MarineMax ($HZO): Subjected to Vendors Negotiation Power

HZO, Stocks

MarineMax ($HZO), is the classical example of how the power of suppliers can make it a not so good business. At the end, it is reasonable to think that customers find much more value in the design and quality of the boats/yachts than in where or from whom they are bought. The management of MarineMax argues that they can offer more related services than smaller or local retailers, which it has a point; but still during the reading of their reports, we can see several references to the importance of agreements with the manufacurers.

Apart from the risk of losing the right to sell boats/yachts from one of the most popular manufacturers, the management explicity acknowledges as a risk the discontinuation of the rebates giving by those suppliers. The biggest item in the current assets of the balance sheet, is by much difference the inventory (around 61% at the end of 2019). This can be due to the way the process is agreed, allowing manufacturers to push this investment to the retailers and pressing them as much as they can in order to get financial advantage from it. 

In these cases, we cannot rely on the increase of future margins by the retailers, as these ones will be offset by the manufacturers pressure (either by pushing required investments to their retailers or by increasing their prices).

We don’t see either big entry barrriers to new competitors. It seems the biggest one would be to get the agreement with the suppliers. So again, we see big dependence on them.

Of course, additional services and local marketing can help. But we are not talking about impulse sales, so the buyers will be very motivated for searching local retailers with better prices or models.

Specially, the high inventory levels, made Marinemax to get a ROIC of around 10%. Making it to trade at a multiple below 8 of LTM TEV/EBIT.

The growth in the past has been mainly due to acquisitions of smaller and local retailers. And the plan looks to be the same for the future. The only big difference we have seen in the last month, is among other purchases, the acquisition of small boats manufacturers. Could this be the inflection point and a change in the strategy through a vertical integration. We will have to keep in eye in this possibility in the next months/years.