Q2 2021 MarineMax Inc Earnings Call
[music].
Good morning, and welcome to the Marine Max Inc, 2021 fiscal second quarter Conference call.
Today's conference call is being recorded at.
At this time I'd like to turn the call over to Don Frankfort of ICR Investor Relations for Marine Max. Please go ahead.
Operator.
Everyone and thank you for joining this discussion of marine massive fiscal second quarter 2021 conference call.
I'm sure that you've all received a copy of the press release that went out this morning, but if not please call Linda Cameron at seven to 75311712, and she will email one to you right away.
And now we'd like to introduce the management team of Marine Max Mr. Brett Mcgill President and Chief Executive Officer at.
Mr. Mike Mclamb, Chief Financial Officer of the company.
Management will make a few comments about the quarter and then be available for your questions.
And with that in mind, let me turn the call over to Mike Mike.
Thank you Don good morning, everyone and thank you for joining this call.
I turn the call over to Brett I'd like to tell you that certain of our comments are forward looking statements as defined by the private Securities Litigation Reform Act.
These statements involve risks and uncertainties that could cause actual results to differ materially from expectations.
These risks include but are not limited to the impact of seasonality and weather general economic conditions and the level of consumer spending the company's ability.
<unk> ability to capitalize on opportunities or grow its market share and numerous other factors identified in our form 10-K, and other filings with the Securities and Exchange Commission.
With that in mind I'd like to turn the call over to Brett Brett.
Well, thank you, Mike and good morning, everyone and thank you for joining us today.
On the call I will share highlights from our second quarter as well as provide an update on the continuing enthusiasm for boating.
I'll also touch on our positioning into the important June quarter, and discuss the meaningful opportunities for marine Max to create growth and long term shareholder value in 2021 and beyond that on.
I will turn the call over to Mike to review the financial results in greater detail and provide some color on the balance of the year.
First I want to share how proud I am of our team's ability to successfully navigate through this pandemic and produce consistent record results quarter after quarter.
From the onset of the pandemic, we effectively pivoted to capitalize on the ongoing changes in consumer behavior, resulting in sustained record results.
It is important to note that we achieved these results while prioritizing the health and wellbeing of our team their families and our customers as well as the welfare of our local economy.
We anticipated more than a year ago that boating would be one of the beneficiaries beneficiaries of a changed world.
We continue to see that development play out as evidenced by the 45% same store sales growth and EPS, increasing more than seven fold in the March quarter.
Voting continues to be of great way to escape the stresses of everyday life and strengthen the bonds between family and friends the.
The recent demand for boating has created a foundational layer of new customers.
This is driving replacement and upgrade cycle that is supported by new technology and product upgrades, providing us with confidence that growth is going to be sustained sustained well into the future.
These new customers are embracing the boating lifestyle in existing and new customers continue to upgrade to larger and newer boats. While also taking advantage of our multiple product and service offerings.
Im honored to be able to lead such an outstanding passionate and devoted team and I'm excited about the long term growth opportunities ahead of us.
Let me underscore a few highlights from our March quarter.
At the record sales on earnings growth, we delivered was driven by robust 45% same store sales growth, which is on top of 1% same store sales growth a year ago.
It is important to note that our new unit growth was the primary driver, which provides the foundation for future sales are.
Our consolidated margin hit a march quarter record of 30% driven by increasing unit margin and the expansion of our higher margin businesses, which I'll touch on shortly.
Our significant geographic and product diversification and the effective utilization of our digital platform have enabled end driven our growth over the past several years.
Additionally, the marine industry continues to experience a significant acceleration in new customers, given our scale and global position. We continue to benefit from this resurgence and expect these new boaters to support future growth in the coming years.
At this point based on available industry data, we believe we gained market share.
Part of our success is due to the strength of our relationships with our manufacturers and the great job. They are doing to continue delivering product to us during these high demand period.
From a six month perspective same store sales growth was up 33% on top of 12% of year ago.
