This Marine Biz Hit a Record Gross Margin Last Quarter. Is the Stock a Buy?

MarineMax (HZO -0.07%) released earnings late last month, delivering a record gross margin and substantial top-line results for its fiscal second quarter (ended March 31). However, same-store sales dropped 13% during the period as consumer confidence stuttered.

Let's scrutinize MarineMax's Q2 performance and future outlook to determine whether it's time to buy the dip on this consumer discretionary stock.

A return to seasonality for the boating industry

Declaring itself "the world's largest lifestyle retailer of recreational boats and yachts, as well as yacht concierge and superyacht services," MarineMax serves many segments of the boating industry. From manufacturing and selling yachts to providing luxury yacht charters, the Clearwater, Florida-based company owns 78 dealerships and 57 marinas worldwide.

MarineMax's second-quarter revenue sank 7% year over year, landing at $570 million. The aforementioned 13% drop in same-store sales was the main culprit, stoked largely by what MarineMax CEO Brett McGill described as "the boating industry's return to seasonality amid growing macroeconomic uncertainty." 

But it's crucial to keep last quarter's revenue drop in context. 2022 was by all accounts a banner year for both MarineMax and the boating industry, which benefited from "a confluence of factors," according to McGill. As dealer boat inventories return to normal levels, interest rates rise, and consumers use more discretion (compared with 2022), boat sellers can expect things to return to a more seasonal pattern. 

Although MarineMax's Q2 2023 revenue of $570 million fell 7% from 2022's record $610 million in Q2, it marked an 88% jump over 2019's Q2 revenue of $304 million. When compared to pre-pandemic revenue performance, 2023's Q2 result doesn't look as bad.

In fact, last quarter's $570 million marked MarineMax's second-best second-quarter revenue ever.

Record gross margin in Q2

Following a slow start to the year, MarineMax's sales crept up throughout fiscal Q2. During the earnings call last month, CFO Michael McLamb stated, "It's worth noting that same-store sales were down in January, improved in February, and they were positive in March."

In addition to boat and yacht sales improving throughout the quarter, MarineMax's marina business also performed well. IGY Marinas, which MarineMax acquired in October of 2022, is "exceeding expectations," according to McLamb. IGY comprises 23 luxury marinas in fetching destinations the world over, spanning 12 countries in total.

Aside from IGY Marinas, MarineMax's other higher-margin revenue streams include its superyacht brokerage, charter, and concierge services, which all performed well last quarter. 

Fueled chiefly by IGY Marinas' impressive performance, MarineMax set a new second-quarter gross margin record of 35.2%. However, excluding IGY's contribution, last quarter's gross margin would have actually fallen slightly versus the prior year. According to McLamb, this indicates that product margins have remained "relatively healthy." 

The boating lifestyle is in demand

It's clear from last month's earnings call that while MarineMax feels confident in the long-term fortitude of the business, a questionable economic climate could impact performance in the near term. McGill affirmed that based on recent digital traffic, turnout at customer events, marina business, and boat show visitation, "the demand for the boating lifestyle remains very strong." 

But despite touting the "underlying strength of the business," McGill also announced the reduction of MarineMax's full-year adjusted EBITDA guidance -- from $275 million-$300 million to $220 million-$245 million. A combination of year-to-date performance and mounting macroeconomic uncertainty led to the company's decision.  

Is MarineMax stock a buy?

Although the company expects its product margin to be pressured by rising industry inventories and higher selling, general, and administrative expenses, it also anticipates IGY Marinas to keep performing strongly. 

As the world resets from the COVID-19 shakeup, MarineMax's diversified business should keep it healthy in the long term. However, short-term headwinds such as an economic downturn could slow progress this year. Therefore, I wouldn't call MarineMax stock a buy in today's market. 

As McGill put it, "While the industry buying cycle is looking different than it was over the past couple of years, what's abundantly clear is that the passion for being on the water has never been stronger than it is today."

Although MarineMax doesn't scream "buy" today, it is worth adding to your watch list. I think the company is poised to grow with the industry in general, which is expected to grow at an annual rate of more than 5% through 2030.