The company's profits increased 81 percent to $5.3 million, or 24 cents a share, for the quarter ended Sept. 29, compared to $2.9 million, or 14 cents a share, for the same period last year.
Profits for the third quarter last year included a $1.5 million pre-tax charge for store closure costs.
"Despite continuing challenges arising from lower boat usage and boating market softness, the company has reported earnings progress year over year," CEO Peter Harris said in a statement. "This growth reflects the results of continuing improvements in store merchandise assortments, store teams focused on customer service and steps to reduce costs."
Sales were $187.5 million, a decrease of 4.1 percent from sales of $195.6 million for the same period a year ago. The Watsonville, Calif.-based boating supplies retailer operated 372 stores during the third quarter of 2007, compared to 402 during the third quarter of 2006.
Company officials are revising the 2007 earnings guidance downward to be in the range of 14 cents to 18 cents a share. The previously issued 2007 guidance range was 24 cents to 34 cents a share. The company also projects sales for the year will be between $681 million and $684 million, compared to earlier projections of $683 million to $688 million.
"The changes we are seeing are mostly related to the quantity of boating activity," Harris said in a conference call today. "People are going out less often . choosing not to buy discretionary items."
Harris said today the company has received an "informal" inquiry from the Securities Exchange Commission about its restatement of prior years' earnings. He says the company is not accused of wrongdoing, but he estimates the company will spend $1 million in legal and administrative costs this year related to the inquiry.
Harris says the company has noticed a slowdown in purchases of high-ticket items, as consumers adjust their expenses during challenging economic times. As a result, the company offers more lower-priced items, which cost more to distribute.
"At a higher expense, we are processing more merchandise through our distribution centers to stores as we distribute more lower-priced merchandise to achieve the same sales, and keep store shelves more full for customers," Harris said.
He adds the company is focusing on fewer, but larger stores. The company will close up to 18 stores this year, but many will be replaced by building larger stores. The company expects to open nine stores by the end of the year.
Harris says sales results vary dramatically by geographic area, local economic conditions, seasonality and changing customer needs and wants. Harris said sales have been sluggish in parts of Florida, and strong in the Northeast, where most areas have enjoyed unseasonably warm weather that extended the boating season.
He says the company will continue to invest in promotions, "inventory freshness" and pricing to maintain a strong long-term market position. Port Supply store sales, the company's wholesale division, remain strong and are at a lower margin than sales directly to boaters, he said.
