Earnings Call Transcript - HZO Q3 2025

Operator, Operator

Good morning, and welcome to the MarineMax, Inc. Fiscal 2025 Third Quarter Conference Call. Today's call is being recorded. I would now like to turn the call over to Scott Solomon of the company's Investor Relations firm, Sharon Merrill Advisors. Please proceed.

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 performance and recent highlights. Mike will review the financial results. Brett will make some concluding comments, 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?

Michael 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 measures 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 to 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?

Bill McGill, CEO

Thank you, Mike, and good morning, everyone, and thank you for joining us today to discuss our Q3 results. Let me begin by recognizing and thanking our team for their commitment to our customers during what was a challenging quarter. Though the numbers reflect a tough environment, their dedication to a world-class customer experience has never wavered. Our consistently strong Net Promoter Scores, commitment to the customer experience, and business diversification reinforce my confidence that we will successfully navigate this period and emerge even stronger. As noted in this morning's earnings release, a combination of ongoing economic uncertainty, evolving trade policies, and heightened geopolitical tensions contributed to soft retail demand across the recreational industry in Q3. While these headwinds have existed to a degree throughout the fiscal year, we saw a noticeable increase in consumer caution since the start of April. While enthusiasm for the boating lifestyle remains high, the uncertainty is prompting buyers to delay purchases until the economic outlook is clearer. The Premium Boat segment has generally shown more resilience than other parts of the retail boat market, though it still faced significant unit declines this quarter due to broader economic concerns. Despite these challenges, our teams remain focused on executing our strategic priorities, managing costs, and maintaining operational discipline. We continue to invest in digital tools and customer experience enhancements to position MarineMax for long-term success. Reflecting the challenging retail environment, third quarter revenue came in less than our expectations at $657 million, with same-store sales down high single digits. With new boat margins hovering near historic lows, gross profit margin decreased from the prior year. However, thanks to the continued strong performance of our higher-margin businesses, including Finance and Insurance; Superyacht Services; Storage and Marina operations, including IGY; we maintained a gross margin above 30%. This resilience demonstrates our effective business mix and operational discipline, which enabled us to deliver solid results even in a challenging environment. On the expense line, we are seeing the continued benefits of cost-cutting initiatives implemented during the fiscal year. That being said, inflation persists, so we continue to look for opportunities to improve our cost structure. Despite the inflation, adjusted SG&A was down nearly $11 million on a year-to-date basis. Regarding tariffs, tariff-related uncertainty has remained a headwind for the broader consumer environment. That said, we've continued to manage the evolving landscape effectively, thanks in part to solid coordination with our premium manufacturing partners and proactive inventory planning earlier in the year. The degree to which that stability continues will be dependent upon subsequent trade policy decisions and tariff agreements. While we are optimistic that together with our manufacturing partners, we will continue to find solutions, tariff-related volatility impacting consumer confidence is likely to further influence retail activity. Looking ahead, we are encouraged by early signs that the environment may be stabilizing. Manufacturers in the industry are being appropriately promotional and adjusting production to help align inventory with the retail environment. Lenders are forecasting that industry inventory may drop in the coming quarters to realign with past averages. This will provide some relief to the margin pressure that exists today. Our focus remains on disciplined execution, investing in higher-margin businesses, and positioning MarineMax to accelerate sales and increase profitability when the market stabilizes. Turning to recent highlights. During the quarter, IGY celebrated the opening of the IGY Savannah Harbor Marina, a new 100-berth marina in the heart of downtown Savannah. Additionally, the state-of-the-art marina features a large dock specifically engineered to accommodate superyachts. Earlier this month, IGY also announced that they have been selected as the Marina Manager for the Wynn Al Marjan Island Marina in Ras Al Khaimah, UAE. IGY will advise Wynn Resorts on marina design and development, then oversee marina management and marketing once the marina is operational. Intrepid and Cruisers will both be launching a record number of new models within the next 12 months, of which several will debut in the coming months. Additionally, Newcoast Financial, our finance and insurance operation continues to see growth through the use of technology and expanded partnerships. We also recently completed the development of a marina adjacent to our retail operation in Stuart, Florida. It is a profit-winning strategy when you can combine a well-run dealership with a state-of-the-art marina, especially in a growing market like Stuart. And so with that update, let me turn the call over to Mike for the financial review. Mike?

