Earnings Call Transcript - HZO Q4 2024

Operator, Operator

Good morning, and welcome to the MarineMax Incorporated Fiscal 2024 Fourth Quarter and Full Year 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. At this time, I would like to turn the call over to Scott Solomon of the Company's Investor Relations Sharon Merrill Advisors. Please go ahead, sir.

Scott Solomon, Investor Relations

Good morning, and thank you for joining us. Hosting today's call are Brett McGill, MarineMax's Chief Executive Officer and President; and Mike McLamb, the Company's Chief Financial Officer. 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. The earnings release and supplemental presentation associated with today's announcement can be found at investor.marinemax.com. With that, I'll turn the call over to Mike. Mike?

Mike McLamb, CFO

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. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These risks include, but are not limited to the impact of seasonality and weather, 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. 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 MarineMax and other companies on both a GAAP and a non-GAAP basis. The 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. Brett?

Brett McGill, CEO

Thank you, Mike, and good morning, everyone. We are excited to be hosting today's call from the Fort Lauderdale International Boat Show, one of the largest international boat shows of the year. It has certainly been a challenging five weeks for the residents and communities here in Florida and across the Southeast. But the damage and disruption caused by Hurricanes Helene and Milton has been unprecedented. Many of our own team members have been significantly affected, but it's heartwarming to see these communities come together to begin the work of cleanup and rebuilding. Our team members have been at the forefront, ensuring we provide essential support to our customers. We are incredibly proud of their efforts and commitment during this challenging time and our company is committed to supporting that effort with assistance throughout the journey. Although many of our Florida West Coast retail locations were damaged in the recent storms, most of the affected stores have returned to essentially normal operations. This quick turnaround has been accomplished, thanks in large measure to the outstanding efforts of our team, including Midcoast Marine Group, the marine construction company we acquired about two years ago. Midcoast is another example of the strong businesses and teams that have joined the MarineMax family over the past several years. Our Sarasota store, which sustained significant damage due to Hurricane Milton is partially open, but the marina itself requires more work. With the support of the Midcoast team, we are in the process of repairing and rebuilding this premier marina location. Turning to our results. As previously disclosed on October 3, our fourth quarter was adversely affected by the closure of the boat and yacht insurance markets in the days leading up to Hurricane Helene. Access to these insurance markets is integral to the completion of the sales process. But in a year when the recreational marine industry as a whole faced significant retail softness, coupled with elevated inventory levels, we performed well in view of those challenges. Fiscal 2024 revenue increased approximately 2% from the prior year to $2.4 billion on a 1% increase in comparable store sales which absent Hurricane Helene was on target to be modestly higher. We believe the investments we have made in technology, training, service, and our retail locations allows us to continue outperforming the industry by an increasing margin. In addition to exclusive brands and distribution rights, we have relationships with many of the best manufacturing partners in the business who have supported us with marketing and consumer incentives. Another important point about our recent performance is that it reinforces the strategy of adding to and expanding into higher-margin operations. Despite the storm's impact on our top line, we maintained a healthy gross margin of 34% in the fourth quarter, reflecting the performance of our higher-margin businesses such as finance and insurance, IGY, the rest of our Marina portfolio, and our Superyacht division. We remain focused on enhancing operating leverage. Adjusted SG&A expenses declined by more than $5 million in the fourth quarter, partly due to the expense reduction initiatives implemented in the third quarter. These efforts are ongoing, with the aim of improving our operating leverage as we move through fiscal 2025. One of our core competencies is the ability to consistently identify, acquire, and integrate successful businesses with strong leadership. During the quarter, we announced the appointment of Steve English as the CEO of IGY. Steve has done an outstanding job over his many years at IGY and continues to drive its growth. Recently, IGY was awarded another opportunity related to the Sindalah marina in the Red Sea. IGY was recently selected to operate Sindalah Yacht Club; Sindalah, a luxury island resort, is the first one of NEOM's planned ten unique island destinations. The Sindalah Marina recently received the prestigious five-Gold Anchor Accreditations by the Yacht Harbor Association. The award recognizes the marina as one of the world's premier yachting destinations. Additionally, four IGY locations in the Caribbean were also awarded the prestigious five-Gold Anchor Accreditations, with one of those, Yacht Haven Grande St. Thomas, receiving the coveted Platinum Accreditation. In the U.S., IGY is progressing well towards completing its 100-birth Savannah Harbor Marina in Georgia. Savannah is becoming known as an ideal stopover harbor for superyachts on their way to or from the Mediterranean. During the quarter, we announced that we were acquiring the rights to the Aviara brand through an asset exchange agreement with MasterCraft. We have been the primary retail distributor for Aviara since its launch in 2019, making us the logical choice to assume control of the brand, and the transaction recently closed. As noted in the original announcement, we will evaluate the next steps for Aviara as we develop a profitable strategy for the brand. And before handing the call back to Mike, I want to formally welcome our newest Director, Bonnie Biumi, who joined the Board at the end of August. Bonnie's more than four decades of public accounting and operational leadership experience spans a range of industries and includes an extensive corporate governance background. We look forward to benefiting from her insights. And now let me turn the call over to Mike for the financial review. Mike?

