The following discussion and analysis is based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and supplementary data in Item 8.

"Safe Harbor" Statement Under Section 21E of the Exchange Act

The statements in this Form 10-K that relate to future plans, events, expectations, objectives or performance (or assumptions underlying such matters) are forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include, among other things, statements that relate to West Marine's future plans, expectations, objectives, performance and similar projections, as well as facts and assumptions underlying these statements or projections. These forward-looking statements, which are included in accordance with the provisions of Section 21E of the Exchange Act, may involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this report. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that actual results will not differ materially from these expectations. These risks, uncertainties and other factors are discussed under risk factors in Item 1A of this report.

Readers are cautioned not to place undue reliance on forward-looking statements, which are based only upon information available as of the date of this report. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Overview

West Marine is one of the largest boating supply retailers in the world with 2008 net revenues of $631.3 million. Net loss in 2008 was $38.8 million, including a $10.7 million pre-tax charge for store closures and other restructuring costs, a $2.9 million non-cash, pre-tax charge for impairment of long-lived assets and the impact of a $23.2 million charge to provide a full valuation allowance against our net deferred tax assets. Our business strategy is to offer an assortment of competitively-priced merchandise for the boat and for the boater that meets the needs of individual boaters and boating businesses, provides great customer experiences and offers the convenience of multi-channel shopping.

We have three reportable segments: Stores; Port Supply; and Direct Sales. Our Stores segment generated approximately 88% of our 2008 net revenues. Our 344 company-owned stores open at the end of 2008 are located in 38 states, Puerto Rico and Canada. In addition, we have one franchised store in Turkey. Our Port Supply segment is one of the largest wholesale distributors of marine equipment in the United States. Products shipped to Port Supply customers directly from our warehouses represented approximately 6% of our 2008 net revenues. Our Direct Sales segment, which includes our Internet and catalog operations, offers customers around the world more than 50,000 products and it accounted for the remaining 6% of our 2008 net revenues.

Our fiscal 2008 financial results reflected continued weakness in revenues stemming from reduced boating activity, and weakness and uncertainty in the economy in general. As we experienced worsening market conditions and lower than expected sales levels early in the year, we announced a series of restructuring and cost reduction initiatives to improve our economic performance in the shorter term, while maintaining our ability to

deliver future growth. We estimate the annualized pre-tax profit improvement resulting from the following restructuring and cost reduction initiatives to be approximately $20 million to $25 million.

• Store closures: We increased our store closures to 32, 24 as part of restructuring activities and eight due to our real estate optimization strategy. Our real estate optimization strategy moves us toward having fewer, larger stores with better economics and a larger footprint to better meet our customers' needs with a broader and more specialized assortment of merchandise.

• Distribution center closure: In 2008, we closed one of our three distribution centers located in Hagerstown, Maryland. The closure of our Maryland distribution center reflected not only our reduced supply chain requirements due to lower sales, but also the improvements we made in managing our inventory. In addition to the operational cost benefits derived from transitioning from three to two distribution centers, we realized a one-time cash savings due to the elimination of duplicate stock levels associated with replenishing goods to our sales channels from this additional location.

• Call center closure: We closed our Largo, Florida call center and transitioned to a new on-line call center technology that allows most of our sales, technical, and customer service associates to work from home, or in what we call our "virtual call center." We do continue to have some call center associates housed in our support center in Watsonville, California. We expect the virtual call center format will provide improved customer service and long-term cost savings.

• Port Supply: We implemented changes in our Port Supply wholesale segment designed to increase profitability, including modifications to our in-store wholesale pricing model, additional account qualification requirements, and a restructuring of our external and internal sales functions, support functions and delivery services.

• Store operations and other support departments: We have continued to focus on re-engineering and simplifying processes, restructuring our internal organizations, and prioritizing activities with a careful eye towards maximizing return-on-investment.

We continue to focus on key initiatives designed to position West Marine for sustained, long-term growth and profitability, and we remain committed to controlling our expense structure.

