Softness hitting high-end boat market

CLEARWATER, Fla. – The 2007 update from boat retailer MarineMax Inc. (NYSE: HZO) released yesterday (see below for details) not only has implications for its future health and that of its largest boat builder partner, Brunswick Corp. (BC), but suggests the boating market as a whole continues to soften, rather than remain flat with 2006, as some had predicted.

“The boating market is now in an outright recession,” stated Ed Aaron of RBC Capital Markets in a statement today. “We (and others) have long viewed MarineMax as a more resilient play in the boating industry – one that would ‘bend but not break’ in a marginally tougher environment. Today’s news indicates that weakness has migrated into higher-end boat segments (Sea Ray sales are reportedly down double-digit), and MarineMax’s revised guidance reflect an operating margin (5.0% to 5.5%) comparable to the 2001 recession year.”

As a result, analysts are revising their estimates for the two marine industry giants for the year. A.G. Edwards & Sons analyst Tim Conder said the numbers in MarineMax’s report imply “likely further production cuts and margin pressure for BC.”

With that said, most analysts feel the companies are handling current conditions well and will be poised for growth once industry conditions improve.

“We would note that 1) HZO is the largest and best dealer network in the marine industry, 2) HZO is significantly outperforming the marine industry, and 3) HZO accounts for approximately 40 percent of BC’s flagship Sea Ray brand boat sales and 13 percent plus of BC marine sales,” commented Conder.

“We continue to feel that BC management is proactively and prudently managing marine channel product while improving the company’s operational cost structure/maintaining a healthy balance sheet,” he added. “However, until retail sales begin to show evidence of bottoming, we believe BC shares offer limited upside.”

MarineMax expects 4Q loss

MarineMax, Inc. has adjusted its 2007 earnings expectations, predicting earnings per share for its fiscal year ending September 30, 2007 to range from $1.40 to $1.50 on a fully diluted basis from the previous range of $2.05 to $2.15, according to a statement yesterday.

However, the boat retailer also suggests that the current marine market softness opens up opportunities to gain market share, both through acquisition and investments in marketing and incentives.

The company’s 2007 guidance assumes same-store sales will be in the mid-single digits and excludes the impact from any potential material acquisitions that it may complete.

MarineMax reported it expects first quarter revenues of approximately $235 million driven by same-store sales growth of approximately 14 percent and approximately $29 million from stores that were opened or acquired that are not eligible for inclusion in the same-store sales base.

Due to additional team member and product incentives, higher marketing and promotional costs, which the company said were necessary to drive its sales, operating margins were negatively impacted, which is expected to result in a first quarter loss per share ranging from $0.20 to $0.25 per diluted share. MarineMax expects to release its first quarter results on Jan. 25.

“Based on recent industry reports, it is clear that the marine industry is experiencing increased softness caused by uncertainties in the macro economic environment, which adversely impacted our results,” commented William H. McGill, Jr., MarineMax chairman, president and CEO. “As we have done in the past, we are substantially exceeding the industry’s performance and capitalizing on our customer centric strategies and our formidable balance sheet strength to take market share during this challenging time. To gain additional share, we have continued to invest in the future through increased marketing efforts and incentives to drive sales. While these costs have been greater than we originally anticipated, our recent market share increases have been significant, indicating that our additional efforts and long-term strategies are effective.”

“Market share gains are very important from a long term perspective as we traditionally generate a large percentage of our revenue from repeat buyers,” McGill continued. “While we will be prudent and seek cost savings opportunities, this is a time for MarineMax to capitalize on its strengths, expand when and where it makes sense and further penetrate the markets where we operate. Based on historical experience, we believe that this approach will benefit the company and ultimately yield greater growth in earnings in the future.”

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