WATSONVILLE, Calif. – Peter Harris, the chief executive officer of boating supplies and accessories retailer West Marine, Inc., said his company was “deeply disappointed” in the results it posted during the third quarter ended Oct. 1.
In a release earlier this week, West Marine reported net income for the third quarter of $2.0 million, or $0.09 per share, compared to net income of $6.9 million, or $0.32 per share, for the third quarter of 2004. Net sales for the third quarter of 2005 were $188.6 million, compared to net sales of $183.1 million a year ago. Comparable store sales for the third quarter of 2005 decreased 1.2 percent, versus a decrease in comparable store sales of 7.7 percent reported for the same period a year ago.
Net income for the thirty-nine weeks ended Oct. 1 was $19.3 million, or $0.90 per share, compared to net income of $29.0 million, or $1.36 per share, for the same period a year ago. Net sales for the first nine months of 2005 were $567.5 million, compared to net sales of $564.9 million for the same period last year. Comparable store sales for the first nine months of 2005 decreased 3.5 percent, versus an increase in comparable store sales of 1.1 percent reported for the same period a year ago.
"We are deeply disappointed by our third quarter results,” Harris said in the release. “With many other retail companies around the country expressing the same sentiment and citing external factors, we recognize that our third quarter also includes a number of issues that are either short-term or non-recurring. The quarter's results do not reflect our strong potential for revenue and earnings growth over the long term.
"Foremost on the list of third quarter revenue issues is the combined impact of Hurricanes Dennis, Katrina, Ophelia and Rita, which temporarily closed 68 stores in our Southeast region. Four stores are still closed. Secondly, in areas across the nation, our research shows that higher fuel prices, along with President Bush's appeal for lower fuel consumption, are significantly curtailing boat usage, which has reduced customer traffic and comp sales in our stores. Third, the constant barrage of bad news -- driven by the devastating effects of Hurricane Katrina -- has had a profoundly negative impact on recreational activity and consumer spending across the country."
Eric Nelson, West Marine's chief financial officer, said the company expects its fourth quarter results to be lower than previous estimates.
“The devastation caused by the hurricanes has had a much greater and more widespread impact on consumer spending than we expected at the time of our previous guidance, and this impact was compounded by sustained higher fuel prices and the President's plea to Americans for fuel conservation,” Nelson said.
“As a result, we now expect net sales for the year 2005 of approximately $685 million, compared to net sales of $683 million last year. In response to lower than expected sales, we have cut our planned merchandise purchases for the remainder of the year, which means we will not achieve certain target levels required for earning quantity discounts and other forms of vendor consideration. When combined with the impact of lower than expected sales, we expect gross margin to be reduced by $8.5 million and net earnings for 2005 to be reduced by an additional $0.23 per share, as compared to previous guidance.”
Nelson said the company also expects to incur certain costs not contemplated in its previous guidance, including unusually high medical claims, a non-cash write-off of capitalized loan costs in connection with replacing its bank facility, increased shipping costs due to higher fuel prices, the impact of hurricanes (most recently Hurricane Wilma) and costs related to certain strategic initiatives.
“We expect these additional costs to reduce pre-tax earnings for 2005 by as much as $3.7 million, or $0.10 per share after tax, as compared to previous guidance,” Nelson said. "As a result of these factors, we are now projecting earnings for the year 2005 to range from $0.35 to $0.40 per share."
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