Q2 2021 Winnebago Industries Inc Earnings Call
Quality innovation and service and everything we do.
And lastly, a win win partnership mentality with our valued dealer network to create and sustain strong consumer demand for our leading portfolio of outdoor products.
While we havent out and we've been active via acquisitions and the last four plus years fiscal year 2021 quarter. Two represents a truly organic year over year comparison in total performance.
The second quarter of fiscal year 2020 was the first full quarter in which new Mars luxury motor home line was included in our World class portfolio.
One year later, we continue to nurture the tremendous appeal of Newmar is growing product lineup and its relentless focus on craftsmanship and quality and customer care.
Our collective enterprise results and the second quarter of fiscal year 2021, validate a strong complete full line RV strategy is now in place here at our company and premium organic portfolio of RV brands are positioned to compete vigorously in the years ahead.
Now there is a distinct strategic cause and effect linkage between our premium brands, our golden threads of quality innovation and service and the strong financial results that are being shared with all of you today.
Differentiation and strong value can drive sustained market and financial performance that is and will always be our goal. Additionally, our team's ability to navigate constantly challenging environments related to component cost and availability is on display through our numbers as well.
We took and will take actions to ensure our pricing reflects both the surging demand for our premium brands, but.
But also the input cost inflation that is expected in the coming quarters.
Our ability to sell products at attractive margins and continued low levels of discounting seen across the RV industry contributed to our profitability performance in the quarter and continues to reinforce our brand strength with dealers and in consumers.
And as importantly, our enterprise wide commitment to operational excellence productivity continuous improvement strategic sourcing et cetera was also a significant driver of our performance and resulted in strong second quarter profitability.
As a result, our consolidated second quarter gross margin of 18, 6% represents an increase of 590 basis points versus last year.
We are passionate about driving operational leverage within the business and maximizing the return from our current assets our manufacturing processes are running daily at peak levels as the supply chain allows and executing against and increasingly robust order backlog to replenish as quickly as per.
Hospital inventories for our dealer partners.
The shift we made and the back half of fiscal year 2020 to fully build to confirm dealer order production and our Winnebago branded RV businesses continues to serve us well in terms of profitability and working capital management.
While demand driven supply chain challenges regularly impact our production, particularly in class a motorhomes and we will constantly work with our supply partners to manage any future disruptions as best we can.
Our Q2 results demonstrate the supply network is assisting and incredible year over year production volume increases and.
And for that we are appreciative, maintaining gratefulness and context.
But we also continue to be restrained from hidden for manufacturing and potential given almost daily component availability challenges.
Quarter, two loss and net sales due to sourcing constraints was easily eight figures across the portfolio.
And that revenue opportunity remains inherent in our potential as we transition into quarter three.
The third major driver of our fiscal year 2021 second quarter performance was sustained strong consumer demand for our products, both as wholesale appetite from our dealers, but especially at retail within consumers.
We are not seeing any significant decline and retail momentum and outdoor product demand as we turn into the spring 2021 selling season.
Ssi and results are often a lagging and incomplete barometer of the retail health in the industry.
And our company's retail numbers and the first 232 to three weeks of March have actually shown sustained strength and even and uptick in certain categories.
The RV and marine industry have succeeded and comping effectively over a somewhat normal pre pandemic period in early calendar 2020.
And the next three months of 2021 March through May, which is our quarter three and we'll see strong retail and wholesale comparisons versus a period of intense marketplace disruption a year ago.
Throughout the pandemic, we have proven our resilience and ability to execute during difficult macroeconomic and large scale health crisis conditions, just as Winnebago industries has continued to expand our reach during other challenging periods and our history.
Currently we are experiencing a flattening of seasonality at wholesale and at retail our calendar 2021 January and February retail sales were similar to our November and December performance underscoring that even through the typically slower winter months and consumers are excited about.
Our brands and intent on securing the product they need to have extraordinary experiences with family and friends. This summer.
The strong demand undercurrent, we're seeing presently has meaningful implications on our business now as well as over the long term.
Welcoming new entrance to the outdoor lifestyle allows winnebago industries and the opportunity to capture significant customer lifetime value that our portfolio provides first time buyers of both motor homes and totals tend to gravitate towards value models by delivering our golden threads of quality.
<unk> and service as well as the breadth of premium products for families to grow into overtime. We are cultivating a broad growing pipeline of Winnebago industries consumers as they upgrade on average every three to five euros, when and staying within the lifestyle.
Before turning the call over to Bryan we wanted to and knowledge. The fact that it has been just over one year since the COVID-19 pandemic changed just about everything in terms of how we live and the U S.
The past 12 months have been marked by heartbreak and grief caused by the deadly virus.
Theres been a call for unity, and a deeply divided nation and and overdue reckoning on widespread ratio and our quality.
As we continue to persevere and grow our business. We have also made it a priority to enhance and advance our corporate responsibility efforts and ensure that our company has the resources infrastructure and commitment to be a valued partner to the communities and which Winnebago industries stakeholders.
Live work and play.
With that initial overview I will turn the call over to Winnebago industries, Chief Financial Officer, Bryan Hughes. Thanks.
Thanks, Mike and good morning, everyone.
Second quarter consolidated revenues were a record $839 9 million, which is an increase of 34% compared to $626 8 million for the fiscal 2020 period, driven as Mike noted by strong consumer demand for Winnebago industries, great brands.
As Newmont operations were fully included in our fiscal 2022nd quarter, we will no longer be speaking to reported versus organic sales as it relates to newmar for our quarterly results.
As a reminder, 100% of Newmar is reported and the results of our motor home segment.
We achieved another period of very strong profitability and the second quarter of fiscal 2021 gross profit margin increased 590 basis points to 18, 6%, while adjusted EBITDA margin increased 570 basis points to 12, 9% compared to <unk>.
