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WATSONVILLE, Calif.-- West Marine, Inc. announced yesterday that its net sales for the thirteen weeks ended June 28, 2008 were down 8.2 percent to $226.7 million, compared to net sales of $247.1 million for the thirteen weeks ended June 30, 2007. Comparable store sales dipped 7.8 percent.
Gross profit for the thirteen weeks ended June 28, 2008, was $78.4 million, a decrease of $7.5 million compared to 2007. As a percentage of net sales, gross profit was 34.6 percent, a decrease of 20 basis points compared to the gross profit of 34.8% last year. The company reported that the decrease in gross profit as a percentage of sales was primarily the result of occupancy costs that have a disproportionate impact on gross profit as sales decline. Product margins were up slightly year-over-year, and the company says it also benefitted from reduced inventory shrinkage levels.
The company said that in order “to better communicate West Marine’s core operating results,” it presented certain key metrics both excluding and including the impact of certain significant events that impacted second quarter results.
The company reported a trio of “significant events” that impacted its second-quarter and year-to-date results. Those included a $14.6 million non-cash full valuation allowance established against our net deferred tax assets, which was required by accounting rules, based on recent earnings trends. It had no impact on pre-tax earnings; however, this charge reduced net income by $14.6 million and after-tax earnings per share by $0.66 for both second quarter and year-to-date results. Second, the company’s continued cooperation with the previously-announced SEC investigation required expenditures in the second quarter of $0.5 million pre-tax, or $0.01 per share after-tax, with a year-to-date impact of our cooperation at $2.1 million pre-tax and $0.06 per share after-tax. And finally, management's ongoing evaluation of individual store performance resulted in a non-cash asset impairment charge in the second quarter of $1.9 million pre-tax, or $0.06 per share after-tax, with a year-to-date impact of $2.2 million pre-tax and $0.06 per share after-tax.
With that in mind it reported that, for the thirteen weeks ended June 28, 2008, adjusted pre-tax income (excluding the impact of the significant events) was $29.2 million versus $33.4 million for the corresponding period last year, while reported pre-tax income (including the impact of the significant events) was $26.8 million versus $33.4 million last year. It also reported that its adjusted net income (excluding the impact of the significant events) was $20.5 million and $0.93 per share versus $20.8 million and $0.95 per share last year, while its reported net income (including the impact of the significant events) was $4.4 million and $0.20 per share versus $20.8 million and $0.95 per share last year.
“Our financial results for the second quarter of 2008 reflected the ongoing softness we’ve seen in boating activity and in the economy in general,” said Geoff Eisenberg, Chief Executive Officer of West Marine, “Our (pre-tax, pre-significant event) operating results were relatively good considering our sales shortfall, and are a strong indication that our team of associates is making excellent progress in managing our business during this challenging period.
“With our very healthy balance sheet, focused management of assets, solid cash flow and strong liquidity position, we believe West Marine remains in good shape to not only ride out these challenging times, but also win additional market share as we improve our ability to succeed in the short and long term.
“We do expect continued softness in our industry in the near term, and we believe the best approach for us is to be conservative in our market outlook, and aggressive in our internal change-management. We have been actively re-engineering our business and expect that these initiatives will improve our company. We will use this downturn to our advantage and become a stronger, more focused organization for the benefit of our customers, associates and shareholders.”
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