Q1 2025 MarineMax Inc Earnings Call
Good morning and welcome to the Marine Max, Inc. fiscal 2025 first quarter conference call.
Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Scott Solomon: I would now like to turn the call over to Scott Solomon of the company's Investor Relations, Sharon Merrill Advisors. Please go ahead, sir.
For more information visit www.scottsolomon.com
Scott Solomon: Good morning and thank you for joining us. Hosting today's call are Brett McGill, Marine Max's Chief Executive Officer and President, and Mike McLamb, the company's Chief Financial Officer.
Scott Solomon: Brett will begin the call by discussing MarineMax's operating highlights. Mike will review the financial results, and then management will be happy to take your questions.
Mike Mclamb: The earnings release and supplemental presentation associated with today's announcement can be found at investor.marimax.com. With that, I'll turn the call over to Mike. Mike?
Mike Mclamb: Thank you, Scott. Good morning, everyone, and thank you for joining this call. I'd like 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.
Any forward-looking statements speak only as of today.
Mike Mclamb: These statements involve risks and uncertainties that could cause actual results to differ maturely from expectations.
Mike Mclamb: These risks include, but are not limited to, the impact of seasonality and weather.
Mike Mclamb: global economic conditions and the level of consumer spending, the company's 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 in today's call, we will make comments referring to non-GAAP financial measures.
Mike Mclamb: We believe that the inclusion of these financial measures helps investors gaining a meaningful understanding of the changes in the company's core operating results.
Mike Mclamb: These metrics can also help investors who wish to make comparisons between MarineMax and other companies on both a GAAP and a non-GAAP basis.
Mike Mclamb: The Reconciliation and Non-Gap Financial Measures to the Most Directly Comparable Gap Measures is available in today's earnings release.
Brett McGill: With that, let me turn the call over to Brett. Brett?
Brett McGill: Thank you, Mike. Good morning, everyone, and thank you for joining us.
Brett McGill: Before we get into the details of the quarter, let me take a moment to commend our team for their exceptional commitment to serving our customers across every aspect of our business.
Brett McGill: We ended our fiscal year focused on the cleanup and restoration of many of our locations from Hurricane Helene and spent a fair portion of the first quarter of fiscal 2025 repeating the process as a result of the Hurricane Milton.
Brett McGill: Operationally, the December quarter revenue was strained with the combination of the hurricanes and the soft retail demand across the outdoor recreation space.
Brett McGill: While the top line was a bit lighter than we had anticipated, it isn't surprising that the shortfall largely came from the disruption to the entire state of Florida.
Brett McGill: Having said that, it does seem that potential new boat buyers have remained on the sidelines given the mixed economic data, persistent inflation uncertainty, and a tenuous geopolitical climate.
Brett McGill: It's difficult to dissect precisely how much of the 11% decrease in same-store sales in Q1 was the result of the hurricanes versus the macroeconomic environment, except to say that both were impactful.
Brett McGill: Although the premium segment of the retail boat market was not immune from those headwinds, our strong presence in this high value category sets us apart.
Brett McGill: This segment, characterized by more resilient demand and customer loyalty, often recovers faster during market improvements.
Brett McGill: By providing exclusive brands, top-tier products, and tailored services to our premium customers, we are strategically positioned to navigate these challenges effectively and take advantage of growth opportunities as demand rebounds.
Brett McGill: Gross margin came in at over 36% in the quarter, which was particularly impressive in light of the underlying retail market.
Brett McGill: Two factors drove the increase. First, the promotional environment and mix of sales. And second, our strategic focus on driving growth from our higher margin businesses.
For more information visit www.FEMA.gov
Brett McGill: It is worth noting that our non-boat revenue has grown significantly from 2019 and over that time we have seen a measured increase in gross margin.
For more information visit www.FEMA.gov
Brett McGill: To that point, our December quarter financial results spotlight the success of our related diversification strategy.
Brett McGill: Despite a nearly 60 million decline in revenue, hurricanes, and a challenged environment, our higher margins helped insulate the business as reflected in our consistent adjusted EBITDA compared with last year.
Brett McGill: Our expense initiatives certainly contributed, but the primary building block is the profit contribution from our higher-margin businesses.
Brett McGill: On the expense side of the business, as Mike will discuss, we are focused on improving efficiencies and continuing to seek areas to reduce costs. We have made significant progress and remain focused on pursuing further improvements.
For more information visit www.FEMA.gov
Brett McGill: Turning to other highlights, many of our stores recently expanded with our Cruisers Yachts brand.