Michael McLamb, CFO

Thank you, Brett. I also want to express my appreciation to our team for their dedication and resilience in the face of a challenging market environment. Turning to our results. Total revenue decreased in the quarter to $657 million, which, as Brett noted, was primarily a function of lower new boat sales resulting from increased consumer caution. Same-store sales were down 9%. Depending on the segment, our unit volume for the quarter was down similar to our same-store sales decline or greater, although better than the industry as a whole, but reflecting the broad retail softness. As expected, margins remained under pressure in Q3 as we intensified our promotional activity in an effort to drive sales. Gross margins on boats are about as low as we've seen outside the financial crisis. Fortunately, our focus to expand our higher-margin businesses again enabled our consolidated gross margin to remain above 30%. On the expense side, adjusted selling, general and administrative expenses for the quarter decreased about 4%. Our cost reduction initiatives, which have included closing over 10 locations since last year have helped reduce expenses. However, we continue to face rising costs in several areas, offsetting a portion of the savings. We are actively reviewing all opportunities to improve efficiency and reduce expenses. Interest expense decreased primarily due to lower rates. As noted in our earnings release, our GAAP net loss for the quarter included a noncash goodwill impairment charge of just over $69 million associated with our Manufacturing segment. This charge is a required accounting adjustment that primarily reflects the effect of the current macroeconomic uncertainty on our market capitalization in combination with the tougher environment. It does not reflect any change in our long-term outlook for the Manufacturing business. Adjusted net income, which excludes the goodwill impairment as well as other discrete expenses identified in our earnings release, was $11 million or $0.49 per diluted share for the quarter compared with $34.8 million or $1.51 per diluted share last year. Third quarter adjusted EBITDA was $35.5 million versus $70.4 million last year. Turning to the balance sheet. Cash and cash equivalents was $151 million at quarter end. Inventories increased year-over-year by approximately $26 million, primarily due to the softer-than-expected June quarter. Customer deposits decreased as a result of timing of large yacht orders and deliveries and more readily available product as well as the softer retail environment. Our net debt to adjusted EBITDA was under 2x at quarter end. Turning to capital allocation. During the quarter, we bought back additional shares of our stock under our share repurchase plan. Through the fiscal year, we have repurchased roughly 6% of our outstanding stock. We also continue to invest in growth initiatives such as the IGY Savannah Harbor and our Stuart Marina expansion as well as improvements in our operations, and we remain committed to maintaining a healthy balance sheet. Turning to guidance. Given our results through the first 9 months of fiscal 2025 and the heightened level of macroeconomic uncertainty, which hit the seasonally critical June quarter, especially hard, we are revising our full year guidance. We now expect fiscal year 2025 adjusted net income in the range of $0.45 to $0.95 per diluted share and fiscal year 2025 adjusted EBITDA in the range of $105 million to $120 million. These expectations did not consider or give effect for, among other things, material acquisitions that we may complete or other unforeseen events, including changes in global economic conditions. As a reminder, EPS gets impacted greater than adjusted EBITDA given the size and nature of depreciation and amortization and stock-based compensation. Our outlook assumes that the September quarter will face challenges similar to the June quarter with higher-than-expected inventory levels across the industry continuing to pressure margins. We'll remain aggressive on pricing to drive sales and reduce inventory through the quarter. Before I turn the call over to Brett, I will comment on July trends. With our aggressive actions, July is expected to finish ahead of last year's July, which certainly is a nice turn from a rather challenging June.

Bill McGill, CEO

Thank you, Mike. While our near-term outlook is cautious due to the ongoing economic uncertainty, we are confident that our overarching strategy centered on expanding our higher-margin businesses will drive operational resilience. Our management team has successfully guided the company through many challenging economic cycles. As the recovery takes hold, we believe that our earnings power is significantly enhanced by the strategic expansion of our higher-margin businesses and the resilient consumer demand for the boating lifestyle. With that, Mike and I will be happy to take your questions. So operator, please open up the line for the Q&A.

