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West Marine Reports Second Quarter 2017 Results


WATSONVILLE, Calif,, Aug. 07, 2017 (GLOBE NEWSWIRE) -- West Marine, Inc. (NASDAQ:WMAR) today reported financial results for the second quarter ended July 1, 2017. Second quarter 2017 net revenues were $247.2 million, a decrease of 1.7% compared to the same period last year. Comparable store sales were down 1.2%. Pre-tax income was $36.0 million, compared to $36.4 million last year in the comparable period. The company incurred expenses in the quarter of $1.4 million associated with the pending merger transaction described below and recorded a $0.6 million charge related to the reclassification of accumulated foreign currency translation balances to selling, general and administrative expense as a result of cessation of operations in Canada. These charges were partially offset by a $1.1 million credit related to a supplier refund for prior year over-billing. Adjusting for these unique events, the company improved second quarter pre-tax profit by $0.7 million. Earnings per share were $0.84, compared with $0.86 per share in the same period last year. Adjusted for the previously-mentioned, one-time expenses and credit, earnings per share were $0.86 per share.

Results for the Second Quarter of 2017

Net revenues for the quarter ended July 1, 2017 decreased by $4.4 million, or 1.7%, to $247.2 million compared to $251.6 million for the quarter ended July 2, 2016.  The decrease reflects net closures of retail stores and lower comparable store sales.  

Gross margin improved to 36.5%, compared to 35.5% during the same period in 2016. Lower promotional and clearance activity along with lower professional sales as a percentage of total revenue resulted in the improved margin. Selling, general and administrative expense increased year-over-year by $1.4 million, primarily due to $1.4 million of Merger-related expenses.

Net income for the second quarter was $21.2 million, or $0.84 per share, compared to net income of $21.6 million, or $0.86 per share, for the second quarter of 2016.

Inventory at the end of the second quarter was $243.4 million, down $10.2 million compared to the same period in 2016. As of July 1, 2017, the company had cash and cash equivalents totaling $113.3 million compared to $89.6 million at the same point in 2016.

Year-to-Date Results

Net revenues for the six months ended July 1, 2017 decreased by $5.7 million, or 1.5%, to $376.3 million compared to $382.0 million for the six months ended July 2, 2016.  The decrease reflects net closures of retail stores and lower comparable store sales. 

Gross margin improved to 32.7%, compared to 32.0% during the same period in 2016. Lower promotional and clearance activity along with lower professional sales as a percentage of total revenue resulted in the improved margin. Selling, general and administrative expense decreased year-over-year by $1.7 million, inclusive of $1.5 million of Merger-related expenses.

Net income for the first six months was $14.0 million, or $0.55 per share, compared to net income of $12.5 million, or $0.50 per share, for the first six months of 2016.

Pending Merger Transaction

As previously reported, the company and affiliates of Monomoy Capital Partners, a New York-based private equity fund ("Monomoy"), have entered into a definitive merger agreement (the "Merger Agreement") pursuant to which a wholly-owned subsidiary of Monomoy will merge with and into West Marine, with West Marine as the surviving corporation in the merger (the "Merger"). Under the Merger Agreement, West Marine stockholders, other than those who do not vote in favor of the Merger and perfect their statutory appraisal right under Delaware law, will receive $12.97 per share in cash, which represents a total equity value of approximately $338 million. This price represents a premium of approximately 34.4% closing price of our common stock reported on the NASDAQ Global Select Market on June 29, 2017, the last full trading day before the entering into of the Merger Agreement, and approximately 31.7% over the average closing price of West Marine's common stock reported on NASDAQ for the trading days during the 30-day period ended on June 29, 2017.

