Q4 2021 BRP Inc Earnings Call
Sell side seven months into the season 'twenty, one the North America and side by side and the industry is up in the high 20%.
Can and side by side is gaining share season to date, especially in the utility segment with retail up in the low 30%.
We also perform well and international market as the inventory availability improve which retail being up about 40% and EMEA and in the high 20% and Asia Pacific.
For side by side, we recently introduced and all new commander platform for our model year 'twenty one.
And the product was well received by both the media and our dealer network.
This should allow us to resume market share gain and the <unk> segment and category and which we had been losing ground in recent years due to our aging offering.
Turning to a TV and the North American industry is also seven month into it sees on 'twenty, one and retail is up in the high 20% Canam is gaining share season to date, especially in the mid Cc segment with retail up in the low 30% over the same period.
We are very happy with the momentum we're seeing in the TV business.
Now looking at three wheeled vehicles.
Early early in the season, the North America, and three wheel industry retail is up and the low teen percent Wildcat and entry will vehicles and retail is up in the high 30%.
We are ready for another good season with a very solid go to market plan.
We continue to drive solid momentum with the media.
The product continue to attract a diversified consumer base, notably experiencing incredible momentum with women.
We are focusing on inclusion and indication to attract more women to the support.
I encourage you to go to our website and watch our new woman under rode the video which was launched a few weeks ago.
I am very proud of this initiative.
And finally, the rider education program registration continued to trend above expectation.
We have a very good plan for a successful season in 'twenty one.
Turning to seasonal product on slide 11 <unk>.
And as a note product revenue were up 24%, resulting from higher shipments of both snowmobile and personal watercraft as well as from lower sales program Q2, a strong retail environment.
Now looking at retail 10 months into season 'twenty, one the North American snowmobile industry is up and the high teen percentage.
Our ski Doo lineup continued to outpace the industry, which retail growth debt is up in the low 20% over the same period.
As a result, our market share continued to grow reaching a new record level.
Looking at the international market.
Quito and Lynx lineup are performing very well in Russia, outpacing the industry with retail up in the high 20% and.
And in Scandinavia, and the industry is down mid single digits due to the late arrival of snow, but retail accelerated in February and we are outpacing the industry.
Also for.
And we're essentially held our virtual product introduction event, where we introduced our model year 'twenty, two ski Doo and Lynx lineups.
One of the key highlight of this product announcement was the introduction of links the first new snowmobile brand to the North American market indicate bringing and exclusive new alternative for snowmobile riders with three high and links models.
These premium model provide a different and riding experience and should attract a new type of rider to be ERP.
There will only be available as pre sold older and spring and we'll be offer as a premium brand.
As a reminder, and Scandinavia, we have over 60% market share with our combined <unk> and linked product lines.
The Lynx Central action is a new growth opportunity for us and Mark and exciting new chapter and Snowmobiling history with a fifth brand now available in North America.
We also strengthened our ski doo lineup with the introduction of the smart shock technology as.
As we have done with the three X last year.
Last year.
The addition of two new Turbo engine option and the return of the magazine muscle sled for this year only.
With these additions we believe that our lineup is very well positioned to have a successful season 'twenty two.
Turning to personal watercraft.
While still very early and the season, the North American industry retail is up in the low 70%.
CDO retail is up mid 50% slightly lagging industry growth since we ended last season with record low level of inventory and the network.
As we improve our product availability, we started to outpace the industry and Q4.
The trend is also a very good and counter seasonal market with retail up mid 20% in Australia, and New Zealand and.
And up over 60% and Brazil.
Current trends are very strong and on top we have unprecedented level of customer preseason certificate and fact as of today over 50% of Sea-doo are already pre sold to consumer and North America.
Continuing on slide 12, with the look at Forest Park, accessories, and apparel and OEM engine, which experienced a similar trend as vehicle.
Revenue were up 19% driven by a higher volume of <unk> coming from a higher replacement parts revenue due to increased use age of products and strong unit retailed that generated a lot of accessories sales.
The focus on our link ecosystem is paying off.
And now looking at marine.
Revenue were down 17% and impacted by the wind down of Dave and route outboard engine.
And the retail level tailwater is and the core of its retail season in Australia, and it's performing very well retail with retail up over 20% for the quarter and.
In North America, we are off season, but our booking for the season 'twenty. One is completed and we will be running at maximum production capacity until the end of July.
We are pleased with the performance of our book brand and the progress we are making on our strategy to transform day marine industry.
