Q1 2024 MarineMax Inc Earnings Call
Good morning, welcome to Marine vaccine fiscal 'twenty 'twenty four first quarter conference call. Today's call is being recorded at this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. At this time I would like to turn the call over to Scott.
Scott: It is.
Scott: The company's Investor Relations firm Sharon Merrill.
Scott: Go ahead Sir.
Scott: Good morning, and thank you for joining us hosting todays call are Brett Mcgill Marine Max as President and Chief Executive Officer, and Mike Mclamb, The company's Chief Financial Officer.
Scott: Greg will begin the call by discussing Marine Max's operating highlights Mike will review the financial results and then management will be happy to take your questions. The earnings release and supplemental presentation can be found at investor Dot Marine Max Dot com.
Mike Mclamb: With that I'll turn the call over to Mike.
Mike Mclamb: Thank you Scott good morning, everyone and thank you for joining this call.
Mike Mclamb: To start by reminding you that certain of our comments are forward looking statements as defined by the private Securities Litigation Reform Act of 1995.
Mike Mclamb: Any forward looking statements speak only as of today. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations.
Mike Mclamb: These risks include but are not limited to the impact of seasonality and weather global economic conditions and the level of consumer spending the companys 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.
Mike Mclamb: Also on today's call, we will make comments, referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results.
These metrics can also help investors, who wish to make comparisons between marine Max and other companies on both a GAAP and a non-GAAP basis a.
Mike Mclamb: A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in today's earnings release with that let me turn the call over to Brett right.
Brett: Thank you Mike Good morning, everyone and thanks for joining us I'll start by recognizing the hard work of the outstanding Marine Max team.
Brett: Despite a challenging retail environment, the team's dedication and resilience contributed to a very strong close to the first quarter and record revenue of more than 527 million.
Brett: The December quarter is seasonally the smallest quarter of the year for us and for the industry.
October finished a bit softer than expected followed by even greater retail challenges in November.
Mike Mclamb: This was especially true for fiberglass boats of virtually all sizes as reflected in the industry data.
Create any urgency to contracting close a purchase grew more challenging as the quarter evolved we.
We proactively created a sense of urgency by increasing the level of discounting on certain models.
Mike Mclamb: While these pricing incentives were successful in driving record revenue in December and in the quarter. They also resulted in lower gross margins and profit.
Mike Mclamb: The primary reason was that in many cases, we move faster than our manufacturing partners and before receiving a broader level of incentive support.
Mike Mclamb: We did so to get ahead of the early boat shows in the spring selling season and to drive inventory to a more balanced position.
Mike Mclamb: Our actions improved our inventory created more liquidity for growth and allowed us to grow our customer base and market share ahead of the boat show season.
Mike Mclamb: Today, most of the manufacturers have adjusted their incentive programs that are supporting the retail channel was seasonal marketing program, including participation and support at the major boat shows.
Mike Mclamb: On the expense side, we're making progress in capturing additional cost synergies from acquisitions made over the past few years.
Mike Mclamb: We've also reduced resources, including team members in manufacturing and certain other areas of the business that do not directly impact the customer experience.
Mike Mclamb: Although our core operating expense profile is improving we did incur increases and a few items like health insurance, which Mike will discuss.
Mike Mclamb: Although boat margins adversely impact our overall results our other businesses continued to perform relatively well, allowing gross margins to remain well above average on a historical basis.
Mike Mclamb: <unk> saw a solid start to the Caribbean Yachting season are Super yacht operations Frazier North have been Johnson performed on target and although intrepid and cruisers yards are not immune to the short term challenges facing the industry. Those experienced teams are taking appropriate actions to help ensure supply and production.
Mike Mclamb: Actions are aligned with demand.
Mike Mclamb: Additionally, both organizations continue to invest in new product development.
This month, we announced the planned acquisition of Williams tenders USA.
Mike Mclamb: Williams is the sole distributor in the United States and the Caribbean for the leading brand of rigid inflatable jet tenders for the luxury market.
Mike Mclamb: This transaction is consistent with a key component of our growth strategy to acquire high quality businesses that improve our margin profile and deepen our customer relationships.
Mike Mclamb: Williams jet tenders are currently market and 20 locations across the United States.
Mike Mclamb: Over time, there is ample opportunity to increase the reach of the product and grow its revenue, while staying true to the high level of service and experiences its customer base is accustomed to.
Mike Mclamb: The growth of the yacht and luxury yacht markets is a positive for our business and Williams is perfectly positioned to capitalize on such growth as well.
Mike Mclamb: We are looking forward to welcoming the Williams team to our operation once the transaction is completed.
