Executive Summary / Key Takeaways

• OneWater Marine (NASDAQ:ONEW) is a leading recreational marine retailer executing a focused strategy of inventory optimization, brand rationalization, and cost control to outperform a challenging industry backdrop.
• Despite a 1% revenue decrease in Q2 FY2025, the company significantly outpaced the broader marine industry, which saw unit sales decline in excess of 10%, demonstrating market share gains, particularly in the premium segment.
• Gross margins faced pressure in the recent quarter due to strategic pricing on dated inventory and exiting brands, but management anticipates potential modest margin improvement on new boats as inventory normalizes.
• The company updated its fiscal 2025 guidance, forecasting total sales between $1.7 billion and $1.8 billion, same-store sales flat to down low single-digits, Adjusted EBITDA between $65 million and $95 million, and Adjusted EPS between $0.75 and $1.25, reflecting macroeconomic uncertainty and tariff concerns.
• ONEW's strategic focus on high-margin non-boat sales (F&I, Service/Parts/Other) and the growth potential of its Distribution segment, coupled with disciplined M&A and inventory management, are key pillars for navigating current headwinds and positioning for future growth.

Setting the Scene: A Retail Leader in a Fragmented Market

OneWater Marine Inc. stands as one of the largest and fastest-growing recreational marine retailers in the United States. Born from the 2014 combination of Singleton Marine and Legendary Marine, the company has aggressively expanded its footprint, primarily through strategic acquisitions. As of March 31, 2025, ONEW operates a significant network of 98 retail locations, complemented by 9 distribution centers/warehouses and multiple online marketplaces across 19 states. This expansive presence positions ONEW as a market leader in volume sales of premium boats in many of its operating regions, yet it still comprises less than 4% of the highly fragmented national boat dealership market, which numbers around 4,000 dealerships, mostly smaller, local operators.

The company's business model is bifurcated into two key segments: Dealerships and Distribution. The Dealership segment, representing the vast majority of revenue (over 92% for the six months ended March 31, 2025), focuses on the retail sale, brokerage, and service of boats, alongside high-margin ancillary products like finance and insurance (F&I), parts, accessories, and storage. The Distribution segment, though smaller (around 8% of revenue), is strategically important, engaging in the manufacturing, assembly, and distribution of marine-related products to various channels, including OEMs, big box retailers, and direct consumers. This diversification beyond boat sales is a deliberate strategy, as non-boat sales contribute a significantly higher percentage to gross profit (over 40% in recent periods) than their revenue share, providing a more stable, higher-margin revenue stream.

ONEW's strategic journey has been marked by resilience. Having successfully navigated the challenges of the 2007-2009 recession by adapting its model and focusing on diverse revenue streams, the company has more recently faced a market reset following the post-COVID boom. This period has been characterized by demand normalization, pricing pressures, and external shocks like severe weather events. In response, ONEW has sharpened its focus on operational efficiency, inventory control, and strategic portfolio management, leveraging its scale and flexible cost structure to adapt.

A foundational element of ONEW's operational strategy lies in its use of technology, particularly its industry-leading inventory management tools and proprietary service ecosystem. While not a developer of boat manufacturing technology like some peers, ONEW's technological edge is rooted in optimizing its retail and service operations. The internally developed software, reflected as an amortized intangible asset, supports the evaluation and management of inventory across its numerous locations, aiming to improve turns and reduce carrying costs. The proprietary service ecosystem is designed to foster customer loyalty and engagement through bundled services like maintenance and financing, which management believes helps reduce customer acquisition costs and generates more stable cash flow compared to competitors focused solely on manufacturing or transactional sales. However, the company acknowledges it lags behind some manufacturing-focused competitors like Malibu Boats (MBUU) and Brunswick Corporation (BC) in product-level technological innovation, such as engine efficiency or boat design features, which could impact its competitive standing in performance-driven segments.

Recent Performance: Outperforming in a Challenging Market

The fiscal second quarter of 2025, ending March 31, 2025, presented a complex picture for OneWater Marine. Total revenue saw a slight decrease of 1.0% to $483.5 million compared to the prior year quarter. This was primarily driven by a 5.4% decline in new boat sales, reflecting lower unit volumes. However, this was partially offset by robust growth in pre-owned boat sales, which increased by 14.1% to $89.7 million, benefiting from increases in both units sold and average unit price, and a 2.4% increase in service, parts & other sales to $69.3 million. Finance and insurance income also saw a modest increase of 1.9% to $15.0 million, driven by improved penetration rates.

For the six months ended March 31, 2025, total revenue showed a slight increase of 0.8% to $859.3 million. This period saw a 1.9% decrease in new boat sales (due to lower average selling price), more than offset by an 11.1% increase in pre-owned boat sales and a 10.5% increase in finance insurance income. Service, parts & other sales saw a marginal 0.8% increase.