Results of Operations

The following table sets forth certain income statement components expressed as a percent of net revenues:

                                                     2008       2007       2006
      Net revenues                                   100.0 %    100.0 %    100.0 %
      Cost of goods sold                              73.5 %     71.3 %     71.1 %

      Gross profit                                    26.5 %     28.7 %     28.9 %
      Selling, general and administrative expense     28.0 %     27.6 %     27.4 %
      Goodwill impairment                              0.0 %      8.4 %      0.0 %
      Store closures and other restructuring costs     1.6 %      0.1 %      1.5 %
      Impairment of long-lived assets                  0.5 %      0.1 %      0.6 %

      Loss from operations                            (3.6 %)    (7.5 %)    (0.6 %)
      Interest expense                                 0.4 %      0.6 %      0.9 %

      Loss before income taxes                        (4.0 %)    (8.1 %)    (1.5 %)
      Provision (benefit) for income taxes             2.1 %     (0.7 %)    (0.4 %)

      Net loss                                        (6.1 %)    (7.4 %)    (1.1 %)

Fiscal 2008 Compared with Fiscal 2007

Net revenues for 2008 were $631.3 million, a decrease of 7.1%, compared to net revenues of $679.6 million for 2007. Net loss for 2008 was $38.8 million, which included a $10.7 million pre-tax charge for store closures

and other restructuring costs, a $2.9 million non-cash, pre-tax charge for impairment of long-lived assets and the impact of a $23.2 million charge to provide a full valuation allowance against our net deferred tax assets. This compares to a net loss for 2007 of $50.0 million, which included a $56.9 million non-cash, pre-tax charge for impairment of goodwill, $1.3 million non-cash, pre-tax charge for impairment of long-lived assets and $0.6 million non-cash, pre-tax charge for store closures and other restructuring costs. The year ended January 3, 2009 was a 53-week fiscal period. The impact on our consolidated financial statements of the additional week was immaterial.

Segment revenues

Net revenues for the Stores segment decreased $42.3 million, or 7.1%, to $551.8 million in 2008, primarily due to a $38.2 million, or 6.8%, decrease in comparable store sales and an $18.5 million decrease attributable to store closures in 2007 and 2008. Partially offsetting the sales decreases was an $11.5 million increase from new stores opened in 2007 and 2008. We do not expect improvements in the overall economy for 2009 and we expect sales to decline at roughly the same pace we experienced in 2008. We expect to open a small number of stores in new markets and to close underperforming stores when the economics are favorable. We will also continue to pursue opportunities to consolidate multi-store markets with larger square footage stores.

Port Supply net revenues through our distribution centers decreased $2.2 million, or 5.2%, to $39.5 million in 2008, primarily due to increased revenues to Port Supply customers through our store locations which are included in Stores revenues. Across the Port Supply business (stores and warehouse), we saw lower sales year-over-year to two customer types, boat dealers and boat builders. We believe these customers are being negatively impacted by the challenging economic environment and credit crisis. We expect this decline to continue through fiscal 2009.

Net revenues from our Direct Sales segment decreased $3.9 million, or 8.9%, to $40.0 million, due to decreased revenues from our call center channel. The decrease from the call center channel was partially offset by increased Internet revenues. The overall decline in this segment was driven by lower domestic sales, partially offset by higher sales from some international markets. We do not expect that the international sales growth experienced last year will necessarily continue.

At a fundamental level, we believe that the weakness in the economy has had, and will continue to have, a depressing effect on our revenues, with corresponding risks to our earnings and cash flow. We believe our customer traffic and sales are most closely tied to boat usage, which is a discretionary spending item. As consumers have to make economic tradeoffs, we believe that spending on boating-related activities is being reduced.

There are a number of steps we are taking to respond to lower sales expectations, to ensure orderly management of the business and to preserve our financial strength to survive the current downturn, with the ultimate goal being to maximize opportunities when the marketplace recovers. The common theme has been to reduce expenses and maximize cash flow. Two initiatives through which we are accomplishing this are: the restructuring that was executed in 2008 (e.g., store, distribution center and call center closings, as well as overhead expense reductions) discussed above; and the conservative budget put into place for 2009, which focuses on expense control and cash management designed to deliver positive cash flow, debt reduction and higher inventory turnover despite continued negative sales trends.