We had meaningful improvement across all brands categories, and geographic regions and continued to leverage our investments in technology, which is driving leads that are being converted into sales and enhanced profitability.
Profitability wise, the gross margin strength, we produced last quarter continued into the March quarter, increasing 450 basis points to 30%.
We realized gains of new and used product margin as well as incremental gains in our higher margin businesses.
Additionally, our last three acquisitions are all contributing to the margin expansion.
Frasier North of of Johnson, our global Super Yacht Services company contributed to the growth of our brokerage revenue, while skipper buds with its greater mix of service and storage revenue helped to drive the overall margin expansion.
Additional incremental improvements in finance and insurance as well as service and parts also contributed rigs.
Regarding skipper Budd, we remained very excited about the significant synergies associated with the acquisition, including the sharing of best practices brands and resources to drive even greater growth in the years to come.
In the quarter of the margin expansion and generally good expense control led to operating leverage of 21% and the record earnings and earnings per share of $1 69.
Our mission remains being laser focused on creating an exceptional experience for our customers. We continue to invest in technology using our flexible model to service our customers in any way they prefer digitally or in our stores. Our model has created a seamless experience for our customer.
<unk>, which continues to drive market share gains.
Now, let me touch on our positioning and share the attributes of the business model, We believe will drive ongoing growth in <unk> and.
And beyond the important June quarter.
We have kicked off this important boating season with strong visibility and are well positioned and prepared to serve our customers. The sheer size of our backlog provides us with added confidence that we should outperform for the second half of 2021 and into fiscal 2022.
While this can be impacted from a timing perspective and by our ability to deliver product, we do see demand remaining very strong across the industry.
There is also no question that our scale as a competitive advantage as we leverage our deep manufacturing relationships and nationwide shared inventory to support the growing demand.
Our strategy to create long term shareholder value remains focused on driving top line growth of.
Operating leverage disciplined capital management and building on our strong culture.
We continue to effectively execute on our multifaceted growth strategy supported by our global market presence premium brands strategic location exceptional customer service and ongoing investments in technology.
We remain committed to driving operating leverage in our model and generating significant cash flow growth. We believe the combination of our approach business model and strong visibility into the balance of the year and into fiscal 2022 will support sustained growth as we move ahead.
And with that update I'll ask Mike to provide more detailed comments on the quarter Mike.
Thank you Brett and good morning, again, everyone. I'd also like to start by thanking our team for their strong efforts that produced record revenue and earnings through the first six months of the year for.
For the quarter revenue grew 70% to over $523 million due largely the same store sales growth of 45%.
Of this exceptional growth was driven by strong comparable new unit growth of 40% at of mixed of larger boats. Additionally.
Additionally, our recent acquisitions of Northrop on Johnson and skipper bodes also performed well in the quarter.
Our gross profit dollars increased over $78 million, while our gross margin rose 450 basis points to 30%.
Our record gross margin was due to a handful of factors. Among these are improving margins on new and used boat sales due to the increased demand.
Impressive service and storage performance of script per boats, which has a long track record of performance of these categories.
Growth at a higher margin finance insurance and brokerage businesses, including our global Super Yacht services organizations of Northland Johnson and Fraser yachts.
We would note that the Super yacht charter business has remained adversely impacted by travel bans around the globe.
Hopefully with the vaccine Rollouts, we will see improvements in the near future.
Nonetheless, we are pleased with the current contributions from these businesses.
Regarding SG&A the majority of the increase was once again due to rising sales and the related commissions combined with the two acquisitions, we recently completed.
Interest expense improved in the quarter due to lower interest rates and a reduction in short term borrowings given the cash we have generated.
Our operating leverage in the quarter was 21%, which drove very strong earnings growth.
Another quarterly record with pretax earnings of about $52 million.
A record March quarter saw both net income and earnings per share rise more than seven fold generating $1 69 at EPS versus 23, a year ago.
For the first six months of the year of our revenue exceeds $934 million.
Gross margins are at 30%.
