OneWater Marine Inc. (NASDAQ:ONEW) is one of the largest and fastest-growing marine retailers in the United States, with 95 dealerships, 10 distribution centers/warehouses, and multiple online marketplaces as of March 31, 2023. The company's dealer groups are strategically located within highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic, and Northeast, many of which are in the top twenty states for marine retail expenditures.

Business Overview

OneWater's business model is centered around the sale of new and pre-owned boats, as well as the provision of related products and services, including finance & insurance and service, parts & other sales. The company's acquisitions of T-H Marine Supplies, LLC and Ocean Bio-Chem, LLC have significantly expanded its sales of marine parts and accessories, further diversifying its revenue streams.

Financials

For the fiscal year ended September 30, 2023, OneWater reported annual revenue of $1,936,310,000 and a net loss of $38,592,000. The company's annual operating cash flow was -$129,760,000, and its annual free cash flow was -$153,834,000. These financial results reflected the challenges the company faced in the broader marine industry during the year.

In the third quarter of fiscal 2023, OneWater's revenue decreased by 8.7% to $542.44 million, compared to $594.34 million in the same period of the prior year. New boat sales declined by 10% to $333.16 million, while pre-owned boat sales decreased by 4% to $106.89 million. The decrease in boat sales was primarily due to softness in the retail environment and the adverse impact of severe weather in Texas, one of the company's key markets.

Revenue from service, parts & other sales for the quarter decreased by 8.4% to $84.46 million, largely due to reduced parts and accessory sales to original equipment manufacturers in response to industry-wide elevated inventory levels. However, the company's Dealership segment service, parts & other sales remained solid when factoring out recent dispositions. Finance and insurance revenue decreased by 5.8% to $17.93 million in the third quarter, but was slightly higher as a percentage of total boat sales.

Gross profit for the third quarter decreased by 17% to $133 million, driven by the continued normalization of gross margins on boats sold. Sequentially, gross profit margins declined by 20 basis points, in line with the company's expectations. Third-quarter selling, general, and administrative expenses decreased by 6.2% to $87 million, primarily due to previous cost reduction actions, ongoing expense management, and lower personnel costs.

Operating income for the quarter decreased to $40 million from $60 million in the prior-year period, and adjusted EBITDA was $39 million compared to $62 million. Net income for the fiscal third quarter totaled $17 million, or $0.99 per diluted share, compared to net income of $33 million, or $1.95 per diluted share, in the same quarter of the previous year. Adjusted earnings per diluted share was $1.05 compared to $2.15 in the prior-year period.

Liquidity

OneWater's balance sheet remained strong, with total liquidity in excess of $60 million as of June 30, 2023, including $41 million in cash and additional availability under its credit facilities. Total inventory on June 30, 2023, was $599 million, down from $687 million at March 31, 2023, as the company focused on proactively matching inventory levels with market demand.

Outlook

Recognizing the challenging market conditions, OneWater updated its fiscal 2023 guidance. The company expected its unit sales and same-store sales to be down in the mid-single digits, compared to its previous expectation of low-to-mid single-digit growth. Accordingly, the company expected adjusted EBITDA to be in the range of $90 million to $100 million and adjusted earnings per diluted share to be in the range of $1.50 to $2.

Recent Developments

Despite the lower guidance, OneWater remained focused on factors within its control, including strategic inventory management and proactive cost optimization. The company had implemented a number of cost-cutting initiatives and was beginning to realize the benefits, with its flexible cost structure enabling it to accelerate these actions as necessary.

Looking ahead, OneWater was encouraged by the turnaround it had seen in July, with sales trending flat to slightly up. The company believed its outperformance of industry sales trends, right-sized inventory, ongoing expense management, the recovery of the Texas market, and green shoots in the Distribution segment as OEMs increased production, combined with a potential reduction in interest rates, should provide tailwinds as it navigated into fiscal 2024.

OneWater's management team remained patient and experienced, and the company continued to prioritize thoughtful capital allocation and maintain appropriate levels of leverage while evaluating strategic opportunities to support the long-term viability of the business. The company believed that acquisitional growth remained a key part of its story, and it would pursue the right deals when the timing, price, and strategic fit were aligned with its objectives.

Conclusion

OneWater Marine navigated a dynamic retail environment with a focus on strategic inventory management, proactive cost optimization, and a commitment to serving its customers. While the company faced challenges in the third quarter, it appeared positioned to potentially outperform the industry and position itself for profitable growth in the years ahead. Investors should carefully consider the risks and potential rewards associated with the company's strategy and market position.