West Marine, Inc. reported financial results for the second quarter ended July 1, 2017. Second quarter 2017 net revenues were $247.2 million, a decrease of 1.7 percent compared to the same period last year. Comparable store sales were down 1.2 percent. Pre-tax income was $36.0 million, compared to $36.4 million last year in the comparable period.
The company incurred expenses in the quarter of $1.4 million associated with the pending merger transaction with Monomoy Capital Partners and recorded a $0.6 million charge related to the reclassification of accumulated foreign currency translation balances to selling, general and administrative expense as a result of cessation of operations in Canada. These charges were partially offset by a $1.1 million credit related to a supplier refund for prior year over-billing. Adjusting for these unique events, the company improved second quarter pre-tax profit by $0.7 million. Earnings per share were $0.84, compared with $0.86 per share in the same period last year. Adjusted for the previously mentioned, one-time expenses and credit, earnings per share were $0.86 per share.
Net revenues for the quarter ended July 1, 2017 decreased by $4.4 million, or 1.7 percent, to $247.2 million compared to $251.6 million for the quarter ended July 2, 2016. The decrease reflects net closures of retail stores and lower comparable store sales.
Gross margin improved to 36.5 percent, compared to 35.5 percent during the same period in 2016. Lower promotional and clearance activity along with lower professional sales as a percentage of total revenue resulted in the improved margin. Selling, general and administrative expense increased year-over-year by $1.4 million, primarily due to $1.4 million of Merger-related expenses.
Net income for the second quarter was $21.2 million, or $0.84 per share, compared to net income of $21.6 million, or $0.86 per share, for the second quarter of 2016.
Inventory at the end of the second quarter was $243.4 million, down $10.2 million compared to the same period in 2016. As of July 1, 2017, the company had cash and cash equivalents totaling $113.3 million compared to $89.6 million at the same point in 2016.
Net revenues for the six months ended July 1, 2017 decreased by $5.7 million, or 1.5 percent, to $376.3 million compared to $382.0 million for the six months ended July 2, 2016. The decrease reflects net closures of retail stores and lower comparable store sales.
Gross margin improved to 32.7 percent, compared to 32.0 percent during the same period in 2016. Lower promotional and clearance activity along with lower professional sales as a percentage of total revenue resulted in the improved margin. Selling, general and administrative expense decreased year-over-year by $1.7 million, inclusive of $1.5 million of Merger-related expenses.
Net income for the first six months was $14.0 million, or $0.55 per share, compared to net income of $12.5 million, or $0.50 per share, for the first six months of 2016.
Pending merger transaction
West Marine and affiliates of Monomoy Capital Partners, a New York-based private equity fund, have entered into a definitive merger agreement pursuant to which a wholly-owned subsidiary of Monomoy will merge with and into West Marine, with West Marine as the surviving corporation in the merger.
The company was granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, by the Federal Trade Commission on July 25, 2017. The early termination of the HSR waiting period satisfies one of the conditions to the proposed merger. Closing of the transaction remains subject to other closing conditions, including the affirmative vote in favor of the merger by holders of a majority of the company’s outstanding common stock and other customary closing conditions.
It is anticipated that the special meeting of the company’s stockholders to vote on the merger will be held in the third quarter of this year and, if the transaction is approved, the merger would be expected to close shortly thereafter.
The company will not host a conference call to discuss second quarter 2017 results and does not plan to do so for future quarters while the transaction with Monomoy is pending. Pursuant to the merger agreement, the company has suspended payment of cash dividends.