Mike Mclamb: I'm also pleased to announce that we have launched a marine service technician apprenticeship program in Florida, which is an expansion of a program. We started many years ago.
Mike Mclamb: Through this initiative, we hope to improve marine industry skilled development and provides valuable opportunities for aspiring technician.
We're grateful to the Florida Department of Education, which provided an initial grant to support the implementation of this program.
Mike Mclamb: With weaker than expected retail activity the focus on the digital investments we've made over the past few years, including World class marketing tools as well as boat yard in boats on enabled our successful push in the smallest month of the year December.
Mike Mclamb: We believe that our investments will continue to allow us to take market share as we advance through the rest of this year.
Mike Mclamb: Our team continues to do an outstanding job keeping our customers happy we have sold and delivered many thousands of boats over the years and our team continues to rise to the challenge of providing excellent customer service.
Mike Mclamb: Measured through net promoter score or customer surveys continue to produce record results. It's the proactive nature of the team and the culture at Marine Max which allows us to win in the marketplace today and in the future. We will continue to invest and excellent customer service, which is the key.
Mike Mclamb: Key to long term growth.
And with that I'll turn the call over to Mike for a financial recap Mike.
Mike Mclamb: Thank you Brad before we discuss the financial details I also want to thank our team their hard work and commitment to help drive a strong close to the quarter. The quarter appeared to start on track, but grew more sluggish for certain segments of the industry.
Mike Mclamb: We reached out to our various manufacturing partners about launching or enhancing more targeted and in some cases larger incentives to help stimulate more urgency and reasons to buy.
Mike Mclamb: As they work to develop their plans, we launched our own initiatives, which were quite successful at driving sales and reducing select inventory where desired.
Overall, we grew revenue, 4% to $527 million, primarily from same store sales growth.
Mike Mclamb: Our same store sales growth was driven by a modest increase in units and the rest by an increase in our average unit selling price.
Mike Mclamb: We drove strong performance from both new and used boat sales right through the new year's holiday, which is unusual normally between seasonality and vacations business drops off around the holidays.
Gross profit was $175 million and gross margin was 33, 3%.
Mike Mclamb: While we expected it would be down year over year, our actions to stimulate demand resulted in a larger decline.
Mike Mclamb: As Bret noted most if not all manufacturers have now increased our implemented programs for the boat show season.
Mike Mclamb: SG&A expenses remained flat as a percentage of revenue, but when adding back unusual items noted in the reconciliation of adjusted net income SG&A was modestly elevated.
Mike Mclamb: For the second consecutive quarter, the largest outlier was our health care costs, which were unusually high by over $3 million.
Mike Mclamb: Like most companies we are self insured and we have had a number of unfortunate claims. The last time, we had a spike of this magnitude occurred about seven years ago and as it did then we expect this unusual spike to subside.
Mike Mclamb: As Brent discussed our focus centers on capturing additional synergies and enhancing the earnings potential embedded in the acquisitions. We have completed over the past several years one area of synergy as SG&A, where we believe we can generate further cost savings in areas that do not compromise the customer experience, primarily we're focused on.
Mike Mclamb: Mining and reducing the redundancy, which can occur through mergers in areas, such as accounting payroll vendor consolidation and other back office activities.
Mike Mclamb: Our actions take some time to implement but we are making great progress and are already seeing some of the early benefits.
Mike Mclamb: Beyond SG&A, we are also developing processes to better enable the sharing of best practices and information, which we believe will drive better overall performance.
Mike Mclamb: Interest expense increased primarily due to higher inventory, especially earlier in the quarter.
Mike Mclamb: Our floor plan interest in the quarter was over $10 million versus about $3 million last year.
Mike Mclamb: On the bottom line GAAP net income was about $1 million or <unk> <unk> per diluted share compared with net income of $20 million or 89 per diluted share last year.
Mike Mclamb: Adjusted net income was over $4 million or <unk> 19 per diluted share compared with adjusted net income of $27 million or $1 24 per diluted share last year the.
Mike Mclamb: The year over year decline is primarily due to lower gross profit and higher floorplan interest expense.
Adjusted EBITDA for the quarter was about $27 million compared with $53 million last year.
Mike Mclamb: Moving onto the balance sheet, we ended the quarter with more than $210 million in cash.
Mike Mclamb: Inventories increased to $876 million, which as expected was up modestly from September.
Mike Mclamb: On a same store basis unit inventories are over 20% below 2019 levels.
Mike Mclamb: Looking at liabilities, our short term borrowings, which is our floor plan financing.
Mike Mclamb: Were up primarily due to increased inventories and the timing of payments.