Seven 2% for the fiscal 2020 period.
Similar to our fiscal 2021, and Q1 performance. This significant margin expansion was driven by favorable pricing, including lower discounts and allowances and productivity initiatives operating leverage approximating 200 to 250 basis points and.
And segment mix.
Reported earnings per diluted share were a record $2 and <unk>.
Compared to reported earnings per diluted share of <unk> 51, and the same period last year.
Adjusted earnings per diluted share were likewise, a record at $2 12, and the second quarter for an increase of 216% compared to the same quarter and fiscal 2020.
Adjusted EBITDA was 108 million for the quarter compared to $45 4 million last year, which is an increase of 138%.
The increases in both adjusted earnings per diluted share and adjusted EBITDA were driven by strong unit growth pricing actions and productivity initiatives, most notably in the motor home segment.
Now I will turn on our to our.
<unk> performance.
And with total.
Revenues for the total segment were $439 3 million for the second quarter up 55% over the prior year driven by elevated consumer demand across the total portfolio.
Winnebago industries and unit share and the North American <unk> market continues to grow as Sharon and trailing three month basis through January 2021 was 12, 4% or an increase of 80 basis points over the same period last year.
Segment, adjusted EBITDA was $62 4 million up 79, 5% over the prior year period.
Adjusted EBITDA margin of 14, 2% increased 190 basis points, primarily due to favorable pricing and operating leverage.
Next let's turn to our motor homes segment.
And the second quarter revenues for the motor home segment were $382 6 million up 17, 5% from the prior year driven by increased unit sales and our class B and class C products.
Compared to the same period last year second quarter class B unit sales were up 24, 5% while class B products were up a very robust 81%.
Class B market share continues to be strong as evidenced by our rolling three month retail unit market share of 45, 7% through January of 2021.
Similar to last quarter, our <unk> business continues to be challenged by supply issues that are more pronounced relative to our other RV businesses due to the more specialized supplier base that serves this high and business unit.
We estimate the revenue impact to be in the tens of millions of dollars through Q2 year to date.
Segment, adjusted EBITDA was $51 million up 241% from the prior year <unk>.
Adjusted EBITDA margin increased 870 basis points over the prior year to 13, 3% driven by our ongoing focus on operational and efficiency, including the transition to a build the dealer order business model and the Winnebago branded motorhomes business as well and several other operating improvements and lean.
And initiatives that our business has pursued over the past several years.
In addition to pricing actions to ensure our pricing is commensurate with market dynamics.
And also operating leverage.
While we continue to anticipate inflationary pressures and remain conscious of competition that may impact our net price in the equation as well as continued supply chain challenges. We are encouraged by another quarter of sustained improvement to our margin in this segment.
As we have stated previously we continue to expect to achieve a level of sustained profitability that is notably above the 4% to 5% EBITDA yield we've delivered in this segment for the past several years.
We are pleased to see this meaningful improvement and progress against our strategic focus on restoring leadership and our motor home segment.
Now turning to the balance sheet.
Continuing the trend from Q1, our leverage ratio net debt to adjusted EBITDA continuing to decline and is now 1.0 time, which is towards the lower end of our targeted range of 0.9% to one five times.
Driven by both strong EBIT degeneration, and lower net debt due to the increase in cash balance is now $333 million.
Total liquidity, including our untapped ABL is now in excess of 500 million.
Cash flow from operations was a healthy $66 9 million for the first half of fiscal 2021.
Working capital remains slightly elevated due to the inconsistent supply chain delivery, but we continue to expect further improvements in this area in the coming quarters.
Our effective tax rate increased to 23, 4% for the first six months ended February 27, 2021 from 21% for the same period last year, primarily due to consistent year over year credit over higher current year pretax income and favorable R&D.
Discrete items in fiscal 2020.
For the full year, we currently expect our tax rate to approximate 23.5% to 24%, including all discrete or I'm, sorry, excluding all discrete items from year to date results and those that may occur and the remainder of the year.
Our capital allocation priorities remain consistent with those communicated in the past investing and our businesses to drive organic growth.
Executing strategic expansion to our portfolio through M&A.
Maintaining a strong liquidity position manner.
Managing our leverage ratio within our targeted range and returning cash to shareholders.
During the second quarter, we paid a dividend of <unk> 12 per share on January 27, 2021, and our board of directors just approved a quarterly cash dividend of <unk> 12 per share payable on April 27th 2021.
That concludes my review of our quarterly financial and with that I will now turn the call back to Mike to provide some closing comments.
Thanks, very much Bryan.
Before we open the call to questions I want to touch efficiently on three topics.
One our estimates for RV industry retail and wholesale performance in fiscal year 2021.
To our thoughts on the probable length of the RV field inventory replenishment cycle and steps, we're taking to expand capacity.
And three recent progress and want to beg of industries on important corporate responsibility priorities.
And our fiscal 2021, which is September of 2020 through August of 2021, we.
We believe RV industry retail.
Will grow and the mid to upper single digits.
While industry wholesale shipments and that same period will grow approximately 40% to 45%.
Quarter three March through May for our company industry retail should be especially strong given the comparisons versus 2020.
But quarter for for our organization June through August industry, retail will see and more challenging comparison environment due to record breaking bounce back RV retail last summer.
It is always our intention over the long term for Winnebago industries retail pace to exceed that of the industry. Please.
Please note that our fiscal industry wholesale shipment projection considers it aligns with the RV industry Association calendar year, 2021 industry midpoint forecast of approximately 533000 units or plus 24% a forecast which we.
And support.
Our most recent field inventory reports early here in quarter, three continued to show low field inventory levels, and Winnebago industries, RV and marine businesses.
