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West Marine Reports Second Quarter 2016 Results

WATSONVILLE, Calif., July 28, 2016 (GLOBE NEWSWIRE) -- West Marine, Inc. (NASDAQ:WMAR) today reported financial results for the second quarter ended July 2, 2016. The company reported net revenues of $251.6 million in the quarter, a decrease of 0.6% compared to the same period last year. Comparable store sales increased 1.1%. Pre-tax income was $36.4 million compared to pre-tax income of $37.1 million last year in the same period.  Earnings per diluted share increased 1 cent to 86 cents per share.

Matt Hyde, CEO of West Marine, commented: “We are pleased with the progress of our growth strategies, including a 27% increase in eCommerce and solid increases in our Waterlife store sales.  These results were in contrast to a challenging retail environment and unfavorable weather patterns seen earlier in the quarter.  We believe that our growth strategies have us on track to deliver our 2016 sales and profit targets.”

Further Progress on Growth Strategies

  • Sales from eCommerce increased by 26.7% compared to the second quarter of 2015 and represented 10.0% of total sales, compared to 7.9% for the same period last year, showing progress towards the goal of 15% of total sales.
  • Sales through Waterlife stores were 48.6% of total sales compared to 45.1% last year. This year-over-year increase demonstrates the company’s progress towards the goal to deliver 50% of total sales through stores that have been optimized to offer a broader selection of merchandise than traditional stores that focus on core boating products.
  • Sales in merchandise expansion product lines, which include footwear, apparel, clothing accessories, fishing products and paddlesports equipment, increased 3.3% while core product sales were down 1.7%, compared to the same period last year.

Results for the Second Quarter of 2016

Net revenues for the quarter ended July 2, 2016 decreased by $1.6 million, or 0.6%, to $251.6 million compared to $253.2 million for the quarter ended July 4, 2015.

Gross margin declined slightly to 35.5% of revenues, compared to 35.8% during the same period in 2015. Selling, general and administrative (“SG&A”) expense decreased year-over-year by $0.8 million, as lower payroll expenses and a partial settlement from the Deepwater Horizon Settlement program were partially offset by higher depreciation and health claims expenses in the quarter.

Net income for the second quarter was $21.6 million, or $0.86 per share, compared to net income of $20.9 million, or $0.85 per share, for the second quarter of 2015.

Inventory at the end of the second quarter was down $4.5 million compared to the same period in 2015, while accounts payable increased $24.0 million. As of July 2, 2016, the company had cash and cash equivalents totaling $89.6 million compared to $44.2 million at the same point in 2015.

Results for the first Six Months of 2016

Net revenues for the six months ended July 2, 2016 increased by $1.8 million, or 0.5%, to $382.0 million compared to $380.2 million for the six months ended July 4, 2015. Comparable store sales for the period increased 1.6% compared to the first six months of 2015.

Gross margin expanded to 32.0% of revenues compared to 31.0% during the same period in 2015. SG&A expense increased year-over-year by $2.3 million as a result of higher expenses in the first half of the year from the company’s biennial training meeting and higher benefit expenses. These increases were partially offset by lower payroll expense and a partial settlement from the Deepwater Horizon Settlement program.

Net income for the first six months was $12.5 million, or $0.50 per share, compared to net income of $10.7 million, or $0.43 per share, for the first six months of 2015.

Guidance

Based on information available as of today, the company reiterated full-year 2016 guidance of total revenue growth in the 1% to 4% range and pre-tax profit growth of 50% over 2015 full-year results. 

Investor Conference Call

West Marine will hold a conference call and webcast on Thursday, July 28, 2016, at 4:30 p.m. Eastern Time to discuss its second quarter 2016 results. The live call will be webcast and available in real time on the internet at westmarine.com under “Investor Relations.” Participants also may dial (888) 756-1546 in the United States and Canada and (706) 634-1041 for international calls. Please be prepared to give the conference ID number 52322305.

An audio replay of the call will be available July 28, 2016 at 8:00 p.m. Eastern Time through August 4, 2016 at 11:59 p.m. Eastern Time. The replay number is (855) 859-2056 in the United States and Canada and (404) 537-3406 for international calls. The access code is 52322305.

About West Marine

Each person has a unique connection to the water. At West Marine (westmarine.com, NASDAQ: WMAR), our knowledge, enthusiasm and products prepare waterlife adventurers to foster that connection and explore their passions. With more than 250 stores located in 38 states and Puerto Rico and eCommerce website reaching domestic, international and professional customers, West Marine is recognized as a leading Waterlife Outfitter for cruisers, sailors, anglers and paddlesports enthusiasts. Since first opening our doors in 1968, West Marine associates continue to share the same love for the water as our customers and provide helpful advice on the gear and gadgets they need to be safe and have fun.