Mike McLamb, CFO

Thank you, Brett, and good morning again everyone. I also want to start by acknowledging the people and communities impacted by the hurricanes. Consistent with our October 3 announcement, our fourth quarter results were impacted by Hurricane Helene. Coupled with the flood damage to a number of our West Coast locations, revenue was impacted by the closure of boat and yacht insurance markets in the days leading up to the storm. As a result, revenue was down in the fourth quarter to approximately $563 million, reflecting a 5% decline in same-store sales. Prior to the storm, our expectation was that our revenue would modestly exceed last year's fourth-quarter revenue. Geographically, for the quarter, most markets were up in revenue except, not surprisingly, Florida. I would add that our units were only slightly down versus last year, despite the well-documented sizable unit declines in the industry. Although gross profit was down in dollars because of the revenue shortfall, our gross margin percentage remained strong at 34.3%. This is noteworthy since boat margins are at or below pre-pandemic levels and also below last year's fourth quarter, illustrating the growth we had in higher-margin areas. SG&A expenses decreased over $5 million, excluding the items identified in our earnings release. During the fourth quarter, we continued to implement cost-reduction actions, including the consolidation of certain retail locations. We plan to continue these steps in fiscal 2025. While our first goal is to get SG&A back in line as a percentage with fiscal year 2023, we are continuing to see higher input costs in various categories, including labor, insurance, and other items. That said, our focus remains to drive improved operating leverage. Specific to Hurricane Helene, as noted in our earnings release, we incurred a charge of $4.7 million in the fourth quarter to write off assets damaged in the storm. We are still in the process of determining the loss associated with Milton, which will be a December quarter event, but in both cases, much of the loss should be covered by insurance. For income taxes, we had a few unfavorable items that increased the fourth quarter affected rate higher than originally anticipated. Namely, non-cash tax expenses related to equity compensation as well as certain foreign tax matters, which are expected to become favorable in the future. The impact of these items was roughly $0.07 in the quarter. Adjusted net income for the quarter was $5.5 million or $0.24 per diluted share compared with $15.8 million or $0.69 per diluted share last year. On a full-year basis, adjusted net income was $49.1 million or $2.13 per diluted share. Fourth quarter adjusted EBITDA was $33.5 million compared with $42.6 million last year. Full-year adjusted EBITDA was $160.2 million, slightly ahead of the expectations outlined in our October 3 release. Turning to the balance sheet, cash and cash equivalents were over $224 million at year-end. Inventories at year-end were up, partly reflecting the reduced revenue as a result of Hurricane Helene. As indicated by our floor plan lenders, our inventory aging remains meaningfully better than that of the overall industry. On a same-store basis, comparable unit inventories are roughly 30% below 2019 levels. Short-term borrowings, which represent floor plan financing, increased as expected from the prior year, primarily due to higher inventory. Customer deposits declined year-over-year given seasonality and the availability of inventory, which is generally consistent with historical patterns. At year-end, our debt-to-EBITDA net of cash was about one-times, underscoring our continued financial strength. We have further financial flexibility through our unencumbered inventory and access to approximately $200 million in available lines of credit. Turning to guidance based on current business conditions, we expect industry unit trends during our fiscal year to be about flat. This is consistent with other thinking we have heard from industry participants. However, the effects of the hurricanes on the West Coast of Florida and the Southeast are currently having an impact on those markets, which are important to us. Today, assuming we can make up for the business disruption we are currently feeling, we would expect our same-store sales in fiscal 2025 to be essentially flat. We also expect to be able to maintain consolidated margins in the low 30s, but we recognize that boat margins are likely to be under increased pressure as we move through the winter months, given how soft the summer selling season was for many dealers. Having said that, we do see light at the end of the tunnel as industry inventory levels improved seasonally and interest rates presumably decline. We plan to continue to drive operating leverage improvements in fiscal 2025 through our cost-reduction initiatives that have been benefiting the second half of 2024. As such, we expect fiscal year 2025 adjusted EBITDA in the range of $150 million to $180 million and adjusted net income in the range of $1.80 to $2.80 per diluted share. These expectations do 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. Our guidance assumes an annual expected tax rate of around 26.5% and a share count of 23.5 million. The wider range on EPS versus EBITDA is because our non-cash items like stock-based compensation and depreciation and amortization grow more meaningfully as a percentage. While we do not typically give quarterly guidance, directionally, I would indicate that the West Coast of Florida usually plays an outsized role in the December quarter. Given the two storms, I would expect the December quarter to have negative comps versus the plus 4% from last year. It is very hard today to gauge the exact magnitude of the impact given the freshness of the storms. I would use caution when modeling the December quarter. Lastly, I would comment that October, from a top-line perspective, not surprisingly will finish behind last year's October. Despite the storms and continued uncertainty, the interest in boating remains strong, as it has all year. The consumer more than ever needs a solid reason to buy now versus waiting. Our team proved during fiscal 2024 that we can find those reasons despite the challenges and aims to do so again in 2025. With that, I'll turn the call back over to Brett for closing comments. Brett?

