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West Marine outlines growth plans in soft market

West Marine this morning announced several major changes planned for the company to help ensure its growth despite a soft market. The announcements were made in conjunction with the release of the company’s second-quarter earnings.

Watsonville, Calif.-based West Marine reported net sales for the second quarter ending June 28 of $226.7 million, compared to net sales of $247.1 million for the same quarter last year. Same-store sales declined 7.8 percent in the second quarter versus the same period a year ago.

Gross profit for the 13 weeks ending June 28 was $78.4 million, a decrease of $7.5 million compared to 2007.

"Our financial results for the second quarter of 2008 reflected the ongoing softness we've seen in boating activity and in the economy in general,” said CEO Geoff Eisenberg. “We believe West Marine remains in good shape to not only ride out these challenging times, but also win additional market share as we improve our ability to succeed in the short- and long term.”

Eisenberg said in this morning’s call that West Marine assumed the weak boating market would remain in affect for the next 18 months. In light of that, he announced changes that would have an estimated $20 million to $25 million favorable impact in 2009, and a one-time restructuring expense this year.

These changes include the closing of 25-30 stores, which is higher than previously announced. Eisenberg said multiple smaller stores in one general area would be replaced with a single larger store.

Also, by the end of 2008, West Marine will close its Hagerstown, Md., distribution center, leaving it with two remaining distribution centers in South Carolina and California.

West Marine also plans to close its Largo, Fla., call center by the end of the year. A number of those employees, Eisenberg said, will be offered the opportunity to work from home.

The company’s previously announced Jacksonville, Fla., flagship store is set to open next year, along with an additional flagship store in Brick, N.J. This fits with West Marine’s goal of moving toward fewer stores with a larger footprint.

West Marine, Eisenberg said, will continue to grow internationally. Its first franchise location was recently announced in Turkey, with more locations expected to open in the future.

“We believe West Marine remains a very healthy company that is strongly positioned for the future,” he said.

West Marine’s stock was trading at $3.99 a share at noon, down from an opening of $4.60 per share.

Net sales for the 26 weeks ending June 28, were $339.9 million, compared to net sales of $372.9 million for the same period of 2007. Same-store sales declined 8.4 percent versus the same period a year ago.

Gross profit for the 26 weeks ending June 28 was $100.9 million, a decrease of $12.1 million compared to the same period last year.

The significant events impacting second quarter and year-to-date results for 2008 were:

* A $14.6 million non-cash full valuation allowance established against West Marine’s net deferred tax assets.

* Continued cooperation with the previously announced SEC investigation required expenditures in the second quarter of $0.5 million pre-tax, or 1 cent per share after-tax, with a year-to-date impact of cooperation at $2.1 million pre-tax and 6 cents per share after-tax.

* Management's ongoing evaluation of individual store performance resulted in a non-cash asset impairment charge in the second quarter of $1.9 million pre-tax, or 6 cents per share after-tax, with a year-to-date impact of $2.2 million pre-tax and 6 cents per share after-tax.

For the year, same-store sales are expected to decline 7 percent to 8.5 percent, versus the previously-estimated decline of 3.5 percent to 5 percent. Total company sales are expected to range from $625 million to $635 million, versus prior guidance of $660 million to $670 million.

West Marine also announced today that it is revising its full year 2008 earnings guidance downward, from a previously-communicated earnings range of 2 cents to 9 cents per share to a revised after-tax loss range of 32 cents to 42 cents per share.

West Marine, the country's largest specialty retailer of boating supplies and accessories, has 367 stores located in 38 states, Puerto Rico, Canada and a franchised store located in Turkey.

— Beth Rosenberg
b.rosenberg@tradeonlytoday.com

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