase of $5.7 million, or 14.1%, compared to $40.5 million for the same period last year, and SG&A expense as a percentage of revenues increased by 0.9% to 19.7%. Drivers of the higher expense included: a $1.8 million increase in store payroll to support longer operating hours and increased staffing during our peak season; a $1.5 million unfavorable foreign currency translation impact; and $1.3 million in marketing expenses due to the timing of certain campaigns from year to year.


Interest expense in the second quarter of 2010 was $200,000, a decline of $100,000 from last year. This change was primarily due to reduced debt levels.


Income tax provision for the second quarter of 2010 was $900,000, and the effective income tax rate was 2.5% compared to a tax benefit of 0.6% for the same period last year. The effective income tax rate for both years reflects the valuation allowance in place against our deferred tax assets.


Net income for the second quarter was $35.1 million, or $1.52 per share, compared to $32.5 million, or $1.46 per share, for the same period last year.


2010 year-to-date results


Income before taxes for the twenty-six weeks ended July 3, 2010 was $26.5 million, an increase of $9.6 million, or 56.9%, from income before taxes of $16.9 million for the comparable period in 2009.


Net revenues for the twenty-six weeks ended July 3, 2010 were $342.9 million, an 8.4% increase compared to net revenues of $316.3 million for the twenty-six weeks ended July 4, 2009. Comparable store sales increased 9.1% versus the same period a year ago.


Gross profit for the twenty-six weeks ended July 3, 2010 was $107.5 million, an increase of $12.5 million compared to the same period for 2009. As a percentage of net revenues, gross profit increased by 1.4% to 31.4%, compared to gross profit of 30.0% for the same period last year. The increase in gross profit as a percentage of revenues primarily resulted from leveraging of occupancy expenses off of improved revenues (0.5%), lower unit buying and distribution costs (0.5%), and reduced inventory shrinkage (0.3%).


SG&A expense for the twenty-six weeks ended July 3, 2010 was $80.7 million, an increase of $3.3 million, or 4.3%, compared to $77.4 million for the same period last year, and expenses as a percentage of revenues decreased by 0.9% to 23.6%. Drivers of the higher expense included: a $2.7 million increase in store payroll and other variable selling expenses; and $1.2 million in expenses related to West Marine University, our national sales meeting held every other year. This was partly offset by a $800,000 favorable foreign currency translation impact.


Interest expense for the first six months of 2010 was $300,000, a decline of $400,000 from last year due to reduced debt levels.


The company’s income tax provision was $900,000 for the first six months of 2010, compared to $200,000 for the same period last year.


Net income for the first six months of 2010 was $25.6 million, or $1.12 per share, compared to $16.7 million, or 75 cents per share, for the same period last year.


Cash used in operating activities during the first six months of the year was $2.8 million compared to $45.3 million of cash generated during the same period last year. Net cash provided by operating activities decreased year-over-year by $48.1 million and was primarily driven by our strategy to bring in additional inventory earlier in the season this year to help ensure in-stock position as we move through the summer peak selling season, as well as lower accounts payable and lower accrued expenses.


Net outstanding borrowings as of the end of the second quarter were $2.5 million, a decline of 86% compared to the $18.0 million outstanding at the end of the second quarter last year.












































































































































































































































































































West Marine, Inc.


Condensed Consolidated Statements of Operations


(Unaudited and in thousands, except per share data)
       
13 Weeks Ended
July 3, 2010 July 4, 2009
Net revenues $ 233,390 100.0 % $ 215,371 100.0 %
Cost of goods sold   150,903     64.7 %   142,278     66.1 %
Gross profit 82,487 35.3 % 73,093 33.9 %
Selling, general and administrative expense 46,226 19.7 % 40,529 18.8 %

Store closures and other restructuring costs
(77 ) 0.0 % (26 ) 0.0 %
Impairment of long lived assets   180     0.1 %       0.0 %
Income from operations 36,158 15.5 % 32,590 15.1 %
Interest expense   156     0.1 %   302     0.1 %
Income before income taxes 36,002 15.4 % 32,288 15.0 %
Income taxes   884     0.4 %   (200 )   -0.1 %
Net income $ 35,118     15.0 % $ 32,488     15.1 %
 

Net income per common and common equivalent share:
Basic $ 1.56 $ 1.46
Diluted $ 1.52 $ 1.46
 

Weighted average common and common equivalent shares outstanding:
Basic 22,465 22,187
Diluted 23,053