Q2 2023 Winnebago Industries Inc Earnings Call

March 22, 2023

Good day, and thank you for standing by and welcome to the fiscal 2023 second quarter Winnebago Industries Financial results Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will there.

Then here an automated message advising your hand is raised to win.

Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to turn the call over to Ray Pousadas, Vice President of Investor Relations and market Intelligence you may begin.

Good morning, everyone and thank you for joining us today to discuss our fiscal 2023 second quarter earnings results I am joined on the call today by Michael Happy President and Chief Executive Officer, and Bryan Hughes, Senior Vice President and Chief Financial Officer.

This call is being broadcast live on our website at Investor <unk> Dot net and a replay of the call will be available on our website later today.

These release with our second quarter results was issued and posted to our website earlier this morning.

Before we start I'd like to remind you that certain statements made during today's conference call regarding Winnebago industries and its operations may be considered forward looking statements under securities laws.

The company cautions you that forward looking statements involve a number of risks and are inherently uncertain and a number of factors many of which are beyond the company's control could cause actual results to differ materially from these statements.

These factors are identified in our SEC filings, which I encourage you to read.

With that I would now like to turn the call over to our President and CEO Michael Happy.

Thanks, Rick good morning.

We appreciate your interest in Winnebago industries, and taking the time to discuss our fiscal 2023 second quarter earnings results.

I will provide an overview of our performance during the quarter and then pass the call to Brian Hughes to cover our financial results in more detail.

I will return and offer some closing thoughts before we turn to your questions.

Winnebago Industries' second quarter results continued to demonstrate the resilience of our unique business model in the face of macroeconomic uncertainty and a dynamic outdoor industry environment.

We have been focused for some time on a cultural strategic and financial transformation of the business with the ultimate objective of building one of the world's leading and most trusted premium branded outdoor recreation companies.

A more balanced and diversified organization that can hopefully navigate short term volatility better than most of its peers and simultaneously continued to invest smartly in the drivers and engines of a more prosperous future.

Taking great care of its employees customers and ultimately investors.

And while we have much work to do to realize our grander vision and potential. This quarter is a good example of being able to produce solid financial results in the face of adversity.

As evidence of the benefits of a more diversified outdoor portfolio. Another strong performance in our marine segment in the second quarter helped to offset a continued softening in consumer demand for recreational vehicles versus the recent cyclical highs.

And despite a continuation of many of the same macro dynamics, we experienced in the first quarter.

Including general pressure from moderate inflation higher interest rates and supply chain and consistency.

As well as challenging comparisons to the year ago period of tremendous growth.

Continuous efforts to improve the efficiency of our operations reinforced by our commitment to disciplined production and cost management.

Wowed us to sustained competitive double digit margins across our total motor home and marine segments.

Though we must continue to anticipate and actively manage these trends throughout the rest of our fiscal year.

I am immensely proud of how our Winnebago industries team members have risen to the challenge and delivered strong results.

Each of our premium brands is engaged daily on the difficult decisions necessary to balance market share and profitability, along with customer and employee relationships.

Doing so well allows us to simultaneously invest in industry, leading innovation.

And the digital business capabilities needed to compete effectively in the future.

The value of our growing and diverse portfolio of premium brands is evident in our second quarter performance.

And validates that we are a stronger organization in 2023 than we were in 2019.

Ultimately in the second quarter whenever I go industries achieved $866 $7 million and net revenues consolidated gross margin of 16, 9%.

And adjusted earnings per diluted share of $1 88.

While down compared to historic record levels last year. These outcomes remains solidly above pre pandemic results and exceeded external market expectations. Once again, reflecting the strong underlying the agility of our operations and appeal of our products.

Our second quarter results were driven by a few key factors.

First the strength of our innovative premium product portfolio.

Which continues to resonate with an increasingly diverse population of outdoor lifestyle consumers.

We have strong conviction in the ongoing appeal of our premium RV brands, which have maintained net stable market share even as overall RV market demand has softened.

And on the Marine side, the Barletta brand of aluminum pontoons has achieved extraordinary market share growth, making the marine segment, our fastest growing category with consumers currently.

The complementary and steady demand for the iconic Chris craft brand in the fiberglass boat category also contributed to the growth of marine in the quarter.

We are extremely proud of the suite of premium products, we have in the market today.

But we are not content to stand still.

<unk> investing to develop industry, leading innovation remains a core pillar of our strategy.