Mike Mclamb: Customer deposits modestly decrease from the September quarter as expected, but on a historical basis customer deposits remained in a good position as we head into the seasonal selling period.
Mike Mclamb: Our liquidity position remained strong at quarter end debt to EBITDA net of cash was less than one and we have additional liquidity in the form of Unlevered inventory plus available lines of credit the total close to 200 million.
Mike Mclamb: Turning to guidance based on our year to date results. We are adjusting our 2020 for guidance.
Mike Mclamb: I will comment first on our thoughts regarding industry unit trends for our fiscal year.
Mike Mclamb: Consistent with our commentary last quarter the year over year unit trends are relatively easy comparisons in terms of the industry's ability to post either unit growth or a minimal decline.
Granted the consumers, making it clear that incentives and urgency helped to facilitate retail activity similar to historical years, especially when the industry inventory is elevated for many segments.
Mike Mclamb: Assuming no significant economic downturn, but also no major improvements we continue to believe the industry will be flattish to up slightly on a unit basis in our fiscal year.
Mike Mclamb: Based on our industry unit expectation and our results to date, we continue to expect low to mid single digit same store sales growth in 2024.
Mike Mclamb: We are seeing increased discounting in the industry and the industry product margins are moderating to pre pandemic levels.
Mike Mclamb: While our profitability was below our expectations. This quarter, we continue to reap the long term benefits of our higher margin strategy and are confident in our ability to maintain consolidated margins in the low to mid thirties.
Mike Mclamb: Thinking ahead, it's worth noting that in the March 2023 quarter, we had lower interest costs driven by lower rates and lower inventory then we will have this quarter.
Mike Mclamb: Factoring all of this in we now expect our adjusted net income per share to be in the range of $3 20.
Mike Mclamb: The $3 70 for fiscal 2024 with adjusted EBITDA to be in the range of 190 million to $215 million.
Mike Mclamb: We are using an annual expected tax rate of approximately 27% and a share count of $23 1 million in our assumptions.
Mike Mclamb: Looking at current trends with the seasonally smallest quarter of the year behind US. We are cautiously encouraged by the recently strong start to the winter boat show season.
Mike Mclamb: Today January it looks like it will finish with positive same store sales growth, but the team still has a fair amount of work to do.
Mike Mclamb: With that I'll turn the call back over to Brent for closing comments Brett.
Brent Smith: Thank you Mike.
Brent Smith: Although we have reset our expectations for 2024, we remain well positioned to execute on our growth priorities in the year ahead, we continue to build the business for the long term serving the growing demand for the boating lifestyle by providing customers with the best products services and experiences.
Brent Smith: Our healthy balance sheet and strong cash position provide us with the financial flexibility and capital resources to meet the needs of this dynamic industry in 2024 and beyond.
Brent Smith: And with that operator, please open up the line for questions.
Operator: Thank you, ladies and gentlemen, we will now be conducting a question and answer session to ensure all participants have an opportunity to ask questions. During the Q&A session. Please limit yourself to one question and one follow up.
Operator: If he would like to ask a question. Please press star one on your telephone keypad.
Operator: Information tone will indicate your line is another question Kim you May press Star two if he would like to remove your question from Mccann for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Operator: Our first question is from James Hardiman with Citi. Please proceed.
James Hardiman: Hey, Good morning, guys, Hey, James Hey, James.
Morning.
James Hardiman: Thanks for taking my my question so.
James Hardiman: Just want to compare to.
James Hardiman: The level set here the guidance this time around versus last time, it seems like the big adjustment to gross margin I think you said.
James Hardiman: Mid thirties last time, and now you're saying low to mid thirties.
James Hardiman: And then is there is there any change in in.
James Hardiman: How should we think about SG&A and then the product manufacturing I guess through the three things I just want to make sure that we're all on the same page in terms of.
James Hardiman: Where we were and where we are.
James: Yes, James Good question.
James: The biggest change is the margin change go into the low to mid thirties as given the results of our December quarter, while were optimistic with our partnering with our manufacturers and how the rest of the year will play out I think we're we're level set and margins and we'll update you as we go throughout the year, but no real change on the SG&A line.
James: We're not baking in meaningful savings from the operations that we're looking at in terms of reducing costs at all of that stuff not yet not until it flows through and no real changes to the interest line either.
James: Then my comment the March quarter will have higher interest expense on a year over year basis.
James: Got it and then just maybe help us understand I speak out yet.
James: How the first quarter when obviously I think as you guys mentioned October finished a little softer and then November was weak and so you've ramped up your your promo in December.
James: That seems to have worked.
