West Marine, Inc. (Nasdaq: WMAR) today released unaudited financial results for the fourth quarter and fiscal year ended December 31, 2011.
Fiscal Year 2011 Highlights:
- Pre-tax income was $21.2 million, a $7.0 million, or 49.0%, increase compared to last year.
- Net income was $29.7 million, or $1.27 per fully diluted share, compared to $13.2 million, or $0.57 per fully diluted share, last year, a 124.3% increase, reflecting a significant tax benefit from the valuation allowance release during the year.
- Net revenues for the fiscal year ended December 31, 2011 were $643.4 million, a $20.6 million or 3.3% increase over last year.
- At year–end, we were debt free.
- Year-end cash balance was nearly double that of last year at $44.0 million.
- Inventory per square foot decreased by 4.9% versus last year.
- Operating cash flow increased by 49.6% to $37.2 million.
Geoff Eisenberg, West Marine’s CEO, commented: “Our strong results for 2011 reflect continued progress in executing our focused strategies to drive higher sales and profit and position us very well for 2012. Due to the success of our many initiatives, from our new store formats to our new merchandise assortments, we have a great deal of optimism about our future.”
Fiscal 2011 results
Pre-tax income for fiscal year 2011 was $21.2 million, 49.0% higher than pre-tax income of $14.2 million in fiscal year 2010, which ended January 1, 2011. Net income for the year was $29.7 million, or $1.27 per diluted share. This was an improvement of $16.5 million compared to net income in 2010 of $13.2 million, or $0.57 per diluted share.
Net revenues for the fiscal year 2011 were $643.4 million, a 3.3% increase over net revenues of $622.8 million for the fiscal year 2010. Comparable store sales increased 2.3% versus last year. The primary driver of growth was increased sales to our Port Supply (wholesale) customers through our store locations as part of our ongoing efforts to better serve this group and to leverage our store facilities. Real estate activity connected with our real estate optimization strategy drove a net $8.9 million increase in net revenues as stores opened during the fourth quarter of 2010 and during 2011 generated $39.9 million in net revenues, whereas stores closed during these same periods effectively reduced net revenues by $31.0 million. The majority of the closures were a result of our ongoing strategy to evolve into having fewer, larger stores.
Gross profit for 2011 was $185.0 million, an increase of $9.4 million compared to 2010. As a percentage of net revenues, gross profit increased by 0.6% to 28.8%, compared to a gross profit margin of 28.2% last year. The increase in gross profit margin primarily was due to a 0.3% reduction in unit buying and distribution costs and a 0.2% improvement in inventory shrink. Additionally, increased revenues allowed us to leverage our relatively fixed occupancy expenses by 0.1%. These improvements were partially offset by lower raw product margin, down 0.1%, driven by a shift in revenues to lower-margin categories, such as electronics.
Selling, general and administrative (SG&A) expense for the fiscal year ended December 31, 2011 was $162.9 million, an increase of $2.1 million, or 1.3%, compared to $160.8 million for last year. SG&A decreased as a percentage of revenues to 25.4% in 2011, compared to 25.8% in 2010. Drivers of the higher SG&A expense included: a $2.6 million loss contingency accrual related to a recently-finalized software license audit; $1.3 million in higher information technology spending, including costs to implement our new point-of-sale and order entry systems; a variable selling expense increase of $1.2 million primarily due to higher store payroll supporting the higher sales year-over-year; a $0.7 million increase in benefits costs, including higher year-over-year health care claims; and a $0.6 million unfavorable impact versus last year of foreign currency exchange. These increases in SG&A were partially offset by a $4.4 million reduction in accrued bonus expense in 2011 due to increased bonus target thresholds reflecting improved performance expectations when compared to the target thresholds for fiscal 2010.
Interest expense increased $0.3 million, or 44.1%, to $0.9 million in 2011, compared to $0.6 million in 2010. The increase in interest expense was due to both higher commitment fees and higher average interest rates, although average outstanding bank borrowings were lower in fiscal 2011 compared to fiscal 2010.
The effective income tax rate for 2011 was a benefit of 39.8%, compared to a provision of 7.2% in 2010. The year-over-year change in our effective tax rate primarily was due to our valuation allowance release during fiscal 2011, which had an impact of $15.7 million.
Net income for 2011 was $29.7 million, or $1.27 per diluted share, compared to $13.2 million, or $0.57 per diluted share, last year.
Total inventory at the end of 2011 was $193.4 million, which was an $8.2 million, or 4.1%, decrease versus last year, and a 4.9% decrease on an inventory per square foot basis. Inventory turns for 2011 were up slightly versus last year.
Fourth Quarter 2011 results
Net revenues for the thirteen weeks ended December 31, 2011 were $113.4 million, an increase of $6.1 million, or 5.7%, compared to net revenues of $107.3 million for the corresponding period last year. Comparable store sales increased by $3.5 million, or 4.3%, versus last year. Net loss for the fourth quarter of 2011 improved to $14.0 million, or ($0.61) per share compared to $19.8 million, or ($0.88) per share, for the comparable period, due primarily to the income tax benefit recorded during the quarter as a result of the valuation allowance release during fiscal 2011.
Fiscal 2012 Guidance
Our earnings guidance for 2012 currently assumes that the market for boating supplies and related merchandise will remain relatively flat. We anticipate total sales to be in the range of $660 million to $676 million with comparable store sales growth of 0.5% to 2.5%. Pre-tax income is projected to range from approximately $23.0 million to $26.0 million.
Our effective tax rate has been significantly affected over the past several years by a valuation allowance that had been put into place against our deferred tax assets in 2008 and then released during 2011. In order to provide better perspective into our earnings-per-share (“EPS”) performance expectations for 2012, we are comparing them to 2011 EPS adjusted to reflect our anticipated effective tax rate of 39.5%. For 2012, we expect EPS in the range of $0.59 to $0.67, which is an increase of 7% to 22% when compared to adjusted 2011 EPS of $0.55. Reported EPS for fiscal 2011 was $1.27. For more details, see “Non-GAAP Financial Information” below.
We are targeting approximately $21 million in capital spending for 2012, with the majority driven by investment in our real estate optimization strategy.