Brett McGill: Now, all of our stores in key regions in the southern U.S., including Texas, the Florida Panhandle, and West Florida, will feature the full range of Cruiser's yachts. This includes the new 57 Fly, which recently debuted at the Fort Lauderdale Boat Show.
Brett McGill: In addition, our Intrepid Power Boats brand recently enhanced its leadership with the appointment of Terry McNew as the brand's president.
Speaker Change: Terry brings more than three decades of marine industry experience to Intrepid, including executive roles at Brunswick and Mastercraft.
Brett McGill: Terry's vision and leadership will help build upon Intrepid's strong foundation and drive the brand's continued success in delivering world-class powerboats to our customers.
Speaker Change: I also want to spotlight the outstanding work of Steve Vinglish and the IGY marinas team in continuing to expand the global recognition of what we believe is the world's premier marina brand.
Speaker Change: Membership in our exclusive IGY Trident program is growing, allowing more super yacht owners and captains to enjoy the benefits of guaranteed dockage and priority access at some of the world's premier marinas, especially as dock space becomes increasingly scarce.
Speaker Change: Steve and the team are also nearing completion of the new IGY Savannah Harbor Marina, which is scheduled to open in March.
Speaker Change: New Wave Innovations continues to lead the way with technological advancements that will drive more synergies across our portfolio. We continue to gain a strategic advantage in the market with our innovation and technology platforms.
Mike: And with that, let me turn the call back to Mike for the financial review. Mike?
Mike: Thank you Brett and good morning again everyone. I want to echo Brett's sentiments about the resilience of our team in navigating the challenges of the current market and the storms. As Brett noted, our top-line performance reflected both the impact from two hurricanes and the softer retail environment.
Mike: The industry registration data for each month in the quarter continue to reflect the challenges we are facing.
Mike: Although we did see increased retail activity following the storms and in November, on a sequential basis December retail was less than expected resulting in a softer close to the quarter.
Mike: Our Savings Store sales were down 11% while units were down in the mid-single-digit range, meaning our AUP was also down. Not surprisingly, lower sales in Florida, which typically are larger in nature, was the biggest driver of the AUP decline.
Brett McGill: While gross profit declined in absolute dollars due to lower revenue, as Brett pointed out, our gross margin was healthy, reflecting the benefits from our strategy of expanding into higher margin businesses.
Brett McGill: As we go through the income statement, keep in mind that our GAAP results include a $25.8 million gain from an adjustment to the fair value of contingent consideration.
Brett McGill: Much of the gain is from the earn-out reconciliation related to IGY. As we have said on prior calls, IGY continues to perform well, and we are very pleased with their overall performance.
Brett McGill: However, contingent consideration liabilities can fluctuate based on the achievement of certain predefined qualitative and quantitative milestones.
Brett McGill: Excluding the items noted in the press release in both periods, adjusted SG&A in the quarter decreased year-over-year to $149.4 million.
Brett McGill: As part of our strategic cost reduction initiatives and to align our footprint with the current market environment, we consolidated or sold three locations during the quarter and took other actions designed to enhance our operational efficiencies.
Brett McGill: As mentioned during our year-end earnings call, we see inflation in several key areas, but we continue our focus of strengthening our operational profile through disciplined and targeted expense management.
Brett McGill: In the first quarter, we incurred a charge of $5 million to write off damages associated with Hurricane Milton, the large majority of which we anticipate will be covered by insurance.
Brett McGill: Income tax expense was $2.1 million in the quarter, which reflects a rather low effective tax rate compared to what we have guided.
Brett McGill: The IRS concurred with our characterization of several foreign entities resulting in a one-time benefit during the quarter that significantly reduced our effective tax rate.
Brett McGill: Gap net income for the quarter was $18.1 million, or $0.77 per diluted share. Adjusted net income for the quarter was $4.1 million, or $0.17 per diluted share, compared with $4.4 million, or $0.19 per diluted share last year.
Brett McGill: The first quarter adjusted EBITDA of $26.1 million was nearly flat with last year, which is a strong result considering the year-over-year revenue decrease.
Turning to the balance sheet.
Brett McGill: Cash and cash equivalents totaled $145 million compared with $210 million at the end of last year's first quarter, primarily due to the timing of inventory purchases and related financing.
Brett McGill: Although inventories were up more than anticipated at quarter end due to lower than expected revenue, our floor plan lenders note that our inventory remains much fresher and more current than the industry as a whole.
Brett McGill: To ensure it stays that way, we have adjusted, where appropriate, future orders and implemented proven programs to keep the aging of our inventory in check.