Depending on the brand or the product category field inventory is anywhere between 20% lower than a year ago to 60% lower.
While many of the dealers we visit with regularly have a desire to run their operations at a higher turn level and the future than that of the pre pandemic days.
They are many many many months from reaching that targeted turn rate.
We anticipate that unless there is unexpected severe disruption too.
And our own or the industries retail performance due to macroeconomic or health developments that it will take through our entire fiscal year 2022 to have most of our businesses and a more normal retail to wholesale replenishment status.
To support this drive to replenish field inventory, we are actively pursuing and executing several capacity expansion projects within our company, which will position our organization well for future market share gain opportunities.
Some investments are organic and do not require the addition or expansion of square footage or overhead while other projects will necessitate a physical increase and infrastructure.
Each RV and marine business unit here at Winnebago industries has active capacity expansion efforts underway, we will not share details for competitive reasons.
Physical Assembly line extensions and standing up new lines and existing buildings, adding vertical manufacturing space and capacity constructing new assembly buildings shifting product lines and mix within our existing lines and facility.
Along with online productivity and lean initiatives that reduce waste and improve output rates. Each of these are active today across our portfolio.
Multiple eight figures of capital is being invested currently and will likely continue well into fiscal year 2022, and our financial results should gradually showed the benefit of these investments each quarter.
Earlier this month Winnebago industries announced we are expanding our long standing partnership with the National Park Foundation funding, a new initiative to create more equitable outdoor spaces by connecting women and outdoor enthusiasts of color with meaningful career opportunities and national parks.
Initiatives like these are not only demonstrative of our enterprise brand Tag line.
Be great outdoors.
But enable us to support our communities and meaningful ways that enhance the long term sustainability of our business.
In addition to pursuing external social initiatives. We also are focused internally on responsible governance just last week, we announced the appointment of two new members to our board of directors, Jacqueline Woods, and Kevin and Brian for and deep professional active experiences and differentiated value and skill sets that will.
Help when a bagel industries continue along its strong transformational path of growth and innovation.
Both Jacqueline and Kevin have extensive experience and building an inclusive high performing teams that are market focused we look forward to their input and guidance as Winnebago industries continues to strategically progressed into a more competitive diverse and profitable outdoor lifestyle company.
Looking forward to the second half of fiscal 2021, Winnebago industries remains committed to advancing our core values and our operations and our communities executing on our strategy capitalizing on opportunities created by favorable market dynamics and innovating to sustain the unique appeal of our products with <unk>.
Tumors.
That concludes our prepared remarks. This morning. Thank you for your time today, and we hope you and your families are staying safe and healthy.
I will now turn the line back over to the operator to facilitate the taking of questions.
Thank you and now.
Sorry reminder, to ask a question you will need to press star one on your telephone to withdraw your question on price per pound our cash.
Please standby, while we compile the Q&A roster.
Our first question comes from Scott Sanborn with C. L King.
Good morning, guys. Thanks for taking my questions and congrats on a great quarter. Thanks, Scott Good morning.
Maybe can we just dig into the motorized side it sounds as if.
Most of the revenue shortfall with not all of it was related to new more could you maybe just dig into that a little bit more on the last quarter, we talked about it.
And be the timeline on how long that takes to get revenue and then on the core.
Class eight business in particular.
Bryan could you talk about how theyre doing and retail and.
That's it thanks.
Yes. Good morning, Scott This is Mike specific to the class a.
Comments, we made and our prepared remarks, you are correct.
And the sense that most of the supply chain constraints affecting optimize shipment performance are happening in the Newmar business.
That's not to say they are exclusively.
And new bar, but most of the supply chain constraints on <unk>.
Class A's are definitely affecting the newmar business.
That is and active.
Situation every day during.
During our last earnings call, we had foreshadowed that we hope to resolve most of this.
Within probably the next 90 days it appears that it's going to take a little bit longer to work with our suppliers.
To manage through some of the constraints and several different component categories. The.
The business inherently is performing Newmar, specifically is performing well at retail.
And we are pleased by the results, we're seeing and the field from a retail standpoint.
But it is important that we get our dealers under the Newmar brand more inventory than they have today.
Specific to Winnebago branded motorized performance at retail.
Those results are also positive.
They are definitely weighted towards the class B segment, where.
On the Winnebago brand continues to have strong market share, but has also introduced several innovative products here recently I E. The solus that continued to generate strong consumer demand.
We are very excited in quarter three about the launch of our new class C product the echo, which has been introduced to the consumers and our dealers for several months now.
Order generation on the Echo has been very strong and we anticipate in quarter three and you will start seeing shipment impact from the echo and ultimately we believe strongly that our class C. Retail results will continue to move and a more positive direction because of that product and other improvements.
Okay.
Got it and then staying with motorized regarding profitability and the 13, 3% I think Bruce.
Eye-popping, obviously and way more than most of us expected.
When you talk about your comments about being way above the low to mid single digits over the past.
And just talk about how sustainable this level is that we're seeing right now and this low to mid teen range.
Yes, Scott this is Bryan us because we've talked about on the call. There's there's several things.
<unk> <unk>.
Strong profitability pricing.
Certainly notable.
The operating leverage from the growth, we cited and Ah.
Couple of instances the productivity improvements through the lean initiatives.
And also from a percentage standpoint.
<unk> mix impact.
And when you're looking at margin improvement improvement, that's what I'm, referring to their mix when you're looking at a dollar impact not as big of a driver right, but from a percentage standpoint, it is because our class b.
Growth there is helping our margin so several things that are contributing to it the sustainability.
As the fair question that we often get.
The comment that.
The 4% to 5% that we have had historically and this margin and you've been around us for many years. So you know the historical level of profitability we've seen here.
