MarineMax Shareholders' Stockings are Likely to be Empty this Holiday Season per Island Capital Group
Today, Island Capital Group released a fourth letter to shareholders of MarineMax (NYSE:HZO) outlining several key areas where the company is falling short. The full text of the letter follows:
December 4, 2024
Dear MarineMax Shareholders,
I am dismayed to report that following MarineMax, Inc.'s (NYSE:HZO) ("MarineMax" or the "Company") 2024 fiscal year-end conference call held on Halloween, shareholders were rewarded with more tricks than treats. The fiscal 2024 results and 2025 guidance presented by management during its conference call were beyond disappointing. On October 26, 2023, management provided fiscal 2024 Adjusted EBITDA guidance at a midpoint of $238 million but ultimately delivered a mere $160 million. This is a 33% miss compared to the Company's initial guidance. MarineMax provided fiscal 2025 Adjusted EBITDA guidance in the range of $150 million to $180 million. At the midpoint of $165 million, this amounts to a paltry 3% improvement over fiscal 2024 results, which is especially disappointing in light of the assumed full year benefit of cost-cutting initiatives announced in 2024.
As you know, the IGY transaction was completed during MarineMax's 2023 fiscal year and management stated that the transaction would provide significant growth opportunities, enhanced balance sheet flexibility and reduced business cyclicality. If the midpoint of guidance is achieved in fiscal year 2025, then the Company's three-year trend in Adjusted EBITDA from fiscal 2023 would be $240 million, $160 million and $165 million. It is clear that MarineMax's single largest acquisition has not created a meaningful positive change in its earnings trajectory.
In addition to MarineMax's weak earnings and guidance, its balance sheet has deteriorated as inventory levels continue to climb. The traditional selling season did not result in the typical destocking of inventory levels, which contributed to the Company's weak fiscal 2025 guidance. Keep in mind, these headwinds have come during periods of economic strength. Although an economic downturn may not be anyone's forecast in the short-term, the protracted recovery in boat sales, as indicated by the Company's guidance, increases the risk that a weak economic environment shows its face before the industry stabilizes. Continued promotional activity undermines the value of used boats, which creates a negative feedback loop in the industry. Meanwhile, increasing borrowing costs for the Company's floor plan financing continue to weigh on Adjusted EBITDA.
The magnitude of the retail boat business and its issues dwarfs the YMRS Business1, which helps explain why the market does not view MarineMax on a "sum of the parts" basis. On its October 31, 2024 earnings call, management referred to the Company's healthy 34% gross margin reflecting the performance of the YMRS Business and other assets, but these assets have not created any shareholder value under its ownership. As a result, MarineMax's Adjusted EBITDA multiple is lower than that of the Company's public market comparable, OneWater Marine Inc. (NYSE:ONEW), despite ONEW producing a meaningfully lower gross margin. It is clear that the public markets are not differentiating the Company's high-margin businesses from its retail boat business, resulting in a massive misallocation of capital from these acquisitions.
With weak guidance for fiscal 2025, it's difficult to see any reason for the stock price to increase absent a meaningful value-unlocking transaction. A full or partial disposition of the YMRS Business would, we believe, unlock the value trapped within the Company by monetizing these assets at a double-digit EBITDA multiple, as compared to the Company's current mid-single-digit multiple. Furthermore, the significant cash proceeds from this transaction could be utilized in a variety of accretive initiatives as outlined by the Company in its last several quarterly investor presentations (most recently on page 17), including:
- Executing growth initiatives – The core retail boat business is experiencing a cyclical trough and less well capitalized participants could be available for consolidation.
- Repurchasing stock – Shrinking the Company's share count during a period of weaker earnings would be accretive to shareholders when the eventual recovery in the retail boat business is realized.
- Reducing debt – Lowering the Company's debt load would increase financial flexibility.
I firmly believe that shareholders would support a transaction for the YMRS Business. During the Company's ownership, this business has neither altered the Company's earnings trajectory in a positive way nor changed the Company's trading multiple relative to its public peer. A separation of this business would immediately unlock meaningful value for MarineMax shareholders.
I encourage all shareholders to voice their opinions to MarineMax's management team and board of directors in support of a proposal to monetize the YMRS Business at a double-digit multiple.
Thank you,
Andrew L. Farkas
Managing Member, Chairman & CEO
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