James: Commentary on December and January seem pretty positive it seems like youre getting the help from the manufacturers.
Brent Smith: I guess, maybe help us understand than the guide down in margin for the remainder of the year I guess I get <unk>, but it generally sounds like a more sort of pessimistic view of what it's going to require moving forward even though.
Brent Smith: The commentary towards the end of the first quarter, we've seen pretty constructive.
James Hardiman: I think what we're seeing is we're seeing more discounting out there I think the industry inventory is higher.
James Hardiman: I think that's being reflected by everybody in the industry.
James Hardiman: We hope we're being conservative on the margin line time will ultimately tell the wave 2023 margins played out and this is kind of importance of 'twenty. So the December quarter.
James Hardiman: If you go back to my commentary each each of the quarters last year. The December quarter would've had the highest product margin quarter.
Out of the four March would have been a little elevated still June was getting closer to pre pandemic levels, but still elevated than on the September call. I said that margins are pretty much back to pre pandemic level as we left the year.
James Hardiman: And so we did just leave the toughest comparison.
James Hardiman: Which.
James Hardiman: Which we recognize but I think just given with where the inventory is in the industry. We hope to be able to update you with better news, but we think the guidance numbers makes sense at this point until we get out there and show otherwise.
James Hardiman: Got it and just to clarify to the point about inventory.
James Hardiman: You feel like your inventory is in good shape.
James Hardiman: And maybe even better than what you expected at this point in time, but its more competing with other dealers that you feel like have elevated.
James Hardiman: Inventories, which is why.
The need to promote because there.
James I'll jump in this is Brad I think our inventory is lining up how we want it to go we got work to do so that's part of the equation and then the second part is what's the competitive landscape look like as people as competitors right size their inventories. So that's kind of the two parts of that equation ours isn't where I think we want it yet, but we're getting it there.
Brad: As we said last call we've got segments within our inventory dislike you can re buy you can read in the industry about the segments that are heavier we are more in some of those same segments, but.
Brad: But.
James Hardiman: They made good progress in the December quarter for sure.
James: Got it very helpful and good luck guys. Thanks James.
Our next question is from drew Crum with Stifel. Please proceed.
Andrew Edward Crum: Okay. Thanks, Hey, guys. Good morning, I Wonder if you could comment on what you're seeing or hearing in your stores or some of the recent boat shows around how interest rate cuts or the potential of interest rate cuts could impact purchased some time on the part of your consumer and then I have a follow up.
Yes drew I think likely just commented when interest rates. It really the biggest effect we saw win rates climb so quickly it kind of shocked people, but then once they kind of moderated and people got used to it that calm things down because I think like Mike's always commented that people are optimistic Saint Kate when rates are way down.
Andrew Edward Crum: Refinance.
Andrew Edward Crum: So I think you know.
Andrew Edward Crum: No.
Andrew Edward Crum: People looking out there and saying rates are starting to go down maybe it gave us a little.
Andrew Edward Crum: No tailwind, but I'm not sure that was any of the reasons why directly that we're hearing from anybody drew I'll comment that retail rates, which are generally tied to depending on the financial institution.
Andrew Edward Crum: The 10 year note or the five year notes, so retail rates have dropped.
Andrew Edward Crum: As you read with any other environment, which is net net a benefit right. So that's helped US yeah. That's helpful is positive.
Mike Mclamb: Got it Okay, and then just a follow up to that can you comment on.
What you saw in terms of performance for premium versus value brands at your stores during the quarter I think there's been this.
Mike Mclamb: Ongoing narrative or observation that premium has outperformed value over the last several periods. What did you see in the quarter and and you know.
Mike Mclamb: How did premium perform relative to your expectations. Thanks.
Mike Mclamb: Okay.
Mike Mclamb: Gum and consistent that premium is performing better.
Mike Mclamb: I made it.
Mike Mclamb: When you look at the industry October November and December. So October was up from an industry perspective November was actually down a little bit and December was down a little bit more if you unpack that fiberglass boat sales in November and December were down about double digit nine or 10%. If you unpack that further within that based on some.
Mike Mclamb: The data we've looked at the premium business did better than the entry level business. If you will the value business. So I think that thesis continues and that's always been what we've seen through all the different cycles at all the different years that we've been doing this year and I think that to add to that I think that.
Brent Smith: The premium segment is holding up well, but people need discounting.
Brent Smith: Like we said in our comments that they're needing that.
Brent Smith: Incentive to create the urgency, but they are still active buyers.
Brent Smith: Yep, Okay. Okay. Thanks, guys. Thank you.
Brent Smith: Our next question is from Joe <unk> with Raymond James. Please proceed.
