Boat and marine products retailer MarineMax (NYSE:HZO) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue up 4.84% year on year to $721.8 million. MarineMax made a GAAP profit of $44.3 million, down from its profit of $70.2 million in the same quarter last year.
MarineMax (HZO) Q3 FY2023 Highlights:
- Revenue: $721.8 million vs analyst estimates of $672 million (7.42% beat)
- EPS: $1.98 vs analyst estimates of $1.82 (8.96% beat)
- Gross Margin (GAAP): 33.8%, down from 34.3% in the same quarter last year
- Same-Store Sales were up 4.8% year on year
- Store Locations: 130 at quarter end, increasing by 30 over the last 12 months
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE:HZO) sells boats, yachts, and other marine products.
The company’s product offering includes boats from many prestigious manufacturers such as Sea Ray, Boston Whaler, Azimut, and Galeon. In addition, MarineMax provides services such as financing, insurance, maintenance, and repair to make it a one-stop shop for recreational boating.
The core customer is an affluent individual or and family who has means, interest in marine activities, and proximity or access to water to use the company’s products. These customers are looking for high-quality products that offer some combination of luxury and performance. They also often demand personalized support and assistance through the life of their boats or yachts.
The average MarineMax store is around 30,000 square feet and typically located in prime waterfront locations such as marinas and harbors. The layout of stores is open and spacious, with ample room for display. MarineMax launched its e-commerce platform in 2018, and the platform allows customers to browse–including virtual tours and video consultations–and purchase products online. Customers can also access financing and insurance services through the website.
Retailers that sell boats and marine products sell products, sure, but they also sell an image and lifestyle to an often wealthier customer. Unlike a car–which many use daily to get to/from work and to run personal and family errands–a boat or yacht is certainly a discretionary, luxury, nice-to-have purchase. While there is online competition, especially for research and discovery, the boat and yacht market is still very brick-and-mortar based given the magnitude of the purchase and the logistical costs associated with moving these products over long distances.
Competitors offering recreational marine products include OneWater Marine (NASDAQ:ONEW), Yamaha Motor Co. (TSE:7272), and Brunswick Corp (NYSE:BC).Sales Growth
MarineMax is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 17.2% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was excellent as it added more brick-and-mortar locations and increased sales at existing, established stores.
This quarter, MarineMax reported decent year-on-year revenue growth of 4.84% and its revenue of $721.8 million topped Wall Street's expectations by 7.42%. Looking ahead, Wall Street expects revenue to decline 3% over the next 12 months.
Number of Stores
A retailer's store count is a crucial factor influencing how much it can sell, and store growth is a critical driver of how quickly its sales can grow.
When a retailer like MarineMax is opening new stores, it usually means that demand is greater than supply, and in turn, it's investing for growth. MarineMax's store count increased by 30 locations, or 30%, over the last 12 months to 130 total retail locations in the most recently reported quarter.
Over the last two years, the company has opened new stores rapidly and averaged 16.2% annual growth in its physical footprint. This store growth is among the fastest in the consumer retail sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Same-Store Sales
Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
MarineMax has generated solid demand for its products over the last two years. On average, the company's same-store sales have grown by a healthy 12.7% year on year. This performance gives it the confidence to rapidly expand its store count. When a company has strong demand, more locations should help it reach more customers seeking its products and boost revenue growth.
In the latest quarter, MarineMax's same-store sales rose 4.8% year on year. This performance was more or less in line with the same quarter last year.
Gross Margin & Pricing Power
We prefer higher gross margins because they not only make it easier to generate more operating profits but also generally indicate product differentiation, negotiating leverage, and pricing power.
As you can see below, MarineMax has averaged a decent 35.4% gross margin over the last eight quarters. This means that the company makes $0.35 cents for every $1 in revenue before accounting for its operating expenses. 
MarineMax's gross profit margin came in at 33.8% this quarter, relatively flat with the same quarter last year. This steady margin could stem from its efforts to keep prices consistently low or signal that it has stable input costs (such as freight expenses to transport goods).
Operating Margin
Operating margin is an important measure of profitability for retailers as it accounts for all expenses that keep the lights on, including wages, rent, advertising, and other administrative costs.
This quarter, MarineMax generated an operating profit margin of 10.3%, down 3.5 percentage points year on year. We can infer that MarineMax was less efficient with its expenses or had lower leverage on its fixed costs because its operating margin decreased more than its gross margin.
From an operational perspective, MarineMax has done a decent job over the last eight quarters. The company has produced an average operating margin of 10.4%, higher than the broader consumer retail sector. However, MarineMax's margin has slightly declined by 1.8 percentage points year on year (on average). This shows that despite its success, the company has faced some small speed bumps along the way. EPS
These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.
In Q3, MarineMax reported EPS at $1.98, down from $3.17 in the same quarter a year ago. This print beat Wall Street's estimates by 8.96%, a welcome development that should delight shareholders.
Between 2020 and 2023, MarineMax's adjusted diluted EPS grew 99.1%, translating into a striking 33% average annual growth rate. This EPS growth is materially higher than its revenue growth over the same period, indicating that MarineMax has excelled in managing its expenses (leading to higher profitability), bought back a healthy chunk of its outstanding shares (leading to higher PER share earnings), or did some combination of both.
Return on Invested Capital (ROIC)
MarineMax has a solid track record of investing in profitable projects and is more likely to get better terms with financiers if it wants to raise or borrow capital. Its five-year average return on invested capital (ROIC) is 19.5%, higher than most retailers.
We like to track ROIC because it tells us about a company’s prospects for profitable growth and its management team's ability to achieve it through capital allocation decisions such as organic investments, acquisitions, and share buybacks. ROIC can also be used as a tool to benchmark a company's performance versus its peers, and just like how we focus on long-term investment returns, we care more about analyzing a company's long-term ROIC because short-term market volatility can distort results.
Key Takeaways from MarineMax's Q3 Results
With a market capitalization of $729.4 million and more than $226.1 million in cash on hand, MarineMax can continue prioritizing growth.
It was good to see MarineMax beat analysts' EPS expectations this quarter. That really stood out as a positive in these results. Overall, this was a mediocre quarter for MarineMax. The stock is flat after reporting and currently trades at $32.93 per share.
Is Now The Time?
When considering an investment in MarineMax, investors should take into account its valuation and business qualities as well as what happened in the latest quarter. Although we've other favorites, we understand the arguments that MarineMax isn't a bad business. We'd expect growth rates to moderate from here, but its revenue growth has been impressive over the last three years. On top of that, its new stores openings has increased its brand equity.
We don't really see a big opportunity in the stock at the moment, but in the end, beauty is in the eye of the beholder. If you like MarineMax, it seems that it's trading at a reasonable price point.
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