Brett McGill: With higher inventory, short-term borrowings, which consists of floor plan financing, also increased.
Consistent with the increased availability of inventory, customer deposits declined.
Brett McGill: At quarter-end, our debt-to-EBITDA net of cash stood at just over 1.6 times, which highlights our ongoing financial strength.
Brett McGill: With our focus on inventory and related aging, we will continue to maintain a healthy balance sheet.
Brett McGill: Additionally, we have significant financial flexibility through our additional unencumbered inventory and access to approximately $200 million in available lines of credit.
Brett McGill: The fiscal 2025 outlook we provided on our year-end call in October has not changed.
Brett McGill: Industry-wide we continue to expect unit sales to be essentially flat with fiscal 2024, with inventory levels likely normalizing as we move through the selling season.
Brett McGill: Promotional activity will remain elevated in the second quarter with improvement as we move into the back half of the fiscal year.
Brett McGill: Although industry conditions were challenging in the quarter, with the start of the boat show season and expected improved clarity in the geopolitical environment, we are cautiously optimistic about our same store sales remaining flattish on a year-over-year basis.
Brett McGill: We expect adjusted EBITDA within our targeted range of $150 million to $180 million with adjusted net income in the range of $1.80 to $2.80 per diluted share.
Brett McGill: In addition, we continue to forecast consolidated gross margins in the low 30% range for the fiscal year.
Brett McGill: These expectations did not consider or give effect for, among other things, material acquisitions that we may complete, or other unforeseen events, including weather and changes in global economic conditions.
Brett McGill: Looking at current business conditions, we are expecting January revenue to be up over the prior year. While that is encouraging, it's important to keep in mind that January is typically the smallest month of the March quarter.
Brett McGill: With that, I'll turn the call back over to Brett for closing comments. Brett?
Thanks, Mike.
Brett McGill: While economic conditions in the recreational marine industry have been challenging, we anticipate that the pace of activity will improve as we move into the spring selling season.
Brett McGill: Early activity at this year's retail boat shows has been encouraging and we believe that our position within the premium category of the segment will enable us to achieve meaningful growth and outperform the industry as market conditions recover.
Brett McGill: As a leader in the recreational marine market, our strategic advantage centers on the diverse yet complementary nature of our portfolio.
Brett McGill: All of the pieces are related, and we continue to leverage the synergy.
Brett McGill: Every aspect of our business from retail locations to marinas, superyacht services, finance and insurance operations, and manufacturing is interconnected with each component strengthening and supporting the others to drive overall success.
Brett McGill: We are confident in our ability to execute our growth strategy by focusing on innovation, enhancing customer experiences, and further expanding our higher margin businesses.
Brett McGill: And with that, Mike and I will be happy to take your questions. Operator, please open up the line for Q&A.
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Brett McGill: Thank you. We will now be conducting a question and answer session.
Brett McGill: We ask that all callers limit themselves to one question and one follow-up.
Brett McGill: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Brett McGill: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pose for questions.
Brett McGill: Thank you. Our first question comes from a line of Joe Altovelo with Raymond James. Please proceed with your question.
Thanks. Hey, guys. Good morning. This question was on SG&A.
Brett McGill: trying to get a sense for where you guys see SG&A this year. I think on the last earnings call you seem to imply about 50 basis points of leverage with the annualization of, you know, 20 to 25 million of cuts, but you're also seeing some creep in other costs. So given what we saw in Q1,
What's a good realistic number for SG&A this year?
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Brett McGill: Hey, Joe. It's Mike. Good question. We said last call that we were aiming to get back SG&A as a percentage of revenue equal or approximating where it was in 2023, which at the time was about a 100 basis point overall reduction. But because of the inflationary cost increases that we are seeing, we probably alluded to something less than 100, but that's still our target for this year when the year wraps up on a four-year basis.
Brett McGill: Obviously, as a percentage, it jumps around quarter to quarter based on how strong retail activity is. But that's what we're shooting for. I think I again said in the prepared remarks that
Brett McGill: We do see inflation still in certain parts of the business that we're, you know, challenged with, but we're not giving up our overall goal of improving the operational efficiencies of the company.
Speaker Change: Got it, helpful. And maybe just to follow up on that, could you speak to the insurance market in Florida, either for boats and or marinas? Have you seen any material uptick in premiums, for example, or seeing insurers leaving the market?
Speaker Change: Another good question. As of now, on the retail insurance, like for people who are buying boats from us, we have not experienced an increase from the people who insure boats in Florida. It wouldn't surprise me if there is something in the future once the dust all settles.