And that we expect notable improvements versus that 4% to 5%.
We also pointed out that the margin improvement for.
Operating leverage.
And that 200 to 250 basis point.
Range, So we're giving some clues as to some of the drivers here and we feel good about the improvements that we're seeing and Mike just noted a couple of them to the product line and think of the health of the product line will certainly be contributing factor here, but.
But also several of these productivity improvements that we've cited are also sustainable in terms of our go forward margin. So while we don't provide a breakdown between pricing and.
Productivity improvements and product mix et cetera.
The comments that we're making provide some some guidance as to the.
The inability of that margin improvement and where it's coming from.
Got it that was very helpful I'll jump back into the queue. Thank you.
Thanks Scott.
Our next question comes from Ali to win and then with Baird.
And gentlemen, thanks for taking my question.
You mentioned on the call briefly and we expected input costs and placement in coming quarters can you talk about that and a bit more detail on how you expect to management and your ability to pass any of those cost increases on.
Yes, good morning.
Bryan again, I'll address that one and Mike.
Jumped in with anything for.
Further we do not believe that inflation has been a meaningful component and our year to date results either Q1 or Q2.
Certainly rumblings across many industries of inflationary pressures.
Seeing some on the commodity space.
And we're certainly <unk>.
Accelerated by some of the freeze across the south net effects.
Important commodities to us.
All that said, we work very closely with our supplier partners to identify where those pressures might be.
We feel that from a strategic standpoint, the relationship we've built with our supply network.
Are a differentiator in the industry and we feel good about that.
Relationship building that we've done and it helps us to manage through situations like this and a proactive manner.
Those inflationary pressures.
Ideally you worked through them with your suppliers to the extent that we can't we do intend to price.
To offset those inflationary pressures the market certainly supports our product line in that manner, and so we will use pricing where necessary to make sure that we.
Offset any kind of inflation that we're going to see in the coming quarters, but we do expect to be clear and we do expect greater pressures in the coming quarters.
Compared to what we've experienced year to date.
Great. That's helpful. And then just between Tim and the supply chain issues and and components that youre dealing with and.
And the rapid pace of growth what are the Winnebago brand and to ensure quality standards are maintained through this period.
Yeah. Thank you Alex this is Mike.
First a comment on the supply chain.
I want to make sure we have a balanced message. This morning, I believe and quarter, two and Steve Correct me, if I'm wrong, but I believe and quarter two we shipped 49% more units to the market and we did in quarter, two and year ago.
And that's just an astounding result from our teams and there is absolutely no way, we would have been able to accomplish that increase and.
Wholesale output without tremendous support from our supplier partners and suppliers have been working just as hard if not harder than the Oems to stay ahead of our forecast and the demand.
So the constraints are still real but they are really preventing us from reaching our potential.
In that regard. So your question was specifically around product quality.
Each of our businesses has their own distinct quality teams and operations and processes within their businesses.
Really we think about quality and many dimensions.
Product design is an important aspect of that certainly what you do on assembly supplier quality is important and then we also do a lot of inspections post assembly and our ship out areas. We also have on enterprise.
Quality team that is there to support the business quality teams as as desire.
Our teams have been keeping and very close contact.
With the suppliers on a regular basis and while we don't inspect every part that comes into our facilities. We have several processes inherent to our assembly operations, but also early warning signs within our warranty and a day.
Dealer service processes that give us an early indicator.
And we're seeing something that.
Is of concern.
It's a great question because part of our DNA is certainly to have products with high quality.
<unk> and its something our team has been talking about and actively working on regularly.
Great. Thanks, Mike that's all for me.
Thank you. Our next question is from Garrick Johnson with BMO capital.
Great. Thank you and good morning, guys Steve.
And I had a question on the chassis availability on both sides of the business I mean, obviously components can be worked around but you can't build kind of chassis for how does that look.
Good morning, Eric chassis availability has has been very steady.
Yes.
And this environment nothing is perfect.
Our team does manage.
Certain chassis availability problems from time to time.
But I would I would tell you we are pleased with our motorized chassis suppliers generally with how they have worked hard to keep up with increasing demand both within the Winnebago, but also the newmar brands.
Our supply chain constraints have been more related and those businesses two components.
Versus the actual chassis and as you might imagine chassis or some of the longer lead time.
Components subsystems, and our bill of materials, and so we give our chassis manufacturers long range forecast based on what we believe our demand will be and work with them. Many many months in advance to understand what they can.
Provide us there has been a lot of chatter around the auto industry being affected.
By sort of the chips and semi conductor shortage around the globe, we have not seen a significant impact to our chassis.
Of that specific issue, but we are in daily contact with the chassis manufacturers in the event that they see that particular topic begin to affect our chassis platforms, but to date Eric.
It's been it's been pretty reliable.
Okay, great and thank you and just one more if I may.
And you are talking about price increases and puts and.
Strong demand and so on a like for like basis.
And talk about what kind of increases youre implementing on price.
And it really varies across the board Gary.
Pricing power that we have recently been able to display and our Winnebago motorized business is almost exclusively tied to the innovative and differentiated products that we've been bringing out.
And you know some of those like the rebel.
And we've talked about here with the new product coming to market this quarter of the echo.
When you design and bring to market innovative differentiated product that hopefully resonates with consumers and and all indications are that many of those products well.
We've been we've been pricing to market not pricing to cost, which maybe was a pass habit of previous regimes.
So I can't give you a number per se that is more standard or average.
I'll tell you is our teams are turning towards.
And model year 2022.
Some businesses are starting that transition and other businesses are a couple of months away from that.
And they are discussing pricing.
Changes that are probably somewhere in those low single digits.