Special Note Regarding Forward-Looking Statements

This press release includes “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995), including statements that are predictive or express expectations that depend on future events or conditions that involve risks and uncertainties. These forward-looking statements may include, among other things, expectations related to earnings and growth in profitability, expectations that investments will continue to drive growth strategies, while improving profit margins, expectations related to cost management and expectations for the outlook for 2016, as well as facts and assumptions underlying these expectations and projections. These statements involve risks and uncertainties that could cause actual results to differ materially from those reflected in such statements. Risks, uncertainties and other factors that may cause actual results to differ materially include those described in the risk factors set forth in West Marine’s annual report on Form 10-K for the fiscal year ended January 2, 2016 and quarterly report on Form 10-Q for the fiscal quarter ended April 2, 2016, as well as the discussion of critical accounting policies in our Form 10-K for the year ended January 2, 2016. In addition, the results presented in this release are preliminary and unaudited, and may change as the company finalizes its financial statements. Actual results for the second quarter 2016 may differ materially from the preliminary expectations expressed or implied in this release. Except as required by applicable law, West Marine assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.

Non-GAAP Financial Information

This release references certain financial information not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), specifically EBITDA. We believe that EBITDA provides a clearer picture of operating performance of the business, given the significant investments we are making in the growth of the business, by eliminating the effects of depreciation and interest expense. EBITDA is not a measure of financial performance under GAAP and may not be defined and calculated by other companies in the same manner. This non-GAAP measure should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management has reconciled this non-GAAP financial measure to the most directly comparable GAAP financial measures in the table set forth below.

           
West Marine, Inc.          
Condensed Consolidated Balance Sheets        
(Unaudited and in thousands, except share data)        
                 
                 
          July 2, 2016   July 4, 2015  
ASSETS            
Current assets:            
  Cash and cash equivalents   $   89,551     $   44,159    
  Trade receivables, net     10,649       10,690    
  Merchandise inventories, net   253,635       258,130    
  Deferred income taxes       -        5,252    
  Other current assets     19,686       22,388    
    Total current assets       373,521         340,619    
                 
  Property and equipment, net   80,508       81,365    
  Long-term deferred income taxes   4,017       3,439    
  Other assets       4,501       3,861    
TOTAL ASSETS     $   462,547     $   429,284    
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY        
  Current liabilities:          
  Accounts payable   $   77,186     $   53,157    
  Accrued payroll     16,879       17,768    
  Accrued expenses and other     37,243         33,890    
    Total current liabilities       131,308         104,815    
                 
  Deferred rent and other     18,193       20,605    
    Total liabilities       149,501         125,420    
                 
Stockholders' equity:          
  Preferred stock, $.001 par value: 1,000,000 shares authorized; no shares outstanding     -          -     
  Common stock, $.001 par value: 50,000,000 shares authorized; 25,628,645 shares issued and 24,939,756        
  shares outstanding at July 2, 2016, and  25,375,312 shares issued and 24,686,423 shares outstanding        
  at July 4, 2015.       26         25    
  Treasury stock       (9,411 )       (9,241 )  
  Additional paid-in capital       213,137         210,097    
  Accumulated other comprehensive loss     (552 )       (558 )  
  Retained earnings       109,846         103,541    
    Total stockholders' equity     313,046         303,864    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $   462,547     $   429,284    
                 

 

West Marine, Inc.          
Condensed Consolidated Statements of Income        
(Unaudited and in thousands, except per share data)        
             
    13 Weeks Ended
    July 2, 2016   July 4, 2015
Net revenues $   251,599     100.0 %   $   253,177     100.0 %
Cost of goods sold   162,369     64.5 %       162,417     64.2 %
  Gross profit     89,230     35.5 %       90,760     35.8 %
Selling, general and administrative expense     52,718     21.0 %       53,492     21.1 %
  Income from operations     36,512     14.5 %       37,268     14.7 %
Interest expense   116     0.0 %     120     0.0 %
  Income before income taxes     36,396     14.5 %       37,148     14.7 %
Provision for income taxes   14,812     5.9 %     16,203     6.4 %
  Net income $   21,584     8.6 %   $   20,945     8.3 %
             
Net income per common and common equivalent share:          
             