The wind down of avian road is now completed and we are focusing on are both brands with accelerated investment and new technology and innovative products as well as project and and goals.
With that I will turn the call over to Sebastien.
Thank you Jose and good morning, everyone. We completed fiscal year 'twenty, one and with record results for our fourth quarter as we delivered on our production plan and continued benefiting from a lower sales program environment and a richer product mix driven by the very strong consumer demand for our products.
Our revenues reached a record level for fourth quarter at $1 8 billion up 12% on.
Normalized gross profit margin ended at 27, 8%, representing a 410 basis point increase driven by higher volume and a richer mix of products sold and a favorable impact from pricing and sales programs, which were partly offset by unfavorable foreign exchange rate variations driven.
Driven by this strong improvement and our normalized gross profit our normalized EBITDA and the quarter up 41% to reach 300 $313 million and our normalized diluted EPS was up 63% to $1 82.
This resulted in a very strong free cash flow generation of $198 million for the quarter.
Bringing the total to $674 million for the year.
And so just after the end of the year, we took advantage of our solid liquidity position with $1 $3 billion of cash to deleverage our balance sheet by 300 U S dollars.
And significant significantly reduce the overall interest rate on our debt, leaving us with a much lower interest expense and a very robust balance sheet that provides us with the flexibility to sustain our investments on the business all the while continuing to return capital to our shareholders.
Turning to slide 15 for and looked at the key drivers of our normalized gross profit margin improvement for the year.
Our normalized gross profit margin was up 190 basis points for the year to reach 25, 9% driven by a positive impact from volume mix pricing and sales programs for 440 basis points, which was partly offset by negative impacts from production costs and depreciation expense for 130 basis.
Points.
Unfavorable fixed cost absorption due to the temporary plant closure earlier this year for 50 basis points.
And unfavorable foreign exchange rate variation for 70 basis points looking ahead, our normalized gross profit margin should be mostly flattish and fiscal 'twenty two as we expect the positive impact from lapping the two months of plant closure to be mostly offset by inflationary pressures related to commodity pricing and logistics.
Moving to slide 16 for a look at our network inventory position.
Despite that we had increased our facilities output and delivered on our production plan and the fourth quarter the consumer demand for our products continued to outpace the supply.
And we ended the year with both our network and our yard inventory at low levels down, 67% and 38% respectively.
Dynamic is experienced across the product portfolio and we are taking necessary actions to manage the growth and all of our product lines for personal watercraft boats on three wheels. Our factories are running at full capacity and we are on plan to meet dealer orders and time for the peak retail season.
And for off road vehicles, we ramped up the production rate and we are optimizing our product mix and we have additional production and capacity coming online and the third quarter.
As for snowmobile, we expect to and the season with a low level of inventory and the network and we are well positioned to restock, our dealers and time for the next season.
So while our inventory remains below optimal levels at the moment, we are taking necessary actions to manage the growth on our business and meet the strong demand for our products and we believe we are well positioned to make the most of the opportunity that lies ahead of us.
Now on to the guidance starting on slide 17.
Given the sustained strong retail demand for our products and the inventory restocking cycle, we have in front of us fiscal 'twenty two is poised to be a very strong year for ERP.
We expect to see robust revenue growth across our product lines driven by the continued strong consumer interest for power sport products, a solid year of new product introductions and increased production volumes supported by our plants running at full capacity throughout the year and by additional capacity coming online and the latter part.
And of the year.
In terms of profitability, we expect another year of very strong EBITDA margin driven by the positive impact coming from volume growth. The full year benefit of winding down the production of EVAR and wrote outboard engines and as we get better leverage effect on our operations, notably as we lap a year, where we suffered from inefficiencies due to the two months of production.
Shutdown.
As indicated the guidance assumes that we will be able to run our plants throughout the year without shutdowns like we experienced last year. However, like all companies and our industry. We are dealing with supply chain challenges that constant monitoring and attention in order to keep our plants running commodity.
Commodity costs are also increase coming from the surge and worldwide demand. Both these factors are increasing our operating costs and we have assumed in our guidance that we will be operating in this environment for most of the year.
We also expect.
As all Oems ramp up their production, we may see an increase and the level of promotional activity and the back half of the year.
Given the more uncertain and unpredictable nature of these elements, we have provided guidance ranges for normalized EBITDA and normalized EPS otherwise unusual for this time of year.
Finally, given our investments and additional production capacity and as we are catching up on certain projects. We had to prioritize from last year fiscal 'twenty. Two is expected to be a big year in terms of Capex investment.