And as Brian's inflation comments were.
Lifted and put on the table here, we will we will be agile and adjust pricing strategies as needed. If we begin to see commodity or component inflation rise higher than what we believe it will be for model year 2022.
But our teams are planning.
As usually a price increase but <unk>.
A little bit higher going into model year 2022, because of some of the inflationary risk that we see and the next probably six to 12 months.
Okay, great. Thank you Michael.
Thank you. Our next question comes from Mike Swartz with Teresa acuity.
Hey, guys good morning.
And just maybe a higher level question and I know youre, not giving guidance, but when we look at the $2 12 and earnings and in the second quarter I think there's a question out there just around is that kind of a sustainable rate of earnings that we should be kind of factoring in over the coming quarters into the backlog.
It really starts to come down I know theres, some puts and takes but maybe just walk us through that and your views around around that.
Yes, I think Mike first of all good morning.
We are very pleased with the results you've seen in the past several quarters, especially the first two quarters here in fiscal 2021, and I think it would be fair to say that youre seeing a trend towards stronger sustained profitability in the business.
I think we've noted a couple themes this morning that.
Would make me a bit nervous to give you a stronger guidance for the supply chain challenges continue to be present, and so thats, one inflationary pressures as Bryan talked about as two and there is always a potential lag between.
The cost impact you.
You have and potentially your ability to price for that.
And then product mix I would tell you for an example, if you look at the motorized segment.
Our inability to ship class a product to the level that we desire almost exclusively related to supply chain constraints is probably benefiting our gross margin per.
Performance and that business from a yield standpoint, our class II products are inherently for us not as profitable as class B products. As one example, and so as that class eight business hopefully begins to come back with less constraints at assembly and the next two to three quarters.
You may see a mix impact due to.
Some shifts there, but I believe you are you are seeing a trend on unprofitability, Mike that we believe is.
Sustainable, but as we've as we've talked of the environment is still dynamic enough that <unk>.
Two quarters are identically alike. They just aren't right now.
And.
So thats I guess thats, what we can share with you this morning.
That's very helpful. Thank you for that and then just maybe from the consumer demand standpoint.
A lot of the talk is.
And first time and younger buyers getting into the market since the pandemic, maybe give us a sense of if you're seeing any changes in net debt.
Profile, if youre seeing any changes and retail mix, what selling maybe versus what we're selling last year.
Yeah, I'm actually going to pull out the retail report from last week, and while I won't share and specifically with you.
I will tell you that as I've mentioned and our prepared remarks. The overall retail momentum continues to be very positive for our business.
And.
From a mix standpoint, both at the consumer level and Thats a product level.
I would I would say two themes continue to be present one is.
And we are seeing more families.
Shopping for Rvs and from a consumer standpoint, and certainly the diversity of those families is something that we've noted as well and number two there is a trend towards smaller products both on the motorized side and on the <unk> side.
And so a class b and class C and certainly travel trailers and continue to be hot.
So Michael we're not seeing dramatic shifts from.
Last summer last fall in terms of product categories.
Our consumers and we are hearing as of March 24th No real high alarm bells, yet from our dealers about the dilution of first time buyers and the lifestyle yet.
And in fact, because the.
And they pick pandemic conditions continue to be inconsistent across the country with the variants and the state of sort of lockdown or restrictions on leisure options.
Also and consistently president.
We believe a lot of those first time buyers from 2020 are actually excited about using their products again in 2021.
So no real no real changes.
Okay, great. Thanks, a lot.
Thank you. Our next question comes from Brett Andress with Keybanc.
Hey, good morning.
Mike If you could breakout that retail report again.
I'm curious what you're seeing with.
Pre sales of deposits I mean have you seen any shifts recently and the consumers' propensity to put money down and wait for a unit does that still there.
Brett good morning net level.
And that behavior is definitely still present and I believe you saw some of that over the winter months with.
And with low inventory and the field, we do have consumers who are getting in line still for products that are yet to be delivered to the actual dealers the percentage of pre sold or retail sold units varies by brand.
And candidly by dealer.
<unk> as well based on how they approach.
Their own marketplaces.
And we are seeing that behavior and the other thing we've been encouraged by and speaking with our retail financing lenders is that consumer credit remains very stable. In fact, a couple of them have commented that it has even strengthened a little bit here as of late and so we are seeing no decline in on.
Either the consumer credit aside or wholesale financing and affect the dealers have very strong cash flow right now they are because of their inventory levels theyre not using as higher percentage of the banking credit lines that <unk> utilized in the past and so.
The consumers, who do want to come in and either buy and unit. That's on a lot or put a deposit down and qualify for a unit to be delivered later.
Conditions are very favorable right now for them to be able to do that.
Got it and Thats helpful color.
Thank you and then and then my follow up is a little bit more of a.
A hypothetical so I apologize for that but do you think that winnebago or the industry has enough inventory or per.
Production capacity to positively comp retail and your fiscal fourth quarter if demand is there.
And I'm, just trying to frame up how things could look if demand holds up and if that makes sense.
I understand the question and.
And we may have inferred and some of our comments that the fourth talent is really the September through.
December 2020 period was very strong at retail.
And we anticipate that Comping.
Aggressively and a positive fashion against those numbers and the same period and 2021 will definitely be a challenge I think that will vary by brand and by category.
And to your point do we have lower inventory levels. This year than last year I'd have to go back and look at the numbers I think we did pretty strong retail a year ago on crashing field inventory levels.
And that would really was part of the reason why the inventory levels got depleted.
And so.
My gut is telling me that the field inventory levels would probably be strong enough for this calendar fourth quarter.
To take a run at those numbers, but I think it will also depend on other other conditions.
Around consumer confidence and the state of the the virus and all of that so.