  Basic $   0.87       $   0.85    
  Diluted $   0.86       $   0.85    
             
Weighted average common and common equivalent          
 shares outstanding:          
  Basic   24,884         24,617    
  Diluted   24,958         24,684    
             
             
             
    26 Weeks Ended
    July 2, 2016   July 4, 2015
Net revenues $   382,004     100.0 %   $   380,244     100.0 %
Cost of goods sold   259,869     68.0 %       262,502     69.0 %
  Gross profit     122,135     32.0 %       117,742     31.0 %
Selling, general and administrative expense     100,761     26.4 %       98,467     25.9 %
  Income from operations     21,374     5.6 %       19,275     5.1 %
Interest expense   221     0.1 %     232     0.1 %
  Income before income taxes     21,153     5.5 %       19,043     5.0 %
Provision for income taxes   8,682     2.2 %     8,357     2.2 %
  Net income $   12,471     3.3 %   $   10,686     2.8 %
             
Net income per common and common equivalent share:          
             
  Basic $   0.50       $   0.44    
  Diluted $   0.50       $   0.43    
             
Weighted average common and common equivalent          
 shares outstanding:          
  Basic   24,825         24,551    
  Diluted   24,910         24,705    
             

 

West Marine, Inc.          
Condensed Consolidated Statements of Cash Flows        
(Unaudited and in thousands)        
                 
          26 Weeks Ended  
          July 2, 2016   July 4, 2015  
                 
OPERATING ACTIVITIES:          
  Net income     $   12,471     $   10,686    
  Adjustments to reconcile net income to net cash provided by operating activities:        
    Depreciation and amortization   10,987       10,159    
    Share-based compensation   1,449       1,491    
    Deferred income taxes       973         1,295    
    Provision for doubtful accounts   100       7    
    Lower of cost or market inventory adjustments   1,119       1,291    
    Loss on asset disposals     166       716    
  Changes in assets and liabilities:        
    Trade receivables     (3,607 )     (3,854 )  
    Merchandise inventories   (31,901 )     (45,123 )  
    Other current assets     3,656       3,403    
    Other assets     (392 )     (123 )  
    Accounts payable     51,999       20,508    
    Accrued expenses and other   5,110       10,043    
    Deferred items and other non-current liabilities   193       (130 )  
  Net cash provided by operating activities   52,323       10,369    
                 
INVESTING ACTIVITIES:          
    Proceeds from sale of property and equipment   23       24    
    Purchases of property and equipment   (11,111 )     (13,321 )  
  Net cash used in investing activities   (11,088 )     (13,297 )  
                 
FINANCING ACTIVITIES:          
    Borrowings on line of credit   820       455    
    Repayments on line of credit   (820 )     (455 )  
    Proceeds from sale of common stock pursuant to Associates Stock Buying Plan   287       296    
    Proceeds from exercise of stock options     -        1,141    
    Treasury shares acquired     (125 )       (70 )  
  Net cash provided by financing activities   162       1,367    
                 
  Effect of exchange rate changes on cash   (5 )     45    
                 
NET INCREASE (DECREASE) IN CASH   41,392       (1,516 )  
                 
CASH AT BEGINNING OF PERIOD   48,159       45,675    
CASH AT END OF PERIOD   $   89,551     $   44,159    
Other cash flow information:          
  Cash paid for interest   $   156     $   145    
  Cash (refunded) paid for income taxes, net of refunds of $2,947 and $80   (2,753 )     36    
Non-cash investing activities:          
    Property and equipment additions in accounts payable   570       1,320    
                 

  

  West Marine  
  Reconciliations of Non-GAAP Information   
  Net Income to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")  
  (Unaudited and in millions)  
     
      13 Weeks Ended   26 Weeks Ended  
      July 2, 2016   July 4, 2015   July 2, 2016   July 4, 2015  
                     
   GAAP Net Income   $   21.6     $   20.9     $   12.5     $   10.7    
                     
  Add Back:                  
  Interest Expense       0.1         0.1         0.2         0.2    
  Depreciation and Amortization *       5.5         5.1         10.9         10.2    
  Income Tax Expense       14.8         16.2         8.7         8.4    
          20.4         21.4         19.8         18.8    
                     
  EBITDA   $   42.0     $   42.3     $   32.3     $   29.5    
                     
                     
  * Included in cost of goods sold and SG&A.                


Contact: West Marine, Inc.
Jeffrey Lasher, Executive Vice President and Chief Financial Officer  
(831) 761-4229

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