On the marine side, the recent launch of the Chris Craft Calypso 32 at the Miami International Boat show in February is just the latest example.

The Calypso 32 is the first Chris craft to be fully connected to the owner through the mic Chris craft App.

Enabling real time monitoring of GPS engine battery and builds data as we continue to expand and enhance our consumers' customer digital experience.

<unk> recent launches of the new entry level brand ARIA and its ultra high end offering reserve are giving dealers more reasons to commit increased showroom space to this young exciting pontoon brand.

On the RV side Grand designs imagine aim travel trailer was named RV Pros 2023, best new product of the year.

And this math extension of the popular momentum toy Hauler line offers increased affordability for customers when they need it most.

Our Winnebago brand continues to expand for plans of its many travel trailer product.

Add new paint options to the iconic rebel class B four by four line.

And launch a proprietary partnership with adventure wagon, Audi Mercedes class B chassis, giving the hash tag vandalized consumer a modular interior platform for the ultimate flexibility and functionality.

The new <unk>, new air luxury diesel line as a fourth floor plant offering and now come standard with a lithium ion house battery system.

Furthermore, the recent unveiling of the second generation prototype Winnebago brand <unk>.

And all electric zero emission RV.

And Chris Craft's first zero emission all electric concept bolt the launch 25 GTE or.

Are the latest examples of electrification innovation, we are developing across our brands, ensuring winnebago industries remains a leading innovator in the growing outdoor lifestyle recreational industry.

Many emerging technology becomes accretive to the consumer experience.

The next key factor contributing to our second quarter results is our continued commitment to operational excellence and maintaining our highly variable cost structure.

Winnebago industries is leveraging enterprise capabilities in strategic sourcing and.

And across the board made the order production planning philosophy.

And strengthened consumer insight to shape, our operations and enhance our ability to respond quickly and appropriately to evolving market conditions in ways that allow our business to sustain strong profitability through economic and industry cycles.

We will continue to work closely with our dealer partners to maintain appropriate and balanced overall inventory levels and product mix in an increasingly dynamic demand environment.

We also continue to watch very closely any agent channel inventory and work precisely with our dealers to address in a mutually beneficial manner.

All of these efforts had a direct impact on our ability to produce competitive double digit margins across all our segments in the second quarter.

Lastly, we successfully navigated the resolution of the 2019 to 2022 model year sprinter chassis recall by our supplier Mercedes Benz as well as other supplier component constraints or quality challenges, resulting in a lower than anticipated impact to MAU.

<unk> revenue during the second quarter.

We are fortunate that our outstanding Winnebago industries team is adept at navigating these challenges to mitigate the impact of supply inefficiency on our top and bottom line.

Although we are fine having less practice on that going forward.

Though the frequency and severity of supply constraints are decreasing global supply chains continue to be very dynamic presenting ongoing risk and must be monitored closely.

Looking ahead, we will continue to actively manage and navigate a dynamic demand environment with a focus on profitability through disciplined production and cost management, leveraging our highly variable cost structure and by working closely with our dealer partners.

We will also continue to capitalize on our strong balance sheet and cash flow generation to make.

<unk> investments in our business and our future.

Reinforcing our golden threads of quality innovation and service and ensuring our increasingly diverse portfolio of premium brands continues to resonate with consumers.

Winnebago industries remains well positioned to further strengthen our enterprise capabilities capitalize on growth opportunities through the cycle.

And achieve our long term value creation goals.

With that summary, I will now turn the call over to our Chief Financial Officer, Bryan Hughes to review, our fiscal 2023 second quarter financial results in more detail.

Ryan.

Thanks, Mike and good morning, everyone.

Quarter revenue were $866 7 million, reflecting a decrease of approximately 26% compared to $1 2 billion in the second quarter of fiscal 2022.

As Mike mentioned these results are lapping record high pandemic driven demand from the prior year.

The expected decline in unit sales was partially offset by carryover price increases across all segments.

Our efforts to diversify our portfolio of premium brands across multiple segments in the outdoor recreation space proved beneficial this quarter as.

As evidenced by the variability of the growth versus prior year in each segment.

<unk> sales increased 16% in the quarter motor home sales were down just 3%.

And terrible sale with portfolio, leading sales results. The past two years was down 47% on the tougher comp.

The mix of our businesses. Therefore produced a meaningfully improved consolidated sales result relative to the RV industry.