Now, let's go through the numbers on slide 18, as I mentioned, and we expect very solid growth across all our product lines with total company revenue guidance up 25% to 30%.
While our guidance calls for solid topline growth, we expect the consumer demand will continue to outpace the supply of our products for the better part of the year. Despite running our factories at full capacity, which means but we will only plan to start rebuilding our dealer network inventory later in the year and throughout fiscal 'twenty three.
Turning to the profitability for the reasons discussed previously we are starting the year with a wider and unusual EBITDA guidance range with a growth of 22% to 30% for the year. We are assuming a depreciation expense of $280 million and interest expense of $75 million, resulting from the refinancing of our debt on earlier in February.
And using a share count of 87 million shares, which accounts for the shares repurchased under our and CIB So far.
Our guidance calls for normalized EPS growth of 35% to 48%, resulting in a range of $7 25 to $8.
In terms of capital allocation as I mentioned fiscal 'twenty, two will be a big year in terms of Capex as we are planning for investments between $5 75, and $600 million for next year still even with this important level of investment we expect to generate positive free cash flow for the year and with our strong balance sheet, we are well positioned to.
Continue returning capital to our shareholders, notably as we announced the increase of our quarterly dividend by 18% to 13.
Finally, as you already realized our plan calls for the potential and achievement of our and 25 EPS financial objective this year while.
And while the current situation definitely accelerated our volume growth, we still have many key strategic initiatives to deliver on our long term plan such as the marine strategy, our cost saving initiatives. The electrification of our lineup and a strong pipeline of product introductions that are expected to drive continued market share gains notably.
And for side by side.
On top of these initiatives last year provided us with many key learnings and new opportunities such as an influx of new entrants that will benefit our business going forward.
So while we may achieve our initial financial objectives. This year, we remain focused on delivering on our key strategic initiatives and we are confident that with our plan and the opportunities. We have in front of US debt, we are well positioned to continue delivering solid growth and the years to come.
And we look forward on updating you on our long term financial targets. Other later date when the global situation is more predictable.
And with this I will turn the call back to Jose.
Thank you Sebastian.
Before I conclude I would like to briefly discuss the announcement and we made this morning regarding electric vehicle.
We have always said electrification was not a question of if but when.
And <unk>, we are very excited to unveil more detail of our plan of delivering market shaping product that will enhance the consumer experience by offering new electric options for our products.
This announcement and bill on previous investment and we already made in this space over the years for instance recalled that we introduce electric cart for racing and 2017.
And for our <unk> facility in 2019.
More specifically, we are developing our own road tax modular electric arc technology, which can be leveraged across our product line and provides us with a more cost efficient and effective solution just.
Just like we do for a combustion engine.
That will be to pull of development, one and bench cushion focusing on the torque site vs.
And <unk> and the high performance electric motors and and other in the value, which will focus on the energy side. The charger the battery pack as well as debt as the complete integration into the vehicle.
As a result, we will be having many resources to our team in Australia and in Canada.
We intend to invest $300 million over the next five year to electrify our existing product line by the end of calendar 2026. In fact, you can expect the first product to be introduced to the market within the next two years, followed by a rapid rollout across all our product line.
With the engineering Knowhow and innovation capabilities of our team we've been working hard to define the best strategy for our electric part technology.
While our current product portfolio is very strong and exciting our objective is to expand our offering with electric option for each product line to attract new customers to continue to grow the industry.
To conclude.
We had an exceptional fiscal year 'twenty, one with record result with record results.
And we're fortunate to be able to take advantage of and unexpected surge and consumer demand.
We are sustaining this momentum and fiscal year 'twenty two.
As we are off to a very strong start seeing continued strong retail demand across all our product line.
Our ascent snowmobiles and side by side product lunches generated a lot of excitement with dealers and consumer alike also our summer products season looks very promising with the continuing trend of first time buyers and staycation.
We are committed to ensuring that these new entrants are converted into lifelong customers once they have experienced our vehicle and boats.
While the health and safety of our people remain a priority we are focused on managing the supply chain tightly.
Keeping our operations running and answering the smoothed production ramp up a few on <unk> III and <unk>.
And fiscal year, 'twenty, two and we'll be focusing on several important investments that will drive growth in fiscal year 'twenty three and beyond.
We are working on electrifying all our product lines by the end of 2026 and are accelerating our investment and R&D.
We are planning for a strong year of product introduction and building a third site by site facility and you on ice.
We are also investing in our both brands as part of our Marine strategy with project and and project Ghost.