Our operating leverage is around 20%.
Our earnings per share is at $2 73, and our EBITDA is over $92 million at.
At impressive start to the year.
Moving onto our balance sheet, we continue to build cash with about $143 million at quarter end versus $64 million a year ago.
As discussed previously given the attractive interest rate environment, we explored of did secure mortgages on a portion of our sizable real estate portfolio.
<unk> some slight rate arbitrage at further positions us to capitalize on opportunities as day development.
Our inventory at quarter end was $303 million.
Excluding skipper buds or inventory is near historic levels on a relative basis.
However, I believe it is important to reiterate again this quarter, how well our team has pivoted to sterling and of lean inventory environment as proven by the very strong unit driven same store sales growth this quarter. Despite the historically low levels of inventory.
It also does speak to the success of our shared inventory strategy and the strength of our various manufacturing partners.
Looking at our liabilities short term borrowings decreased sharply due to lower inventory and related financing as well as an increase in cash generation.
Customer deposits, while not the best predictor of near term sales because they can be lumpy due to the size of deposits on whether a trade is involved or not rose over 200% due to the demand, we're seeing and of contribution from skippers.
Our current ratio stands at 214, and our total liabilities of tangible net worth ratio is 105.
Both of these are very impressive balance sheet metrics.
Our tangible net worth was $381 million.
Our balance sheet has always been a formidable strategic advantage and today more than ever at can provide the capital for expansion as opportunities arise.
Turning to guidance for March quarter exceeded expectations and industry trends remained strong.
Industry estimates for 2021 retail units are now expected to rise from the mid single digits to the high single digits.
Since we usually outperformed the industry and grow our <unk> on an annual basis.
We now expect our annual same store sales growth to be in the high teens.
This is up from the high single digits, we guided to in the December quarter and up from the mid to high single digits, we guided to earlier in the year.
Given the strength of earnings in March our guidance also assumes operating leverage improvement above our previous guidance.
Accordingly, we are raising our earnings per share guidance to the range of $5 50.
To $5 65 for 2021 from $4 to $4 20 that we guided to after the December quarter.
In summary, we are expecting our pre tax earnings to rise in the second half of the year, which results in the EPS guidance range. Despite increases in both shares outstanding and our effective tax rate.
Our guidance excludes the impact from any potential acquisitions that we may complete.
As we progress through the year, we will provide updates as needed to our guidance.
Our guidance uses of share count of about 23 million shares versus a little over $22 million last year at an effective tax rate of 25% versus 23, 5% last year.
Looking at the remainder of 2021 the March quarter was our easiest comparison with our toughest comparisons of the more meaningful summer quarters of June and September.
Turning to current trends April will close with strong positive same store sales growth at our backlog is at record levels, providing visibility into next fiscal year.
As we've said industry trends remained strong and we are generally outperforming these elevated levels.
We continue to feel good as we enter the important selling seasons with solid visibility.
As Bret discussed the sheer size of our backlog provides us with added confidence that we should outperform for the back half of 2021 and into fiscal 2022.
With those comments I'll turn the call back over to Brett for some closing comments.
Thank you Mike our team's performance. The first six months of fiscal 2021 continues to show excellent execution, even on top of very impressive same store sales a year ago, we remain focused on creating exceptional customer experiences.
Through our team's services products and technology, our differentiated customer centric approach continues to ensure marine Max will meet the needs of the many new customers joining the boating lifestyle and we will continue to see significant opportunity in our brand expansion and higher margin.
Businesses.
We are active with acquisition of investment opportunities that should strengthen our overall business, while staying focused on our long term strategy.
Looking ahead, we remain focused on building our strong team culture, focusing on executing our growth strategy and creating long term shareholder value.
That operator, let's open up the call for questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.
Information on total indicate your line is at any question queue.
On a price start to if you would like to remove your question from the Q4 participants using speaker equipment at may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks for taking the question Brett you had mentioned.