Brett McGill, CEO

Thanks, Mike. Looking ahead, we remain focused on delivering meaningfully against our long-term strategy by continuing to strengthen our portfolio, drive more efficient operations, and enhance our financial profile. Over the past five years, we have completed 20 acquisitions, representing about $700 million of high-margin revenue. We have broadened our portfolio of premium brands and exclusive distribution rights and achieved strong brand recognition in the Superyacht segment. We've taken several strategic steps to improve our operations and financial performance. First, we are streamlining our store network to better align with market trends. In addition, we are leveraging existing best practices and resources to realize synergies across the organization. And finally, we are developing new technology tools to boost efficiency throughout our operations. These initiatives position us well for sustainable growth and improved profitability. Despite the industry's challenges, our gross margins remain consistently above 30%. We also maintain a strong balance sheet and a healthy leverage ratio, which provides financial flexibility for the future. And with that, Mike and I will be happy to take your questions. So operator, please open up the line for Q&A.

Operator, Operator

Thank you. We will now conduct a question-and-answer session. Our first question comes from James Hardiman at Citi.

James Hardiman, Analyst

Hey, good morning, and thanks for taking my questions. So you sort of gave us some components of this, but maybe if you could do your best to quantify the impact of Helene on the fourth quarter from a more same-store sales and a bottom-line perspective, if possible. And then as I think about 2025, and I know it's even more difficult, but how to think through what you're assuming for the impact of the two hurricanes? And is the entirety of that in the first quarter? It would seem that first quarter is already seasonally pretty small. I think you made $0.19 a year ago, maybe sort of bottom line for us or do you expect to make money in Q1, given all those headwinds? Thanks.

