West Marine Inc.’s will accelerate a store revitalization program to accommodate more of the apparel, footwear, paddle sports, personal electronics and other lifestyle products after sales of those categories grew at double-digit rates in the third quarter.
The company has targeted growth of such merchandise in a bid to evolve from a traditional supplier of boat parts and accessories into a retailer catering to the broader lifestyle needs of those who recreate on or near the water.
WMAR reported net revenue reached $196.5 million in the third quarter ended Sept. 27, up $3.6 million, or 1.6 percent, compared with the year earlier quarter. Comparable store sales grew 0.6 percent, as declines in still frigid northern markets were more than offset by 4.2 percent growth in the Southeastern U.S. and just under 2 percent on the West Coast. Internet sales, which dipped in the wake of migrating to a new e-commerce platform in July, resumed mid-to-high-single-digit growth in September.
WMAR attributed the growth primarily to a 16.5 percent in sales of its expanded merchandize products during the quarter that was led by women’s apparel and paddle sports. The categories generated 19.4 percent of third quarter sales, compared with 16.9 percent in the year earlier quarter.
Core products sales, by contrast, declined 1.4 percent and dropped to 80.6 percent of total sales from 83.1 percent in the third quarter of 2013.
The results convinced WMAR’s board to approve an acceleration of a “store revitalization program,” that has enabled it to drive mid-single-digit sales increases at existing stores at a fraction of the cost of relocating those stores. In a revitalization, WMAR installs new lighting and performs other light remodeling to optimize existing stores for the presentation of its expanded apparel, footwear and other lifestyle merchandise. WMAR revitalized 11 stores this spring.
WMAR is also featuring lifestyle products more prominently at four stores it opened in the third quarter in Fort Pierce and Panama City Florida, Seattle WA and Sausalito, CA, where it relocated a flagship store.
” Sausalito does a good job of representing this evolution,” explained WMAR CEO Matt Hyde. “The original store served the community for core boat parts well, but it was too small to offer any other merchandise. We moved this store to a larger location and added products for recreating on and around the water such as apparel, footwear, fishing, paddle sports, and lifestyle electronics and the store is off to a great start with strong double-digit growth.”
WMAR announced Oct. 23 that it will shutter all 10 of its stores in Canada in coming years so it can redeploy capital for in better growth opportunities, including store revitalizations.
WMAR reported gross margin inched down 10 basis points (bps) to 29.7 percent during the quarter due to a 70 bps decline in merchandise margins that it attributed to a shift in the mix of retail versus wholesale revenue. Selling, general and administrative expenses, meanwhile, grew 8.9 percent to $48.5 million, as WMAR increased spending on key growth strategies and infrastructure, including e-commerce, as well as higher than average healthcare claims, legal fees associated with a two pending class action lawsuits, severance pay and taxes. That pushed SG&A expenses to 24.7 percent of sales, up 190 bps from the year earlier quarter.
Pretax profit declined $3.6 million, or 26.9 percent to $9.8 million from $13.4 million reported in the third quarter of 2013. Earnings per share declined to 20 cents from 26 cents in the year earlier quarter.
The company re-affirmed its 2014 full-year guidance, which calls for pre-tax income in the range of approximately $8.5 million to $11.0 million and EBITDA in the range of approximately $27.5 million to $30.0 million. WMAR reported EBITDA of $30.7 million in fiscal 2013. Year to date, WMAR has recorded a pretax profit of $23 million.
WMAR ended the quarter debt free, with $63.6 million in cash. and inventory valued at $215.2 million, down 0.6 percent from a year earlier and down 08 percent on a per square foot basis.