While the mix of our business was beneficial our teams demonstrated disciplined execution within each segment as tolerable motor home and Marine all drove double digit EBIT margins in the second quarter.

Gross profit for the quarter decreased 32, 2% to $146 8 million from $216 6 million during the second quarter of 2022.

Gross profit margin of 16, 9%.

170 basis points lower than last year. These declines were driven by lower volume higher material and input cost deleverage and productivity loss from supply disruptions, but were partially offset by carryover price increases that were implemented last year.

Operating income was $76 8 million for the quarter, a decrease of 43, 9% compared to $136 8 million for the second quarter of last year.

Second quarter net income was $52 8 million 42, 1% lower than the $91 2 million recorded in the prior year period.

Reported earnings per diluted share was $1 52.

Compared to reported earnings per diluted share of $2 69 and.

In the same period last year.

Adjusted earnings per diluted share decreased 41% year over year.

From $3 14.

$1 88.

Consolidated adjusted EBITDA was $88 4 million for the quarter.

A decrease of 41, 3% from $150 7 million in the prior year quarter.

As a reminder, we adopted a new accounting standard in the first quarter of fiscal 2023, which impacted the accounting treatment for our convertible notes and the calculation of earnings per diluted share.

Specifically the impact of the adoption is the reduction in interest expense on the face of the income statement and an increase to the number of diluted shares outstanding and the earnings per share calculation.

Our adjustment following adoption of this new accounting pronouncement result in adjusted EPS to be on an equivalent basis with how we have been doing the adjustment previously.

Such that we recognize the economic benefit of the cost spread overlay that we implemented when we issued the convertible note.

I will now go over our performance by segment.

Starting with our <unk> segment.

Revenues for the total segment were $342 5 million for the second quarter.

Down 47% compared to the prior year.

This was primarily driven by declines in unit volume as a result of the normalization of consumer demand as well as the impact of our adjusted production schedules due to normalized dealer inventories.

To put our second quarter performance into context revenues for the total segment are up 36, 6% compared to the second quarter of fiscal 2019, and up 28% compared to the second quarter of 2020 prior to the outstanding demand catalyzed by the pandemic.

We are confident the long tail impact of our record growth period will continue to propel Winnebago industries for years to come.

Even as the environment normalizes and setup tough year over year comparisons.

Segment, adjusted EBITDA was $39 3 million down 69% from the prior year period.

Primarily as a result of deleverage and higher discounts and allowances compared to the prior year when demand was elevated.

Adjusted EBIT margin was 11, 5% down 410 basis points year over year, but up 100 points sequentially.

Backlog decreased to $278 2 million down 85, 1% from the prior year when dealers were focused on increasing their inventories.

Turning to our motor homes segment, we delivered second quarter revenues of $403 8 million down approximately 3% from the $417 6 million recorded during the prior year period.

This slight decline was the result of unit volume declines, partially offset by carryover price increases and favorable product mix.

The Mercedes Benz recall remedy was implemented earlier than we had anticipated and the impact therefore had a smaller impact of the second quarter than what we had anticipated and communicated at our prior earnings release.

Rather than the $50 million impact we had expected, we now estimate slightly less than $10 million impact to revenue.

Working capital remains elevated in part due to the recall.

Segment, adjusted EBITDA was $42 5 million, representing a decrease of seven 8% from the prior year.

Adjusted EBITDA margin was 10, 5% down 50 basis points from the second quarter of 2022, due to deleverage productivity and supply chain challenges, partially offset by carryover price increases.

Backlog for the motor homes segment decreased 66% year over year to $872 7 million driven by normalizing levels of dealer inventories.

Dealer inventories of motor homes are gradually returning to more appropriate levels the pocket of replenishment opportunities remain.

As always we continue to work closely with our dealer partners to ensure they have the products they need at the appropriate time to meet consumer demand.

Finally, let's turn to our Marine segment, which continued its strong performance in the second quarter.

Revenues were $112 9 million up 16, 1% from the prior year as a result of carryover price increases.

We remain encouraged by the continued and growing demand in the marine market for our brands, particularly barletta, which continues to outperform the aluminum pontoon category and gain market share.

Adjusted EBITDA for the Marine segment was $14 4 million 11, 4% higher than the same period last year.

And adjusted EBITDA margin was 12, 8% 50 basis points lower than last year.

