MarineMax 1Q23

Introduction to MarineMax

MarineMax, the most comparable publicly traded competitor of OneWater Marine reported, 1Q23 results on Thursday. The company lost 12% of its share price as it reduced guidance and the bottom line fell considerably YoY.

We analysed MarineMax several months ago (when analysing several companies in this industry to finish adding OneWater Marine to our portfolio). However, we have never written about it on the website. It trades with the ticket $HZO, its market cap is around $650 MM and its story is quite similar to the $ONEW one. The main difference between the two companies (summarizing a lot) is that $HZO entered the Marina business last August by buying IGY Marinas

MarineMax 1Q23 results 

Net income fell to $19.7MM ($0.89 EPS) vs $35.9mm ($1.59 EPS last 1Q22) despite record revenue as a consequence of the acquisition of IGY Marinas.

Analysing a bit more in detail, we see that the Gross margin grew 37% vs 35.5% last year. However, SG&A expenses went up from $120MM to 150MM and interest went up from $0.6MM to $9.5MM in the quarter as a result of the IGY acquisition (financed with $400MM debt) and inventory building. It impacted heavily the net income.

One key aspect is that Same Store Sales declined by 1%. If we do not take into account the IGY acquisition, the revenue would be flat. This is the combination of very different trends. The unit sales fell sharply around 25% (vs 35% industry) but the price of its products went up considerably (mainly in the premium segment). Marinemax affirms that buyers of premium and larger products still seem less impacted

Also, interesting to add that inventories almost doubled from $325MM to $605MM (smaller and less complicated products) & Goodwill went from $234MM to $528MM… (MarineMax has not provided details about the IGY Marina acquisition, but this increment in goodwill seems they overpaid it)

Despite the acquisition, its net debt is $238MM, less than 1x EBITDA

MarineMax reduced its 2023 guidance from a range of $7.90- $8.40 to $6.90 to $7.40. And AEBITDA of $275 million to $300 million. This is the result of two factors, Softness in new boat registration and inventory building

Some notes from the Conference call

IGY team in discussions concerning several potential growth opportunities (we feel that they want to grow this segment more than the traditional one)

The acquisition of Midcoast Marine group (a full-service marine construction company) is because they are looking to build its marina + waterfront real estate in Florida (Tarpon Springs) – This is related with their ambition to grow the Marinas segment. It would depend of the money & resources they need, but we love this idea

From a supply chain perspective, there has been a clear improvement in smaller products (they say that this is the type of inventory building they have). They say they will reduce inventories through 2023… (We believe that in this environment this is not going to be easy and need to be monitored) 

They are investing in tech to provide a better customer experience (launch of New Wave and acquisition of Boatzon). They emphasised a lot the investment they are doing in tech.

They talk several times about the difficult environment but they expect to maintain a gross margin in the mid-’30s

There has never been securitization in marine retail loans (just for curiosity)

They are in several negotiations at the moment for future M&A opportunities (not only dealers but also Marine related business) – again, we think they will grow in both but the weight of the marina business will grow in their portfolio.

Our thoughts about MarineMax and OneWater Marine

We think that the key aspects are the decline in unit sales (around 25%), especially in small boats and the inventory building (which makes them pay higher financing costs).

It seems that they want to develop their Marina business, not only with M&A opportunities for IGY but also by building its marines (the reason why they acquired Midcoast Marine Group). We believe that it would bring stable cash flows to the company and can be an interesting opportunity. But we would need detailed figures to model it. We would intend to obtain when we analyse deeply the Marina part of the company. Something that we will do for sure in the future as we like a lot the infrastructure business and we want to gain a better understanding of MarineMax

In terms of OneWater Marine, we should take into consideration not only the unit sales decline but also the interest expenses associated with inventory building. The average price per boat is considerably cheaper in OneWater Marine than in MarineMax, so it could be even more impacted. Also, its balance sheet is not as healthy as the one of MarineMax. However, this decline is nothing but expected (OneWater Marine analysis) and OneWater usually performs better in terms of Same Store Sales than MarineMax does. We will need to watch carefully the FCF and where they are using it. As they announced that the pace of M&A would be reduced drastically. (OneWater Marine presents its 1Q23 results on 2nd February)

We continue believing that Consumer Discretionary will perform well in terms of the stock market as inflation is easing. Nevertheless, the main street business is going to be impacted and we need to closely monitor our picks