West Marine 3Q Earnings

On October 25th, West Marine reported 3Q earnings. For the quarter, the company earned $0.15 of EPS on revenue of almost $192M. EPS fell shy of the Wall Street consensus and our estimate by $0.02. Sales slightly beat the Wall Street consensus but missed our forecast by $0.95M. Had the company’s tax rate not been unusually high due to a lack of deductions in Puerto Rico (and related changes in accruals), 3Q EPS would have beaten the consensus by a penny. Unfortunately, a 47.8% tax rate ensured a miss. (West Marine has historically not been a tax-efficient business, often facing an effective quarterly tax rate greater than 40%. Still, the almost 48% tax rate was a surprise.)

Gross margin was stable y/y at 28.9% of revenue. SG&A rose 60 bps y/y, to 25% of sales as selling and store depreciation expenditures more than offset slightly lower compensation. Also note that the 0.2% increase in comps was generated by e-commerce purchases picked up at retail locations, not from organic in-store sales growth. Thus, West Marine stores are also serving as e-commerce distribution centers in addition to traditional retail locations. We expect this trend to continue across the sporting goods retail sector.