The company was granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), by the Federal Trade Commission on July 25, 2017. The early termination of the HSR waiting period satisfies one of the conditions to the proposed Merger. Closing of the transaction remains subject to other closing conditions, including the affirmative vote in favor of the Merger by holders of a majority of the Company's outstanding common stock and other customary closing conditions. It is anticipated that the special meeting of the Company's stockholders to vote on the Merger will be held in the third quarter of this year and, if the transaction is approved, the Merger would be expected to close shortly thereafter. For more information regarding the proposed transaction with Monomoy, see the Form 8-K filed by the company on June 30, 2017 and the copy of the Merger Agreement filed as Exhibit 2.1 to this report. 

The company will not host a conference call to discuss second quarter 2017 results and does not plan to do so for future quarters while the transaction with Monomoy is pending. Pursuant to the Merger Agreement, the company has suspended payment of cash dividends. 

About West Marine

Each person has a unique connection to the water. At West Marine ( (NASDAQ:WMAR), our knowledge, enthusiasm and products prepare waterlife adventurers to foster that connection and explore their passions. With 248 stores located in 37 states and Puerto Rico, an eCommerce website reaching domestic and international customers and a wholesale business for our professional customers, West Marine is recognized as a leading Waterlife Outfitter for cruisers, sailors, anglers and paddlesports enthusiasts. Since first opening our doors in 1968, West Marine associates continue to share the same love for the water as our customers and provide helpful advice on the gear and gadgets our customers need to be safe and have fun.

Special Note Regarding Forward-Looking Statements

This press release includes "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995), including statements that are predictive or express expectations that depend on future events or conditions that involve risks and uncertainties. Among other risks and uncertainties, there can be no guarantee that the Merger will be consummated, or if it is consummated, that it will close within the anticipated time frame. Additional risks and uncertainties relating to the Merger include: the company may be unable to obtain the approval of the company stockholders required for the Merger; other conditions to the closing may not be satisfied or waived; the Merger may involve unexpected costs, liabilities or delays; the company's business may suffer as a result of uncertainty surrounding the proposed Merger, including due to disruption of current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction; the outcome of any legal proceedings related to the proposed transaction; and the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement. Other risks and uncertainties include, among other things, expectations that our growth strategies will continue to drive profitability and improve margins, expectations related to our ability to manage costs, as well as facts and assumptions underlying these expectations, and the risk factors set forth in West Marine's annual report on Form 10-K for the fiscal year ended December 31, 2016. 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 Information

This release references certain financial information not calculated in accordance with accounting principles generally accepted in the United States ("GAAP"), including EBITDA and earnings per share adjusted for certain one-time events that occurred during the quarter, including expenses related to the pending Merger. We believe EBITDA provides a helpful picture of the operating performance of the business by eliminating the effects of depreciation and interest expense and adjusted earnings per share is helpful by adjusting for expenses associated with the potential Merger, a currency translation adjustment charge related to cessation of our Canadian operations and a credit from a supplier for prior year overbilling. EBITDA and adjusted earnings per share are not measures of financial performance under GAAP and may not be defined and calculated by other companies in the same manner. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management has reconciled these non-GAAP financial measures to the most directly comparable GAAP financial measures in the tables set forth below. For more information, see our Current Report on Form 8-K filed August 7, 2017.


West Marine, Inc.          
Condensed Consolidated Balance Sheets        
(Unaudited and in thousands, except share data)        
          July 1, 2017   July 2, 2016  
Current assets:            
  Cash and cash equivalents   $ 113,271     $ 89,551    
  Trade receivables, net     10,341       10,649    
  Merchandise inventories, net   243,408       253,635    
  Other current assets     21,378       19,686    
    Total current assets     388,398       373,521    
  Property and equipment, net   77,832       80,508    
  Long-term deferred income taxes   3,718       4,017    
  Other assets       4,431       4,501    
TOTAL ASSETS     $ 474,379     $ 462,547    
  Current liabilities:          
  Accounts payable   $ 73,172     $ 77,186    
  Accrued payroll     15,532       16,879    
  Accrued expenses and other   41,331       37,243    
    Total current liabilities     130,035       131,308    
  Deferred rent and other     20,609       18,193    
    Total liabilities     150,644       149,501    
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; 25,967,831 shares issued and 25,278,942
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