West Marine, Inc. reported that net revenues for the 13 weeks ended Jan. 1, 2011 were $107.3 million, an increase of $3.4 million, or 3.3%, compared to net revenues of $103.9 million for the corresponding period last year, with comparable store sales increasing by $1.3 million, or 1.6%, from last year.
Net revenues for the fifty-two weeks ended Jan. 1, 2011 were $622.8 million, a 5.8% increase over net revenues of $588.4 million for the fifty-two weeks ended Jan. 2, 2010. Comparable store sales increased 6.3% versus last year. A driver of this growth was gains in sales to Port Supply (wholesale) customers through our store locations as part of our ongoing efforts to better serve this group and to leverage our store facilities.
Gross profit for 2010 was $175.6 million, an increase of $14.7 million compared to 2009. As a percentage of net revenues, gross profit increased by 0.9% to 28.2%, compared to gross profit margin of 27.3% last year. The increase in gross profit as a percentage of revenues primarily was due to a 0.5% increase in raw 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, increased revenues allowed us to leverage our relatively fixed occupancy expenses by approximately 0.4%.
Selling, general and administrative (SG&A) expense for the fifty-two weeks ended January 1, 2011 was $160.8 million, an increase of $8.5 million, or 5.6%, compared to $152.3 million for last year. Expenses as a percentage of revenues remained flat at 25.8%. Drivers of the higher SG&A expense included: a variable selling expense increase of $4.2 million primarily due to selective investments in additional staffing in our stores during the second and third quarters, our busiest quarters; a $1.5 million unfavorable comparison versus last year due to the impact of foreign currency exchange; $1.3 million in higher information technology spending to implement our new point-of-sale and order entry systems, which we expect to launch in 2011; and $1.2 million related to West Marine University, our national sales meeting held every other year. SG&A expense in 2009 was reduced by $1.0 million upon receipt of an insurance reimbursement related to costs associated with the SEC investigation which closed during that year. The increase in SG&A was partially offset by a $0.8 million reduction in bonus expense in 2010 when compared to 2009.
During the fourth quarter of 2009 the company reached an agreement to sublease a location which had a large associated termination obligation. The terms of this particular agreement were more favorable than originally estimated and, therefore, store closure and restructuring costs were adjusted, driving the $1.5 million year-over-year variance.
Interest expense decreased to $0.6 million compared to $0.8 million last year, primarily due to lower borrowing levels, reflecting our debt-free status for most of the second half of 2010.
The company’s income tax provision was $1.0 million for 2010 compared to a benefit of $2.8 million last year. The benefit of $2.8 million primarily was related to the recognition in fiscal 2009 of a federal stimulus package tax law change which increased the number of historical years in which companies are permitted to carry back prior period net operating losses.
Net income for 2010 was $13.2 million, or 57 cents per diluted share, compared to $12.4 million, or 55 cents per diluted share, last year.
Total inventory at the end of 2010 was $201.6 million, a $5.0 million, or 2.5%, increase over last year, and a 1.8% increase on an inventory per square foot basis. Inventory turns for 2010 were up slightly versus last year.
Our earnings guidance for 2011 assumes that the market for boating supplies and related merchandise will remain soft. Accordingly, comparable store sales are anticipated to be in the range of flat to up approximately 1%, with total revenues of approximately $629 million to $635 million. Pre-tax income as a percentage of sales is anticipated to increase modestly. We expect the resulting pre-tax income to be in the range of approximately $17.5 million to $19.0 million, or an increase of approximately 23% to 34% over 2010.
We expect that the company’s effective tax rate will be approximately 10% to 15%, resulting in net income of $15.0 million to $17.0 million, and earnings per share in the range of $0.65 to $0.73, an increase of 14% to 28% over 2010. We continue to evaluate the need to release all or a portion of the valuation allowance against our deferred tax assets. Should we come to the conclusion that a release of the valuation allowance is required during 2011, there could be a material increase in net income and earnings per share due to the impact on the tax rate.
We are targeting approximately $20 million in capital spending for 2011, with the majority driven by investment in our real estate optimization strategy. Cash flow from operating activities is expected to be in the range of approximately $30 million to $35 million.
We also want to give some additional insight regarding our expectations for the first quarter of 2011. Currently, we are projecting that comparable store sales will be slightly negative as we experienced a particularly strong first quarter in 2010 which benefitted from, among other things, unusually warm weather in many markets. In addition, we believe SG&A comparisons will be unfavorable in the first quarter due to timing of key projects and marketing expenditures in 2011. As a result, although we expect to deliver profit growth for the year, we are projecting that pre-tax income for the first quarter of 2011 will be below that of the corresponding quarter in 2010.
West Marine, Inc. | |||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||
| (Unaudited and in thousands, except per share data) | |||||||||||||||
| 13 Weeks Ended | |||||||||||||||
| January 1, 2011 | January 2, 2010 | ||||||||||||||
| Net revenues | $ | 107,309 | 100.0 | % | $ | 103,926 | 100.0 | % | |||||||
| Cost of goods sold | 88,766 | 82.7 | % | 85,466 | 82.2 | % | |||||||||
| Gross profit | 18,543 | 17.3 | % | 18,460 | 17.8 | % | |||||||||
| Selling, general and administrative expense | 38,285 | 35.7 | % | 36,272 | 34.9 | % | |||||||||
| Store closures and other restructuring costs | (46 | ) | 0.0 | % | (1,578 | ) | (1.5 | )% | |||||||
| Impairment of long lived assets | – | 0.0 | % | 13 | 0.0 | % | |||||||||
| Loss from operations | (19,696 | ) | (18.4 | )% | (16,247 | ) | (15.6 | )% | |||||||
| Interest expense | 223 | 0.2 | % | 86 | 0.1 | % | |||||||||
| Loss before taxes | (19,919 | ) | (18.6 | )% | (16,333 | ) | (15.7 | )% | |||||||
| Income taxes | (134 | ) | (0.2 | )% | (3,526 | ) | (3.4 | )% | |||||||
| Net loss | $ | (19,785 | ) | (18.4 | )% | $ | (12,807 | ) | (12.3 | )% | |||||
Net loss per common and common equivalent share: | |||||||||||||||
| Basic | $ | (0.88 | ) | $ | (0.57 | ) | |||||||||
| Diluted | $ | (0.88 | ) | $ | (0.57 | ) | |||||||||
Weighted average common and common equivalent shares outstanding: | |||||||||||||||
| Basic | 22,606 | 22,370 | |||||||||||||
| Diluted | 22,606 | 22,370 | |||||||||||||