With our solid start of the year combined with these key investment we are well positioned to drive solid results and fiscal year 'twenty two.
And are confident that we will deliver on our guidance.
The guidance as a wider range than usual with normalized EPS between $7 25, and $8 as the market and the dependability of the supply chain remain uncertain.
As mentioned by <unk> with this guidance we are in line to meet the financial target of and 25 earlier than anticipated.
While our strategy remains largely and tech we intend to give you an update at a later date.
And on that note I'll turn the call over to the operator for questions.
And as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please.
Please mute the webcast on your computer while you and thank you for participating over the phone for questions.
And standby, we compile the Q&A last day okay.
Your first question comes from the line of Craig Kennison from Baird. Your line is now open.
Oh, Hey, good morning, and congratulations on the performance excellent work.
Question on the longer term.
I guess plan for infrastructure around electric vehicle charging obviously, it's not.
And they are not products and are on roads, and so youre going to invent the infrastructure as well and you're going to rely on our homeowners or reinsurance or is there.
Our plan and plays to ensure.
I guess charging infrastructure.
Yes, good morning, Craig.
No. There is no immediate plan for the and for our structure. Obviously like you just said the usage of our product is mainly on the road off road. Sorry, then it's very difficult to the debt and infrastructure everywhere and the world that being said the product will be you will be able to charge a product on hold.
You will be able to charge a product and any car charging station but.
The plan for the charging station.
Off road is not finalized at this point.
Got it and then maybe you're not prepared to comment on this but I think you alluded to some modular construction two year battery packs that would suggest maybe you could buy on a multiplicity of these packs and then charged them as your operating and vehicle and then replace debt battery with a charged one is that the right mindset no no I think.
I think the way you should see it as I gave an example.
We've been I think we are good to design product with the modular approach and I gave you. The example of the 900 Ace engine, we are able to use it on snowmobile on the watercraft on three wheel and on site by site.
And it's a basic same engine with three different application different.
Transmission system and Thats, what we mean when we talk about modular approach with designing a few module of different components that you can combine them differently to up to be applied to all.
The product line.
And I will conclude on this you know.
E V challenge is to balance the range the weight and the cost.
You can have longer range, but it will affect the weight on the cost and we need to find the right.
And the right balance that is acceptable for our customers and to be able to have a great customer experience.
Yeah.
Awesome. Thank you so much I'll get back in the queue.
Thank you.
Your next question comes from the line of Brian Morrison from TD Securities. Your line is now open.
Good morning.
I understand that you can make up some of the capacity and the second half of the year as the new facilities come online, but I am a little bit more curious on the existing facilities right now and on slide nine you talk about the ramp and capacity. So I'm wondering can you give us comfort how you can optimize your current facilities to keep up with the retail demand and the first half.
The year until you get additional capacity coming on and the back half.
Yeah, Good morning, Brian.
As of now I mean, we are running our plants at full capacity and we do expect that we'll be able to meet retail demand, especially from the seasonal products sold personal watercraft three wheel. So we are well positioned and the boats as well.
And so that's that's obviously positive and we are running at full capacity on a reward viewed plans.
Because obviously demand continues to be strong even even better than expected in February and early March.
That being said, we will still be.
Unable to build that network inventory and the first half of the year, we believe that we will meet demand and thats. It.
And it's more going to happen and the second half of the year and more as well as I said in my prepared remarks on fiscal year 'twenty three so it's still going to be tight in terms of offering.
Consumers would not necessarily have.
The full choice that they are used to have.
Two or three years ago.
And we're side by sides.
And where the retail where they constrained and Q4 by available capacity.
Yes, yes inventory is very lean and yes, we're still constrained.
And then last question just in terms of leverage you're well below your ceiling set and I'm wondering if you would consider potential accelerated returned to shareholders such as you've done before.
Yes, well, obviously you probably saw we were active with with the CIB and the and the end of the.
And fourth quarter, and we continue to be.
And the share count reflects side. Obviously these are discussions we are having with the board.
We do have ample financial flexibility. So all the options are open for now.
Thank you very much.
Yes.
Your next question comes from the line of Robin Farley from UBS. Your line is now open.
Great. Thanks, and I know you talked about your share.
Shipments that you would probably only be able to meet demand and the first half can you give us a sense of the cadence I guess I'd like to try and be able to back into cash.
Retail gross rate.
And your planned shipments could support and the first half.
Well, maybe if I give you my or let's say some expectation on how are you.
Retail progressing and let's say going forward Q1 again is off to a good start. So we believe that retail is going to be up.