But that's why we're signaling that we believe youre going to see pretty strong retail comps and shipment comps candidly probably in the next three to four months and then you will start to see those numbers change as we're going up against record retail and increasing wholesale shipments from a year ago and the back for five months of the year.
Those numbers that will start to see comp wise on the back half of the year will not mean, hopefully that the industry is struggling are and retreat.
It just means we have a very unusual comp condition.
And that we're up against.
But as I as I said, we believe retail conditions are favorable for the foreseeable future and we believe wholesale conditions for our business are favorable through fiscal year 2022 to get to normalized dealer inventory levels.
Alright, Thank you I appreciate it.
And our next question comes from Fred Wightman with Wolfe Research.
Hey, guys. Good morning, Michael I, just wanted to dig into the updated retail outlook for the fiscal year.
Given everything that you've seen from Ssi and the retail commentary through early March and everything seems directionally.
Good is that improved outlook is sort of up mid to high single digits reflective of that strong performance to date are you actually more optimistic as you look ahead to some of these tougher compares down the road.
And is there some conservatism still baked into that outlook. It would be really helpful. Just for to get.
Your take on what is encompassed in that mid to high single digit outlook.
Yes, absolutely.
I'll give Steve Stuber, a lot of credit here, but Steve and maintains our internal forecasting models within the company.
And we run those out by brand byproduct and.
And by month by year, not just for this year, but for several years into the future and.
And with his leadership as we've studied the models.
And the forecast that we gave you today is reflective of our performance fiscal year to date and what we think will happen and the next six months of our fiscal year March through August.
And if I had to be a betting person today I would I would tell you that I think that retail estimate is probably trending towards the higher side of our comment. This morning, and also we said mid to high single digits, that's probably and the high single digits and as a trend right now.
And could that climb even further we will see.
As the spring and the summer gets gets rolling here, So I hope that's conservative.
We certainly don't want to be too optimistic or too pessimistic. So we always try to play it relatively down on the metal, but I would lean towards the higher side of that retail forecast for the rest of our fiscal year.
Perfect Super helpful. And then just on the leverage on the balance sheet. Today, you guys for basically at the low end of your target you've touched on some of the capacity expansion efforts is to guide for investing and but you do have a fair amount of access to cash. So can you sort of walk through how aggressive you think you could get you guys have exceeded the high.
And of that range and the past I mean is that something that given the strong backdrop and forward outlook that you have you might look to explore again.
Any color there would be helpful.
Yes. This is Bryan I'll take that one.
And as I mentioned and my comments and certainly is.
And important part of our capital allocation strategy is to evaluate those strategic opportunities to grow the portfolio and we will certainly do that we have said historically that we would spike it to as much as three point, though.
Our leverage ratio that is two.
And to three point O for the right deal at the right time, I don't know that Thats changed meaningfully.
We will continue to evaluate what our opportunities are.
And if there is a specific opportunity that we think represents.
And less cyclical or even counter cyclical opportunity and a lower risk environment, we might even consider.
Going above that three point over that that special opportunity.
But for now we really haven't adjusted or our capital allocation strategy.
Still speaking to it.
Aggressively pursuing the opportunities that we feel are a good strategic fit and allowing ourselves.
And the flexibility to spike it to as much as three point O for that rate deal.
Great. Thanks, Scott.
Thank you. Our next question comes from Brett Jordan with Jefferies.
Good morning, This is mark Jordan on for Brett.
We've had a few questions on price and this morning, and and I may have missed it but are you able to break out what portion of the pricing improvement and the quarter was driven by maybe product mix and innovation and.
What might have been driven by the lower discounts and allowances.
Yes, we do not disclose that level of detail.
Certainly it was and it was.
Favorable to our margin story.
And in a meaningful way we side both the price into dealers, but then also as part of that equation, the lower allowances and discounts that are necessary to move the product. So both are contributing to our top line as well as on a margin story and the quarter.
Okay and.
Just to follow up on the earlier question on first time buyers and maybe the recent surge and buyers in general do you have any thoughts on how the current vaccine rollout might impact demand and maybe how sticky these buyers might be I mean should we expect to see these customers enter.
And maybe the typical three to five year on trade and trade up cycle.
Maybe to larger yet so is there and maybe.
And maybe small right now.
Yes.
I think we had.
Quote and our press release this morning that talked about our belief that the pandemic has actually initiated.
And acceleration of what we believed was already there which is sort of secular growing popularity and.
And really a lot of outdoor categories.
<unk> sports Marine RV you name it.
And we believe that consumer priorities have changed.
Both in terms of their desire to invest and experiences versus solely sort of possessions as a gauge of quality of life for happiness.
But we also believe.
And the time recently with family and friends has reinforced.
And that they'd like to do more of that and the future and families and individuals will be reevaluating.
How they spend their leisure time going forward.
And so for those reasons and a lot of the research that we see for many third party sources validates. This is that the interest and camping and the outdoors and.
And travelling and seen the country.
And combined with the use case expansion of products and the RV lifestyle, especially and even a bit on the marine lifestyle pontoons is a good example of that.
And those combinations are really leading to popularity.
Being sustained we believe in terms of consumer demand for our products.
So.
So again, we are we are optimistic about.
Consumer demand conditions.
For the foreseeable future, we certainly understand the realities of.
Operating and a cyclical.
Industry.
And then very dynamic times, so we will always monitor what we believe those.
Consumer sentiments are.
But we do believe that that popularity, we will continue to increase.
In terms of upgrading we are too early.
And this sort of pandemic post pandemic cycle to understand if upgrading rhythms are going to change either in terms of timing or types of products.
We're just too early I will I will note that one of the impacts of that will also most likely be for <unk> products. The products that they are using to toll there is an awful lot of activity going on.