Mike McLamb, CFO

Yes, I’ll begin, James. Thank you for your questions. In our prepared remarks, we mentioned that we expect same-store sales to be higher than last year for the fourth quarter, which translates to a top-line impact of around $30 million. That’s what we anticipated closing, though it doesn’t guarantee that all of it will close by the end of the quarter. If you consider the flow-through, the bottom-line impact is expected to be about $6 million or so. It’s challenging to assess the impact from the storms for the entire year. The West Coast of Florida has experienced significant flooding and damage, requiring extensive repairs to both buildings and infrastructure, particularly from the West Coast through the Panhandle. Our guidance range may lean towards the lower end, indicating that recovery for all boat sales hasn’t been factored in. On the other hand, if conditions improve towards the upper end of our guidance, business could return to normal on the West Coast. To give you an idea, the West Coast of Florida is a crucial market for us, contributing approximately 50% of our annual revenue, with the West Coast accounting for about 25% of our business that has been affected. Regarding your last question about the December quarter, I used to suggest modeling it as a loss. Last year, we made around $463,000 during that quarter, which was challenging for the industry in terms of unit sales. Current trends in the industry are not favorable, particularly with the two hurricanes impacting us. I would advise exercising caution when modeling the December quarter, as it typically represents a smaller portion of our overall yearly revenue, around 20% to 21%. However, the West Coast of Florida has a significant impact even during that quarter.

Brett McGill, CEO

And I'll add, James, the quarter kind of you hope to get a real good kick-start in October, so that you got a little runway for November and December, which are loaded with holidays, although those can be good months, you always want October to start out strong. And we started October with the second hurricane. So it's just making this quarter pretty tough, as Mike said.

James Hardiman, Analyst

Got it. That's helpful. And then I wanted to talk a second about rates. Obviously, that's a catalyst that we've all been waiting for a long time. But if I take a step back, I mean, the 10-year started coming down long before the Fed fund rate was tweaked. And then the Fed finally lowered last month, the 10 years have gone straight up since then. And so for your customers, I was wondering if you could walk us through sort of how the average or weighted-average borrowing rates have progressed over the course of this year with a particular emphasis on the last, I don't know, month or so.

Mike McLamb, CFO

Yes. Great question. So retail financing rates generally are priced off the 10-year. And so retail financing rates are down year-over-year, something like 100 basis points, something like that, maybe a little more. With the recent uptick in the 10-year, the banks that are the partners that finance boat loans, they haven't adjusted their buy rates, and how do they go to market. They've maintained the rates where they were actually for some boat shows, they may even lowered them a little bit. And so we've already seen some benefit from rates. I think everybody is expecting some additional benefit as we go through or at least everybody was expecting additional benefit as we go through 2025. But hopefully, that answers your question, James.

James Hardiman, Analyst

It does. Thanks so much. And I apologize to sneak in just one more. Did you give us some units versus price for the fourth quarter same-store sales?

Mike McLamb, CFO

I did mention that our unit sales declined less than our dollar sales. For instance, if our dollar sales are down by 5%, the units are down only slightly. If you examine the industry data, keep in mind that the overall numbers include aluminum sales, which are significant for the industry and for some of our stores. However, in terms of contributing to our revenue, aluminum doesn't make a major impact. On the other hand, fiberglass boat sales have dropped by approximately 20% each month from July to September. Our slight decrease indicates that we are continuing to outperform the industry. I attribute this success to the investments we've made in technology, our team, operations, and brands, as mentioned by Brett in the call. So yes, we experienced a slight decline this quarter, James.

James Hardiman, Analyst

Got it. Thanks so much and good luck from here.