Speaker Change: Likewise, when you think about just the nature of the storms and also even the fires all the way out west, unfortunately for the people out there.
Speaker Change: You would think that the storms and the fires would have some type of an impact on the insurance market for when it comes to companies insuring the risks that we have, the property risks that we have.
Speaker Change: We haven't seen any specific increases yet, but we're mindful that there could be some. And those are some of the inflationary pressures I mentioned on our last earnings call, specific to insureds. So we're waiting and seeing right now, Joe, I guess is what I'd say on both.
Joe Altovelo: Okay, just one last one if I could. Given the one-time benefit in Q1, what are you expecting for a full year tax rate?
For more information visit www.FEMA.gov
You know, we guided to 26.5%.
Joe Altovelo: I haven't changed that in the overall guidance, and actually, I'll just comment on that, Joe.
Joe Altovelo: The benefit in Q1 is about $0.12 in the quarter, so if we're $0.17 on a gap basis because of the effective rate adjustment, it's about a $0.12 impact in that quarter. In the scheme of a whole year, I didn't think it was material enough to adjust the overall guidance yet. We'll keep watching that to see if we need to bring the effective rate down a little bit for the full year.
Okay, thank you.
Thanks, Jeff. Thanks, Joe.
Speaker Change: Our next question comes from line of Drew Crum with steeple. Please proceed with your question
drew Crum: Hey guys, good morning. So just a question on the adjusted gross margin. I think the 36% plus for the quarter would seem to be pacing ahead of where you thought it might be for the year, which I believe was
and closer to 32-33% range.
drew Crum: Do you see upside to your original gross margin assumption based on the fiscal 1Q performance or should we expect this to fall in subsequent quarters and if so, what would be the drivers for that?
Hey, Drew. Good question. I comment. It's Mike.
drew Crum: Margins do change throughout the year. Typically when you get into the higher volume quarters like
drew Crum: March and June. They are lower gross margins when you look historically at our company. Obviously, we're pleased with the overall. By the way, that's not an adjusted gross margin. That is the gross margin. I know we have a couple of different adjusted numbers in there.
We're pleased with where the 36% is in the quarter.
drew Crum: and hopefully as we move through the year, there's an opportunity to talk about, you know, improved margins, but I think at this point we keep the margin guidance in that low 30% range as we mentioned. And I'll add, Drew, that, you know, when you have the, the.
drew Crum: The sales, you know, when we had the loss of the sales in the quarter from hurricanes and other factors, that obviously puts a higher percentage, comes from the, you know, higher margin businesses. So that's part of the contribution to that higher margin you see.
drew Crum: Got it. Okay and then maybe this one housekeeping item on the interest expense line it was up a little bit on a dollar basis and there's a percentage of revenue year-on-year you know obviously a lot of moving pieces here but you know how do you see that moving around over over the balance of the year?
Thank you very much. Thank you.
Speaker Change: Thanks, Drew. Yeah, it's up, you know, primarily because inventory is up and the related financing of inventory is up. I think it's so, I think the press release says, our prepared remark says, inventory is elevated higher than we would have expected it to be.
drew Crum: We worked through ... Typically the December quarter or the March quarter is peak inventory. Hopefully, as we move through the March quarter, it's going to prove out that December was peak inventory. As inventories come down ...
hopefully somewhat in March.
drew Crum: and then again in June seasonally and then end of year a little bit lower.
drew Crum: interest expense will have an opportunity to begin to reduce accordingly.
We are getting the benefit.
drew Crum: We are getting the benefit now of 100 basis points in total in terms of reduction. Not all that's for the full fiscal year. The two most recent cuts, obviously, are just for the remaining nine months of the year, which will be beneficial.
Okay. All right. Helpful. Thanks, guys.
Thanks.
Scott Solomon, Michael McLamb
Speaker Change: Our next question comes from the line of Mike Swartz with Truist. Please proceed with your question.
Hey guys, good morning.
Speaker Change: for the industry in the December quarter. I'm just wondering, were there regional disparities between the retail volume that you saw? In other words, outside of Florida, would it have been better than down 11?
Speaker Change: You're saying that, you know, kind of the difference between out-of-Florida and non-Florida stores revenue, is that what you're asking Mike? Yeah, I think that I'll categorize, Mike help me out here, I believe that our non-Florida revenue was
Speaker Change: pretty flat, like almost exactly flat, and the variation tended to come from Florida almost completely. Correct, yeah, Brett Preparative Marks actually said that, that the,
Speaker Change: The decline in revenue was heavily weighted towards Florida during the quarter. And just to clarify, on a comparable store basis, was it flat as well, outside of Florida?