Our backlogs were down 14, 1% compared to the second quarter of the prior year as we continue our work to replenish dealer inventories in the marine space.

As always we will continue to closely monitor demand trends and our marine markets and manage our production accordingly.

Moving now to the balance sheet as of the end of the quarter Winnebago industries had approximately $591 million and outstanding debt, representing a net debt to EBITDA ratio of approximately <unk> seven times.

Our healthy balance sheet continues to be a strength for us and continues to support our balanced capital allocation strategy.

We made further progress in our strategic investments, we are making in our business to drive growth and improve our operations.

For example, the manufacturing capacity expansion, we are constructing for both our marine businesses are nearing completion, and we expect both to come online in the back half of the fiscal year.

We remain committed to balancing these investments with returning capital to our shareholders as evidenced by the payment of our quarterly dividend for the quarter, which as a reminder was increased by 50% to 27 per share during the fourth quarter of fiscal 2022.

Lastly, I know, we're all watching with great interest the stability of the banking industry. Following the collapse of Silicon Valley Bank and signature Bank and.

And others that have shown signs of vulnerability, including most recently credit Suisse.

Our own banking relationships are with institutions that are believed to be sound.

We likewise had been monitoring the situation closely and to this point are not aware of key suppliers or dealers that have been exposed to the bank failures, nor are we hearing of situations that would impact the availability of credit at the wholesale or retail level.

This remains a fluid situation and we will continue to monitor the impacts to key stakeholders as they evolve.

With that I will now turn the call back to Mike to provide some closing comments Mike back to you.

Thanks, Brian .

Anticipation of a robust Q&A session I will be brief in our closing comments.

Despite the current softening of consumer demand for Rvs, we remain confident that our opportunities for growth and long term value creation are robust and our long term targets for revenue market share and profitability are appropriate and achievable.

Engagement in the outdoors continues to be extremely healthy during 2023.

Consumers young and old increasingly diverse and always adventurous or using their rvs and boats or in some cases rental and our friends rvs and boats, two experienced physical and emotional well being outdoors.

Our supplemental slides contain fresh updates on those participation trends.

As many on this call are aware the RV industry Association recently lowered their expectations for calendar 2023 RV shipments.

To a mid range of 334000 units in response to a weakening macroeconomic environment.

Interest rates and an anticipated reduction in consumer discretionary spending.

While we respect the impact these trends are having on the end market consumer the outlook. We have based on our business plans is a bit more optimistic.

Based on what we are seeing in the market.

Hearing from our dealers and customers.

We're currently expecting shipments for calendar 2023 to be in the 340 to 345000 unit range.

Anticipating the dealer channel to destock about 30% to 35000 units over the 12 month calendar period.

Of course, there is no clear crystal ball that we nor any of our dealer or supplier friends have.

And the ultimate numbers will still be determined by the yet to be seen retail vitality of the spring and summer selling season, and the plethora of elements that contribute to consumer confidence.

Our investors can rest assured that we run multiple sensitivity scenarios into our operational and financial planning models and are prepared to navigate through anything worse.

Or better.

As we have previously stated we are not counting on a dramatic rebound in RV shipments to achieve our previously announced <unk>.

2025 financial targets.

Our success toward achieving those goals is primarily predicated.

On the continued execution of our organic growth strategy focused on delivering superior quality innovation and service to drive market share expansion and operational excellence to further improve profitability.

Our organic growth can and likely will be augmented with inorganic opportunities, we maintain ample financial flexibility to be opportunistic and expanding our platform.

But only if we believe in the strategic imperative of those possible acquisitive additions.

Looking ahead, we are confident that Winnebago industries is well positioned to maintain and grow market share and further expand the baseline profitability of our business.

Each of our fiscal quarters in 2023 or any other year has its own flavor and can be affected by short term unanticipated challenges.

I am more concerned about the consistency of the revenue line in the months ahead than I am with our ability to turn a solid profit yield.

The former revenue is dependent mostly on the macro wholesale market available to us.

While the ladder profitability yield is more of a competency that we can impact directly.

We have the right talent, a diversified portfolio a premium outdoor lifestyle brands, a commitment to innovation and operational excellence.

All backed up by a strong financial discipline and a balanced capital allocation strategy.

We remain resolute in building a premium outdoor lifestyle company that delivers value to customers and shareholders for the long term.

