| West Marine Releases 2005 Operating Results and 2006 Earnings Guidance |
WATSONVILLE, Calif.--(BUSINESS WIRE)--March 30, 2006--After reviewing uncompleted software development projects for potential impairment, West Marine, Inc. (Nasdaq:WMAR), today released unaudited operating results for the fourth quarter and fiscal year ended December 31, 2005. Operating results for the fourth quarter and full year 2005 were further reduced, compared to previously-released preliminary results, by an additional $6.6 million pre-tax, non-cash impairment charge related to internal software costs no longer expected to provide a future benefit. FISCAL YEAR 2005 Net loss for the fifty-two weeks ended December 31, 2005, was $2.2 million, or ($0.10) per share, compared to net income of $25.5 million, or $1.20 per share, for the same period a year ago. Total pre-tax, non-cash impairment charges in 2005 related to uncompleted software development projects were $8.6 million, including a $2.0 million charge included in the previously-released preliminary results. Net sales for the fifty-two weeks ended December 31, 2005 were $692.3 million, compared to net sales of $683.0 million for the same period a year ago. Comparable store sales for the fifty-two weeks ended December 31, 2005 decreased (2.2%) compared to the same period a year ago. Comparable store sales are defined as sales from stores that have been open at least thirteen months and where selling square footage did not change by more than 40% in the previous thirteen months. FOURTH QUARTER 2005 Net loss for the fourth quarter ended December 31, 2005 was $21.5 million, or ($1.01) per share, including an $8.6 million pre-tax, non-cash impairment charge related to uncompleted software development projects, compared to a net loss of $3.4 million, or ($0.16) per share, for the fourth quarter of 2004. Net sales for the fourth quarter of 2005 were $124.8 million, compared to net sales of $118.1 million a year ago. Comparable store sales for the fourth quarter of 2005 increased 3.9% compared to the same period a year ago. SIGNIFICANT ITEMS Eric Nelson, West Marine's chief financial officer, stated, "It is important to note that despite reporting a net loss for 2005, West Marine's cash flow improved significantly compared to last year. Cash from operations more than doubled, from $18.6 million in 2004 to $44.2 million in 2005. Accordingly, free cash flow also improved, from a negative ($5.9 million) in 2004 to a positive $12.2 million in 2005. Free cash flow is a non-GAAP measure, defined as cash flows from operating activities minus capital expenditures. Management believes that free cash flow is useful for evaluating our financial condition because it represents the amount of cash provided by operations that is available for investing or for repaying debt. A reconciliation of free cash flow to net cash provided by operating activities, the closest measure calculated in accordance with GAAP, is included in this press release. "Also, our fourth quarter and full year 2005 results include four significant non-cash items. First, we recorded an $8.6 million pre-tax charge, or ($0.25) per share after-tax, for cancelled software development projects. Second, we reduced inventory value by $2.9 million pre-tax, or ($0.08) per share after-tax, for aged, excess and obsolete merchandise that we expect to sell below our cost. Third, we incurred a $2.0 million pre-tax charge, or ($0.06) per share after-tax, for discontinuing our use of the BoatU.S. tradename. Last, we recorded an $0.8 million pre-tax charge, or ($0.02) per share after-tax, for the unamortized portion of loan costs in connection with replacing our bank line of credit." 2006 EARNINGS GUIDANCE Regarding 2006 earnings guidance, Mr. Nelson said, "We currently project net sales for the fiscal year ending December 30, 2006 ranging from $740 million to $745 million and comparable store sales ranging from 1.5% to 2.0% for the 52-week period then ending. We currently estimate earnings for fiscal year 2006 ranging from $0.15 to $0.18 per share. "These estimates reflect the costs associated with initiatives started in 2005 and continuing in 2006, as well as new initiatives for 2006 that will produce increased sales and profits for years to come. We will discuss our earnings guidance for fiscal year 2006, as well as factors related to our fourth quarter and full year 2005 results, in our webcast and conference call today." WEBCAST AND CONFERENCE CALL West Marine will hold a conference call and webcast on Thursday, March 30, 2006 at 8:30 AM Pacific Time to discuss 2005 results and 2006 earnings guidance. The live call will be webcast and available in real time on the Internet at www.westmarine.com in the "Investor Relations" section. The earnings release will also be posted on the Internet at www.westmarine.com in the "Press Releases" section on the Investor Relations page. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast. Interested parties can also connect to the conference call by dialing (888) 756-1546 in the U.S. and (706) 634-1083 for international calls. Please be prepared to give the conference ID number 7002223. The call leader is Eric Nelson, Chief Financial Officer. An audio replay of the call will be available March 30, 2006 at 12:00 PM Pacific Time through April 6, 2006 at 11:59 PM Pacific Time. The replay number is 800-642-1687 in the U.S. and 706-645-9291 for international calls. The access code is 7002223. ABOUT WEST MARINE West Marine, the country's favorite retailer of boating supplies and accessories, has over 400 stores located in 38 states, Puerto Rico and Canada. Our catalog and Internet channels offer customers approximately 50,000 products and the convenience of exchanging catalog and Internet purchases at our retail stores. Our Port Supply division is one of the country's largest wholesale distributors of marine equipment serving boat manufacturers, marine services, commercial vessel operators and government agencies. For more information on West Marine's products and store locations, or to start shopping, visit westmarine.com or call 1-800-BOATING (1-800-262-8464). Special Note Regarding Forward-Looking Statements This press release includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 including forward-looking statements concerning earnings expectations and statements that are predictive or express expectations that depend on future events or conditions that involve risks and uncertainties. These forward-looking statements include, among other things, statements that relate to West Marine's preliminary earnings, as well as facts and assumptions underlying these preliminary results. Actual results may differ materially from the results expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors. Risk factors that may affect our earnings in the future are described from time to time in West Marine's filings with the Securities and Exchange Commission, including West Marine's quarterly report on Form 10-Q for the period ended October 1, 2005. Except as required by applicable law, West Marine assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.
Non-GAAP financial measure -- Free cash flow
(Unaudited) (Unaudited)
2005 2004
---- ----
Net cash provided by operating activities $44,232,000 $18,593,000
Less: purchases of property & equipment (32,046,000) (24,507,000)
Free cash flow $12,186,000 $(5,914,000)
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Management believes that free cash flow is useful for evaluating our financial condition because it represents the amount of cash provided by operations that is available for investing or for repaying debt.
West Marine, Inc.
Condensed Consolidated Statements of Operations
For the 13 Weeks Ended December, 31 2005 and January 1, 2005
(Unaudited and in thousands, except per share amounts)
13 Weeks Ended 13 Weeks Ended
December 31, 2005 January 1, 2005
----------------- ---------------
Net sales $124,805 100.0% $118,079 100.0%
Cost of goods sold, including buying
and occupancy 104,311 83.6% 84,299 71.4%
----------------- ---------------
Gross profit 20,494 16.4% 33,780 28.6%
Selling, general and administrative
expenses 53,582 42.9% 39,230 33.2%
----------------- ---------------
Loss from operations (33,088) -26.5% (5,450) -4.6%
Interest expense, net 1,703 1.4% 1,153 1.0%
Charge for unamortized portion of
loan costs 792 0.6% 1,419 1.2%
----------------- ---------------
Loss before income taxes (35,583) -28.5% (8,022) -6.8%
Benefit for income taxes (14,096) -11.3% (4,593) -3.9%
----------------- ---------------
Net loss $(21,487) -17.2% $(3,429) -2.9%
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Net loss per common and common
equivalent share:
Basic and diluted $(1.01) $(0.16)
Weighted average common and common
equivalent shares outstanding:
Basic and diluted 21,185 20,853
West Marine, Inc.