Brett McGill, CEO

Thanks, James.

Operator, Operator

Thank you. Our next question comes from Drew Crum, Stifel.

Drew Crum, Analyst

Okay. Thanks. Hey, guys. Good morning. Can you address what you're seeing with your business and across the industry in terms of retail inventory levels and how you see that trending over the next few quarters? It sounds like inventory may be still elevated, but just want to get some additional detail there. And then just a separate question piggybacking off to James' question concerning interest rates. Can you tell us what is embedded in guidance as it relates to interest rate cuts over the course of fiscal '25? Thanks.

Brett McGill, CEO

Yes. In our previous call, Mike mentioned that during the summer selling season, which was not as strong, many dealers, including us, were expected to reduce their inventory, but that did not occur. As we guide for the upcoming year, we anticipate margin pressure because inventories still need adjustment. However, it seems manufacturers are making efforts to assist dealers in reaching the appropriate inventory levels.

Mike McLamb, CFO

Drew, I can pick up on the guidance question. All we've baked into our guidance at this point is the actual rates that have already happened, which is the 50 basis points. Obviously, we expect further rate cuts, but we don't really start baking that in until they happen. The good thing about the current cut that's in place is it's in place for our entire fiscal year, whereas the future cuts will have 11 months' worth of benefit or 10 months or six months or whatever they are. So, there is 50 basis points baked in for the full year.

Drew Crum, Analyst

Got it. And Brett, as a follow-up, do you expect the industry to return to more typical retail levels by the beginning of the selling season, or will it take longer?

Brett McGill, CEO

To get retail back, yes, it's going to depend on inventory. Last year, we observed the numbers decreasing every quarter, and we hope we've reached the bottom. There may be some good months ahead and some not so good, but we're likely very close to the low point. Until we determine where that is, I expect inventories to remain level or possibly increase a bit as we enter this part of the season. However, we anticipate entering the spring season and starting to reduce inventories, which is likely true across the entire industry, not just for us. Our orders reflect this and the incentives we have with manufacturers to help drive sales in a challenging environment.

Drew Crum, Analyst

Got it. Okay. Thanks guys.

Mike McLamb, CFO

Thanks, Drew.

Operator, Operator

Thank you. Our next question comes from Eric Wold, B. Riley Securities.

Eric Wold, Analyst

Thanks. Good morning, guys. I guess, two questions. I guess one, as you kind of start the boat show season, I guess, what is your sense of the regions and the markets you play in, the level of promotional activity you'd expect to see given where inventories are with some of your competitors? And how much would you expect to compete with that promotional activity to maintain share? Do you want to kind of maybe distance yourself a little bit from that? And I have a follow-up.

Brett McGill, CEO

Yes, we expect high promotional activity as businesses aim to reduce their inventories. We believe this will begin to stabilize as we approach the spring and summer seasons. However, we remain guided by the understanding that margins in the industry are currently below pre-pandemic levels due to the current inventory situation. As we enter spring, manufacturers are not producing many boats, which should lead to a natural decrease in inventory due to fewer wholesale products entering the market. Our focus on higher-end products will help us step back from some of the competitive pressures. Furthermore, our long-standing relationships with manufacturers and their introduction of new models will support our success, as history has shown that new products resonate well in the market.

Eric Wold, Analyst

Thank you. I have a follow-up regarding Florida. These hurricanes were certainly unprecedented. Based on your experience with past hurricanes, what do you think is necessary for that business to start recovering? Right now, consumers are focused on their homes and rebuilding their lives, which is currently more pressing for them. Are they waiting for insurance payouts? Do marinas need to be rebuilt so that if they purchase a boat, they have a place to dock it? What do you believe is the main factor that needs to occur before we begin to see a return of that business?