Joseph Nicholas Altobello: Thanks, Hey, guys. Good morning, Brad I, just want go back to that comment you just made about you know incentivizing buyers. It seemed like things kind of went sideways in November where do you usually a small month for for boat retail anyway. So how do we know if this is not just normal seasonality coming back around.
Joseph Nicholas Altobello: And any shifts in demand.
Brad D. Cohen: Yeah I think.
Typically the way the quarter lays out is November smaller than October and December smaller than November, but we had done and had to reverse around clearly seasonality weighs in on it to create some urgency for people to get moving on a boat now.
Mike Mclamb: But I think just the market people are looking for incentives to make a move because there were so many years of not having it and youre seeing it out in the marketplace. Mike do you want to add anything I think I think the point is it's a good point, it's like when you look at even the industry data comment that I made about it being down double digit is it how much of that is seasonality how much.
Mike Mclamb: That as you know.
Mike: Sunk in the marketplace. If you will economic issues how much of it is the need for urgency I don't think we know all of those answers right now Joe.
Mike: I know its pretty clear people want to get into body you can see from our results that we drove positive same store sales growth, including unit growth in a quarter.
Mike: It caused it cost us a little bit of margin but.
Mike: People are happy with the product and mud.
Mike: Okay got it and you also mentioned that you were pleased with the support that you're seeing from your manufacturing partners would you expect to continue to see that support maybe even greater support into the spring and summer selling season.
Mike: Yeah, our manufacturers have really stepped up kind of always have I think we just got really proactive in the quarter in December we wanted to not wait and see what happened, but make a move and but all of our manufacturers. We work really closely with and they're working with us to see what they can do to help in fairness the December quarter's usually.
Mike: Not one specifically in November and December is usually not one where the manufacturers are they're not normally thinking to launch. It incentive then so when we went to them and said Hey, just given what we're seeing at retail we can certainly use some of your support and they did all they could in a quick period of time, but just you know not as much as we would have wanted them to do in many cases and certain.
Mike: Not what they're doing today.
The rest of the season is when there is typically some type of a reason to buy in the industry and that's what we're seeing now.
Mike: Okay. Just one last one if I could you mentioned that there are some categories that are that are heavy on inventory in the industry. I mean, we've heard ski wake up a little bit heavy or are there other categories, where there's a little bit too much supply.
Mike: You touched on ski wake.
Mike: The rest of the category Thats, probably a model by model our size basis, it would be too hard to categorize it.
Mike: Aluminum pontoons product like that is probably a little heavy still although its cleaning up relatively fast and actually the industry is cleaning up relatively fast I do want to state that the manufacturers. There's a lot of them that are public now and you can see what they've done the main the dealers are trying to order the right level product.
Mike: Which I think everybody is.
Mike: I think why the inventories are still elevated the manufacturers are doing a great job, bringing down production. So you know.
Mike: The outlook for the industry, if you talk to the folks who finance the inventory in the industry. They all feel pretty good about where inventories will be as we get through March and maybe even into the June quarter.
Mike: <unk> inventories will continue to come in line the amount of product being shipped to dealers is much much lower than that.
Mike: Was originally forecasted to be.
Mike: Okay. Thank you thanks.
Mike: Thanks, Tim.
Speaker Change: Our next question is from Mike Swartz with true Securities. Please proceed.
Speaker Change: Hey, guys just to just to clarify something I think you've talked about a number of times, which was the maybe the timing difference between when you decided to go to market with some incentives and promotions you know relative to when the Oems stepped in.
Speaker Change: Is that another way of saying that you you expect you know that.
Speaker Change: First quarter to be the lowest margin quarter of the year just from a.
New both perspective is that how we should read that.
Yeah, I would have to let me just think through all the quarters I think that's.
Speaker Change: Probably accurate yeah, yeah, because we went at it alone.
Speaker Change: Like I said I've said.
Speaker Change: That makes sense to keep in mind. The comparison that I said the December quarter, we were up against our toughest toughest product compared to if you will March quarter is a little tougher than the June quarter. The June quarter is a little tougher than the September quarter kind of gets easier as we go through the year.
Okay. That's.
Speaker Change: That's great. Thank you.
Speaker Change: And then just the second question is just on interest rates.
Speaker Change: Back jumping on top of Drews question, the other way to look at it I mean it maybe.
Speaker Change: During historical cycles, when we've seen rates being cut.
I guess, how does the consumer I E go about that I mean, if I, if I'm, a consumer and I think rates are going to be lower in 345 months, what's my incentive to buy today I mean is there some aspect of this where we could see consumers dragging their feet until the fall or spring of next year.
