West Marine today reported a moderate decrease in sales and profits for the third quarter ended Sept. 27.
Sales for the quarter were $180.2 million, compared to $188.4 million in the same period 2007, or a drop of 4.3 percent. Comparable store sales were down 4.7 percent.
Adjusted net income was $4.8 million and 23 cents per share versus $6.2 million and 28 cents per share last year. Gross profit for the third quarter was $49.7 million, a decrease of $8.2 million compared to 2007.
"Our financial results for the third quarter of 2008 reflected continuing sales softness stemming from reduced boating activity combined with weakness and uncertainty in the economy in general,” CEO Geoff Eisenberg said in a statement.
“We remain focused on managing the business very carefully in order to maintain our financial strength and flexibility. This emphasis on controlling expenses and maximizing cash flow has kept us in a strong position of liquidity,” he added.
West Marine has reduced its debt levels and has $100 million in untapped liquidity, Eisenberg said.
Early this afternoon, West was trading at $5.19 a share, down from an open of $5.39.
In a conference call this morning, company officials said they were on track with restructuring plans, including plans to close about 30 stores by the end of the year. By the end of the third quarter, 14 stores had closed. In some cases, multiple smaller stores in a general area will be replaced by one larger store, and in other cases, underperforming stores are being closed.
In the third quarter, two profitable stores — one in California and one in Florida — were expanded, while construction continued on flagship stores in Jacksonville, Fla., and Brick, N.J. Those stores are expected to open in first quarter of 2009.
A store in Turkey, the company’s only store in that part of the world, is doing well, officials said.
“Early reports are good. We’re very pleased with our partner over there,” Eisenberg said. “We do have a long-term plan over there, and we do hope to see additional stores.”
Year-to-date, net sales were $520.2 million, compared to net sales of $561.3 million for the same period 2007. Comparable store sales declined 7.1 percent versus the corresponding period a year ago.
For the year, reported net loss was $9.8 million and 45 cents per share versus net income of $15.6 million and $0.71 per share last year.
Gross profit for the year-to-date was $150.6 million, a decrease of $20.3 million compared to the corresponding period last year. As a percentage of net sales, gross profit for the first 39 weeks was 29 percent, a decrease of 150 basis points versus the corresponding period last year. The decrease in gross profit as a percentage of sales was primarily the result of deleveraging occupancy costs and lower vendor allowances.
Among those events affecting third quarter and year-to-date results include costs associated with the previously announced SEC investigation-required expenditures in the third quarter of $100,000 pretax, which is insignificant to after-tax per share results, with a year-to-date impact of $2.1 million pretax and 6 cents per share after-tax.
Also, charges in connection with the previously announced restructuring of West Marine had an impact in the third quarter and year-to-date of $1.7 million pretax, or 5 cents per share after-tax. These charges related to the closures of underperforming stores and of one of three distribution centers, implementation of staffing and service model changes in the Port Supply wholesale business, and expense cuts and process streamlining in support and overhead functions.
California-based West Marine also announced it is revising its full year 2008 earnings guidance downward, from a previously communicated earnings range of an after-tax loss of 32 cents to 42 cents per share to a revised after-tax loss range of 55 cents to 65 cents per share.
This does not include events such as the ongoing restructuring of the business.
For the year, West Marine is maintaining sales guidance of $625 million to $635 million. The revised comparable store expectations range is a decline of 6.5 percent to 8 percent versus a previously communicated decline of 7 percent to 8.5 percent.
"We do expect continued softness in our industry in the near term, and our updated expectations reflect additional gross profit pressures as we adjust promotion levels and reduce inventory purchases,” Eisenberg said. “Our planning for next year reflects sizing the company for the realities of the current market while continuing to invest prudently in the future.”
— Beth Rosenberg