Brett McGill, CEO

It's a complex question with many factors involved. One consideration is the state of the marinas; some have suffered significant damage while others have not been impacted as much. We're beginning to notice the condition of people's docks at their homes, including access to lifts and the ability to reach their boats, which is still more difficult than we initially expected. Additionally, there are many people returning from up north for the season, which will also slow down preparations for boating. However, it’s important to remember that there is a strong desire among people to get back out on the water. We’re witnessing this in our stores. Even those stores that were severely affected are seeing customers who are eager to go boating. While delays are present, they won’t deter the overall recovery, but it may take time for things to return to normal. The impact of this situation is broader than we have seen with previous storms.

Eric Wold, Analyst

Perfect. Thank you both and best of luck.

Brett McGill, CEO

Thanks, Eric. Thank you.

Operator, Operator

Thank you. Our next question comes from Joe Altobello, Raymond James.

Joe Altobello, Analyst

Thanks. Good morning, everyone. For my first question, you mentioned high inventories and ongoing weak demand. I'm interested to know if this trend is consistent across all product lines, as I assume some segments might be performing better than others. Could you elaborate on that and share which areas are experiencing the strongest demand and inventory levels right now?

Mike McLamb, CFO

We have new models and products coming out, similar to what we've discussed in the past. However, there are some models that are more stagnant and require more effort to get them moving. Overall, I don't believe there's any single segment that stands out as particularly strong; they are all generally under pressure. Yes. We believe, and the data supports, that the premium segment overall performs better. However, as Brett mentioned a year ago, the premium segment also faces challenges during the summer. Despite this, we are seeing success with our new models and innovation. Strong brands continue to perform well, but there isn't a significant jump in any particular segment.

Joe Altobello, Analyst

Okay. Helpful. And just to follow up on that in terms of book margins, you mentioned there, they're still under pressure here. How are you thinking about that in fiscal '25? Are you assuming that gets better in the spring?

Mike McLamb, CFO

A great question. My guidance may not have been very clear, but I want to reiterate that our consolidated margins are expected to be in the low-30s. They were 33% for 2024. It wouldn't surprise me if they came in slightly below that due to the high inventory levels we anticipate in the industry as we enter the winter months, a time when dealers usually have less inventory. Dealers are likely to face additional stress, which may lead to a slight reduction in margins. We hope this won't happen, but we have considered it in our guidance. We believe this increased pressure might continue through the January and February boat shows and may start to ease in March, depending on inventory levels, and should further decline as we move into the June quarter, based on retail activity between now and then.

Brett McGill, CEO

Yes. We are aiming for improved margins during the peak of the selling season based on our orders and collaboration with manufacturers. That's our objective.

Joe Altobello, Analyst

Okay. And just one more if I could, on inventory, you mentioned you expected the comps to start coming down obviously in the summer selling season. If the year plays out like you expect with your comps flattish, would you anticipate ending fiscal '25 with the same inventory or even higher inventory heading into next year?

Mike McLamb, CFO

No, it's actually a great question. With the price increases or basically flattish increases that we're receiving from manufacturers, we would assume that inventories will come down on a year-over-year basis from September to September. Not go up from September to September, just based on what we're currently buying and what our forecast is today.

Joe Altobello, Analyst

Okay. Super. Thank you.

Mike McLamb, CFO

Yes. Thank you.

Brett McGill, CEO

Thanks, Joe.

Operator, Operator

Thank you. Our next question comes from Fred Wightman, Wolfe Research.

Fred Wightman, Analyst

Hey, everyone. I want to clarify something that has been brought up a few times. Given the inventory trends you're observing across the industry, you expect the promotional environment to intensify in the coming months. Consequently, we should anticipate a decline in new boat margins from this point forward.

Brett McGill, CEO

I think we may not necessarily use the term accelerate, but we believe it will persist due to significant promotional activity. However, there is a possibility that margins could come under pressure as we attempt to generate movement during a slower time of year.

