We said that this print would start to show cracks in the boat supply and demand (im)balance with HZO on its 1Q print, and that’s exactly what we saw. Revenues grew 7.5% with a -1% comp, decelerating from 4Q22, which had 16% growth and an 11% comp. It also had a sizable EPS miss, coming in at $1.24 vs the Street’s expectation of $1.53. Just a few weeks ago management was at ICR and did not preannounce ahead of the event, which is a big credibility ding – either they knew a miss was coming and failed to telegraph it appropriately, or the numbers hadn’t been tallied yet (poor internal oversight?) and management simply didn’t know the magnitude of the miss. The company took down full year EPS by $1 after the Q1 miss. On the conference call management did say there was slight softening in the “little higher segment than in the low end”, but they attributed that to being seasonally related and said that “underlying demand remains healthy”. We don’t buy it. While inventories are up 53%, on the call management said that they are still under inventoried in certain models and certain brands and they aren’t sure when that will be replenished. But any way we cut it, 53% inventory growth is just flat out bearish – it means that they have too much supply of the wrong product. Expenses will be up this year with higher carrying costs of more inventoried stores. This miss and guide down is bearish for ONEW as well – also a Best Idea Short. The boating industry is beginning to roll FAST and it has a long way to fall after being elevated from the last 2 years. As we say in retail, the first guide down is never the last, and we think that earnings still have 50% downside over a TAIL duration – with further downside to 2023 numbers. Even though the stock got shellacked on this miss and guide, we’d be pressing the short for both HZO and ONEW here. We think TAIL earnings for HZO are $2.50-3.50 per share, with this company guiding to ~$7 this year while we think it will be below $4.75. There’s still a long way to go down on this one. 5x $3.00 = 50% downside from current levels. Needless to say, we’re sticking with this one short side. This 12% sell-off was just a point of confirmation in the context of a much bigger short call. Surprising that ONEW only traded off 1% on the news…that one has just as much downside as HZO.
