West Marine, Inc. reported net revenues for the second quarter ended July 2 edged up 1.1 percent to $236.0 million as the company continued to close underperforming stores and open new ones.


Revenues in the Stores segment were $214.8 million, up $2.2 million, or 1.0%, compared to the same period last year. Revenues from stores opened in 2010 and the first two quarters of 2011 contributed $15.8 million to the increase. However, the impact of stores closed during these same periods effectively reduced revenues by $13.2 million. The majority of the closures occurred in connection with our on-going real estate optimization program to evolve into having fewer, larger stores. Comparable store sales were flat year-to-year.

 


The company’s Port Supply segment revenues from our distribution centers for the second quarter of 2011 were $8.4 million, a decrease of $0.8 million, or 8.8%, compared to the same period last year. As we open larger stores and hub locations in our stores, we continue to see sales through our distribution centers move from our Port Supply segment to our Stores segment. While our move towards fewer larger stores with some providing wholesale hubs has shifted revenue from the Port Supply segment, we believe our initiatives improve our service model to our wholesale customers.


 


Net revenues in the Direct Sales segment for second quarter of 2011 were $12.7 million, an increase of $1.2 million, or 10.5%, compared to the same period last year.


 


Gross profit for the second quarter was $84.8 million, an increase of $2.3 million compared to 2010. As a percentage of net revenues, gross profit increased by 0.7% to 36.0%, compared to gross profit of 35.3% last year. The increase in gross profit as a percentage of revenues resulted from a 0.3% increase in raw product margin driven by less promotional and clearance activity and a 0.3% impact of lower unit buying and distribution costs. Additionally, gross margin benefited by 0.1% from improved shrinkage results.


 


Selling, general & administrative (SG&A) expense for the quarter was $44.6 million, a decrease of $1.6 million, or 3.5%, compared to $46.2 million for the same period last year. As a percentage of revenues, SG&A decreased by 0.8% to 18.9%. The lower SG&A expense was primarily driven by a decrease in accrued bonus expense of $2.3 million, which was partially offset by $0.6 million in higher than expected information technology spending for the ongoing implementation of our new point-of-sale and order entry systems.


 


Pre-tax income for the 13 weeks ended July 2, 2011 was $40.0 million, a $4.0 million, or 11.0%, increase from pre-tax income of $36.0 million last year. Net income was $1.92 per share, a 26.3% increase compared to $1.52 per share last year.


 


Income taxes for the second quarter of 2011 reflected a benefit of $4.8 million, and our effective income tax rate was (11.9)% compared to a provision of $0.9 million and an effective tax rate of 2.5% for the same period last year. During the second quarter of 2011, the company concluded that our tax valuation allowance on the majority of our deferred tax assets was no longer required, primarily as a result of achieving sustained profitability in most tax jurisdictions. The effective income tax rate for the second quarter of 2010 reflected the impact of having a partial valuation allowance in place against our net deferred tax assets.


Fiscal 2011 Earnings Guidance


 


Despite a late start to the prime boating season compared to fiscal 2010, our second quarter results were ahead of our expectations. As a result, we are raising our previously-issued full year 2011 pre-tax income guidance to a range of approximately $18.5 million to $20.0 million versus a previously-communicated range of $17.5 million to $19.0 million. Comparable store sales for full-year 2011 are now anticipated to increase from 1.5% to 2.5%, versus the previously-communicated range of 1% to 2%, with total revenues now expected to be in a range of approximately $640 million to $645 million, versus a previously-communicated $634 million to $640 million range. We are reiterating our previously-issued 2011 capital spending expectations of approximately $20 million, principally driven by investment in our real estate optimization strategy.


 


We now expect that the companys effective tax rate will range from a benefit of approximately 31% to a benefit of approximately 37%, due to the impact of releasing the majority of the valuation allowance in place against our deferred tax assets during the second quarter of 2011. This compares to our previously-communicated 6% to 10% range. We expect resulting earnings per share will range from $1.05 to $1.16, compared to the previous guidance of $0.68 to $0.77 per share; again, the updated guidance was primarily due to the release of our valuation allowance.


 

































































































































































































































































West Marine, Inc.
Condensed Consolidated Statements of Income
(Unaudited and in thousands, except per share data)
 
  13 Weeks Ended
July 2, 2011   July 3, 2010
Net revenues $ 235,963   100.0% $ 233,390   100.0%
Cost of goods sold   151,117     64.0%   150,903     64.7%
Gross profit 84,846 36.0% 82,487 35.3%
Selling, general and administrative expense 44,592 18.9% 46,226 19.7%
Store closures and other restructuring recoveries (20 ) 0.0% (77 ) 0.0%
Impairment of long lived assets   28     0.0%   180     0.1%
Income from operations 40,246 17.1% 36,158 15.5%
Interest expense   273     0.2%   156     0.1%
Income before income taxes 39,973 16.9% 36,002 15.4%
Income taxes   (4,770 )   -2.1%   884     0.4%
Net income $ 44,743     19.0% $ 35,118     15.0%
 
Net income per common and common equivalent share:
 
Basic $ 1.97 $ 1.56
Diluted $ 1.92 $ 1.52