West Marine reported revenues in the third quarter were $172.5 million, up 2.6% versus last year. Earnings slid 14.5% to $7.4 million, or 32 cents a share, from $8.5 million, or 38 cents, a year ago.
 
Geoff Eisenberg, West Marine's CEO, commented: “We continue to be very pleased with our overall year-to-date performance. While some unusually large year-over-year expense variances impacted our bottom line comparisons for the third quarter, our improvement in sales and margin indicate to us that the fundamental aspects of our business, as well as our key growth strategies, are making good progress.”

2010 third quarter results

Net revenues for the thirteen weeks ended October 2, 2010 were $172.5 million, an increase of $4.4 million, or 2.6%, compared to net revenues of $168.2 million for the corresponding period last year, with comparable store sales increasing by $5.2 million, or 3.7%, from last year. A driver of this growth was gains in sales to wholesale customers through our store locations as part of our ongoing efforts to better serve this group, as well as leverage our store facilities.

New stores opened during 2009 and the first three quarters of 2010 increased revenues by $9.2 million compared to last year. Stores closed during these same periods effectively reduced revenues by $8.3 million. The majority of the closures occurred in connection with our on-going real estate optimization program to evolve into having fewer, larger stores. During the quarter, we opened two standard-format stores in Mt. Pleasant, South Carolina and Jupiter, Florida.

Sales during the third quarter were affected by what appeared to be a general softening in the boating equipment market after the 4th of July. Furthermore, sales no longer reflected the comparable year-over-year positive impact of the Boater's World closure, which took place in the middle of 2009.

Gross profit for the thirteen weeks ended October 2, 2010 was $49.6 million, an increase of $2.1 million compared to the same period of fiscal 2009. As a percentage of net revenues, gross profit increased by 0.5% to 28.7%, compared to gross profit of 28.2% last year. The increase in gross profit as a percentage of revenues primarily resulted from a 0.9% improvement in raw product margin driven by less promotional and clearance activity. Additionally, we leveraged occupancy expenses which are relatively fixed in nature by 0.2% as a result of increased revenues. These improvements were partially offset by 0.3% in higher inventory shrinkage and 0.3% in higher unit buying and distribution costs over the comparable period last year.

Selling, general and administrative expense for the quarter was $41.8 million, an increase of $3.2 million, or 8.3%, compared to $38.6 million for the same period last year. SG&A expense as a percentage of revenues increased by 1.3% to 24.2%. Drivers of the higher expense included: a $1.4 million increase in variable selling expenses and store payroll to support longer operating hours and increased staffing during our peak season; a $0.8 million unfavorable comparison to last year which reflected the benefit of receiving insurance reimbursements relating to the SEC investigation closed last year; a $0.7 million increase in support expense related to investments in information technology; and a $0.5 million unfavorable foreign currency fluctuation.

During the third quarter, we replaced our credit facility that would have expired at the end of 2010. Interest expense for the third quarter increased $0.1 million versus last year due to the acceleration of amortization costs associated with the expiring facility, as well as higher commitment fees and increased amortization costs associated with our new credit facility.

Income tax provision for the third quarter of 2010 was $0.2 million, and our effective income tax rate was 2.7% compared to 5.5% for the same period last year. The effective income tax rate for both years reflects the impact of having a valuation allowance in place against our deferred tax assets.

West Marine's income before taxes for the thirteen weeks ended October 2, 2010 was $7.6 million, a decrease of $1.3 million, or 14.8%, from income before taxes of $9.0 million for the 2009 fiscal third quarter.

Net income for the third quarter was $7.4 million, or $0.32 per share, compared to $8.5 million, or $0.38 per share, for the same period last year.

2010 year-to-date results

Income before taxes for the thirty-nine weeks ended October 2, 2010 was $34.2 million, an increase of $8.3 million, or 32.1%, from income before taxes of $25.9 million for the comparable period in 2009.

Net revenues for the thirty-nine weeks ended October 2, 2010 were $515.5 million, a 6.4% increase compared to net revenues of $484.5 million for the thirty-nine weeks ended October 3, 2009. Comparable store sales increased 7.2% versus the same period a year ago.

Gross profit for the thirty-nine weeks ended October 2, 2010 was $157.1 million, an increase of $14.6 million compared to the same period for 2009. As a percentage of net revenues, gross profit increased by 1.1% to 30.5%, compared to gross profit of 29.4% for the same period last year. The increase in gross profit as a percentage of revenues primarily resulted from a 0.4% improvement in raw product margins, leveraging of occupancy expenses off of improved revenues accounting for 0.4%, lower unit buying and distribution costs of 0.2%, and reduced inventory shrinkage of 0.1%.

SG&A expense for the thirty-nine weeks ended October 2, 2010 was $122.6 million, an increase of $6.5 million, or 5.6%, compared to $116.0 million for the same period last year. Expenses as a percentage of revenues decreased by 0.1% to 23.8%. Drivers of the higher expense included: a $4.2 million increase in store payroll and other variable selling expenses; a $1.3 million year-over-year unfavorable foreign currency translation impact; $1.2 million in expenses related to West Marine University, our national sales meeting held every other year; and a $1.0 million unfavorable comparison to last year which reflected the benefit of receiving insurance reimbursements relating to the SEC investigation closed last year. These increases were partly offset by $1.2 million of lower advertising expense as compared to last year.

Interest expense for the first nine months of 2010 was $0.4 million, a decline of $0.3 million from last year, reflecting reduced debt levels.

The company's income tax provision was $1.2 million for the first nine months of 2010, compared to $0.7 million for the same period last year.

Net income for the first nine months of 2010 was $33.0 million, or $1.44 per share, compared to $25.2 million, or $1.13 per share, for the same period last year.

Cash provided by operating activities during the first nine months of the year was $36.6 million compared to $71.0 million of cash generated during the same period last year. Net cash provided by operating activities decreased year-over-year by $34.4 million, primarily due to a relatively higher inventory starting point at the beginning of fiscal 2009 and reductions taken during that year as we focused on better overall inventory management, as well as the impact of lower accrued expenses.

Total inventory at the end of the third quarter was $208.9 million, up $9.2 million, or 4.6%, versus the same period last year and up 4.9% on an inventory per square foot basis. Inventory turns year-to-date are up slightly versus last year.

West Marine, Inc.
Condensed Consolidated Statements
of Income

(Unaudited and in thousands, except per share
data)


 


 


 


 



13 Weeks Ended


October 2, 2010
October 3, 2009

Net revenues


$

172,544



100.0

%


$

168,154



100.0

%

Cost of goods sold


 

122,970

 

 

71.3

%


 

120,703

 

 

71.8

%

Gross profit



49,574



28.7

%



47,451



28.2

%

Selling, general and administrative expense



41,817



24.2

%



38,618



22.9

%

Store closures and other restructuring costs



(30

)


0.0

%



(219

)


-0.1

%

Impairment of long lived assets


 



 

 

0.0

%


 



 

 

0.0

%

Income from operations



7,787



4.5

%



9,052



5.4

%

Interest expense


 

153

 

 

0.1

%


 

87

 

 

0.1

%

Income before income taxes



7,634



4.4

%



8,965



5.3

%

Income taxes


 

208

 

 

0.1

%


 

492

 

 

0.3

%

Net income


$

7,426

 

 

4.3

%


$

8,473

 

 

5.0

%









 

Net income per common and common equivalent share:









Basic


$

0.33





$

0.38




Diluted


$

0.32





$

0.38