Comparable store sales

Comparable store sales for the 53-week period ending January 3, 2009 decreased in 2008 by 6.8%, or $38.2 million, compared to the 52-week period ending December 29, 2007. Comparable store sales changes during the first, second, third and fourth quarters of 2008 were (9.4%), (7.8%) (4.7%) and (5.1%), respectively. As compared to the corresponding 53-week period ended January 5, 2008, comparable store sales decreased 7.6%. The decline in comparable store sales reflects lower sales of higher-priced discretionary items and lower in-store

traffic levels throughout the year. Sales of usage-based products, such as fishing and watersports equipment, declined at a rate greater than the overall comparable store trend, which we believe is indicative of reduced boating activity. The overall comparable store trends were consistent across the country and we do not expect them to improve until there is a general improvement in the economy. We expect consumers to continue to reduce spending on both discretionary and needs-based boating supplies and anticipate that comparable store sales decline in 2009 will be greater than 2008.

Gross profit

Gross profit decreased by $27.4 million, or 14.1%, to $167.4 million in 2008, compared to $194.9 million for 2007. Gross profit decreased primarily due to lower sales. Gross profit as a percentage of net revenues decreased to 26.5% in 2008, a decrease of 220 basis points compared to 28.7% in 2007. Gross profit was lower as a percentage of revenues by 75 basis points due to occupancy expense. Occupancy is our largest fixed expense and its impact on gross margin is largely driven by sales results and the fixed nature of the expense. Vendor allowances de-leveraged, down 69 basis points, because of the reduced purchases for 2008 in line with lower sales and reduced inventory. Buying and distribution also contributed to the decline as a percentage of revenues, down 40 basis points.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $10.4 million, or 5.6%, to $176.8 million in 2008, compared to $187.2 million for 2007 and increased as a percentage of revenues to 28.0% in 2008, a 40 basis point increase, compared to 27.6% in 2007. The impact of expense controls implemented in 2008, combined with lower variable expenses driven by lower revenues, resulted in a $7.8 million decrease. Decreased expenses associated with stores closed in 2008 drove a further $3.4 million reduction. Expenses were also lower due to lower management bonuses with a year-over-year reduction of $1.9 million in 2008 and $1.3 million paid to our former chief executive officer as severance compensation in fiscal 2007. Lower expenses were partially offset by $2.8 million in unfavorable foreign currency translation adjustments.

Store closure and other restructuring costs

In 2008, we anticipated closing a small number of stores, which we originally estimated to be in the range of 10 to 15 locations. These closures were primarily due to relocation, or consolidation of smaller stores into fewer, larger stores to better serve our markets. During the second quarter of fiscal 2008, we conducted a more detailed analysis of store operations, particularly in light of deteriorating boating market conditions, and concluded that additional underperforming stores should be closed. During the year we closed 32 stores spread across several major boating markets. These stores were identified as having no reasonable expectation of significant positive cash flow over the near term. During the third quarter of 2008, as part of the business restructuring effort, management decided to close our distribution center located in Hagerstown, Maryland, and our call center located in Largo, Florida. We recognized restructuring expenses of $10.7 million consisting of $6.9 million for store closures, $0.1 million for Port Supply, $2.9 million for the distribution center, $0.5 million for the call center, and severance costs of $0.3 million for reductions in force at our Watsonville, California support center. For additional information, see Note 3 to our consolidated financial statements.

Impairment of long-lived assets

Impairment of long-lived assets was $2.9 million in fiscal 2008, compared to $1.3 million impairment charges for 2007. The impairment was primarily due to 45 impaired stores. The 2007 impairment charge of $1.3 million was for impairment of store and information technology assets.

Interest expense

Interest expense decreased $1.6 million, or 41.0%, to $2.3 million in 2008, compared to $4.0 million in 2007. The decrease in interest expense was due to both lower interest rates and lower average outstanding bank borrowings in fiscal 2008, compared to fiscal 2007.

Income taxes

Our effective income tax rate for 2008 was a provision of 53.5%, compared to a benefit of 9.2% in 2007. The change in our effective tax rate was due to management's decision to establish a full valuation allowance of $23.2 million on the net deferred tax assets. For more information, see Note 8 to our consolidated financial statements.

Fiscal 2007 Compared with Fiscal 2006

Net revenues for 2007 were $679.6 million, compared to net revenues of $716.6 million for 2006. Net loss for 2007 was $50.0 million, including a $56.9 million pre-tax, charge for goodwill impairment, compared to a net loss for 2006 of $7.6 million, including a $10.9 million pre-tax, charge for store closures and other restructuring costs and a $4.6 million pre-tax charge for impairment of long-lived assets.

