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B. Riley optimistic about West Marine’s plans for growth

West Marine’s three-pronged growth strategy has led B. Riley & Co. to introduce the company at a “buy” rating as the investment banking and analyst firm issued its first assessment of the retail chain.

“I feel like there’s a lot of potential,” senior analyst Jimmy Baker told Trade Only Today.

West Marine’s relatively new CEO, Matthew Hyde, who most recently headed REI before joining the company in May, has said he plans to grow the company’s e-commerce arm, expand its offerings beyond traditional boating needs and continue consolidating smaller stores in major markets into larger ones, Baker said. Hyde has also made what Baker refers to as “several talent upgrades” with staff.

The company’s focus on e-commerce is the strategy that has gained the most traction thus far, Baker said, but the others offer significant growth potential, as well.

“Years ago, you could think of West Marine as an AutoZone for boats, but now it’s expanding beyond that for new opportunities,” Baker said. “As a boater myself, the way I thought of West Marine in the past — that’s where to go if I need a rope or a life jacket. West Marine is always going to capture that customer. But the opportunity here is to better monetize existing customers with incremental purchases and make it more of a shopping experience, versus just a transaction.”

The change in the shopping experience at the company’s flagship Newport Beach, Calif., store is “enormous,” Baker said.

“There are individual shopping worlds when you walk in — the apparel world, and then you go into the fishing world,” Baker said. “Even if you came in there to get a core usage product, like bottom paint, you need to walk through these shopping worlds to get to that core product, so there’s an opportunity to better monetize the existing customer with the store’s format, as well as bring in the incremental on-water lifestyle customer who doesn’t necessarily have a boat.”

The year has been “admittedly disappointing” for West Marine, Baker wrote in his analysis. “However, we believe that this is largely the function of abnormally abysmal weather throughout much of [the first half of] 2013, compounded by a [Hurricane] Sandy-related overhang in the Northeast.”

Online commerce also still has room for growth since West Marine’s online sales account for just 5 percent of total sales, Baker said, where comparable companies would see that arm making up closer to 25 percent.

“E-Commerce is a particularly attractive, underutilized weapon for West Marine, in our view, given it supplies a wide breadth of hard-to-find SKUs — roughly 75,000 SKUs online, versus 4,000 to 25,000 in any given storefront,” Baker wrote.

West Marine’s shares closed at $13.33 Tuesday, with a 52-week range of $9.30 to $13.25. B. Riley has given the company’s shares a $17 target.


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