Brent Smith: I'm trying to think through different cycles, where we've had declining rates. We I think we know what happens in rising rates and declining rates.
James Hardiman: Sure I would I think I'd answer that by saying there is some sub segment of the population that probably is going to be thinking about that but I think if we if we get that person in front of our sales team. Our sales team will explain the benefits ability and the benefits of the product getting out there with your family and I think our sales team will will.
James Hardiman: Help the consumer makes a decision today to buy the product.
James Hardiman: Okay.
James Hardiman: And just final one for me real quick.
James Hardiman: I think this year you've either attended some boat shows that you hadn't.
James Hardiman: Last year or you have a larger presence at this year I am just wondering is there a way to think about the incremental cost in SG&A related to that I guess is that baked into your commentary that you don't expect any real improvement in SG&A as we go through the year.
James Hardiman: I think that there is.
James Hardiman: Some additional shows were attending there are some that are kind of flat maybe it will spend a little less but the overall I mean, some of what we did in the first quarter was.
James Hardiman: No.
James Hardiman: <unk> spent hard on marketing to drive some of that not just incentives but.
So yes. There is some boat shows that are a little more costly the timing of when those land and cost get in there can affect things for sure.
Mike: Okay, great. Thank you. Thank you Mike.
Mike: Our next question is from Fred Reitman with Wolfe Research. Please proceed.
Mike: Hey, guys. Thanks for the question.
Mike: Hi, I just wanted to come back to the December inflection I think Mike you made a comment in your prepared remarks talking about the fiberglass declines for sort of broad based when you saw that softer October and November performance I'm wondering if that recovery was similarly broad based in December or if it was a little bit more segment specific.
Mike: No we did a very good job driving a very very very strong December that was broad based.
Mike: Through the means that we've talked about on the call. So yeah. No. It was very broad based it wasn't tied to any one specific segment.
Mike Mclamb: Okay, and then just coming back to the inventory you guys have both made comments about how quickly Oems cut production, but when you look at the amount of inventory, which you've said, there's still elevated at sort of at the industry level is there anything unusual or concerning just about the each of that inventory is there are a lot of non current product out there just given the fact that Oems pull back and.
Mike: What is sort of the outlook for pricing as a result of that sort of model year mix.
Mike: We feel like we're managing our aged inventory and AR.
Mike: Pretty good way as reflected in the Q. The Q1 results here, but some of that equation that we're baking into the guidance for the year I think take it were kind of wondering the same thing what's the competitive landscape look like for aged.
Mike: How will that affect us from competitive incentives. It seems like those couple of segments that we mentioned Fred would have the higher non current percentages because those manufacturers have really cut down production. So.
Mike: But to Brad's point, we feel pretty good about our current position.
Mike: Great. Thank you.
Mike: Yeah.
Mike: Our next question is from John Healy with Northcoast Research. Please proceed.
Mike: Yes. Thank you I just wanted to ask a follow up question on the gross margin.
John Healy: Like for the year.
John Healy: If you look at Q1, and you think about Q2 I just want to make sure I heard right that Youre thinking Q1 is probably the low point of the year, but that's a function of the manufacturers stepping in and given your dollar support to your kind of soften that blow us did I hear that right and can you talk to what level of support are you getting from the manufacturers compared to maybe previous.
John Healy: Frames when doing this digestion period has gone up.
John Healy: But I think you heard the margin question right about the first quarter versus other quarters.
John Healy: The support that we're getting from the manufacturers in some it kind of depends by manufacturer by segment by you know by model in some cases, it's it's right back at historical percentages of invoices in some cases, it's not there yet but it has made good progress.
John Healy: I think in all cases, it's helping to drive retail activity.
John Healy: Got it and.
John Healy: And then just wanted to ask a question just on what Youre seeing in the market means to how you respond kind of going into next year really.
John Healy: When you look at the landscape with margins kind of correcting in the industry I have to imagine there's going to be some competitors of yours that are not as well positioned to kind of deal with that as you guys are.
John Healy: Do you see yourself kind of creating a playbook for more aggressive M&A plans.
Brent Smith: <unk> consolidation kind of now that this process is starting or is it too.
John Healy: Too early to think that that would be something you guys start to tinker with.
Brent Smith: Alright.
John Healy: I think we're always keeping our eye on any any of those type of opportunities that come up I mean of course, you would think that.
John Healy: Dealers that arent well capitalized could pop if they're not set up right.
John Healy: They they'll definitely struggled a little more than others and that could create some some opportunities for us. So we're definitely looking at that.
John Healy: But nothing right at the moment.