Speaker Change: Yeah you're going to get I'm sure when you break it apart you're going to have regions that were up or down but in total outside of Florida's business was flat to last year in the quarter.
Okay, that's helpful, I appreciate that. And then just.
Speaker Change: In terms of a lot of moving pieces to gross profit margin and understanding seasonality is part of the equation with a lot of the non-boat sale or boat businesses being a larger portion of sales in December, but is there any way of looking at
Speaker Change: Just, you know, kind of stripping all that out, what boat margins were relative to last year?
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Speaker Change: Yeah, I can comment on that, Joe. I think for those of you who have followed us for a long time, you'll remember that last year's December quarter.
Speaker Change: You know, we sensed softness in the industry and we got very aggressive from a promotional perspective.
Speaker Change: I think on this call last year, we talked about that we pretty much went alone. A lot of the manufacturing partners, they typically had not started with all their incentives yet given the cycle coming out of 2023.
in the current quarter.
Speaker Change: The manufacturing partners are doing what they normally would be doing in an environment like we're in. So there, there is additional support coming from manufacturers, but it's really more.
Speaker Change: normal support, I would stress, coming from them. So while we're going to market more aggressively, we have some additional help from the manufacturing partners this quarter versus last year.
Okay, helpful. Thank you.
Speaker Change: Our next question comes from the line of Fred Whiteman with Wolf Research. Please proceed with your question.
Fred Whiteman: Hey guys, good morning. I'm just hoping from a very high level if we think about some of the puts and takes for
Fred Whiteman: The top line, I mean, rates are probably higher than you would have thought they would have been three or four months ago. You've talked about a choppy retail environment. December was weak.
Fred Whiteman: and inventories are above plan. So when you put all that together, what is driving the cautious optimism for 25? Where is the offset on the top line to keep the full-year outlook unchanged?
Thank you.
Fred Whiteman: Go ahead. I could take a stab and then Brett can...
Fred Whiteman: repair anything that I say, but I you know we when we came out of the storms we had good retail activity in
Fred Whiteman: Lauderdale. There were a couple press releases that certain manufacturers put out that largely reflected what we did.
Fred Whiteman: The month of November was, you know, honestly a pretty decent month now. It's always hard to say how much of that is makeup from the storms, how much of that is retail activity.
Fred Whiteman: December was softer. We're in boat shows right now that generally are going, you know, they're not all 100% great, but they're generally going pretty, pretty good. And we feel at least there's clarity in terms of the political environment.
And I think the expectation is that
Fred Whiteman: With that clarity and with things settling down, hopefully there'll be, you know, improved retail activity. Yeah, I think I'll add to it that December was
Fred Whiteman: much tougher than we had anticipated. Like we said, November was great, but really when you dig down, Mike said it, we probably were just getting business that.
Fred Whiteman: didn't happen because of the hurricanes in October. So you pushed. December was rough. I think you'll hear that across a lot of industries, probably.
Fred Whiteman: And then January, Mike commented that things are looking up for January, and I know we comment it's a small month, but it's an important month leading into these boat shows, so it is up right now.
Speaker Change: update us on how you see the broader Florida market recovering versus plan.
Scott Solomon, Michael McLamb
Speaker Change: Yeah, I think you got to probably break it down into a couple parts, right? There was stores that were.
Speaker Change: You know Disrupted because of the storm meaning preparing they might get hit, but they never did get hit So that was just very disruptive call it October
Speaker Change: and they picked up that business. Those stores, I'd say they're all back up and running and rocking and rolling. And then there's stores that...
Speaker Change: were damaged by the storm, the communities were damaged, the docks, the people's homes.
Speaker Change: I don't even know the timeline on some of that. I know our stores, our teams are resilient, and we'll put mobile trailers up, computers are working, and we're engaged in business, and we're selling boats, but people's homes and docks and their life.
Speaker Change: you have to get back in order too. So it's, I don't have a timeline for it other than I'm impressed with what the team's doing under the circumstances.
Okay, thanks a lot.
Thanks, Brooke.
Speaker Change: Our next question comes from the line of John Healy with North Coast Research. Please proceed with your question.
you know, thinking about the go forward, just...
Speaker Change: You know the ultimate contribution that some of those items can have and maybe where you Kind of see a more steady state gross margin profile for the business. Thanks
Speaker Change: Thanks, John. Good question. I tell you, I think the biggest driver of the business is the
Speaker Change: the growth in our higher margin businesses that we've expanded with and improved upon. They all grew in absolute dollars over prior year. The higher margins as a percentage, I think last year we were probably
Speaker Change: In this quarter, something like 25-26%. This year, we're over 30%. Now, part of that, what Brett said, when you have a decline in revenue, the neighborhood of 60 million year-over-year, your higher margin businesses are going to expand.