And probably high single digits and the first quarter.
We are lapping, obviously, a strong quarter and Q2.
<unk> was up 40% you might remember that our plants were closed during Q.
Q1, and part of Q2, as well and therefore that retail growth came from.
Punishment, which is a lever we don't have this year. So my expectation is that retail will be down and the second quarter, maybe high single digit to low teens.
And then as the year progresses.
We expect probably retail to be flattish to low single digit again, depending on the quarter, but as I said.
Is it going to be lean and so we don't have that big lever that we had and fiscal year 'twenty, one and four to drive retail.
Okay, Great that's helpful and then and.
Okay.
Got it and just seems that come from.
Emotional activity comes back and in the second half and.
And yet everybody seems to be fairly supply constraints.
And if youre just being conservative there, but can you I don't know if I missed if you said in your opening remarks, what ASP.
And in Q4 and for the full year interest and we can kind of think about what we're comping now.
Moving a lot of promotional activity.
Yes, when I look at <unk>.
Fiscal year, 'twenty, one and the impact of the favorable promotional environment. It brought about 200 basis points of.
A favorable lift to the margin.
Q1 was a tough quarter, where we did we were more intense in terms of promotional activity. So our expectation is that for next year that 200 basis points should be there continue to be favorable in Q1, Q2, and probably a bit or we'll call. It more conservative and are planning for Q3, Q4, which brings up to about 200 basis points for the.
<unk> year.
Can you get to the top end of your range kind of with current supply chain.
And what's you're getting or would the top end of your range kind of need the supply chain to improve.
No I mean.
And the guidance as a wide range because of the supply chain. We believe the demand will be there. This year, obviously like every OEM and the world I think right now there is there is a challenge on the day.
Daily basis than if we are able to not interrupt the production we could be on the high range of the supply chain.
And the range sorry, but if obviously there is more interruption and we planning we could be on the low range on the guidance does the weakness.
Okay, all right great. Thank you very much.
Your next question comes from the line of Ben <unk> from Deutsche Bank. Your line is now open.
Yes, good morning, gentlemen, and congratulations for the strong finish.
Could you talk a little bit about the contribution of key strategy initiatives.
That will be.
That will be kind of impacting your.
Your revenue going forward and especially the <unk>.
<unk> to the project <unk> and project goes in terms of what we could expect beyond fiscal 'twenty two in terms of revenue contribution from key strategic initiatives.
Yeah, good morning, but it well maybe the way to position it is.
We don't believe and fiscal year, we believe that and fiscal year 'twenty. Two the day men will remain strong until the end of the year.
The question is to manage the supply chain.
And this is why we have a wider range and our guidance if I look at fiscal year 'twenty three and beyond obviously, we investing you on a three will be up and running on the backend of Q3, then it will be operating on it will be and the ramp up and Q4 and will be fully operational next year.
Project and will start delivery in late in Q4 then.
The big impact will be and fiscal year 'twenty three.
We also having additional capacity for watercraft and Katie total, 30% debt will come fiscal year 'twenty three.
And then all of those.
All of those are key strategic initiative.
We'll finish up more and $23 22.
But basically we are quite optimistic about the demand for 'twenty two.
And and 23.
Too early to call, obviously, but two.
<unk>, we are preparing to be ready if the demand remain.
Yes.
Great color.
And how should we be thinking about the contribution specific to project and project goals.
And the long term from a revenue standpoint.
Well, obviously, it's part of our pillar from <unk> 25, which we shared with everyone now 18 months ago.
Obviously, we have strong ambitions for the marine business. It is a big industry.
$20 billion and so we believe that we have the ability of getting a bigger share of that.
Project Chem you saw some some bits of it it's about.
Creating and entry level product that brings value to the consumer and leveraging on knowhow that we have and so.
We believe that could be a good driver of.
Of growth for us and obviously with our innovation abilities on project project Ghost and with our Marine brands again.
Who knows where we can bring it but again our plan for marine is quite ambitious as you saw when we presented the emission and 25.
That's perfect and my last question on with respect to electrification you provided great details about the strategy going forward I would be curious to have more color about the.
On the Assembly line, whether you need to separate the Assembly line.
Whether there has been there will be some cannibalization or the revenue would be incremental to your current product line and whether it would be margin accretion or accretive or dilutive at the beginning and how you see the overall margin impact from electrification.
And that's a loaded question on the west and.
No I mean, DSM day line the assembly lines and the plan is to assemble the product.
