Brunswick (BC) Falling Boat Sales Negative for Dealer MarineMax (HZO)

Unusual large buyer of 7,900 October 17.5 puts today for $2.90 to $3.00 offer. Approx $2.3 million put premium bought. Total put open interest in entire option chain is only 145. Heavy action.

HZO is small $452 million recreational boat dealer in the US. The Company engages in the retail sale, brokerage, and service of used boats, motors, trailers, marine parts and accessories and offers slip and storage accommodations in certain locations. Highlights from Q2 earnings released on April 26:

– Q2 EPS $0.10 vs. $0.07 estimate, beat
– Q2 Revenues $200M vs. $191M estimate, beat
– Q2 Same Store Sales +12% YoY
– FY2016 EPS Guidance $0.71 vs. $0.76 estimate, miss

Quarter was fine on the surface with guidance reduced 7% below consensus view. But this was second in series of guidance cut in this space after Brunswick (BC) on April 29 missed on revenues and cut EPS guidance. BC provided dismal outlook with global wholesale shipments to dealers down -6% YoY in Q1 (-1% in the US) and management guided margins down 50 bps for next quarter. Wholesale less than Retail is not unusual in this business during 1H of each year as dealers typically stock product in 2H ahead of many scheduled boat shows. We saw this dynamic played out in 2015 as well. However with -50bps margin guidance and unusually high -6% decline in wholesale compared to history, warrants some attention and raises the question if it is more than just seasonal.

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MarineMax is the Boat group’s largest dealer at ~18% of sales in 2014. The dealer has multiple locations and carries several of Brunswick’s lines, including the Sea Ray line. Any MarineMax-specific issue that causes potentially high Brunswick inventory at its location may delay shipments to the dealer.