Youre expecting the industry demand to remain strong and I think you talked about high single digit growth for the industry at this year, which is better than that mid single digit number previously as we start to lap some of the tougher comparison last year. It sounds like you guys are still seeing positive trends, but could you just sort of help us frame or set the expectations as we move into the summer months both.
For you guys and then also as an industry should they remain positive.
Could we see some negative industry numbers, how does that all shake out.
I'll comment on I'll, let Mike touch on it.
Like we said that the visibility we have customer deposits and then the demand we're seeing in the stores floor traffic Internet traffic all of those different things give us quite of bit of confidence in the fact that there'll be some growth.
However, like I say, we're up against tough comps and growth might even want to come on.
Yes at this would say I think the industry overall for 2021 now is looking at will be talking more on the lines of the growth that we're talking about demand continues to be very strong specifically if you look at us. If you look at our two year comp stack or a three year comp stack. It does indicate that there is the potential for same store sales grew.
Even in the June quarter, which I know is of 37% comp, which is tough to do and also in the September quarter, which is 33% of thats more dollar growth versus unit growth, but I think the demand is so strong that there's expectations that the potential is there for back half of the unit growth for sure.
Makes sense and just on the inventory would you mind just running through that organic inventory commentary that you made again I think you said it was close to historic levels on a relative basis that was down I think 36% at last quarter, So where is inventory on sort of of like for like basis, and what if anything drove the sequential change.
Yes. It was just 45% of same store sales growth were selling everything as it's coming in which is keeping inventory at lower levels.
Without skippers, our inventory is probably down in the neighborhood of 55% of 50% on a year over year basis, but I think it speaks to our ability to continue to sell at a leaner on inventory environment and also our ability for our manufacturers that keep getting us product that we can keep driving strong same store.
Sales growth we had.
33% in September and the lean inventory environment, we had 20% at December we of 45% in March which is at the leanest environment. We've operated in so I think our team is working great. Our manufacturers keep doing a good job of getting this product.
Great. Thanks, guys. Thank you.
Our next question comes from the line of Joe at the Belo with Raymond James. Please proceed with your question.
Thanks, Hey, guys. Good morning, good morning.
I just wanted to follow up on the inventory.
<unk>.
I'm just curious how you are selling process.
At changed over the past year, if I look at your results.
Revenue was up over $200 million year over year at inventory down over $22 million year over year, and I certainly understand your OEM relationships and having multiple looking at to help to put our buyers.
At much more comfortable buying at both they can't basically talking that they may not yet.
Six to eight weeks, yes.
Yes, Joe.
Two things have happened right.
Vested in some technology over the years that have helped us on how we keep saying that but at a powerful tool for US and then we've invested in training for our sales team, which you can't Miss out on that debt.
The sales process changed slightly when you have to talk to a customer about of both at 30 days away 60 days, maybe even four months away.
Process of.
A lot of cases that are enjoying a boat now and you can.
Through the right process, you can sell them on a future slaughter of future orders of our team is doing a great job and the customers are finding a way to.
Steps.
Don't want to Miss out on whatever boating season is less but they are well underway and our manufacturers are doing a good job getting us the products that were turned on them quick.
Got it Thats helpful and then maybe on a on a.
Another note the gross margin on.
<unk> got to put the 30% gross margin in the per cap in the context, how much of that is structural and stays with you in fiscal 'twenty, two and how much of that is.
Due to favorable discounting.
You may or may not per se.
Yeah, Joe if you go back and look I mean, we've been talking about our strategy of higher margin businesses for a long time and we kept those had been growing but both sales were growing as well, which made it tougher our acquisition strategy has shown that we're focused in that area as well. So we really have a strategy that wants to get our.
In a normal demand environment and of normal pricing discounting environment, we'd love to see our margin in this range and Thats our strategy.
But clearly there is some tailwind from.
Pricing.
On the market right now Mike Halloran of if you want to kind of weave.