Segment revenues

Net revenues for the Stores segment decreased $35.8 million, or 5.7%, to $594.1 million in 2007, primarily due to a $23.1 million revenue decline attributable to the closure of certain underperforming stores during 2006 and an $11.4 million decrease in comparable store sales. Additionally, revenues declined $5.0 million due to stores closed in 2007 and $3.3 million due to our reduced participation in events outside of store locations. Partially offsetting the revenue decreases was a $6.1 million increase from new stores opened in 2007. Port Supply revenues through our distribution centers decreased $1.9 million, or 4.3%, to $41.6 million in 2007, primarily due to increased revenues to Port Supply customers through our store locations, which are included in Stores sales. Net revenues of our Direct Sales segment increased $0.6 million, or 1.4%, to $43.8 million, due to $2.0 million in increased revenues from our Internet channel. The increase from the Internet channel was partially offset by reduced call center revenues.

Comparable store sales

Comparable store sales decreased in 2007 by 1.9%, or $11.4 million. Comparable store sales changes during the first, second, third and fourth quarters of 2007 were (2.1%), (2.9%), 0.3% and (3.0%), respectively. The decline in comparable store sales reflects the softer sales of higher-priced discretionary items and lower in-store traffic levels extending into the peak part of the boating season, which we believe is indicative of reduced boat usage. These trends were particularly evident in Florida, which is a key boating market.

Gross profit

Gross profit decreased by $12.3 million, or 5.9%, to $194.9 million in 2007, compared to $207.2 million for 2006. Gross profit as a percentage of net revenues decreased to 28.7% in 2007, a decrease of 20 basis points compared to 28.9% in 2006. Gross profit as a percentage of revenues decreased primarily due to occupancy expense. Occupancy is our largest fixed expense and its impact on gross margin is largely driven by revenue results, and while occupancy expense decreased $2.5 million, or 3.6%, the fixed nature of the expense deleveraged gross margin by 13 basis points due to the year-over-year decline in revenues.

Selling, general and administrative expenses

Selling, general and administrative expense decreased by $8.8 million, or 4.5%, compared to 2006 and increased as a percentage of revenues to 27.6% in 2007, a 20 basis point increase, compared to 27.4% in 2006.

The full year impact of the expense reductions associated with the 2006 store closure initiative, as well as other expense controls implemented in 2007, contributed 100 basis points toward improved selling, general and administrative expense. These expense improvements were partially offset by expenses of $2.7 million associated with the ongoing SEC investigation and $1.3 million paid to our former chief executive officer as severance compensation.

Goodwill impairment

We updated our analysis and evaluation of goodwill for possible impairment as of December 29, 2007 due to fourth quarter changes in future cash flow expectations, market values of guideline companies and other factors used for impairment testing. We re-tested goodwill and determined that the carrying amount of its net assets exceeded fair value. As a result, we recorded a non-cash impairment charge related to goodwill of $56.9 million in the fourth quarter of fiscal 2007, and as of fiscal year end, we had no goodwill on the balance sheet. For more information, see Note 1 to our consolidated financial statements.

Store closure and other restructuring costs

Store closure and other restructuring costs decreased by $10.3 million to $0.6 million in fiscal 2007, compared to $10.9 million for fiscal 2006. In 2006, we closed 35 stores, including 33 underperforming stores that we had identified as having no reasonable expectation of significant positive cash flow over the near term. Additionally, we consolidated most call center operations in our Largo, Florida facility. In 2007, we reevaluated the facility closing costs for four stores of the 33 underperforming stores closed in 2006 because we were continuing to fulfill lease payment obligations and were not successful in subleasing locations in the timeframe we originally anticipated. For more information, see Note 3 to our consolidated financial statements.

Impairment of long-lived assets

Impairment of long-lived assets was $1.3 million in the fiscal 2007, compared to $4.6 million impairment for fiscal 2006. In 2006, we incurred a non-cash charge of $4.6 million for store assets whose carrying value was greater than their expected undiscounted future cash flows; offset by a $1.1 million deferred rent adjustment, for a net impairment charge of $3.5 million.