And the same line and where we are assembling combustion engine.
Combustion engine vehicle, then every line and will be upgraded I would say to assemble the new electric vehicle and this is this is one.
The other thing is.
The whole strategy about the electrification is to attract a new set of customers give you. Some example.
You will not be attracted to and electric ATV because there is no charging station.
And where he goes and the word then.
We want to create and each product line and new product category that will appeal to some of our existing customer, but also to new customers.
There is a net feel riding electric vehicle.
And we believe we will be able to grow.
The industry and a different way.
The other thing the last thing I would say about cannibalization my philosophy on this I prefer to Kevin and <unk> ourself.
And then let someone else cannibalize us and Thats why for us going electric it's a normal evolution and the technology.
Thanks, very much for the color and congrats again thank.
Thank you.
Your next question comes from the line of Mark Petrie from CIBC. Your line is now open.
Yes, good morning, and I'll Echo the congrats from others.
And I just wanted to come back to the dynamic of new to industry. I was wondering if you could just provide some more context about how that evolves through the year and.
And more detail about how that varied byproduct.
Yes. Good morning, Mark then like I said in my remark.
We ended the year with about 30% of buyer of people to purchase our unit that are new to the industry versus about 20 and the path.
And if I look product line by product line.
Low snowmobile.
And then we'll be able typically has a very very low.
The ratio of new entrants and this year was three times, but it's still the high single digit watercraft this year half.
Of the people to purchase our product, where new on trend and <unk> to <unk> or a new on trend and for off road and we were about 20%, 25% new entrant, but what is amazing.
And we've done a detailed survey and.
And the last few weeks.
If you survey customer are those new and trend right now, 90% and see that they want to state and the industry for a long term.
And this is quite amazing a ratio.
The other thing that is interesting and I believe we are well positioned because of our experience on spark and the ryker, we are well positioned to talk to those new and trend and keep them.
And the power sport industry I mean, we we improved the quality of the shopping experience.
And we launched specific initiative like rider Education program. The women mentoring program. The untried. Our society, then we and we have a lot of digital tools to talk to those people then I believe we are extremely well position.
We will make them lifetime consumer, but more to come and we are we are ready to.
To do the best to convert Hasnt, many as we can.
Okay.
Okay, Great that's helpful.
And just wanted to ask about.
Your expectations for Opex through the course of fiscal 'twenty, two obviously theres lots of noise and in fiscal 'twenty, one and you talked about.
Wanting to invest specifically and.
And the initiatives around electric vehicles could you just give us a sense and it sort of how to think about fiscal 'twenty, two I guess, specifically on selling and marketing and G&A.
Yes, good morning, Mark.
If you look at our Q4 results our Opex was up about 13% versus a year ago, we expect that trend to be.
To continue in terms of absolute increase next year.
Opex should increase at the same level as revenue growth as you mentioned last year was a funny year with a lot of noise.
Obviously, we have a lot of growth initiatives that we are investing in R&D will continue being a.
And area, where we want to continue to invest so ballpark opex should follow the trend of revenue growth.
Okay great helpful. Thank you.
Your next question comes from the line of methane from Stifel. GMP. Your line is now open.
Hi, good morning, everyone.
My first question is with regards to pricing.
Commodity costs are increasing and you all.
And so have additional costs related to logistics and supply chain inefficiencies. So I was wondering have you taken price increases this year to offset these additional costs.
And then you need to balance the short term and midterm.
And in our product our product, our net commodity and the and issue by a snowmobile at.
At a high price and the year after the OEM reduce the price then you're stuck with the retail sell retail and retail value that is lower and and it's very sensitive then.
And a typical year, we increase pricing of about 1%. That's the average of the last few years.
And we right now on monitoring obviously, the cost increase for commodity and everything and even our efficiency. This is a lever that we have but so far we did and do it and we will continue to monitor the overall situation.
But it's something we will consider if things get very very difficult, but we.
We did and do it so far.
Okay.
And my second question is more longer term.
And Covid and Staycations have been a really good driver.
40 industry and I'm wondering.
And in your longer term plans, what do you think it's going to happen to demand when travel and returns to normal how do you see things evolving.
Obviously, that's not our field of expertise, but if you're reading more and more article or expert.
Regarding.
Traveling vacation the crew the airline.
People believe it's more 234 years before we go back to.
The old normal level, because that's the way.
And Thats why we believe.
People.
We'll probably traveled more on the time, but we don't see the trend that we're going right now through.
And going from on enough it will take some time.
To taper down and.