Condensed Consolidated Statements of Operations
For the 52 Weeks Ended December 31, 2005 and January 1, 2005
(Unaudited and in thousands, except per share amounts)
52 Weeks Ended 52 Weeks Ended
December 31, 2005 January 1, 2005
----------------- ---------------
Net sales $692,264 100.0% $682,996 100.0%
Cost of goods sold, including buying
and occupancy 489,629 70.7% 464,075 67.9%
----------------- ---------------
Gross profit 202,635 29.3% 218,921 32.1%
Selling, general and administrative
expenses 200,134 28.9% 172,150 25.2%
----------------- ---------------
Income from operations 2,501 0.4% 46,771 6.9%
Interest expense, net 6,283 0.9% 5,893 0.9%
Charge for unamortized portion of
loan costs 792 0.2% 1,419 0.2%
----------------- ---------------
Income (loss) before income
taxes (4,574) -0.7% 39,459 5.8%
Provision (benefit) for income taxes (2,395) -0.4% 13,925 2.0%
----------------- ---------------
Net income (loss) $(2,179) -0.3% $25,534 3.8%
================= ===============
Net income (loss) per common and
common equivalent share:
Basic $(0.10) $1.23
Diluted $(0.10) $1.20
Weighted average common and common
equivalent shares outstanding:
Basic 21,080 20,695
Diluted 21,080 21,310
West Marine, Inc.
Condensed Consolidated Balance Sheets
(Unaudited and in thousands, except share data)
December 31, 2005 January 1, 2005
----------------- -----------------
ASSETS
Current assets:
Cash $13,058 $5,459
Trade receivables, net 6,125 6,209
Merchandise inventories 312,596 346,663
Other current assets 29,376 29,156
----------------- -----------------
Total current assets 361,155 387,487
Property and equipment, net 82,787 82,292
Goodwill 56,905 56,905
Intangibles 268 2,557
Other assets 3,534 3,074
----------------- -----------------
Total assets $504,649 $532,315
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LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $37,589 $65,421
Accrued expenses 35,549 28,145
Deferred current liabilities 8,322 6,729
----------------- -----------------
Total current liabilities 81,460 100,295
Long-term debt 117,000 124,064
Deferred items and other non-
current obligations 9,569 13,525
----------------- -----------------
Total liabilities 208,029 237,884
Stockholders' equity:
Preferred stock, $.001 par value:
1,000,000 shares authorized;
no shares outstanding - -
Common stock, $.001 par
value: 50,000,000 shares
authorized; issued and
outstanding: 21,204,467 at
December 31, 2005, and
20,894,240 at January 1,
2005. 21 21
Additional paid-in capital 159,891 155,400
Accumulated other
comprehensive income 182 305
Retained earnings 136,526 138,705
----------------- -----------------
Total stockholders'
equity 296,620 294,431
----------------- -----------------
Total liabilities
and stockholders'
equity $504,649 $532,315
================= =================
West Marine, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited and in thousands)
52 Weeks 52 Weeks
Ended Ended
12/31/2005 1/1/2005
----------- ---------
Operating activities:
Net income (loss) $(2,179) $25,534
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 23,093 25,139
Charges for unamortized portion of loan
costs 792 1,419
Provision (benefit) for deferred income
taxes (2,764) 2,628
Tax benefit from exercise of stock
options 1,030 4,888
Provision for doubtful accounts 225 449
Impairment charge related to discontinued
use of tradename 2,018 0
Impairment charge related to discontinued
software development projects 8,594 0
Loss (gain) on asset disposals 143 (558)
Changes in assets and liabilities:
Accounts receivable (141) (564)
Merchandise inventories 34,067 (32,642)
Prepaid expenses and other current assets (220) (5,305)
Other assets (542) (922)
Accounts payable (27,688) (7,214)
Accrued expenses 7,404 5,224
Deferred items 400 517
----------- ---------
Net cash provided by operating activities 44,232 18,593
----------- ---------
Investing activities:
Purchases of property and equipment (32,046) (24,507)
Proceeds from sale of property 27 1,903
----------- ---------
Net cash used in investing activities (32,019) (22,604)
----------- ---------
Financing activities:
Net repayments on prior line of credit (124,064) (128,851)
Net borrowings on new line of credit 117,000 124,064
Payment of loan costs (1,011) (645)
Proceeds from sale of common stock pursuant
to associate stock purchase plan 1,330 1,278
Proceeds from exercise of stock options 2,131 8,887
----------- ---------
Net cash provided by (used in) financing
activities (4,614) 4,733
----------- ---------
Net increase in cash 7,599 722
Cash at beginning of period 5,459 4,737
----------- ---------
Cash at end of period $13,058 $5,459
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CONTACT: West Marine, Inc. |