And the auto sector around the move to electrification.
Around different platforms, and we believe that consumers will have to adjust at some point to new products.
That will end up pulling a lot of our travel trailers and fifth wheels. So all of those factors. We believe will combine to influence upgrade cycles going forward.
Great. Thank you very much.
Our next question comes from David Whiston with Morningstar.
Thanks, Good morning I.
I wanted to go back to the supply chain issues and then.
I'm, sorry, and on the light vehicle side. There is the semiconductor Hugh you mentioned also phone after the storms in Texas and there's been a problem and I'm. Just curious I know you said, it's on a banking chassis supply, but what about making the interiors and vehicles or any kind of electronics and the interior of your vehicles do you have any.
And so any shortages and regard or do you think you will and a few quarters.
Yes, good morning, David we have experienced component challenges regarding interior parts.
And you mentioned, one that and see Cushing fall and that is related to a particular chemical and the manufacturing process.
And we're managing that we are also managing other types of chemicals that are important and fiberglass manufacturing.
But the supply chain constraints have really been varied across the board I mean, there are everything from furniture to electronics to on earnings.
Two.
Other components within the.
And within the products, we've recently seen some pressure on generators and <unk>.
We're working with those suppliers as well.
So if you saw sort of the comprehensive.
Supply chain health status.
Dashboard that Bryan and I look at it on a regular basis.
On the list of component categories is meaningful and constantly red yellow green status within those categories is pretty dynamic.
And yes. It is not just external or foundational components. It is some of the interior components as well, we don't believe that the.
And the hangover from the winter storms in Texas will specifically impact our business for a long time.
But those did and are having a bit of a bit of and influence certainly on the sort of a chemical or resin based components that we have on our products today.
On the light vehicle industry, serving the GM for Toyota has on the world gets priority over the RV industry or is it all parity.
I would not describe it as parity I mean, certainly each of the chassis manufacturers.
Operate with their own set of priorities within their businesses and.
And I won't get into the.
To the dirty laundry on some of the discussions with those suppliers out of respect for their strategies and information, but each chassis manufacturer.
Usually separates its commercial slash specialty vehicle chassis platforms into another division that isn't directly.
Embedded in the passenger vehicle.
Business and so but they are they are constantly and communication it appears as to the allocation of Manny.
Manufacturing capacity and engineering resources and.
And.
On capital in terms of.
Manufacturing.
So yes it is it.
It is a discussion we have often.
In terms of can the can the chassis manufacturers keep up with what has been very strong demand on the commercial side as they are also managing the technology transition to in many cases, all electric that seems to be starting a lot with passenger.
Vehicles.
So those multi generational product plans from the chassis suppliers.
And do definitely vary.
Okay, and given backlog is skyrocketing up and inventory dealerships are going down can you talk on all about what percentage of your R&D operations are at three shifts.
And if any.
Yes.
So David.
We have operations in Iowa, and Indiana, and and Florida across our portfolio and in each of those locations. We have different manufacturing strategies in terms of labor the number of shifts.
Often run our vertical manufacturing processes.
And either more overtime or second shifts versus our assembly processes.
And specifically the Elkhart.
Colony Labor culture, and ecosystem for RV Assembly has not done a lot of second shifts.
And for reasons specific to that area in terms of labor profile.
But and in other parts of our business more so than and the verticals, we do see second shifts and order to allow us to keep up for.
And for demand.
So it varies.
Not something we deploy regularly across all of our businesses and to be very candid with you the supply chain constraints are real and up.
That the opportunity to add second shifts and have steady component supply for a second shift.
Is pretty limited right now within our business anyway.
No that's helpful.
<unk> net.
Really different from the light vehicle industries, and that's good for interesting to hear and I should say.
One final question for me on buybacks and stocks went on a tear getting in and behind <unk> recently.
It looks like buybacks slowed in Q2 versus fiscal Q1, just how does the stock being on a <unk> like this impact your decision to do or not do buybacks.
David This is Bryan.
It's certainly one factor that all companies are going to consider.
Their current stock price from our perspective.
And we also influencing and it is our view of how otherwise we might allocate that capital and as we talked about earlier, we've got some.
Capital expansion that Mike referred to in his comments that are certainly a priority and other words feeding and your organic growth and.
And.
As well as we mentioned on the.
Opportunities to grow strategically the portfolio through M&A and so those are also factors that we're certainly weighed.
As we navigated through Q2 and so.
And.
To the point of your question you know the stock prices is one factor and it's certainly not the.
Prevailing and are only factor that we would consider and.
Weighing whether share repurchases the appropriate step to take at that time.
Okay. Thank you.
Thank you and Kim are.
Our next question comes from Shawn Collins with <unk>.
Great.
Great. Thank you good morning, Michael Brian and Steve I Hope you guys are well.
Thank you.
My question is on consumer demand and interest rates.
Interest rates potentially rise on Q.
Do you expect any material impact and can.
Can you estimate.
Industry wide, how much have and RV is financed by a consumer loans loans right.
Rates are obviously still very low historically, but any color on on how you size and macroeconomic factor would be interesting. Thank you.
And a great question, we are tracking very carefully.
Several external factors not within our control interest rates are certainly one of them that we will watch carefully as we've talked inflation.
Price of gasoline has always been something the industries watched it probably impacts and usage more than it does purchases.
And so we're watching all of those as.
So called experts are hypothesizing about the prospects of rising interest rates and gasoline prices and and.
And a potential inflationary environment ahead.
Historically there.
There is some connection definitely two interest rate per.
Percentages.
And at a gross level and.
And their impact on consumer's appetite.
And to buy our product.
We've been fortunate and the last one.