And that's why we like the challenge to convert those new and trend to two to the our industry.
Okay, perfect and thank you for your results.
Thank you.
Your next question comes from the line of Gerrick Johnson from BMO capital markets. Your line is now open.
Hi, Good morning. Thank you so year and revenue was up about 8% rate and the fourth quarter and I think the back half call it 9%.
By my estimate estimates or views, probably up 11 or 12.
And sorry to bring him up a Polaris graph grew by about 23 from the back.
And so so you wont see wholesale share there and it looks like you lost some side by side retail share and not a lot, but a little bit and the quarter.
What is your ability to reclaim that wholesale share with the capacity you have now that's one and number two how dependent are you on the new side by side facility to achieve the guidance that you have realized it.
<unk> <unk> ramp, but how dependent on that.
And let's call. It 10, it's a perfect ramp up and zero and abject disaster.
What level does that that has to be between zero and 10 to achieve your numbers.
Good morning Derik.
Give us some numbers about our side by side growth over the years from fiscal year 16 to fiscal year 'twenty.
Every year, we grew between 25 and 35% retail than we used to we used to grow and chase capacity and and since the defender and troll back in 2015, we deliver on our plan.
Right now and 21 fiscal year 'twenty, one we grew 40% and incredible momentum and the volume would deliver in 'twenty. One is five time and unit what we're delivering before defender then significant growth.
And for US we might lose a few share a quarter and gaining back the following quarter, but when you look at the big picture and the long term trajectory I'm very confident that we can achieve our objective of three 5% plus market share in.
And the timeline that we have said before then for me.
I don't like to lose one one quarter, but I can live with it because I believe our plan.
Very strong to achieve our long term trajectory now.
Now in term of the facility obviously and.
And you know us and we've been ramping up new facility a lot of volume and the last few years, we never missed a beat right now you're on a street construction is on plan and then obviously, we depend on you on a three startup two to deliver on this year.
Guidance, but and then we have.
Some flexibility low we always put some cushion but overall.
Overall, we depend on you on a street to deliver on the year and guidance I think the.
And the area, which is the risk for all Oems Eric is more on the supply chain stability as Youll see on the news. It is it is very fluid every every day every week.
This week is us west getting all of that.
And Thats clogged up from next week, who knows what's going to happen and Thats.
Probably the area where.
In terms of risk factor is much higher versus our ability to start up the new plan.
Yes.
Okay, Yeah, and I'm still waiting for my barbecue grill that on order two months ago, but.
And <unk>.
Got it and seven nine.
And you since 2013.
<unk> achieved everything you set out to achieve so I applaud you for that and could face and the numbers that you put out there. So thank you very much.
Thank you more pressure on thank you.
[laughter].
Your next question comes from the line of Shred Whitman from Wolfe Research. Your line is now open.
Hey, guys, just a quick follow ups and.
One of the earlier responses for the retail outlook did you say that you were expecting <unk> retail to be up high single digits or did did I mishear that.
And you have heard correctly, okay could you just sort of touch on what would drive that number relative to what we saw this quarter just given sort of the commentary you had on quarter to date performance and the fact that compares arent too much tougher until next quarter, so sort of what's driving the slowdown.
And that outlook.
Well.
And obviously inventory availability is one of the factors.
And delivery of units to the network as well as another factor are side by side deliveries will be higher and the and the.
The second quarter than the first quarter.
It's obviously a combination of factor.
And personal watercraft really kicks up in terms of retail and usually in the and the second quarter, Ken some retailer personal watercraft and accelerated in the first quarter to what the next few weeks.
Reserve, but.
So thats our current read.
Okay, and then just to sort of tie that with Eric's question I mean.
Understand over time market share generally is up and to the right and really positive, but given some of that product tightness and the comments for the retail outlook should we expect some choppiness on the market share side here for the next few quarters until some of that capacity comes online and the back half of the year.
We're not.
We don't believe that our competitors have that much excess capacity versus us I think everyone is facing the same challenges of ramping up supply chain et cetera. So again, there might be a bit of choppiness.
But as those that you mentioned and our long term plan is very solid our product lineup is also a very solid and so our target of being a leader and the side by side industry. As we are today and EBIT growing is still very very valid.
Great. Thank you.
Yes.
Your next question comes from the line of Cameron direction from National Bank Financial Your line is now open.
Thanks, and good morning.
A question on the on the <unk> five plan and that obviously, you're achieving well ahead of schedule, but you did mentioned that you still have some of these tailwind from some of the cost initiatives that you had laid out and that plan can you just maybe go through.
