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West Marine Buys Boat U.S. Stores

West Marine Inc., operator of 258 West Marine and E&B Marine aftermarket accessories stores, grew significantly larger when it completed the acquisition in January of the 65 retail stores operated by the Boat Owners Association of the United States (BoatU.S.).
West Marine, based in Watsonville, California, paid $72 million in cash, and assumed certain liabilities, for the stores and the BoatU.S. catalog and wholesale distribution operations.
Meanwhile, BoatU.S. will continue to operate as an association representing and providing services to boat owners.
A three-year revolving line of credit from Wells Fargo Bank was used by West Marine to raise the $72 million, said John Edmondson, West Marine’s CEO.
“This acquisition marks a major milestone in the evolution of the boating products industry,” Edmondson said. “We intend to continue to operate the BoatU.S. stores under the BoatU.S. name. BoatU.S. has an excellent reputation and a loyal customer base. It is our intention to have no disruption in the level of service that their customers have come to expect.”
West Marine plans to close three unprofitable BoatU.S. stores, which means the acquisition expanded the number of West Marine-owned retail locations to 320. Otherwise, no changes at the store management and staff levels were planned.
Prior to the acquisition, West Marine/ E&B stores were in 38 states, Puerto Rico and Canada.
Making it all work
Although 26 of the 62 BoatU.S. locations are within three miles of West Marine/E&B locations, Edmondson does not believe the stores will cannibalize each other because “West Marine dominates the sail market while BoatU.S. dominates the powerboat side of the market.”
In terms of the products inventoried by BoatU.S. and West Marine/E&B stores, there is a “70 percent overlap,” Edmondson said.
There are five BoatU.S. stores in California with the remainder along the East Coast, mainly in the Southeast, Edmondson added. The BoatU.S. stores acquisition extends West Marine into “seven or eight new markets,” he added.
However, independent boat dealers are assuming West Marine will eventually close more than three stores, said Phil Keeter, president of the Marine Retailers Association of America (MRAA).
Consequently, the boat dealers whose parts and accessories departments compete against West Marine/E&B/BoatU.S. stores believe the BoatU.S. acquisition will be good for them because it will, eventually, make price competition less intense, Keeter said.
About half of all boat dealers “emphasize” the parts and accessories portion of their business, Keeter added.
Meanwhile, Edmondson said the BoatU.S. acquisition “advances our new store opening program by two years. We will open 30 new stores in 2003, from the previously announced 40 to 45.” The price paid for the 62 BoatU.S. stores was less than the cost of starting 62 new stores from scratch, Edmondson added.
The BoatU.S. name was retained for its “intrinsic value” which comes from the BoatU.S. association having “500,000 paying members,” he said.
Earnings at BoatU.S. stores were “substantially below” the earnings posted by West Marine/E&B stores, but they will become more profitable because of West Marine’s greater buying power, Edmondson told stock market analysts.
In general, BoatU.S. stores are larger, averaging 10,000 square feet, when compared with West Marine/E&B locations, which average 8,400 square feet, Edmondson said. BoatU.S. stores’ inventory also is “a little larger.”
As leases expire, West Marine might consider consolidating West Marine/E&B/ BoatU.S. stores in the same market into a “super store” operation, he added.
West Marine, a Nasdaq company, had $530.6 million in sales revenue during 2002. The BoatU.S. acquisition of the is expected to add $140 million in sales annually.
West Marine reported net earnings of $20.3 million, or $1.04 a share, for the first nine months of 2002. It anticipates the BoatU.S. acquisition will increase its earnings by one to two cents a share in 2003 and by 18 to 20 cents a share in 2004.
“BoatU.S., like us, will lose money in the fourth quarter (of 2002) and the first quarter (of 2003),” Edmondson said.
However, prior to the acquisition, West Marine forecasted net earnings of 95 cents to 96 cents a share during the April-through-June portion of this year.
Meanwhile, BoatU.S. continues to function as an association and it “will now concentrate its resources on developing new programs of value for boat owners to complement its marine insurance, towing, boat financing, consumer advocacy and government representation programs,” said Richard Schwartz, founder and chairman of BoatU.S.
The agreement between the two parties calls for employees at all 320 West Marine/E&B/BoatU.S. retail stores to promote membership in the BoatU.S. Association and the association will promote the West Marine-owned stores and catalog as the preferred supplier of boating equipment.
Employees at the West Marine-owned stores also will “push (the BoatU.S. association’s) insurance and we’ll share in the revenue,” Edmondson added.

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