Introduction to OneWater Marine $ONEW
OneWater Marine $ONEW is one of the fastest-growing recreational boat dealers in the US. They have doubled their number of stores in the last 5 years (
We like the company and published an investment thesis a few weeks ago. The main reason is that it is a serial acquired in a very fragmented and growing industry. Moreover, the industry has structural issues (succession) which we believe will allow $ONEW to implement its strategy for the foreseeable future.
It has a presence in 20 states of the United States and in four segments. New Boats, Pre-owned boats, Finance & Insurance (commission from 3º party) and parts & accessories & repairs & maintenance.
OneWater Marine 4Q22 and FY22 results
Before starting, we should remember that the $ONEW fiscal year finishes on 30th September. Consequently, it has just published its 4Q22 and FY22 reports.
OneWater Marine closed its best fiscal year in history. It increased its revenue by 42% to $1.74Bn. The gross profit margin reached 31.7%. Adjusted EBITDA increased by 59% to $248MM and net income increased by 31% to $153MM.
Furthermore, $ONEW has continued executing its strategy and completed eight acquisitions plus two more than are still pending to close. It is noteworthy to highlight the acquisition of T-H-Marine at the beginning of FY22 expanded considerably the service and part segment. This segment has the highest margins and has trebled this year. We also see that T-H-Marine has lower margins than the rest of the parts & services segment. Since it became part of $ONEW, the gross margin of this segment has diminished considerably (graph below). Although it remains considerably higher than the rest of
Specifically, in the 4Q22, the results have not been as good as expected. These three months are usually the weakest of the year. $ONEW has increased considerably its revenues (22%) but it has not increased its net earnings (flat compared to last year). Moreover, because of the increase in shares (used in acquisitions), the EPS have diminished from $1.38 to $1.28.
Same-Store-Sales increased
Comments about the $ONEW 4Q22 results
The impact of the Hurricane Ian ($25MM impact in sales and around $2MM impact in costs) plus the impact of higher interest expenses which have risen considerably in the last year (6.85MM vs 1.5MM comparing 4Q22 vs 4Q21) have heavily impacted the bottom line in this last quarter of the year.
Moreover, SG&A expenses continue going up as a consequence of new acquisitions plus the need for higher incentives due to the current labour market environment. However, it remains in the same proportion of revenues as this quarter one year ago. (20.0% vs 19.8% – this quarter usually is the one with the highest ratio)
On the positive side, Same-Store-Sales have grown again this quarter (4%). It makes a 12% increment in FY22 vs the 4% of the industry on average.
The service & parts segment along with the Finance & Insurance represent 37% of the Gross profit of OneWater Marine vs 26% one year ago. This is a key milestone as these two segments are the ones with the highest margins. And also are less dependent on the economic cycle. The acquisition of T-H-Marine at the beginning of this fiscal year for $185MM has been transformative for $ONEW in this aspect.
Inventory on hand covers around 11 weeks vs 16 of the industry. This is low compared with pre-covid levels of 20-22 weeks. It is slowly normalising.
In summary, the top line continues growing due to the acquisitions plus the Same-Store-Sales growth even with all problems that the industry is facing. It is expected to continue like that in the foreseeable future. OneWater Marine has room to grow thanks to the synergies of all the stores acquired in FY22. However, the gross margin is expected to diminish next year due to the normalisation of prices. Also, the bottom line is also expected to be impacted due to the amount of debt. $ONEW has to watch carefully the debt. Because of the increment in the interest rates and the elevated number of acquisitions (funded mainly with debt), interest expense is 4 times what it was last year.
Comments about the industry situation
Players in the industry expect demand to continue being strong, especially in the higher boat segment. Although they expect headwinds in gross margins, mainly due to
Supply chain issues are relaxing and it is expected that the situation come back to normal in 2024. Especially in the case of premium and larger products which are in shorter supply than any other segment. The
Regarding inventory of pre-used boats, there is a risk that it increases in the coming quarters due to the fact that the number of first-time buyers has skyrocketed in the last two years. As it is happening in other pre-used items industries in the last months. We should think that around 30-40% of these first-time buyers leave the industry in the first 5 years.
Lastly, Hurricane Ian has heavily impacted Florida. Florida is the most important state in this industry as we commented in our investment thesis. It caused a delay of a considerable amount of sales in this quarter. Some of them will be recovered in this 1Q23. Furthermore, it is expected that the boat damaged during the Hurricane will be substituted by new ones in the coming quarters.
Thoughts about OneWater Marine
OneWater Marine results in this 4Q22, along with the rest of the sector is showing resilience in this macroeconomic situation. Even with the supply chain issues, the industry is facing. We expect this supply chain situation to normalise as well as the higher margins that the industry has obtained in this FY22.
Nevertheless, the company’s guidance for FY23 points to $250-260MM EBITDA, EPS $9.25-9.75 and a low single-digit increase in Same-Store-Sales. They are usually quite conservative with these numbers (last year’s guidance was about $6 EPS) and it positively surprised us. Maybe they are influenced by the good start of the year when they stated that the commercial activity has been quite high. Or the effect of the delayed sales + impact of Hurricane Ian. Either way, if they managed to reach its guidance, the surge in share price could be astonishing, as we think that the market does believe that the revenues are going to be heavily impacted by the recession. Proof of that is that $ONEW is trading at 3.5 PE.
We like the company a lot. We believe that even being more conservative than the $ONEW guidance, the company will be a compounder in the coming years. At the same time, we are also aware of the difficulties that $ONEW can face in the short term
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