Mike McLamb, CFO

Yes, seasonally there are many factors we hear from our banking partners who finance a lot of these dealers for their inventory purchases. Although they are purchasing less product going forward, they still have older models in stock. We do not expect the situation to improve between now and the January and February boat shows, as some Northern dealers typically do not sell much until those boat shows. Once they reach the shows, they may sell some products. Therefore, it may be a reasonable expectation that margins could experience some pressure in the near term.

Fred Wightman, Analyst

That makes sense. There was a comment in the release about additional cost reductions during the quarter. I know you mentioned aiming to bring SG&A back to 2023 levels as a percentage of gross. Is that still the correct way to look at it? Are these cost reductions primarily offsetting some of the increased inflation you also mentioned, or is it a result of improved performance within that percentage range?

Mike McLamb, CFO

Yes, it's actually a really good question. So we have consolidated and closed six stores over the last couple of quarters, two in the September quarter. We have reduced our number of team members also, partly given just where the industry is and we've been looked hard at every vendor relationship and renegotiated where we can to try to bring costs down. The challenges as we're doing all that, as I mentioned in the prepared remarks is while inflation is getting lower, there are still elements of inflation within just about every component that you touch within the P&L. And so our goal is still very much to strive to get back to 2023 as a percentage, which is around 26%. We were 27% roughly on an adjusted basis in 2024. We get all the way there that's going to be a challenge. Can we get partway there, halfway there? That's where we're working on. So I'm kind of dancing around a little bit giving you any real specifics, Fred, but we're working to offset some of the inflation for sure with the cost cuts that we've done, and we're going to continue to look at for opportunities within the organization to improve the operating margins of the business and the operating leverage in the business.

Fred Wightman, Analyst

Understood. Thank you.

Operator, Operator

Thank you. Our next question comes from Michael Swartz, Truist Securities.

Unidentified Analyst, Analyst

Hey guys, good morning. This is Adam on for Mike. Just going back to the cost-cutting, first, just kind of wondering, I think you've called out like $20 million to $25 million is like an annualized run rate from last quarter. Just wondering if that's still kind of the expectation or if there could be any more, I guess, cost effects from the lower rate cuts as far as floor plan expenses come.

Mike McLamb, CFO

Yes, the $20 million to $25 million was just for SG&A, not interest. That's still our target from a dollar standpoint to achieve within the organization. The challenge is the additional increase in other costs that we've noticed. The net effect of these is what I discussed with Fred, which is somewhere between our current SG&A percentage and where it stood in 2023.

Unidentified Analyst, Analyst

Okay. Got it. Thank you.

Mike McLamb, CFO

Thanks, Adam.

Operator, Operator

Thank you. Our next question comes from Griffin Bryan, D.A. Davidson.

Griffin Bryan, Analyst

Yes. Hi. Thanks. Good morning. So regarding the guidance, can you square the retail assumptions assumed for both the high and low-end? And then just for clarification on Helene impacts. I think you said to the high end of the guidance, you're assuming that everything lost in Q4 and Q1 would be recovered by the end of the year. So is that like the right way to think about it?

Mike McLamb, CFO

Yes, that's a great question. The business is currently experiencing disruptions due to the storms. Our guidance factors in the expectation that we will recover from this impact, but it does not take into account that the West Coast of Florida will remain unaffected for the next three quarters. It assumes some of the current disruptions will be made up for. I may not have articulated that clearly. Regarding retail assumptions, we mentioned that we expect flat same-store sales in line with a stable industry in 2025. Our guidance range suggests growth beyond flat sales to approach the $180 million EBITDA, potentially with a slightly improved margin assumption. Margins significantly affect our business. On the lower end, if we are at the low end of flat sales, perhaps slightly negative with reduced margins, that could bring us down to the $150 million range.

Griffin Bryan, Analyst

Got it. And then it seems like OEMs and other dealers we've spoken with aren't expecting much of an uplift from insurance claims on boats that were affected during the storms. Are you guys kind of assuming the same thing or is there opportunity for upside in the affected markets later in the year?