John Healy: Got it. Thank you guys. Thanks John.
John Healy: Our next question is from Eric Wold with B Riley Securities. Please proceed.
John Healy: Thanks.
Eric Wold: A couple of questions I guess, one just following up on margins kind of thinking about the other businesses other than new and used boat sales what are your thoughts on pricing power.
If we get into a lower rate environment. You later this year and next year in terms of your ability to drive margins. There as you help since you offset your core margin pressure.
Eric Wold: If I understand you right like Eric like in terms of like slip revenue service revenue all of that.
Eric Wold: The management of like I'm talking about yeah, I think we have reasonable pricing power. There I think what we've expanded the higher margin businesses right. I think we ended last year with roughly 25% of our revenues coming from non boat sales and that means 75% came from boat sales and that's generally true heading into.
Eric Wold: 2024.
Eric Wold: The boat margins of the business still can weigh heavily on the overall gross margins of the business. The operating margins, obviously have improved nicely. They were improved nicely last year and are projected to be in.
Eric Wold: Improved nicely this year, but.
Eric Wold: So the pricing pressure helps it helps to offset and I guess to answer your question.
Eric Wold: Got it Okay and then.
Eric Wold: On the boat shows obviously, making it come that you've seen some positive indications so far.
Eric Wold: Pack that won't bet in terms of.
Eric Wold:
What are you seeing from was read in terms of yield.
He leads coming out of the shows sales cycles to complete something.
Eric Wold: Obviously demand I used it you know margins are being pressured by the need for promotions and kind of buyers looking for incentives there kind of what are you seeing from that that's going to give you at least some optimism on where the consumer loans.
Eric Wold: Yes.
Eric Wold: It shows our tougher I mean, they're not what they were over the last.
Eric Wold: Just the but demand is still good it's just people entering at the higher in the funnel. So it's taken more work taken a longer to get them there.
Incentives, we hate to talk about it but.
Eric Wold: People are needing an urgency.
Eric Wold: Not just in urgency theres, probably a feeling in their minds of.
Eric Wold: Prices were at the top.
Is it adjusted down a little bit and so that creates a business there, but I'll tell you we come out of the shows we measure it very detailed way we know how many leads we got.
Eric Wold: Our follow ups at the weekend events at our stores. After the show have proven to be very <unk>.
Eric Wold: Productive so.
Mike Mclamb: Mike has said the consumers are still wanting to go boating, but we haven't seen that you know in many over our 25 plus years here doing this we've seen when there's no demand we know what that feels like that's not what we're seeing here. There is just we've got to navigate some of the ins and outs here of what we're what's going on.
Bill: Understood. Thank you Bill.
Bill: Thank you.
Bill: Our next question is from Brandon <unk> with D. A Davidson. Please proceed.
Bill: Good morning. Thank you for taking my questions. Just a couple of quick ones on guidance. One what gives you confidence you've properly reset our guidance for the remainder of the year and to does your guidance bake in.
Bill: Any improvement within retail fundamentals throughout the rest of the year or.
Bill: Or is this kind of a reset saying you know what we saw throughout the first quarter continues throughout the remainder of the year. Thank you.
Bill: Thank you, Brian and good questions.
Bill: Our retail outlook is kind of what I walked through on the call, which we think the industry is up against generally.
Generally easy comparisons.
Bill: On a unit basis month over month end and actually if you look at the unit growth.
Bill: We drove an a and a negative quarter.
Bill: With any break or with any luck from an industry perspective, I think our unit growth still stands and will have positive same store sales growth.
Bill: On the guidance side.
Bill: We believe that we've lowered guidance low enough given what we know today.
Bill: That should hopefully give us an opportunity to come back and talk to you guys about better performance like every company hopes but.
Time will tell ultimately, but we think we think around the margins, which was probably the risk area, we've lowered that far enough to some of the questions that were asked today. So yes, it's not baking in any yes.
Bill: Swings or anything like that.
Brent Smith: Okay, Great and then just one last one on your inventory I think you had said you were about 20% below our 2019 levels could you talk about where that inventory is on a dollar basis, and maybe where asp's go from here from speaking with your Oems about affordability and obviously.
Brent Smith: Customers looking for better pricing. Thank you.
Brent Smith: I can make a quick comment units are well below on a same store basis dollars are going to be well above which there's a couple of things driving that one is the price increasing that that every industry is seeing in the last several years. The second thing is is that we're.
Brent Smith: Generally carrying larger and larger product even within a brand. The brands are building larger product customers want the larger product et cetera. So.
Brent Smith: <unk> light.