Interest expense

Interest expense decreased $2.4 million, or 38.2%, to $4.0 million in 2007, compared to $6.4 million in 2006. The decrease in interest expense was primarily due to lower inventory levels than the prior year which drove reduced bank borrowings.

Income taxes

Our effective income tax rate for 2007 was a benefit of 9.2%, compared to a benefit of 29.2% in 2006. The lower benefit rate in 2007 was primarily attributable to the non-deductible portion of goodwill impairment changes, which reduced tax benefits by $14.1 million. In addition, during 2007 we recorded valuation allowances against our California enterprise zone credit and state net operating loss carryforwards of $3.6 million and $0.8 million, respectively.

Liquidity and Capital Resources

We ended 2008 with $7.5 million of cash, an increase from $6.1 million at the end of 2007. Working capital, the excess of current assets over current liabilities, decreased to $183.2 million at the end of 2008, compared with $207.7 million at the end of 2007. The decrease in working capital was primarily driven by lower inventory year-over-year of $25.7 million. Neither our access to, nor the value of, our cash equivalents has been materially affected by the recent liquidity problems of financial institutions.

Our cash needs for working capital are supported by a secured credit facility. There is risk to this capital resource stemming from current market conditions in that the amount we have available to borrow under our loan agreement primarily is driven by the estimated liquidation value of our inventory. External factors, such as increased liquidations and bankruptcies in the marketplace, could put downward pressure on this liquidation value and thus our associated borrowing availability. However, we are taking steps to mitigate this risk. First, we are focusing on maximizing cash flow and minimizing borrowing needs. We expect to accomplish this by: (i) increasing inventory turnover, which will require lower working capital to maintain fresh and adequate inventory at our stores; (ii) continuing to focus on expense control, including continual re-engineering efforts to simplify and streamline administrative, inventory and other business processes, and to shrink or eliminate overhead costs as and when necessary or appropriate; and (iii) reducing capital spending and concentrating on investments with a demonstrable financial return. Second, we are improving the quality of our inventory by reducing the proportion of overstocked or discontinued goods. Third, we are maintaining frequent communications with our lenders to keep them apprised of our business plans and to monitor their ability to fund their loan commitment.

Recent economic credit conditions have worsened and the pricing of debt under our existing credit facility may be favorable compared to the current market. If renegotiated today, we believe our pricing could worsen by up to 200 basis points and result in an incremental increase in interest charges. Such an incremental charge would not have a material impact on our consolidated financial statements.

Operating activities

During 2008, our primary source of liquidity was cash flow from operations. Net cash provided by operating activities was $20.6 million primarily due to a $22.4 million decrease in merchandise inventories due to lower purchases. The lower inventory purchases were because of lower revenues and our focus on better overall inventory management and correct product assortment in each store based on customer demographics. This was partially offset by lower accounts payable of $8.3 million, again due to lower inventory purchases, and by lower accrued expenses of $5.5 million driven by timing of accrued payroll year-over-year.

Capital growth

In 2008, we spent $14.9 million on capital expenditures, mainly for new stores, store remodels, information technology and investment in supply chain efficiencies. We opened four new stores and remodeled six stores in 2008. During 2009, we expect a modest reduction in capital expenditures from the level in fiscal 2008, and we expect 2009 capital expenditures will mainly be for store development activities, including new stores, store remodels and expansions, and information technology. We intend to fund our expansion through cash generated from operations and bank borrowings.

Financing arrangements

Net cash used in financing activities was $4.5 million in 2008, primarily consisting of $5.3 million in net repayments on our line of credit, partially offset by $0.8 million in cash provided by financing activities related to associate share-based compensation plans.

We have a credit facility for up to $225.0 million that expires in December 2010. Borrowing availability is based on a percentage of our inventory (excluding capitalized indirect costs) and certain accounts receivable. At our option, subject to certain conditions and restrictions, our loan agreement provides up to $25.0 million in additional financing during the term. The credit facility is guaranteed by our subsidiaries and is secured by a security interest in all of our accounts receivable and inventory and that of our subsidiaries, certain other assets related thereto, and all proceeds thereof. The credit facility includes a $50.0 million sub-facility available for the issuance of commercial and stand-by letters of credit. The credit facility also includes a sub-limit of up to $20.0 million for same day advances.

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