Mike McLamb, CFO

It's a good question. Normally by now, the insurance carriers have come out with some type of kind of data point around the number of boats destroyed. We have not seen that data point yet. It's usually the destroyed boats then get replaced over time. There certainly is a large number of destroyed, I just don't know what it is. There is certainly a lot of service work that it's unfortunate that for the customers, but it is a lot of service work, which is good earnings and good revenue for all of our stores that we'll be working on and already are working on. But in past storms, there has always been some level of replacement cycle. The timing of the replacement cycle is real hard to gauge.

Brett McGill, CEO

It always seems to drag over a longer period of time than we expect it to.

Griffin Bryan, Analyst

Got it. Thanks guys.

Mike McLamb, CFO

Thanks.

Brett McGill, CEO

Thanks.

Operator, Operator

Thank you. Our next question comes from John Healy, Northcoast Research.

John Healy, Analyst

Thank you for taking my question. I have one question regarding your capital allocation plans moving forward and your thoughts on mergers and acquisitions. Can you provide any insight into the current pipeline, especially now that the business seems to be stabilizing from an industry perspective? Considering your low leverage and the favorable interest rate environment, I am curious about how active you might be in pursuing M&A opportunities. Are you more inclined to focus on historical stores, marinas, or the manufacturing sector? I'm just trying to understand your potential direction in this area.

Brett McGill, CEO

Yes, we are exploring various opportunities to keep our pipeline active, and there may be some promising prospects on the horizon. We continue to assess acquisitions for IGY Marinas and aim to strengthen that portfolio. The dealership business is facing challenges, so we will seek out opportunities there. On the superyacht and IGY side, there are numerous international opportunities available, which we will likely concentrate on in the near future.

Operator, Operator

Thank you. Our next question comes from David MacGregor, Longbow Research.

David MacGregor, Analyst

Good morning, everyone. Thank you for the question. I wanted to inquire about the service aspect of the business. This quarter, the gross margin is 34%, and while both margins have decreased, the service side appears to be performing well. You mentioned earlier that the service outlook looks promising due to the reconstruction and related activities. I'm curious about how you view this in relation to 2025. Additionally, considering the ongoing transformation at MarineMax, you're becoming less reliant on boat sales. If we do not return to an annual rate of 200,000 units or higher, and instead remain at lower levels for the next few years, what are your prospects for organically growing the service offerings in terms of both revenue and margins? Thank you.

Mike McLamb, CFO

Thank you for the question. We believe that the strategic moves we've made to diversify with related businesses over the past several years have positioned us well for what you've mentioned. If the industry faces a downturn, we have shifted our focus to higher net-worth consumers and higher price points. Our service range includes improved services at our facilities, boat servicing, and marina services. Additionally, we've expanded into the superyacht sector and IGY. In the superyacht segment, we facilitate boat brokering for customers interested in selling. We also provide yacht management services, ensuring that yachts are maintained, compliant, and serviced, and we offer charters as well. When customers aren't in the market to purchase a new superyacht, they may opt for two or three charters throughout the season. This makes the business resilient on its own. Our strategic move has set us up to remain stable even if industry levels decline, and we plan to continue enhancing this aspect. There is also growth potential in our boat servicing side, although we face some constraints due to our facility capabilities. Nevertheless, we see positive opportunities there. I hope this information is helpful.

David MacGregor, Analyst

Okay. Thank you very much.

Brett McGill, CEO

Thanks, David.

Operator, Operator

Thank you. I would now like to turn the call back to Mr. McGill for closing remarks.

Brett McGill, CEO

Well, thanks, everybody for joining us. We're having great traffic here at the Fort Lauderdale Boat Show. It looks to be a good show and we look forward to updating you on our next call. Thanks for joining us.

Operator, Operator

Thank you. This does conclude today's teleconference; we thank you for your participation. You may disconnect your lines at this time.