Brent Smith: Engine horsepower is much higher today than it was in 2019, and which drives costs up so average unit selling prices up primarily because of mix within the within the within the industry. So.
Brent Smith: Hopefully that answers your questions Brandon.
Brent Smith: It does thank you. Thank you.
Brent Smith: Our next question is from David Macgregor with Longbow Research. Please proceed.
Yes, good morning, everyone a lot of my questions asked before but let me let me ask you about the composition of the 350 basis points of gross margin decline how much of that is a function of the acquisitions in and sort of other factors than say the promotional programs, we can discuss and so forth.
Brent Smith: Great question, it's all going to be I'm doing this from memory right now.
David Macgregor: It's all going to be really new and used boat margin driven.
David Macgregor: And also probably a little bit of mixed business.
Brent Smith: Within that when you drive positive same store sales growth.
Brent Smith: Like we did versus negative last year, the other higher margin businesses shrink as a percentage of the of the revenue a little bit it's hard for them to keep up.
Brent Smith: And so your margin gets impacted by the mixed shift and that's comparing it to the December quarter last year and I don't recall, if there was anything I don't think there was anything really unusual in the December quarter last year that would have drove margins higher other than product margins.
Brent Smith: Okay. Thanks for that and then secondly, I might just ask now in inventories here.
Obviously things have changed your previous question you talked about the change in the mix versus 2019 levels.
Brent Smith: Engine horsepower was up and everything else that's going on so just to understand as we as we think through inventory what is the right level in terms of days or turns or.
Brent Smith: However, you want to talk about that.
I should come but I don't think the industry turns I've ever been.
Brent Smith: <unk> until maybe the last couple of years the industry historically used to be less than two times turns forever and ever and ever we were typically two 5% to three times turns.
Brent Smith: We really are.
Brent Smith: As an industry right now is heavy in inventory. So a lot of people are back to historical terms, but.
Brent Smith: Getting back to.
Brent Smith: To where we used to be and above that is I think where the industry needs to be focused in.
Brent Smith: When we talk to our manufacturing partners everybody really for the first time was able to see the benefits of a faster turning inventory industry last year and all of our manufacturing partners are.
Brent Smith: They aim to keep the industry at a higher level, but but they missed it because the industry ended last year, a little too heavy so we're at a correction period now, but I think when we get through this we're going to.
David Macgregor: We have an industry that has high returns that it used to have David long long winded way to say it needs to improve from where it used to be.
David Macgregor: Yeah, So two and a half to three times and it was the number I am hearing can be introduced that's where we would I mean honestly, that's where we used to operate we would love to operate better than that but we need to get there right.
David Macgregor: Got it thanks very much thank you.
David Macgregor: Our next question is a follow up from Mike Swartz of Truth Securities. Please proceed.
David Macgregor: Hey, guys just wanted to slip one last one.
David Macgregor: With regards to the Williams' tenders business I guess, one is that now embedded in guidance and then two any any way to frame, how large or how material that businesses to revenue or earnings.
David Macgregor: A great question on that I know, we talked a little bit about on the call. It is not in our guidance, we don't put acquisitions in our guidance until they actually close and we will give everybody a little more color on it once it's closed.
It is accretive and it will be accretive in our fiscal year.
Any more Mike with our size there really isn't anyone we can buy this really raw material from a revenue perspective, but it's a great strategic company that has great leadership that ties in nicely to all of our businesses, but especially the super yacht business. So.
We're happy and look forward to welcoming.
Mike Mclamb: William's team to the Marine Maxine.
Mike Mclamb: Okay, great. Thanks.
Mike Mclamb: Thanks.
Speaker Change: And our next question is a follow up from Joe after that though with Raymond James. Please proceed.
Speaker Change: Sorry quick question on argue why.
What's the contribution you're expecting from that business within your EBITDA Guide.
Well, it's the contribution that we're expecting from that business within the EBITDA guide not not a whole lot different than last year, Joe I don't I don't there isn't I mean, <unk> grow and they are working on different acquisitions, we haven't because we're anniversarying that now theres going to be incremental and purpose for what it would have been last year.
Speaker Change: Okay. So is it roughly 20% of the fiscal 'twenty four guide.
Joe: Is it roughly 20% of the guide.
Joe: It's in that range. It may be a little below that range I'd have to look at that specifically, Joe I don't have that in front of me right now.
Joe: Thank you. Thank you.
Joe: There are no more questions at this time I would now like to turn the floor over to Mr. Mcgill for closing comments.
Joe: So really appreciate all the great questions and everybody joining the call today, if anybody happens to be at the Miami boat show stopped by we'd love to show you some of our great new products, but thank you for joining us today.
Joe: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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