Absolutely horrible results out of Best Idea Short ONEW (OneWater Marine). The company printed EPS of $0.61 vs the Street at $1.76 – perhaps the biggest miss we’ve seen in retail to date with earnings down 51% yy despite the ‘benefit’ of several acquisitions. Comps were down 14% -- but still meaningfully above 2019 levels. Prices were up in the mid single digits, while same store unit sales were down ~20%. We think price reversion is the next shoe to drop here. Inventory (partially affected by acquisitions) was up 112% (on 9% sales growth). The company noted material changes to customer buying patterns in the quarter. People are waiting for deals to buy, instead of locking in at higher prices due to tight demand. The plus side is that vendors are starting to step up rebates, which could help stabilize gross margin, but we think these rebates will be passed through to the consumer – and then some – to unload excess inventory. Management noted that there could be upside to earnings if interest rates stabilize and consumer confidence improves, but we definitely not going along with that call. Recent boat shows have been a success, but a sale at a boat show is the worst margin sale this company can make. Used boat inventory is increasing – again – not a good read for new or used boat prices. Services and Financing ticked up as a percent of revenue, which is fine. We don’t have a problem with that. Our biggest concern is that this change in behavior in buying boats is a multi-year event, and we don’t think this miss will be the last. Given the magnitude of the miss, we’re going to wait to make the call to press this short until we see how far consensus estimates come down. But with the stock down only 8-9%, its far more expensive today than it was yesterday. We’re still uncomfortable with leverage here, even though the company said it would put a pause button on acquisitions until the macro environment is more clear – probably the most positive thing we heard on the call. We’ll see where the Street’s estimates come in over the next day or two, and will revisit our positioning. But we’d be floored if we see the Street come down to the $3-$4 real underlying earnings power here – its at $8-$9 per share today. A roll up in a highly discretionary business that is over-earning deserved a 5x multiple at best -- getting us about 40-50% downside from current levels. This smells like Sleep Number all over again, which was death by a thousand earnings cuts. More to come in the coming days on this one. For now (and likely post-mortem) it remains a Best Idea Short.
Takeaway: Biggest miss in retail so far. Stock more expensive on the sell-off than it was yesterday. Street unlikely to come down to REAL EPS number.