Speaker Change: But I do still think on a full year basis, the low 30s is kind of the right number to be thinking about. I think long term, as we continue to think about the business, and even as we continue to complete acquisitions,
Speaker Change: You know, we're pretty focused on adding businesses that have a profile with higher margins. For the reasons you see this quarter, they tend to be more stable, a little more resilient.
Speaker Change: help support the overall operations, the EBITDA and cash flows of the organization. So I think long-term there'll be another discussion about where margins go to, but today I think the low 30s is probably the right number to be thinking about.
Thank you very much.
Thanks, John.
[inaudible]
Speaker Change: Our next question comes from the line of Brandon Rollet with D.A. Davidson. Please proceed with your question.
Brandon Rollet: Good morning. Thank you for taking my questions. First, on retail, I think you had mentioned Laddish retail expectations for the remainder of the year. Do those expectations bake in any share gains versus the industry where maybe you're expecting the industry to be down year over year?
Brandon Rollet: Actually, that's a really good question, Brandon. Normally, as you guys know, we typically do outperform the industry. I think when we did our guidance for 2025, we were a little cautious about that only because of the impact to our stores on the West Coast of Florida, and that is a significant part of our business.
Brandon Rollet: I think I said last call it was, you know, roughly 25% of our business.
Brandon Rollet: So we haven't changed that. I mean, typically we would outperform the industry. So our flattish sales are consistent with what we said about the industry, which is flatter. So hopefully as the year goes on, there could be some upside in that if the industry is in fact flattened and our stores have recovered and we can beat that.
Speaker Change: Okay, great. And then on inventory, I think you in the press release mentioned being a little bit of being a little bit elevated in some areas. I'd imagine you're in a better position than other industry participants. Could you talk about maybe pressure points in your own inventory and then maybe what you're seeing for the broader industry? Thank you.
Speaker Change: Brandon, this is Brad. I'll comment first. I think our focus on our age product and working with the manufacturers to, you know, get the orders right and get those boats out, we feel good about
Speaker Change: where our inventory is at from a quality, you know, less age. Still some work to do there. We're laser focused here at the boat shows.
Speaker Change: in this winter season to get those, any last bits of those cleaned up. So, Mike, you want to add anything? It's just elevated. We expected higher sales. And so when you have less sales and you have the product that you were hoping to sell.
Speaker Change: You have a little higher inventory, but I feel pretty comfortable that as we move through 2025, inventories will improve and come in check overall.
Okay, and for the broader industry?
Speaker Change: A broader industry of the data that we keep seeing and hearing is just that there continues to be an aging problem.
Speaker Change: They're far more aged than we are, more non-currents, more older product than we have. I suspect as we go through 2025, that will also improve for the overall industry too.
Okay, great, thank you.
Thanks, Brandon.
Speaker Change: Our next question comes from the line of Mike Albanese with the Benchmark Company. Please proceed with your question.
Mike Albanese: I'm just trying to get a sense of white space or I guess what leverage you can pull. I mean, you closed three stores on the quarter.
Mike Albanese: Were these, you know, more one-off kind of portfolio optimization situations, or how can we think about really your unit count as we move throughout the year? You know, kind of taking your, I guess, retail assumptions as, you know, as flat retail.
Yeah, I think, uh...
Mike Albanese: three or four quarters. Most of those were duplicated where there's another store nearby where we're not really going to miss the revenue. The other expense initiatives, I think we mentioned on the last call, we certainly have looked at
Mike Albanese: Our number of team members, our resources, and made adjustments where it makes sense for the current environment.
Thank you.
Mike Albanese: ourselves and our team are really going line by line in the P&L and looking at every expense that we have and contracts that we write and recurring expenses.
Mike Albanese: In the current quarter, we've had nice reductions, really, in a lot of other areas in the business.
you know, marketing.
Mike Albanese: other areas, T&E, et cetera, in the quarter. Unfortunately, you have some inflation coming in, though, that helps to offset some of that. But we're gonna stay focused on it and continue to look for areas to improve the overall operational profile of the company.
