Analysts: Marine market continues to deteriorate

CLEARWATER, Fla. – A further deterioration of the marine retail environment in March drove boat retail giant MarineMax, Inc. (NYSE: HZO) to warn of higher than expected second quarter losses in a statement earlier this week.

Analysts jumped on the release as an opportunity to provide investment opinions on MarineMax and Brunswick that paint U.S. boating industry conditions as bleak and worsening.

“Our checks continue to show broad-based weakness, particularly in sport boats and smaller cruisers and in market with housing busts,” commented Edward Aaron of RBC Capital Markets. “Although dealers have adjusted to weaker market conditions, inventories are still too high and aging of inventory is more of an issue. As a result, dealer appetite for product is anemic, and we are hearing about an increasing number of individual dealer failures.”

RBC estimated that domestic boat sales are down about 25 percent at retail, year-to-date. The company also reported that lender loss rates are rising despite more conservative lending practices, resulting in a further tightening of standards and a decline in approvals.

In its statement, MarineMax indicated that its gross margins were actually up for the quarter, suggesting that any declines in profitability were not likely the result of promotional spending.

“… price is not enough of a motivating factor to cause dealers to take on more inventory than they realistically need in this market,” commented Aaron of RBC. “As a result, we expect margin de-leverage to come more from reduced volume than from promotional spending.”

RBC went on to predict what it called “a wholesale bounce” in 2009, but warned that visibility is very low. In the meantime, Aaron expects more dealers and perhaps even boat builders to go out of business.

“If current industry conditions persist, we expect that both Brunswick and MarineMax will have fewer competitors in the not so distant future,” wrote Aaron. “We … expect more [dealer failures] to follow. While disruptive in the near term, we view the elimination of excess capacity as a long-term positive.”

MarineMax same store sales down 28 percent

In its statement earlier this week, MarineMax said it expects to report a loss per share of $0.19 to $0.23 for its second quarter of fiscal 2008 versus earnings per diluted share of $0.17 in the comparable quarter last year. The earnings per diluted share for the March 2007 quarter were $0.11 after removing $0.06 per diluted share of unusual insurance gains.

The company also expects to report fiscal second quarter 2008 revenue of approximately $233 million compared with $325 million in the comparable quarter last year, reflecting a same-store sales decline of approximately 28 percent versus a 2-percent same-store sales increase reported a year ago.

MarineMax said its results were adversely impacted by the economic softness that has been widely reported. The company’s geographic concentration in Florida and other markets particularly affected by the housing slow down further contributed to the same-store sales decline.

“Trends in the marine retail environment deteriorated further in March, resulting in an even more disappointing quarter,” said William H. McGill, Jr., chairman, president and CEO of MarineMax. “We have continued to adjust our cost structure to reduce the impact of the declining sales on our operating performance. Despite the softer retail environment, we achieved a higher overall gross margin for the quarter over the prior year quarter. We also expect to report that our balance sheet ratios incrementally improved over the year ago quarter. We expect to report inventory levels that are essentially flat or slightly higher compared with the prior year and are making further cuts to adjust our future purchases from manufacturers.”

McGill added that MarineMax believes its focus on selling the boating lifestyle has “continued to result in market share gains, which will eventually lead to increased sales and profits when the industry recovers.”

The company expects to release its full second quarter results on May 1.

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