And what's left to be done on that front and what we should expect from I guess from a margin tailwind from those cost and leaning out initiatives.
Yeah, well, we're still very early and our and our.
And 25 plan on our cost initiatives and honestly, obviously with the Covid priorities were shifted.
From our operations team to manage the day to day as we said.
$300 million saving that we want to achieve.
And that is going to provide a big lift to the margin improvement and the other one is the volume growth objective on growing our side by side market share, we're still at 20% market share for side by side that better asset utilization and coming from the volume growth is also going to be a big driver of our margin improvement on the road.
Yeah.
Okay, that's helpful and.
A question on.
The cash flow in 2022, what should we expect from from working capital I mean, obviously there was some.
Fiscal 2021 was again pretty weird year, but what's your expectation for working capital usage in fiscal 2022.
Yes, the inventory and that we finished the year quite lean and <unk>.
Down about 185 million bucks of inventory compared to the previous year. So obviously, our objective is to rebuild that yard inventories. So we're looking at a potential working GAAP investment and fiscal year, 'twenty, two ranging from $150 to $200 million.
Okay perfect. That's all I have thanks very much.
Your next question comes from the line of Jamie Katz from Morningstar. Your line is now open.
Hi, good morning nice quarter.
Great question.
And you can just clarify whether or not there's any left.
Leftover ebb and Murray.
Hi.
Closed through in Marine and this year I'm, just trying to think about with that.
On a standalone marine business can look like or whether we are pretty much completely through that.
We are completely through that.
No Theres no units left and at the end of the year.
Okay, and then I think I heard you guys day that the gross margin would be flat in 2022 and net.
200 basis points.
And where.
From lower from <unk>.
Basically that if the promotional environment picks up it will not happen until next year and that's one and some of that might get back not this current year that we're on now is that correct.
Yes, that's correct. So if I compare obviously fiscal 'twenty two to 'twenty. There is a so that's two years there is a lift coming from the proportional activity on both 200 basis points bought I compare 2002 to 'twenty one the promotional activity should be flattish in terms of.
And impact.
Okay, and then lastly, because this is a pretty high share of capital funding for you guys project Wise is it right to think about capex longer term and that 300 to 400 million range or is there a better number for that.
And there is a better number which is higher than the $400 million range, obviously as the business grows.
As we continue investing in technology, because we believe that is a.
Big part of being successful and our and our business that requires capex investments and so we expect meaningful dollars of investments going forward yes.
Great following and thank you so much.
Yep.
Your next question comes from Derek <unk> from Canaccord Genuity. Your line is now open.
Yes, hi, guys and congrats on a strong quarter and really strong outlook.
Sure.
And this might be a bit early to ask this question, but I'm just wondering what you guys have seen with some of the new customers that came into <unk>.
Came into this quarter into this space. During Covid have you seen these folks look to perhaps upgrade their products and or buy additional products. Just wondering how their activity has been.
Yes, and I'd like to say there it's a bit early.
Two.
To try to pinpoint and the trend I can tell you that those people are typically younger the ratio of women are higher than it used to be.
And the dealer, even say that the C customer that they've never seen before and their dealership and it's a different profile of customers.
But it's difficult.
To see where they will go next next next on the only thing we we survey and the last month was.
Are you.
Happy with your power sport.
And the UN <unk> to remain into the industry and again, 90% said, yes, we remained to and then and the industry.
And when they come in for the first time are they typically looking for.
And more of an entry level product.
Or are they just kind of buying whatever they can get their hands on at this point.
No I think I think your assumption is right. If I look at the number you know and last year, 50%.
Watercraft sold was two new customer.
Customers and four three will turn and Thats, where we have the spark and the ryker and then your assumption is total there right.
That being said.
You know what.
What we develop as a strategy is to talk to them often.
When they come to the industry, the Illinois to right. Then you we need Thats why the woman Mentorship is important because it's a woman who purchase a unit with peak to the new and trend to say hey come to right. There is a club there there is a nice ride there than what is important is a dominant and to purchase the unit they know what.
And to do with it and this is a big learning.
And that we had from the spike and the and the three Wheeler and Thats what were trying to implement everywhere into our other product line.
Okay. That's great. Thank you.
There are no more questions I will turn the call and as you mentioned I need to close the meeting.
Great. Thank you and thanks, everyone for joining us this morning and for your interest and the ERP and we look forward to speaking with you again on our first quarter conference call and June. Thanks, again, everyone and have a good day.
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