Mike Albanese: Got it. That's helpful. Thanks. And then just one more if I could go back and ask about kind of the promotional and discounting activity You know inventories up a little bit on the quarter, but I think across the you know, the the industry barring You know some some certain segments that need a little bit more of a D stock, you know channel inventories are you know? a bit tighter you're in a good position less less aged product and
Mike Albanese: And you kind of quoted more normal support from OEMs. I mean, so is your expectation then as we move into selling season, again, holding your assumptions is true, that we'll start to see more relief and kind of stay within that normal cadence?
Mike Albanese: Are you expecting the promotional activity to remain significant throughout the year?
You know, I think...
Brett McGill: Mike, this is Brett. I think we're going to continue to see some, you know, aggressive
Brett McGill: promotional activity from manufacturers, dealers across the country, especially during this winter boat show season to get inventory levels and the aging, everything you just pointed out, we gotta get that right.
Brett McGill: But I think we're in a good position with all those manufacturers, we're lined up and ready for it. And we have a lot of product that's fresh and new, and those bring higher margins with new innovation. So there's a good balance between those.
Okay, that's helpful. Thanks, guys.
Thanks, Mike.
Speaker Change: Our next question comes from the line of James Hardeman with Citi. Please proceed with your question
Thank you.
James Hardeman: Hey, good morning guys. So I wanted to quickly circle back to the inventory conversation. So just looking at the balance sheet, I think...
James Hardeman: inventory dollars, right, are up 18% year-over-year. I guess first question, is that an apples-to-apples number? You know, oftentimes there's some M&A in there. I don't know if there's some ASP in there. Just trying to get sort of a clean...
Speaker Change: You know, apples to apples, how much are units up in terms of your inventory year-over-year?
James Hardeman: And then as I think about the go forward, it sounds like you expect orders to be significantly less than retail going forward to bring that number down. How long is that going to last and what does that inventory number look like year over year as we work our way through the year?
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James Hardeman: Yeah, there's really nothing from an anomaly perspective in the comparison year over year other than
James Hardeman: Last year, there were still categories where we were leaning in inventory, and we did expect, and then we did...
James Hardeman: articulate that we were expecting to have inventory up this December versus
James Hardeman: last year's December. It just finished higher because of the lighter sales than we had actually achieved.
James Hardeman: On a unit-over-unit basis, I actually don't recall what is up year-over-year, James. I typically go back and look at where were we versus 2019, because a lot of people historically had asked that question.
James Hardeman: And we're way down from 2019 as the industry is, which doesn't surprise you. And then the tweaking of the orders and stuff that I mentioned on our prepared remarks.
James Hardeman: It is just that it's fine tuning around the edges where it makes sense with our manufacturing partners. And we have quite frankly, we always do that. We're always adjusting up or down where, you know, based on retail activity, we said on our call last quarter that we expect.
James Hardeman: the year inventory dollars to finish around where they were last year, if not a little bit below.
James Hardeman: and that is still where we're targeting. Obviously, it's all subject to retail activity, but that's still what we're targeting for the full year.
James Hardeman: And James, I'll add that I think, you know, with December usually being a bigger boat-selling month, for sure, and that being off, you know, I think our ASP on inventory jumped a touch, for sure, you know.
James Hardeman: And then, you know, that's why I made the comment about promotional activity. We're going to, you know, press the pedal to, you know, bring the inventory down here, especially in these winter boat show events.
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Speaker Change: got it that's helpful and then I'm curious what what you think drove the January improvement sounds like December was pretty bad January sounds like it was pretty good I know it was a small month but is that
Speaker Change: You know, Florida getting better, you know, ASP is getting better, you know, boats, non boats, what's driving improvement in January and then
Speaker Change: I guess in the context of a full year guide, right? Same store sales in the December quarter were a little worse than expected.
Speaker Change: But you still expect to get to flat or same store sales, which would imply
Speaker Change: you know presumably some growth during the the remaining three quarters. I guess I'm trying to figure out how we get there and what that looks like. Originally I think a lot of us had bottled sort of a slower first half and then a pickup in the second half.
Speaker Change: But then January's up. So just help us, you know, in terms of at least how you guys are thinking about that flow through the year
Thank you.
Speaker Change: I definitely comment that we watch things daily and weekly from some of the high technology investments we've made that can tell us a lot. So we can drive things quickly. December was just.
Speaker Change: tough to get people in and and so we had to make some adjustments, so I'll give a little credit to our Pretty innovative technology that we have to be able to drive some business in January, but I would also say there's a
Speaker Change: feeling of a different consumer sentiment, so to speak, of putting in leads and us being able to convert those leads or get the people in the showroom. So there's just, I'll summarize it down to a little bit of a traffic uptick, you know, for January.