And now almost 12 years 13 years interest rates have been that.
And over a 56 year period, they've been at historically low levels and so the context of rising interest rates is definitely different today than it was on the late seventies early eighties.
But we believe any uptick in interest rates our gasoline prices.
And it's probably not a positive perception.
But it does not necessarily mean that retail or consumer demand will be derailed.
We believe that consumer demand is strong enough right now to withstand some elasticity.
And pricing in gasoline and interest interest rates.
The percentage of vehicles or Rovs financed at retail varies based on the price of the unit or the type of the unit.
Anywhere from 40% to 60% of the units are often said to be.
So it will be financed at retail.
That number is ultimately hard to see because consumers may actually walk into the third dealers with alone.
From a credit union or a line of credit that they secured and another fashion and.
So again, we think it's a majority of the units that are usually subsidized or financed through some debt mechanism.
But it's difficult to see almost always theres a down payment at the dealership that's required or with the retail lender to get into that product initially.
But again as we said and our earlier Q&A comments.
The retail financing environment today appears very healthy very stable and we think that's a tailwind for our business and the future.
Great.
That makes a lot of sense and it's helpful. Mike. Thank you for the time and insight.
And thank you.
Last question comes from James Hardiman Wedbush Securities.
Hey, good morning, guys.
Great quarter.
Apologize.
For harping on for the retail guide.
And if you guys have a crystal ball, but I think people are starting to do the math and.
And so.
We think about.
And what looks like 30% plus retail growth and your fiscal year two day so far.
And I think given the easier comparisons it sounds like and anything thats, probably going to accelerate and your third quarter and I think.
About your fourth quarter, right and I get that.
Parachute and get pretty wacky here.
Not only does it sort of mid to high single digits.
Imply a pretty big collapsed and that fourth quarter.
What day it.
It seems like it's about flat with 2019 levels. So.
Putting all of that math side.
I just qualitatively right.
Given that last year was an unusual year, what's your level of confidence that we will comp positively versus 2019, once we get past a lot of these.
The early part of the pandemic, because I think it speaks to sort of the sustainability.
And you've talked about a lot of the.
Secular trends coming out of the pandemic.
Yes, and excellent question and we respect that and as you said and a lot of people are going to do the math.
We are certainly optimistic that.
And.
And we're hopeful that the retail trends are even stronger than we offered to you. This morning in terms of the rest of our fios.
Fiscal year now mess now recall that we were talking industry retail for.
For the fiscal year, not Winnebago industries retail are we have continued to gain market share and so our own retail performance and you can do the math between quarter, one and quarter, two with the shipments and the field inventory.
It continues to remain strong and in most cases running above the industry retail rates.
James I have not done the comparisons here recently for 2019.
For all due respect and we've sometimes been.
And I'm trying to kind of see the nose and front of our face and the fog of.
On a very dynamic environment, but we.
We do believe that the industry over time.
Under stable healthy macroeconomic conditions has the ability to continue to become more popular it wasn't too long ago, when the number of rvs and the.
And the hands of consumers and total was somewhere in the nine five to 10 million unit range in terms of total ownership and that number has elevated I believe now to $11 million plus.
So.
Not only are more our views being sold more consistently and healthy environments.
But it appears that consumers are.
Sticking with those and those products.
As well.
One of the things that we will be doing in the future to reach more consumers is making sure that our business model is in touch with new ways consumers want to experience the lifestyle and <unk>.
Year to peer sharing platforms rental platforms.
Direct consumer lead generation.
There's a lot of different things our teams are working on that Youll hear more from us on the future that we believe will allow us to get to a lot of consumers and the last 24 months that have experimented or tried irving but have not yet potentially and made the decision to purchase one.
And so I apologize I can't give you a 2021 to 2019 comparison right now but.
It's a fair question and.
Let me pile on it.
Yes.
If I may.
Because it's been a couple people that I've asked this question and I don't think we mean to infer it all of that.
Becoming a little bit bearish and Q4 as you might run year numbers and how we feel about the sustainability of the retail Paul Theres, certainly and then.
One of the questions asked about.
The vaccines and the impact that that has and theirs.
This hypothesis out there that.
Safety.
And of RV travel being a tailwind.
Tailwind and I think we can all agree over the past year will wane over time.
Some of that May.
Right I think we can all agree that as vaccinee.
Vaccinations rollout and maybe that desire for a safe place for travel might wane, a little bit versus what it's been this past year. More importantly, we think in terms of art and reason for our bullish outlook is the flexibility that people.
Should have going forward versus the historical flexibility I think we can all agree that the workplace flexibility and even educational flexibility that Tom has been introduced or even and forced on to the.
Workplace environment. This past year has stickiness to it and that the expectation going forward by employees will be for more flexibility and certainly all of US on this call attended virtually.
And the experiences we've all had working virtually this past year adds to that flexibility where people now realize they can work from the road and we think that that flexibility. That's been introduced is sticky that will endure and along with that becomes this expansion and use case and Mike referred to that earlier.
<unk> expansion of use case.
And where people can use arby's more frequently and we're more often and in more ways and that that is.
Reason for industry Bullishness and net.
And certainly prevail, we feel in the long term here more so than just the near term safety that and provides there's this flexibility that will lead to greater use case and computer penetration and U S households, etcetera. So I'll just add that on and for your consideration too.
That's really helpful perfect, Mike Bryan Steve.
Thanks for all the color.
Thanks James.
Thank you and I don't see any part of your question and then can you may continue with any final remarks.
Thank you operator, and thank you everyone for joining US today, we really appreciate your time and we look forward to talking to you too.
And we're looking forward to talking to many of you and the very near future. Thanks again.
Thank you for your participation on today's conference and you May now disconnect have a wonderful day.
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