WATSONVILLE, Calif. – If you thought you had already read about West Marine’s (NASDAQ: WMAR) fourth quarter and full year 2005 earnings, you’re right – sort of.
The retailer reported preliminary results at the beginning of the month, citing the need to review uncompleted software development projects. Yesterday, having finished its review, West Marine released results that were further reduced by a $6.6 million pre-tax, non-cash impairment charge related to internal software costs no longer expected to provide a future benefit.
More importantly, the company held its earnings conference call, during which CEO Peter Harris shared his perspective on what he admitted was “a dismal earnings year” and his outlook on what he expects to be a much stronger 2006.
During the call, Harris said the company’s 2005 results were due in part to a “tough year for the industry,” including hurricanes, high fuel costs, and bad weather. That only added to the company’s struggles during a time of transition.
But the company begins 2006 in “stronger shape and better off for having had the 2005 year behind us,” he stated.
Harris pointed out that the company produced more cash flow in 2005 than in recent years (Cash from operations more than doubled, from $18.6 million in 2004 to $44.2 million in 2005) and put behind it many “one-time costs to free assets to focus on the customer.”
In addition to the software impairment charge, those costs included a reduction in inventory value, a charge for discontinuing use of the BoatU.S. tradename and charges related to replacing its bank line of credit.
Despite a difficult 2005, West Marine is optimistic about this year. It is projecting net sales ranging from $740 million to $745 million – an increase of about $50 million – and comparable store sales ranging from 1.5 percent to 2.0 percent.
“We currently estimate earnings for fiscal year 2006 ranging from $0.15 to $0.18 per share,” said West Marine CFO Eric Nelson. “These estimates reflect the costs associated with initiatives started in 2005 and continuing in 2006, as well as new initiatives for 2006 that will produce increased sales and profits for years to come.”
More change ahead
West Marine has quite a bit planned for 2006, at the center of which seems to be an effort to redevelop many of its stores – more than 30 this year – to better reflect their local customer base. The retailer wants to put products, store environments and people in place “that better reflect the unique customer profiles.”
“Boaters vary market to market in their needs and lifestyle,” Harris explained.
Other initiatives ahead, some of which were begun in 2005 are: lowering of prices (in 2005, price cuts resulted in a lower gross profit per unit, but an 11 percent unit sales lift), increased selling hours, investments in its Internet business, continuing to enhance inventory productivity, and sales training to create a “service-based sales culture.”
Harris added that this year, only six new stores are expected to be opened, and it’s likely that quite a few “nonproductive” stores will be closing.
In 2005, seven stores were closed and four stores impacted by the hurricanes were not replaced.
The addition of the impairment charge translates into a net loss for the fifty-two weeks ended Dec. 31 of $2.2 million, or ($0.10) per share, compared to net income of $25.5 million, or $1.20 per share, for the same period a year ago. Total pre-tax, non-cash impairment charges in 2005 related to uncompleted software development projects were $8.6 million, including a $2.0 million charge included in the previously-released preliminary results.
Net sales for the fifty-two weeks ended December 31, 2005 were $692.3 million, compared to net sales of $683.0 million for the same period a year ago. Comparable store sales for the fifty-two weeks ended December 31, 2005 decreased (2.2%) compared to the same period a year ago.
Net loss for the fourth quarter ended December 31, 2005 was $21.5 million, or ($1.01) per share, including an $8.6 million pre-tax, non-cash impairment charge related to uncompleted software development projects, compared to a net loss of $3.4 million, or ($0.16) per share, for the fourth quarter of 2004.
Net sales for the fourth quarter of 2005 were $124.8 million, compared to net sales of $118.1 million a year ago. Comparable store sales for the fourth quarter of 2005 increased 3.9 percent compared to the same period a year ago.
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