West Marine to close 30 to 40 stores

WATSONVILLE, Calif. – Boating supplies retail chain West Marine, Inc. (Nasdaq: WMAR) plans to close 30 to 40 underperforming stores and undergo a dramatic reduction in expenses, CEO Peter Harris stated in an earnings conference call earlier this week.

This is due in part to what Harris described as a flat or declining marine marketplace caused by a reduction in boat usage and spending.

“This is a transition period for West Marine,” he said in a statement. “We are taking aggressive action to solidify the store foundation and reduce expenses in order to position the company for long-term profitability and growth.”

Closing the stores will cost the retailer $8 to $10 million, not counting the $3.5 million one-time write-off the company is taking related to the performance of those “underperforming” stores. But Harris said the potential cost savings, to be fully realized in 2007, is 300 basis points.

This news comes as the company released its operating results for the second quarter of 2006. As reported last month, net sales for the thirteen weeks ended July 1 were $264.5 million, an increase of 4.3 percent from net sales of $253.5 million for the same period a year ago. Comparable store sales increased 2.3 percent for the thirteen weeks ended July 1.

Net income for the thirteen-week period was $14.0 million, or $0.65 per share, including a $3.5 million pre-tax, non-cash asset impairment charge, or $0.09 per share after-tax, compared to net income of $22.8 million, or $1.07 per share, for the same period a year ago.

Net sales for the twenty-six weeks ended July 1 were $397.2 million, an increase of 4.8 percent from net sales of $378.9 million for the same period a year ago. Comparable store sales increased 3.1 percent.

Net income for the twenty-six week period was $4.7 million, or $0.22 per share, including a $3.5 million pre-tax asset impairment charge, or $0.09 per share after tax, compared to net income of $17.3 million, or $0.81 per share, for the same period a year ago.

“We are disappointed that we have not achieved our earnings goals for the first half of the year,” Harris commented in a statement.

Excluding costs related to store closures, the company now expects earnings for the full year 2006 will range from approximately $0.05 to $0.10 per share, based on projected comparable store sales increases ranging from 1.5 percent to 2.5 percent for the year.

One highlight Harris pointed out during the call is the company’s e-commerce success. Web site revenues have grown significantly so far this year, he explained, and the company expects to increase its focus on this channel in the future.

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