Despite the mixed revenue picture, a key operational highlight was ONEW's continued outperformance relative to the broader industry. Management noted that while industry unit sales were down in excess of 10% in the second quarter, ONEW's same-store sales declined by only 2%. This suggests meaningful market share gains in a contracting market, particularly within the premium segments where ONEW has a strong presence.

Profitability faced headwinds during the quarter. Overall gross profit decreased by 8.3% to $110.4 million for the three months and 8.2% to $194.5 million for the six months ended March 31, 2025. This resulted in a notable contraction in overall gross margin, falling 180 basis points to 22.8% in Q2 and 230 basis points to 22.6% for the six-month period. The primary drivers were pricing pressures on new and pre-owned boats, exacerbated by strategic discounting on select brands the company is in the process of exiting. New boat gross margin specifically declined to 16.2% in Q2 from 18.4% in the prior year. Pre-owned boat gross margin also compressed to 17.7% from 20.2% as the company employed strategic pricing to move inventory. Service, parts & other gross margin saw a slight decrease, attributed to a mix shift towards lower-margin parts.

Operating expenses showed mixed trends. Selling, general and administrative (SG&A) expenses increased by 1.5% to $87.8 million in Q2, primarily due to higher costs associated with boat shows and inflationary pressures on fixed costs, partially offsetting savings from prior restructuring actions. As a percentage of revenue, SG&A increased to 18.2% in Q2 from 17.7%. However, for the six-month period, SG&A dollars increased only marginally (0.4% to $166.9 million), remaining relatively flat as a percentage of revenue (19.4% vs. 19.5%). Depreciation and amortization increased due to investments in intangible assets and property/equipment. Notably, restructuring and impairment charges were significantly lower in the current periods compared to the prior year, which included a large charge related to a comprehensive restructuring plan.

Interest expense related to floor plan financing decreased by 12.0% in Q2 and 11.1% for the six months, benefiting from a decrease in average inventory levels and the impact of interest rate swaps. Despite these efforts, the company reported a net loss of $0.4 million in Q2 2025, an improvement from a $4.5 million net loss in Q2 2024. For the six months, the net loss increased to $14.0 million from $12.5 million. Adjusted EBITDA for Q2 was $17.9 million, down from $28.3 million in the prior year, and $19.8 million for the six months, down from $35.4 million.

Liquidity remains a focus. As of March 31, 2025, total liquidity stood at over $74 million. Inventory levels were $602 million, down from $687 million a year prior, reflecting the company's aggressive inventory management strategy. Total long-term debt was $427 million, resulting in a net leverage of 5.4 times trailing 12 months Adjusted EBITDA. Management is prioritizing leverage reduction in the latter half of fiscal 2025. Net cash used in operating activities improved dramatically, falling to $9.0 million for the six months ended March 31, 2025, from $86.3 million in the prior year, largely due to favorable changes in inventory and receivables.

Strategic Initiatives and Forward Outlook

OneWater's strategy is centered on navigating the current market by focusing on controllable factors and positioning the business for future growth. Key initiatives include:

• Inventory Optimization and Brand Rationalization: The company is aggressively managing inventory, aiming to end fiscal 2025 with levels down 10% to 15% year-over-year. This involves clearing dated inventory (2024 models and older), even with strategic pricing, to make way for interest-free 2025 models. Brand rationalization efforts have been accelerated, with additional brands being exited to focus on a tighter, more productive portfolio centered around premium and key manufacturers. This strategic shift is influenced by higher interest rates and differing levels of innovation among manufacturers. As of March 31, 2025, only 56 units from exiting brands remained out of over 3,000 boats in inventory, a positive sign for future margin potential.
• Cost Management: Ongoing disciplined expense management, including headcount reductions and facility consolidation, continues to align the cost structure with demand. The flexible operating model allows for rapid adjustments as market conditions evolve.
• Acquisition Strategy: While disciplined, ONEW maintains an active M&A pipeline, focusing on opportunistic transactions with minimal capital outlay that meet strategic and financial criteria. Recent acquisitions like American Yacht Group bolster its presence in key markets and expand premium offerings.
• High-Margin Business Focus: Continued emphasis on growing F&I and Service/Parts/Other sales leverages their higher profitability and provides revenue diversification.
• Distribution Segment Growth: Although currently facing headwinds from reduced OEM production, the Distribution segment is expected to benefit as manufacturers eventually increase production, with management estimating a potential 10% sales lift from a 10% increase in OEM production in 2026.