Operator, Operator

Your first question comes from James Hardiman with Citi.

James Hardiman, Analyst

I was prepared to ask why you frequently discuss the drop-off in April related to trade issues. The stock market has recovered well, and consumer confidence seems slightly improved, although not significantly. Certain sectors of the economy appear to have recovered from the lows in April. I was curious why there hasn’t been any noticeable improvement, especially concerning trade. However, Mike mentioned that there are expectations for an uptick in July. So, I'll begin there. What are the key differences in the factors affecting consumers as we approach July? Are we seeing higher-quality sales, possibly due to increased promotions, or could this recovery be less impressive than it seems? Weather was a significant factor earlier in the quarter, and I'm unsure how to interpret that in relation to your business. Please explain your perspective on the consumer landscape, and whether this improvement in July is indicative of a lasting trend or merely an anomaly.

Michael McLamb, CFO

I'll give it a try. It's a big question regarding what has led consumers to hold back post-Liberation Day. Clearly, confidence dropped significantly afterwards, along with some economic forecasts for the country. That data is publicly available. Fortunately, consumer confidence is rebounding now. When considering the major uncertainties, it's worth noting the various factors that have been reported. There were tariff headlines and considerable global tensions during the June quarter, particularly in the Middle East. Discussions surrounding the tax law were prevalent, including whether it would be passed and its contents. The tax law has been passed as of July 4, which is a positive development. One could argue that global tensions may have eased slightly. As for weather, while we may be less affected than others in the industry, it does appear that weather conditions improved later than usual for many markets in the Midwest and Northeast. It's a mix of all these elements. Clearly, there's a lot of wealth currently, so people are financially capable of making purchases. However, it's not just boats that are being affected; other expensive discretionary items are also seeing an impact.

Bill McGill, CEO

Yes, James, looking back at April in that quarter, it's clear that there was a significant drop. July appears to be on the upswing, whereas April was a steep decline that couldn't be recovered. May showed a few positive signs, and June had some as well, but we still couldn't make up for the losses in April, and June ended down as well. The key difference for July is that the economy is showing some positive signals, with tariff announcements emerging daily, but we aren't encountering the same dramatic drop we saw in April. This is encouraging, as we are not trying to recover from a severe downturn that lasted almost two weeks.

James Hardiman, Analyst

All great points. As we look ahead, how should we consider same-store sales for the fourth quarter? Could they potentially increase? Given the uncertainty of this year, I hesitate to ask about next year, but do you have any early insights? There are areas you can manage, like SG&A, so what are your thoughts on that? Looking at fiscal '26, do you have any initial guidance?

Michael McLamb, CFO

I'll address the first part of your question, which concerns the fourth quarter. In my prepared remarks, I mentioned that we expect the September quarter to be challenging, similar to the June quarter, though perhaps not as weak, since we're comparing against a negative comp from the hurricanes last year. You inquired about the possibility of positive same-store sales. I can assure you that our team is putting in a lot of effort to achieve that. So yes, it's a possibility, but we've not included that in our guidance, and we think it's wise to anticipate a decline.

Bill McGill, CEO

The setup for 2026 looks promising if we see some favorable conditions, especially in terms of our ability to increase margins by managing our inventory levels. There are good indications for what 2026 could hold, but predicting the macroeconomic landscape remains uncertain.

Michael McLamb, CFO

The expectation, at least obviously, those who are in the industry have this expectation, but even folks who watch the industry are that industry inventory levels will bottom. It was supposed to happen as of June 30, but because of the weak June quarter, that's now going to be pushed out a quarter or maybe 2 quarters or sometime into the fall. Once that bottoms, to Brett's point, you have some margin relief for the industry, obviously, for us and also for the industry. And then once the industry bottoms, in theory, you start having some growth levels coming off of that with the wealth that's being created out there. And the one thing I don't want to lose sight of is the demand for the boating lifestyle. Brett said it, I probably said it. I boat whenever I can. And you see the people out there, there's a ton of folks enjoying their boats, there's a ton of people at our events. Our gallons sold at our marinas are up. There's a lot of data that says people are enjoying it and they want to be in it, they're just pausing the purchase decision right now. So that's a big important point is that it's a healthy environment, meaning it's a healthy lifestyle. People want to be part of it, which is something I want to say.