That concludes our prepared remarks. This morning, I will now turn the call back over to the operator, who will open the line to your questions.

Thanks again for your interest in <unk>.

Winnebago industries.

Okay.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Okay.

Our first question comes from Alex <unk> with Baird You May proceed.

Yeah. Thanks, gentlemen, good morning, and thanks for all the helpful context on the industry.

Can you maybe just wanted to touch on cash flow actually modest cash flow from operations.

First half year and another recall has impacted working capital.

How should we be thinking about that in the second half though.

Hey, good morning, Alison Thanks for the question this is Brian .

Yes, we continue to be challenged with working capital in particular inventory.

Due to the recall as well as other supply chain challenges that we have that of course is further amplified by the continued decline in retail demand pull through and so.

We ended up having more finished goods.

And of course in what we've had historically.

Going forward the right way to think about it is yes, we do expect some of that working capital to unwind as we catch up so to speak with the decline we're seeing in the end markets.

And we would expect then that working capital would be a net contributor to cash flow versus a detractor as it's been for the past year and a half now or so.

So that's how we're thinking about it.

Yes.

Helpful and then just.

Just on the Marine segment strong quarter there.

Have a long history of the data from an inventory standpoint, but it did increase.

What 95% over 4000 units whats the right level of inventory there for the current environment you have room to expand that still given your market share gains or is there.

Can't drawdown.

Yes.

Hi, Good morning, Alex This is Mike.

Primarily your question pertains to brand.

And before I get to the Bartlett brand I'll, just acknowledge that the Chris craft brand continues to have low inventory in the field. So that's our smallest marine business and really the smallest of our.

Of our five branded businesses overall.

Chris Craft standpoint, we continue to have an opportunity to put more inventory in.

The dealer channel in a healthy manner.

But a lot of standpoint, we have to recognize that they are a business in transition at a very healthy positive transition.

And while inventory is certainly.

Elevated than then.

<unk> historical gross unit numbers.

This is a brand that has went from roughly zero percent market share of five years ago to approaching about 75% share in the aluminum pontoon market. They also just have recently introduced two new brands to their product lineup. So they went from three brands to five brands and you are seeing some pipeline fill from us.

Especially the introduction of a brand called the ARIA, which is a more entry level pontoon brand that allows us to go from competing in about 40% of the aluminum pontoon market to competing in about 70% of the aluminum pontoon market.

The last factor I mentioned for <unk>, and we don't talk about this much.

Primarily because of recent supply chain constraints is that we probably have somewhere in the neighborhood of two to three dozen open markets still in the United States markets, where we believe there can be a barletta pontoon dealer.

To go after retail business.

So.

You will likely probably see.

The inventory levels on bar on the marine side remain elevated historically, but most of that we believe is appropriate because of the barletta transition now we are carefully watching the aluminum pontoon category.

That has certainly slowed down here.

Here in recent months.

We will manage production rate.

And any expansion of these new brands or into new markets.

At an appropriate and disciplined level.

Great. That's helpful context, Thats all for me thanks, guys.

Thanks Allison.

Thank you. Our next question comes from Williams, starting here with BMO capital markets. You May proceed.

Hey, good morning.

You guys called out Mercedes Benz recall, I had a $10 million headwind to sales in Q2, how much of a tailwind in three and four to do guys. Thanks, Pat Thanks.

Yes.

It's hard to predict if there is a catch up.

<unk>.

The forward view, we're not counting on it to be clear.

There might be some but we're not counting on that.

Okay.

What percent of dealer inventory.

Model year 'twenty cure earlier.

So good morning. This is Mike we are paying very close attention to that subject and here. Just recently conducted an analysis of all of our brands on the RV and marine side.

And have understood specifically, what those numbers are we're not going to share that number externally.

But we know what that number is.

And many of our businesses, we feel very comfortable that the <unk>.

Model year 'twenty two inventory is.

Is not unhealthy we have a couple of places where our model year 'twenty two inventory is a little heavier than I would like.

And the businesses are aware of that and working with the channel partners.

Safely to try to take care of that so we do not view model year 'twenty two inventory for Winnebago industries.

Significant headwind here.

Here in the rest of 2023.

We really do not plan to introduce our model year 'twenty for product for the RV business.

Until later this late summer.

Probably again in that July through August to September timeframe, we will certainly begin talking about model year 'twenty four product.

Some of our dealer events coming up in the future.