Speaker Change: Do you, let me ask you this way, do you think
Speaker Change: Again, in the context of your full year, flat or same-store sales, the rest of the year would need to be up, at least modestly, right? It's not a big quarter, obviously, the December quarter. But do you think the second quarter
Canon will be up in terms of same store sales
Speaker Change: Hey James, it's Mike. So when I think about, actually I was going to chime in but I apologize, so
Speaker Change: I was going to say what you just said. The December quarter is a small quarter. The back half of the year is or the back three quarters of the year are all much bigger.
Speaker Change: We do have easier comps, for sure, in the September quarter, assuming there's no other hurricanes, because we were down 5% in September of 2024.
Speaker Change: So we have an easier comp there. March quarter is easier. The June comps, relative to what we normally have done in this organization, the 4% in June is not all that tough relative to what we've comped. So I think the back half of the year gives us an opportunity.
to have flattish comps for the whole year.
Thank you.
Got it. That's helpful. Thanks guys.
Thanks, James.
Speaker Change: Our final question comes from the line of David McGregor with Longbow Research. Please proceed with your question.
David McGregor: Good morning, everyone. I just wanted to follow up, Mike, on your commentary around the revenue outlook for 2025. You'd mentioned that you'd closed ten locations over the last three to four quarters. What does that loss of revenue represent as a headwind within the mix of factors going into that guidance?
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David McGregor: Good question, David. So what I commented is really almost all those locations are duplicative, meaning there's a
David McGregor: There's a hub store, you know, in the same marketplace or at least adjacent to it. And then in a couple cases where we've actually maybe left the market.
David McGregor: The larger boat revenue that may have been recorded in the stores that were in that market is largely going to be recorded by Us anyhow because of the way we structure our dealer grades of manufacturers. We have very large territories
David McGregor: So, we're not expecting really any headwinds from the locations that we've closed to date or a very slight headwind.
David McGregor: But we would have adjusted our guidance if we were concerned about that. So, it's a good question, but it's really just closing primarily duplicative locations, David.
David McGregor: Thanks for that. I guess somebody has to ask the obligatory question around tariffs. How do you think about your exposure there?
David McGregor: Good question. When I think about our business, we do import.
product, the biggest region we import product from that's
David McGregor: decent size is Europe. Outside of Europe, nothing's real material overall in terms of the percentage of revenue. And with Europe, I guess if there is a tariff on Europe,
David McGregor: With the strength and the dollar today where the Europe's dang near at parity For most of our existence, we've brought boats in from Europe
at a much higher Euro, so at least in theory.
David McGregor: a reasonable level of terror, while nobody wants it, we don't want it.
David McGregor: It's something we could probably navigate between us and our manufacturing partners.
David McGregor: We're watching it like everybody else is. We're trying to see what's going to come about. We would prefer none in terms of what we import, but we think we can navigate it.
Speaker Change: Mike, is there any way you could quantify kind of the magnitude of that in dollar terms of what that European purchase would represent?
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Um...
Europe is probably something like...
Speaker Change: Yeah, it's probably greater than 10, less than 15, or around 15. It's probably...
Speaker Change: I'll start with my first answer, greater than or less than 15% of total revenue.
Speaker Change: That works, that works. And then last question for me is just, I guess, on capital allocation and, you know, you've got a strong balance sheet, maybe your inventories are a little bit high right now, but your plan is for that to come down and certainly a good cash position, lots of...
Speaker Change: of Credit Availability. How do you think about the opportunity right now as you survey the market to make acquisitions of distressed sellers?
Speaker Change: and if so, you know, how do you think about prioritization of that initiative?
and Michael McLamb.
Speaker Change: Yeah, David, that's a good question. We obviously are continuing to talk to a lot of different acquisition candidates to be able to keep that on the list. We're really bouncing against our overall strategy.
Speaker Change: You know whether it's marinas and super yacht services or even the boat retail business and the boat Retail business where it makes sense that they have storage and marina and the higher margin components
of the business, so, and then within our markets.
Speaker Change: that we have, there's additional expansion opportunities with maybe new locations that add storage and revenue streams there. So keep an eye on all of that and trying to be opportunistic if that comes up.
All right.
Great. Well, thanks very much. Good luck.
Thank you, David. Thank you.
Speaker Change: Thank you. We have reached the end of the question and answer session. Mr. McGill, I'd like to turn the floor back over to you for closing comments.
Speaker Change: Well, thank you everybody for joining us today. We're in full swing at all the winter boat shows, including the New York show this week. And as well, we're gearing up for the Miami show in February, and we hope to see some of you at some of these shows. So have a great day.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.