Geoff Eisneberg, President & CEO, comments:
Results were favorably impacted by:
1. Boat usage, which most directly affects sales, appeared to be a bit higher in 2009. The uptick was likely due to lower fuel costs and more optimistic attitudes among boaters in 2009 compared to 2008.
2. The closure of the Boater's World chain provided them with an opportunity to reach a new group of customers. The company expanded its product line to better fit the needs of Boater's World's customers who typically have smaller, towable boats.
3. The company benefited from better weather in 2009. The hurricane season was relatively light. So, WMAR had no stores closed or significantly damaged due to weather.
4. Given the significant economic downturn, the company correctly assumed that there would be a shift to more do-it-yourself projects. So, they put more emphasis on core categories like maintenance, electrical, plumbing, and engine repair, and less on higher ticket merchandise like electronics, inflatable boats, and outboard motors.
Revenues were adversely affected during 2009 by less than desired in-stock levels due to higher than expected demand and poor fulfillment from a number of our key suppliers.
Strategies they are implementing in 2010:
1. Store development. They will continue to move towards having fewer, larger, and more dominant stores that provide customers with better assortments and better shopping experiences. This process will continue to include expansions and consolidations of existing stores.
2. They plan to open stores in the three basic sizes -- 9,000 square foot to 12,000 square foot, known as standard size; 13,000 square foot to 19,000 square foot, large size; and over 20,000 foot flagship size. They plan to open three new standard-size stores and five new large-size stores within roughly the next six months.
3. They opened two flagships in 2009 bringing the total to four and they plan to open three new flagships within the year. These stores will be located in Newport, Rhode Island, Sarasota, Florida, and Bay Shore, which is on Long Island, New York.
4. They also plan to supplement their annual catalog with a number of new, highly-targeted, specialty catalogs which will be coming out this spring.
Tom Moran, CFO, SVP Finance & Assistant Secretary, comments:
West Marine recorded net income of $12.4 million or $0.55 per share for fiscal 2009. This was a $51.2 million improvement compared to a net loss last year of $38.8 million, which was a per-share loss of $1.76, including $1.41 of non-recurring expenses. (A$0.30 per share for non-recurring charges connected with the 2008 restructuring plan, $1.05 charge related to a non-cash valuation allowance taken against their deferred tax assets, and $0.06 of expenses related to the now settled SEC investigation.)
Net revenues for 2009 were $588.4 million compared to $631.3 million for the same period a year ago. The primary driver of the lower revenues was a 3.6% or $18.7 million decline in comparable store sales for the 52 weeks in 2009 versus the 53 weeks in 2008. As compared to the corresponding 52-week period ended January 3, 2009, adjusted comparable store sales would have decreased by 2.7%.
There was an additional $27.1 million decrease in the store segment attributable to store closures during 2008 and 2009. Partially offsetting the sales decreases, though, was an $18.4 million increase from new stores opened in 2008 and 2009.
The direct sales segment declined $5.9 million last year due to decreased revenues from the call center channel, lower revenues from international customers, and lower revenues from higher-priced discretionary items. The remaining decline of $10.5 million was in the Port Supply segment primarily due to lower sales to our boat dealer and boat builder customers.
Gross profit for the year was $160.9 million, which was a decrease of $6.5 million compared to 2008. As a percentage of net sales gross profit was 27.3%, which was an increase of 80 basis points when compared to the gross profit of 26.5% last year.
The increase in gross profit as a percentage of sales was primarily due to an improvement of 87 basis points in product margins which was driven by more effective promotions, less clearance activity, and a shift in revenues to higher-margin core boating categories such as maintenance. Also, inventory shrinkage improved by 23 basis points.
These improvements were somewhat offset by a decrease of 37 basis points in occupancy costs. Occupancy is the largest fixed expense and its impact on gross margin is largely driven by sales results along with the fixed nature of the expense.
Selling, general, and administrative expense, or SG&A, for the year was $152.3 million, a decrease of $24.5 million compared to $176.8 million for the same period last year. Expenses leveraged by 220 basis points going from 28% of sales last year to 25.8% this year.
The dollar decrease in SG&A expenses was due to a number of items. There was an $8.4 million reduction in variable selling and marketing expense. They also had a $6.7 million decrease in selling and support overhead. $5.5 million of the reduction was due to closed stores.
There was a $4.8 million favorable foreign currency impact this year versus last year and they we had $3 million in lower costs related to the now settled SEC investigation. All of these lower expenses were partially offset by $7.6 million in higher accrued bonus expense reflecting the Company's performance above budgeted expectations.
Interest expense decreased by over 65% from $2.3 million down to $0.8 million in 2009 due to both lower borrowing levels and lower average borrowing rates including the fact that WMAR was debt free for most of the second half of 2009.
Income taxes reflected a benefit of $2.8 million for 2009. This primarily was related to a recent change in tax laws which increased the number of historical years in which companies are permitted to carry-back prior period net operating losses.
During 2009 they opened nine stores, including our two flagships in Brick, New Jersey, and Jacksonville, Florida. 18 stores were closed. The average size of new stores opened in 2009 was over 15,000 square feet, whereas the average size of closed stores was about 8,700 square feet.
Overall selling square footage year over year was about flat.
Turning to the balance sheet, inventory levels at the end of the year stood at $196.6 million which was a decrease of $26 million or 11.7% versus last year. The decrease was due to lower inventory purchases and the closure of the Hagerstown distribution center at the end of fiscal 2008. The decrease was also 11.7% when calculated on a per-store square footage basis which had remained flat.
Cash provided by operating activities in 2009 was $62.6 million, more than triple last year's $20.6 million. At the end of the year the Company had paid off all outstanding debt, down from $47 million at the end of 2008, and had built up a cash balance of $10.3 million as compared to $7.5 million at the end of last year.
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