Operator, Operator

Next question, Joe Altobello with Raymond James.

Joseph Altobello, Analyst

I wanted to follow up on July in terms of the promotional environment. I mean, obviously, it sounds like things got a little bit better here this month. How much of that was promotion driven? How much of that was deals on leftover model year '25s, for example?

Michael McLamb, CFO

We're quite promotional, but we have been for a while. This might suggest that consumers are feeling a little more positive, though I don't think we've changed much in July aside from our efforts.

Bill McGill, CEO

Yes. We are actively working to drive sales, but I wouldn't attribute any extra promotions in July as being significant enough to make a real difference.

Joseph Altobello, Analyst

Got it. Okay. And just a follow-up on that. I mean, given the promotional environment, and I think you mentioned that it's as bad as it's been since the financial crisis. What has to change for that to get better? I mean, obviously, demand improvement would help. But like, is that being driven by just excess inventories? Or are there other factors involved?

Bill McGill, CEO

Inventories being up creates more of a buyer's market. However, due to the uncertainty out there, companies like plumbing or construction businesses affected by immigration and tariff issues are hesitant to act. The only thing that might encourage them to make purchases is promotional activity, prompting them to consider buying now rather than waiting for things to stabilize in their operations.

Operator, Operator

Next question, Eric Wold with Texas Capital. There is a bit more of a buyer's market. However, with the uncertainty out there, whether it's a plumbing company or a construction company dealing with workers affected by immigration issues or facing tariff uncertainties, they are just sitting idle. The only thing that can motivate them to act and consider purchasing now instead of waiting for things to stabilize in their business is promotional activity.

Unidentified Analyst, Analyst

I have a quick question. I apologize, I missed part of James' question at the beginning. I'm not sure how you addressed this. You mentioned being encouraged by the OEMs adjusting production to retail activity. This seems to have been a recurring theme for several quarters. Is this just a continuous adjustment, or are you seeing any significant efforts from them to proactively manage inventory in light of current conditions? Are they taking any additional steps to lower inventory levels and align more closely with consumer demand, possibly to avoid heavy promotions ahead of next year's boating season?

Michael McLamb, CFO

I believe the industry is acting responsibly, as builders, dealers, and banks all share a common goal of keeping inventory levels manageable. The June quarter is particularly crucial, as it accounts for a significant portion of sales for many businesses. However, we’ve seen declines in fiberglass sales in April and May, and while we don’t have final numbers for June yet, we expect similar results. This decline was not anticipated by many, and it necessitates a reevaluation of forecasts for 2026, leading manufacturers to appropriately reduce production. The key takeaway is that everyone aims to maintain balanced inventories and avoid overproduction, which will ultimately improve the promotional environment and profit margins. The unexpected drop in such a critical quarter has caught many off guard.

Unidentified Analyst, Analyst

Got it. And just a quick follow-up. Any update on kind of what you're seeing out of the Florida market kind of a couple of quarters past the hurricanes or that market coming back kind of maybe relative to the other markets in the country?

Bill McGill, CEO

Yes, Eric, that’s a great question. We’ve been discussing this more than we probably anticipated this quarter. Certain areas in Florida are still struggling to recover from the hurricane, possibly more than we realized when visiting different locations. For instance, our Sarasota store is still operating out of a mobile trailer, and many homes haven’t been rebuilt. The recovery process has taken longer than expected. With hurricane season approaching for this year, we still see the lingering effects. The impact has been greater than many anticipated.

Michael McLamb, CFO

The main issue is the number of docks that remain damaged. You can see them while boating or driving around. The repairs are delayed because people are still waiting on their homes, and even if they are ready for their docks, there aren't enough dock builders available. The situation has persisted longer due to the extent of the flooding that occurred.

