I’ve been vocally bearish on MarineMax (NYSE:HZO) since the stock popped to $23 on good earnings some months ago. In two articles, dated 7th and 21st of May respectively, I argued that:
b) The luxury boating market wouldn’t revert to previous levels, as proposed by slide decks from management.
Both were long term and incremental thesis unlikely to show themselves in a vicious price drop of HZO. My attention was therefore caught by the recent news from Brunswick regarding their Sea Ray line, which sent HZO stock tumbling 20% from the 18th of June till the time of writing (the 1st of June).
To be perfectly clear, my two hypothesis had nothing to do with, or predicted, a drop from this event. While the event had been public since December 2017, I had simply been too much of a laggard to do the proper legwork when initially reading about the potential sale of the Sea Ray business in the 10-K.
The event moved the stock closer to levels I had previously outlined as fair value, but the key question then becomes: How did the event change the fair value of the stock as previously outlined.
To answer this question, we must understand the event, how else it could have played out, what the effects will be, and what other information can be gleaned.
Sea Ray Won’t Be Divested, But Yachts Are Gone
On the 25th of June, 2018, Brunswick (BC) announced that they had ended the sales process for Sea Ray (a brand that makes up ~10% of sales).
The bidding process had not yielded a buyer willing to offer enough. To quote the CEO of Brunswick, Mark Schwabero:
Although there was interest in the business, the offers we received did not reflect an appropriate value for this premium brand, and did not meet our expectations. – source.
The reason for the “improper valuation”? According to Schwabero it was “largely due to the persistently weak financial performance of the yacht product category.”
As a result Brunswick decided to not divest Sea Ray, but simply discontinue sport yachts and yacht models. Brunswick will fire 825 employees and wind down production by the 3rd quarter.
Direct Financial Impact Will Be Material, But Manageable
According to a press release from the 29th, the majority of Sea Ray sales originated with MarineMax. HZO contributed between 50-55% of Sea Ray’s total sales. MarineMax was less reliant on Sea Ray, but still had
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