West Marine reports 2Q results

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West Marine today reported an increase in net revenue, but sharply lower net profits for the second quarter.

Net revenue for the quarter that ended June 30 was $243.6 million, up 3.2 percent, compared with $236 million for the quarter a year earlier. Second-quarter net income was $22.6 million, compared with $44.7 million a year earlier.

The company said diluted earnings per share for the quarter were 95 cents, compared with $1.02 a year earlier, adjusted to exclude a large tax benefit recorded during the second quarter last year.

West Marine reaffirmed its previously issued earnings guidance for the fiscal year, which calls for pretax income in a range of $23 million to $26 million, an increase of 8 percent to 23 percent, compared with the prior year.

"We are pleased with this quarter's results,” West Marine CEO Matt Hyde said in a statement. “Our merchandise expansion and store optimization strategies are helping to drive comparable-store sales increases. We continue to learn from these successes as we build on the opportunities in West Marine's business and work to identify areas where we can invest to drive future growth."

Hyde said during a conference call after the results were released that the company plans to invest in its direct-to-consumer and e-commerce businesses and focus attention on them during the next 12 months.

Revenue in the company’s stores segment was $222.9 million, up $8 million, or 3.7 percent, compared with the same period last year. Comparable store sales grew by 2.1 percent from the same period last year. West Marine CFO Tom Moran said during the conference call that the company expects to achieve comparable-store sales growth of 0.5 to 2.5 percent for the year and end the year with total sales of $660 million to $676 million.

The company said it experienced higher sales in its core categories, as well as electronics, during the second quarter. It said it also saw growth in its fishing and soft goods categories, reflecting the success of new store assortments and merchandise expansion strategies.

The company said sales growth also was driven by increases in sales to wholesale customers through store locations, which the company believes resulted from its ongoing efforts to better serve this group of customers.

The company said its revenue from stores opened or expanded in 2011 and the first six months of this year contributed $17.8 million to revenue from its stores segment. The impact of stores closed during the same periods effectively reduced revenue by $14.5 million. The majority of the store closings were a result of the company’s ongoing real estate optimization strategy to evolve into having fewer, larger stores. Moran said the company will open large-format stores later this year in Naples and Pompano Beach, Fla.

Gross profit for the second quarter was $85.9 million, an increase of $1 million from the same period in 2011. As a percentage of net revenue, gross profit decreased by 0.8 percent, to 35.2 percent, compared with gross profit of 36 percent last year.

The company said the decrease was driven primarily by a 0.6 percent reduction in raw product margins because of a sales mix shift from higher-margin maintenance-related items toward lower-margin discretionary-type products, such as electronics. The decrease in gross profit as a percentage of revenue also resulted from the deleveraging of occupancy expense by 0.2 percent because of a $1.4 million impact of store closing reserve provisions.

Selling, general and administrative expense for the quarter was $47.4 million, an increase of $2.8 million, compared with the same period last year. As a percentage of net revenue, SG&A expense increased by 0.5 percent to 19.4 percent.

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