Operator, Operator

Next question, Anna Glaessgen with B. Riley.

Anna Glaessgen, Analyst

I'd like to ask a bigger picture question. You spoke to maybe inventory recalibration maybe being pushed out a quarter or 2. But as you think about the broader recovery in boat retail, has your view shifted in light of the uncertainty over the past few months?

Michael McLamb, CFO

No, I don't think our broader view has changed at all. I just mentioned the strength of the demand for the boating lifestyle and the interest in it, which is a real positive. We are in a tough period, and we were already facing challenges before Liberation Day. It has been difficult, but we were performing well in a challenging environment. The uncertainty following Liberation Day has emerged, but it doesn't alter our long-term outlook.

Bill McGill, CEO

And I think speaking to the inventory recalibration, us working really closely with our manufacturers early on in our fiscal year to get things aligned. We had a good plan, and then the June quarter is as soft as it was for our industry. And so there's going to be a continued recalibration there to get it in line with the best forecast we can give. It doesn't change our entire broader aspect of things, but that June quarter being down is going to take adjustments on manufacturers and us to move through it.

Anna Glaessgen, Analyst

Got it. And then just a follow-up on July. I know it's still pretty early, but anything interesting you're hearing from those consumers that are responsible for that pickup? Are they more responsive to promotions, just kind of over the headlines about tariffs and just looking to get on the water? Any help there would be great.

Bill McGill, CEO

Yes. There's nothing significant in the promotional activity that has impacted us positively. I mean, there are efforts to move some older products that certainly help. Also, when manufacturers release new models with innovation, those tend to sell well. That's likely a part of the situation. However, as I mentioned, the June quarter didn't really bounce back after the initial weeks of April, which likely contributes to the lack of a significant decline in July.

Operator, Operator

Next question, Mike Albanese with The Benchmark Company.

Mike Albanese, Analyst

I wanted to ask about the historical context regarding your mention of strong engagement and lifestyle boating activity, which appear to be quite resilient. Have you observed a significant difference in the past between stable boating activity and the decline in new boat sales? I assume that during 2008 and 2009, boating activity also decreased alongside sales, so I'm interested in your thoughts on this.

Bill McGill, CEO

It's a valid observation. Mike can elaborate, but you’re correct that although people continued boating, there was a noticeable decline with activities happening closer to home and less spending on fuel during the financial crisis. However, this situation is definitely different. People are actively using their boats now. This is somewhat new for us, although we have seen hints of it before.

Michael McLamb, CFO

The financial crisis was very different from this situation. Back then, many people lost their jobs and were forced to sell their boats. This current environment is marked by uncertainty affecting potential buyers and those looking to upgrade, leading to delays. I'm not sure we've encountered this exact scenario before; it appears to be unique now.

Bill McGill, CEO

The inflationary pressures over the years, too are clearly having an impact. The average price of a boat now versus pre-COVID, we'll call it. Those are dramatic differences that clearly put a gap between when somebody bought a boat and when they're ready to buy their next boat.

Michael Albanese, Analyst

So I guess the thought is that the typical upgrade replacement cycle has been extended. How do you view the potential for pent-up demand if consumers are able to make purchases again? Perhaps we're looking at this situation extending into 2026 or 2027. How are you considering the formation of pent-up demand given this difference?

Bill McGill, CEO

It's unreal because yes, it does. When we talk to customers at boat shows in our showroom, and in personal interactions with people I know who are boaters and interested in new boats, there's a noticeable delay. They are saying, 'Hey, I'm going to do that next year.' The demand is there; they're just waiting to see how things unfold. There is a pent-up demand, though I'd be cautious about how strongly I assert that. There is a pause among buyers, and the reasons vary from comments like, 'Yes, that costs so much more,' to, 'I want to wait and see what happens in my business and with tariffs affecting my business.' It's not just about tariffs and the cost of the boat; it's about how it impacts their situation.

Operator, Operator

I will now turn the call back to Mr. McGill for closing comments.

Bill McGill, CEO

Well, thank you, everybody, for joining us today. Some really great questions. Thanks for your interest in MarineMax, and we'll update you on our next call.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.