MasterCraft Boat Holdings, Inc. (NASDAQ: MCFT), designer, manufacturer and marketer of recreational powerboats through its three wholly-owned subsidiaries, MasterCraft Boat Company, LLC, NauticStar, LLC, and Crest Marine LLC, announced financial results for its fiscal 2019 second quarter ended Dec. 30, 2018.
Total net sales for the fiscal second quarter were $121.5 million, reflecting an increase of $43.1 million, or 55.0 percent, compared to $78.4 million for the prior-year period. The Crest acquisition added $25.9 million of net sales in the second quarter. MasterCraft’s net sales increased 31.2 percent, or $18.2 million, driven by a favorable product mix, price increases and a 32.3 percent increase in unit volume, partially due to an extra week of production in the fiscal second quarter given the timing of the planned holiday shutdown compared to prior year. This increase in net sales was partially mitigated by increased retail rebate expense due to the timing impact from the new revenue recognition standard, as well as by higher sales discounts given to Canadian and European dealers impacted by the retaliatory import tariffs.
“We made the strategic decision to partially offset the import tariff for our Canadian and European dealers, which we believe provided us with a competitive advantage,” said president and chief executive officer Terry McNew.
NauticStar’s net sales decreased 5.0 percent, or $1.0 million, due to lower wholesale units driven by a scheduled pullback in production as NauticStar’s facility is retrofitted to handle new, larger boat models being introduced throughout calendar year 2019, offset by an increase in average selling price driven by a favorable model mix and price increases.
Fiscal second quarter gross profit increased $7.1 million, or 35.8 percent, to $27.1 million compared to $19.9 million for the prior-year period. The inclusion of Crest accounted for $4.5 million of the increase, while MasterCraft contributed $3.2 million to the increase in gross profit. NauticStar’s gross profit declined $0.5 million. On a consolidated basis, gross margin decreased to 22.3 percent for the fiscal second quarter compared to 25.4 percent for the prior-year period. The decrease was primarily due to the dilutive effect from the inclusion of Crest, higher warranty costs, the planned decline in NauticStar net sales, and higher retail sales incentives due to the timing impact from the new revenue recognition standard and the company’s strategic decision to offset a portion of the retaliatory import tariffs impacting Canadian and European dealers. The decrease was partially offset by growth in MasterCraft unit sales volume, and favorable product mix and price increases at both MasterCraft and NauticStar.
Operating expenses for the fiscal second quarter increased $2.7 million, or 31.6 percent, to $11.4 million compared to $8.6 million for the three months ended December 30, 2017. This increase was mainly due to the inclusion of Crest, an increase in compensation costs from added headcount to support growth initiatives, and start-up costs associated with the company’s new Aviara brand, offset by MasterCraft’s annual dealer meeting falling in the fiscal 2019 first quarter compared to the fiscal second quarter in the prior year. As a percentage of net sales, operating expenses decreased during the fiscal second quarter compared to the prior-year period, to 9.4 percent of net sales from 11.0 percent of net sales, respectively.
Second quarter net income totaled $10.2 million, versus $8.0 million for the year-earlier period driven by the inclusion of Crest, continued strong net sales momentum at MasterCraft, and reduced tax rates from the enactment of the Tax Cuts and Jobs Act. Adjusted Net Income of $12.1 million, or $0.64 per share, on a fully diluted, weighted average share count of 18.9 million shares, was computed using the company’s estimated annual effective tax rate of approximately 22.5 percent versus 29.0 percent in the prior period. This compares to Adjusted Net Income of $8.2 million, or $0.44 per fully diluted share, in the prior-year period.
“Throughout our fiscal second quarter, we continued to see year-over-year increases in retail demand for our products and our dealer inventory turns remained at healthy seasonal levels," McNew said. "With the official launch of our Aviara brand at the 2019 Miami Boat Show in February, we will now have brands focused on four of the fastest growing segments of the overall powerboat industry – performance sport boats, outboard saltwater fishing boats, pontoon boats and luxury day boats. We are especially excited to announce that we have united with MarineMax, the nation’s largest recreational boat and yacht retailer, to be our distribution partner for Aviara.”
“As we look to wrap up the second half of our fiscal year, our focus will be on continuing to leverage our industry-leading strengths in operational excellence and financial management to further improve output, quality, margins and cash flow across all of our brands, as we continue our rapid growth,” McNew added.
Fiscal 2019 Outlook
“With the first half of our fiscal 2019 completed, we continue to expect strong top-line and bottom-line growth, along with record-levels of cash flow generation. These will be driven by the Crest acquisition, continued strong demand for our core MasterCraft products, healthy dealer inventory across all our segments, product development initiatives at NauticStar, and the realization of operational improvement initiatives at NauticStar and Crest,” McNew said.
On a top-line basis, the company expects low 40 percent net sales growth over fiscal 2018, driven by a higher contribution from the Crest acquisition. Adjusted EBITDA margins are expected to be in the mid-to-high 16 percent range, principally driven by higher net sales contribution from Crest, which is dilutive to margins. Adjusted earnings per share growth is expected to be in the low 30 percent range. This guidance is adjusted for non-GAAP measures, including acquisition-related expenses, acquisition-related intangible amortization and a 22.5 percent estimated annual effective tax rate.
For the third fiscal quarter ending in March, year-over-year net sales growth is expected to be in the low 30 percent range, reflecting lower growth at MasterCraft compared to fiscal second quarter due to one less production week given the timing of the fiscal 2019 planned holiday shutdown compared to fiscal 2018, partially offset by a higher net sales contribution from Crest. Adjusted EBITDA margins will be in the 16 percent range driven by the dilutive effect of Crest. Adjusted EPS percentage growth is expected to be in the high teens percent range.