Gabe this information on last quarters, and the quarter before roughly a third of the increase on a quarter over quarter basis is coming from new and used price and the rest of at its what Brett said as the strategies, we have around at a higher margin businesses. It's frazier contributing its north of of Johnson.
On a higher margins come at us with skipper buds, which all of that is sustainable into the future.
It's.
Roughly a third is the.
Is the pricing components, you're probably asking about Joe okay. So it hasn't yet.
Got it.
Thank you guys. Thank you.
Our next question comes from the line of Michael Swartz with curious. Please proceed with your question.
Hey, Good morning, guys, Mike just wanted to touch on guidance I know, we go through this pretty much every quarter, but as I look at your guidance and then what you've done in the first half of the fiscal year. It does look like you're implying some sort of slowdown in incremental margins in the back half of the year end, we just have the commentary.
On gross margin.
So maybe give us a sense of.
How to think about incrementals in the back half of the year relative to the first half end and what are some of the puts and takes in that guidance.
Yes, I think part of it is we've still got our biggest summer selling season ahead of us. So we're being somewhat prudence at our guidance also though when you look at the back half of last year, we do get up against tougher gross margin comparisons for sure in the September quarter, obviously, it's our intention at our team's intention to keep driving strong gross.
Margin growth strong flow through but I think as you're modeling the business I think what we've done from a guidance perspective is probably the prudent way sitting here today look at at the next four of five months.
Okay great.
Just secondly on on your backlog today, maybe give us a sense in a little more granularity I mean, how much of that is maybe pre sold versus.
Units being sold out of inventory, but just haven't been transacted yet.
And maybe how that looks on a relative to last year at this at this time as well.
Yes. Good question, obviously with last year with I think we had $500 million of inventory of where we ended March. So we had much more of that would be sold on the ground that we do now so more of its pre sold not at our stores, but coming but again the manufacturers and our teams are doing a great job.
Staying communicated with our customers at the dates when their boats are coming in scheduling deliveries get into boats really as fast as they come in they are going out.
And so it's a it's kind of of.
A healthy model quite frankly inventory sold at comes and it goes out so no of greater percentage of per share is going to be sold on order coming in at on the ground just given where inventory is today.
Okay, great. Thanks, Thanks Matthew.
Yes.
As a reminder, at is star one to ask a question.
Our final question comes from the line of James Hardiman with Wedbush Securities. Please proceed with your question.
Hey, good morning, guys. Thanks, good morning, great quarter.
Good morning.
Really encouraged by.
I think most notably what do you think is going to be your ability to sort of <unk>.
Comp the comp rate to put up positive growth on top of them.
Last years really strong growth numbers in the back half of the year I guess.
Little doubt that the demand is there to do that.
What does it <expletive>ume.
On about incoming shipments for manufacturers, but youre going to be able to comp that comp does it <expletive>ume similar.
<unk> of shipments coming in the door versus what you've seen the last couple of quarters.
Does it <expletive>ume a step up and is there any risk to that guidance.
Supply chain issue sort of come off the system.
Yes, it's a great question and we really have such a clear visibility to our manufacturers, we're communicating with them regularly along with the data transfer to look at things that we have.
Clear sight on boats that are being built for these customers for sale of some first stock when will they land literally to the day.
And so I'd say, we have great visibility on those products. There is always risks to outside factors that could affect.
Those boats getting here, but.
Like we've seen in the last couple of quarters, we watch at close of the boats arrive within that timeframe and we'll get them delivered to customer. So I'd say, we have great visibility to the arrival dates.
Some risk to the outside factors.
Do you feel like Youre, losing out on sales as a result of a lack of inventory of hardwood knock on 45, okay.
Store sales growth.
That number would be even higher if you got the inventory that you wanted and does that become more difficult in a bigger and bigger quarters to come.
Yes, I mean, clearly if we had more inventory right now in this high demand period.
Transact more boats right today, but we have a lot of boats incoming in like I've talked about our sales team is trained in it it looks like we're getting about a retail we can get in and even in some cases people might have a preconceived notion of of both they really wanted that sold out let's say for six months to a year.
