West Marine reports 3Q results

Revenue rose, but profits fell in the third quarter at West Marine and the retailer saw its operating results decline after seven quarters of improvement.

Net revenue was $172.5 million for the 13-week period that ended Oct. 2, an increase of 2.6 percent from $168.2 million in the same quarter a year earlier. Comparable-store sales for the Watsonville, Calif.-based company rose $5.2 million, or 3.7 percent. A driver of this growth was gains in sales to wholesale customers through the company's stores.

Net income was $7.4 million, or 32 cents a share, compared with $8.5 million, or 38 cents a share, a year earlier. For the year to date, earnings per share were $1.44, compared with $1.13 for the same period last year.

Income before taxes for the quarter was $7.6 million, a decrease of $1.3 million, or 14.8 percent, from $9 million a year earlier.

West Marine chief executive Geoff Eisenberg was upbeat about the overall results.

"We continue to be very pleased with our overall year-to-date performance," he said in a statement. "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."

New stores that opened during 2009 and the first three quarters of this year increased revenue by $9.2 million, compared with last year. Stores that closed during these periods effectively reduced revenue by $8.3 million. The majority of the closings occurred in connection with the company's effort to evolve into a business that has fewer but larger stores. During the quarter, West Marine opened standard-format stores of 12,000 square feet in Mount Pleasant, S.C., and 12,400 square feet in Jupiter, Fla.

Eisenberg said during a conference call after the earnings report was released that the company will open a larger flagship store in Sarasota, Fla., and smaller standard-size stores in Kent Island, Md., and Olympia, Wash., before the end of the year.

In the first quarter of next year, he said, the company plans to open a flagship store in Woburn, Mass. In the second quarter, additional flagship stores will open in St. Petersburg and North Palm Beach, Fla., he said.

By the end of next year, Eisenberg said, the company will open a 50,000-square-foot store in Fort Lauderdale that it believes will be the "world's largest and hopefully most exciting boat equipment store."

Eisenberg said the company has launched an updated website and will continue to work on it. "We intend to provide a much improved customer experience," he said.

He said the 20 new styles of West Marine brand men's apparel that were offered this year have done well and that nine new styles of company-branded women's apparel will be introduced next year.

The company said sales during the third quarter were affected by what appeared to be a general softening in the boating equipment market after the Fourth of July. Sales also no longer reflected the year-over-year positive effect of the closing of Boater's World, which occurred in mid-2009.

Eisenberg said during the conference call that the company had expected sales for the boating season to be flat, but it benefited from good weather in the Great Lakes region and the Northeast that lengthened the season at the end of the quarter.

Gross profit for the third quarter was $49.6 million, an increase of $2.1 million, compared with the same period in 2009. As a percentage of net revenue, gross profit increased by 0.5 percent, to 28.7 percent, compared with gross profit of 28.2 percent a year earlier. The increase in gross profit as a percentage of revenue primarily resulted from a 0.9 percent improvement in raw product margin, driven by less promotional and clearance activity. The company also leveraged occupancy expenses, which are relatively fixed, by 0.2 percent as a result of increased revenue.

These improvements were partially offset by 0.3 percent in higher inventory shrinkage and 0.3 percent in higher unit buying and distribution costs, compared with the same period last year.

Selling, general and administrative expense for the quarter was $41.8 million, an increase of $3.2 million, or 8.3 percent, compared with $38.6 million for the same period last year. Selling, general and administrative expense as a percentage of revenue increased by 1.3 percent, to 24.2 percent.

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 the company's peak season; an $800,000 unfavorable comparison to last year that reflected the benefit of receiving insurance reimbursements related to an SEC investigation that closed last year; a $700,000 increase in support expense related to investments in information technology; and a $500,000 unfavorable foreign currency fluctuation.


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