Based on the current macroeconomic environment, including heightened uncertainty and the potential impact of tariffs, OneWater updated its fiscal 2025 guidance. The company now anticipates total sales in the range of $1.7 billion to $1.8 billion, with same-store sales expected to be flat to down low single-digits. Adjusted EBITDA is forecast to be between $65 million and $95 million, and adjusted earnings per diluted share are expected in the range of $0.75 to $1.25. This guidance is set against an industry backdrop that management expects to be down as much as 10% to 15% in unit sales.

Potential tailwinds for the latter half of fiscal 2025 and beyond include continued outperformance of the industry, benefits from right-sized inventory and ongoing cost management, recovery in markets impacted by weather events (like the West Coast of Florida and Texas), growth in the Distribution segment, and the potential for future interest rate reductions to improve financing affordability for customers and reduce floor plan costs. Management is cautiously optimistic about seeing modest gross margin improvement on new boat sales as the inventory of older models is cleared. Management is prioritizing leverage reduction in the latter half of fiscal 2025.

Competitive Landscape and Key Risks

OneWater operates in a dynamic and competitive environment. Its primary public competitors include MarineMax (HZO), Malibu Boats, Brunswick Corporation, and Winnebago Industries (WGO). While ONEW is a significant player, it faces larger, more diversified competitors like BC and HZO, which possess greater scale, potentially leading to lower operating costs per unit and more resilient supply chains. HZO, in particular, is a direct retail peer with a larger footprint and a strong focus on digital innovation, potentially enabling faster order processing and broader market reach. MBUU and BC, primarily manufacturers, compete in boat sales and possess technological advantages in product innovation (e.g., engine efficiency) and R&D speed, areas where ONEW, as a retailer, lags. Winnebago, while diversified, is less specialized in marine retail compared to ONEW.

ONEW's competitive advantages lie in its acquisition-driven network effect, fostering customer loyalty and potentially generating higher recurring revenue from services. Its proprietary service ecosystem and localized branding strategy differentiate it from larger, more centralized competitors. However, ONEW is vulnerable to supply chain dependencies, which can lead to higher costs compared to vertically integrated players or those with more robust logistics. Its relative lag in product-level technological innovation could also be a disadvantage in attracting customers seeking the latest performance features. The fragmented nature of the market, coupled with high interest rates, is putting pressure on smaller, independent dealers, potentially creating acquisition opportunities for ONEW but also intensifying competition on pricing.

Key risks to the investment thesis include:

• Macroeconomic Sensitivity: Demand for recreational boats is discretionary and highly sensitive to general economic conditions, employment levels, consumer confidence, and fuel prices. Heightened uncertainty could further dampen consumer spending.
• Interest Rate Environment: High interest rates increase the cost of financing for customers and significantly increase ONEW's floor plan carrying costs, impacting profitability and potentially suppressing demand. While interest rate swaps mitigate some risk, the overall cost remains elevated.
• Inventory Management: Failure to effectively manage inventory levels and clear dated stock could lead to further margin compression and increased interest expense.
• Supply Chain and Tariffs: Disruptions in the supply chain or increased tariffs on imported boats, components, or parts could increase costs, limit inventory availability, and negatively impact margins and sales, particularly affecting the Distribution segment and the cost of goods sold in the Dealership segment.
• Weather and Seasonality: Adverse weather events (hurricanes, severe storms) can disrupt operations, damage inventory, and reduce demand in affected regions. The business is also highly seasonal, with demand concentrated in warmer months.
• Acquisition Integration: While experienced, the company faces risks in successfully integrating acquired businesses and realizing expected synergies.
• Competition: Intense competition from larger, well-capitalized players and smaller local dealers, coupled with pricing pressures, could impact market share and profitability.

Conclusion

OneWater Marine is navigating a complex and challenging recreational marine market characterized by normalizing demand, pricing pressures, and macroeconomic uncertainty. The company's recent performance reflects these headwinds, with slight revenue declines in the most recent quarter and compressed margins. However, ONEW's ability to significantly outperform the broader industry in unit sales demonstrates its competitive strength and market share gains, validating its strategic positioning and operational execution.

The investment thesis for ONEW hinges on its ability to continue executing its focused strategy: aggressively managing inventory to improve mix and reduce carrying costs, rationalizing brands to concentrate on high-performing premium offerings, maintaining disciplined cost controls, and leveraging its diversified revenue streams, particularly the higher-margin non-boat sales and the potential growth in the Distribution segment. While the updated fiscal 2025 guidance reflects a more cautious outlook influenced by external factors like tariffs and macro uncertainty, it also sets a realistic baseline against a significantly weaker industry forecast. The company's historical resilience, coupled with its proactive strategic adjustments and opportunistic M&A approach, positions it to potentially emerge stronger as market conditions stabilize. Investors should closely monitor ONEW's progress on inventory reduction, margin recovery, expense management, and leverage reduction, as well as the broader trends in consumer demand and the impact of the tariff environment, as these factors will be critical determinants of its performance in the coming quarters.