And Theres another boat that meets their needs just as well and so we're able to move people to something like that it's still a great both for them and so.
Yes.
Okay.
I think if you look at the specifically if you look at the industry industry trends at our key categories. Our growth rate is considerably higher than the industry's growth, which would tell you we're doing better getting product or manufacturers on our team is handling at better and we're delivering more of those so I don't think we're losing a sale of necessarily just on went down the street.
So I think we're at probably better positioned quite frankly, yes.
Okay and then just last question for me as I think about the Thai team same store sales guidance.
Well I guess two questions.
Can you give us a total sales what's the total sales number of <expletive>umed.
Obviously, you've had some acquisitions.
In the past year or so.
What does the guidance <expletive>ume for total sales growth.
And what's the ASP.
Component to that same store sales growth number.
Think of with ASP was about a 5% benefit here in the second quarter. If memory serves I think of it.
On a headwind in the first quarter, but how should I think about that for the full year.
I don't have the total sales number of right at my fingertips right now, but it would be of high teens overall same store sales growth rate.
Going to be driven by units at the end of the day, there's going to be a component of AEP. The exact mix of that is a little tough to predict.
But it's going to be unit, driven which is speaking to the demand that we continue to see out there.
Got it okay. Thanks, guys.
Thanks, Jerry Thank you James.
Right.
Yes.
Our final question comes from the line of code on the West with Longbow Research. Please proceed with your question.
Hi, guys. Congrats on the strong quarter on thanks for taking my questions.
Thanks.
I guess.
To start out with.
Do you see the industry of getting back to sort of at <unk> level of 300000 retail units annually and if so is that.
Would it happen in the next.
On a few years is there sufficient capacity in place to be able to meet debt level of demand that would be required to get there.
That's actually a great question. So I think anybody in the industry is going to tell you that yes, we see the industry of getting back to those levels. I mean, we see the demand we see people out there on the water and boating, we see what loading does for.
Our families at their friends and so forth does the industry of the capacity at a good question.
I believe it does I don't believe theres been that many manufacturers that have gone off line.
Good question.
But so I believe that it does end or it will add at I don't think its debt expensive too too.
Both manufacturing facilities in terms of the physical facilities. Obviously, it takes time to get the team in the molds at all of that stuff to build the right boats, but.
Great question.
Okay, and then I mean, you guys mentioned really strong growth I mean pretty much all around.
<unk> web traffic same store sales of quarters. It just really kind of where you look but what gives you more confidence that debt.
Youre able to sustain these levels of demand.
Even against the tough comps and even next year. When you think about looked at 2021 comp is going to look like.
Yes.
It's as basic as it gets the waterways, where waterways or opened are packed people are boating, they're loving the lifestyle that are getting involved there is this new layer of customers that want to upgrade.
There's more people in of canal in Florida that half of new boat and everybody sees at driving by the Canal, Egypt, It's infectious and its really turn it on to be a great alternative for people to stay close to home with their family and friends and enjoying the boating lifestyle.
That's a real base.
Basic answer, but it's truly what we're seeing and if we weren't seeing as many people out there using their boat.
Of course, then you start wondering how all of that day, but they are on using their boats a lot.
And then is that momentum still be fueled primarily by the first time buyer or are you starting to see those buyers who maybe didn't buy in 2020 come back to market now that now that maybe inventory was able to come up a little bit.
On the off season months, but I see probably some of our treaties.
Retail number reverse that pretty quickly.
It does move around a little we are seeing some of those buyers that didn't by end 2020 of that ahead of boat and they finally got in on order of what was what they had been.
But the level of new boaters coming and remains high at still remains pretty high.
Okay, great. Thanks, so much for taking the questions. Thanks, Carl Thank you.
I would like to turn the call back to management for closing remarks.
Well. Thank you everybody for joining the call today and both Mike and I are available all day. If you have any questions feel free to reach out and we'll look forward to.
Speaking with you on our next quarter.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.
Okay.