Our model year 2000, and for timing is still a little ways off which is which is good because it gives us some more time to allow the dealers to focus on that model year 'twenty two.

<unk> inventory.

Perfect. Thank you Sir.

Thank you.

Next question comes from Scott <unk> with Roth <unk> Partners you May proceed.

Good morning, guys and thanks for taking my questions.

Hey, good morning, Scott.

Can you maybe dig a little bit more into the total side of the business.

You talked about I guess, some promotional activity in the quarter your margins at least sequentially held up pretty <unk>.

Darn well. So can you just talk about the level of discounting that you've had to do.

And.

And if there was anything else that helped the profitability in total in the quarter.

Yes.

Scott This is Mike I'll speak to.

Some of the discounting behavior that we're seeing and then Brian can add some more meat to the bone on the on the margin side.

From a discounting standpoint, we certainly have been seen.

Dealer promotional activity at retail.

Return here over the last year.

And so dealers are certainly operating within the total segment and a lower gross margin level than they had seen during probably their peak gross margin days in parts of 2021 in early 2022. So the dealers are certainly return to promotional Lee competing against each other.

To move product.

<unk> seen that in some of the shows and in some cases you see a graduated level of promotional activity based on the age of that inventory.

Excuse me our businesses had provided.

Times, certainly support to help dealers address excessively aged inventory and that is that is.

And activity that we've done ever since I've been here now seven years. So this is really a return to what we believe is a healthy partnership with our dealers on excessively aged inventory.

The last form of discounting I would say is that.

<unk> backlogs have retracted and dealers in some cases have canceled orders that they had once submitted we have had in the last six months.

An elevated level of finished goods open inventory.

Higher than we're used to seeing and consequently, we've been obviously working carefully with our dealer partners, especially on the RV brands to move that inventory.

Careful way and you can tell from the margins that we reported this last quarter that we were not forced to do anything irrational with those discounts.

But we have been active in discounting some of that open inventory that we've had on our own on our own lots and we will continue to monitor that side of our business carefully.

Going forward, Brian you want to comment on my yes. Thanks, Mike just briefly Scott if you look at the discounting relative to what we've done historically, most notably pre pandemic.

It's very consistent for Q2 Theres some seasonality of course in the business. So the discounting in Q2 was similar on the motorized side to pre pandemic levels and on the <unk> side, maybe just a little bit elevated but less than a point expressed as a percent of sales just to give you some perspective there.

No.

Pretty consistent overall with the pre pandemic activity.

Got it and then on the motorized side sales were only off a few percentage points and obviously some of that has to do with the faster than expected resolution of the.

The sprinter recall, but.

<unk> were up pretty sharply.

Inventories year over year, I know that there is the.

The pipeline has been pretty barren for a while but could you maybe just talk about was there an accelerated build out of our product.

<unk> reached filling dealer pipelines as retail further falls in the supply chain is easing.

Scott I would say you've hit on a couple of the factors as to why motorized revenue declined significantly less than our than our told those revenue. The first factor I would say is as you said the faster resolution of the Mercedes.

Safety recall issue allowed us to return.

To shipping those Mercedes chassis that had been stuck on our lot for many months.

<unk> is our new business.

He has been working for the better part of the last year and a half to have a better cadence of production.

Because of supply chain consistency.

And refill the dealer channel on the Newmar side in the Newmar business has done an excellent job of doing so in the first two quarters of this fiscal year I would say the third element is on the class C side for Winnebago, we have been seeing some nice retail momentum.

Particularly on the new Echo that we introduced to the market about a year ago.

As well as our view of Navient product and.

So that's allowed us to.

To shift certainly some more inventory to the dealers behind those strong retail sales.

In order to make sure that they continue to have enough on those particular brands.

You are also seeing the benefits of dollar wise of some of the year over year pricing actions that we had taken in previous quarters, we did not raise price significantly in Q2 on our motorized product, but the year over year comp is definitely being aided by some of the prior price increases.

We took when inflation was at an elevated level.

Alright, and if I could just sneak one last one in.

And talking about how the total I guess dealer situation needs to be.

<unk> needs to be rebalanced and.

As we work through clearing out to 'twenty. Two is what is the timeline for when you would expect to start to.

Benefits from dealers going back to ordering products such as Grand design.

Okay.

Well dealers do continue.

<unk> products, such as Grand design currently.

It certainly the rate is.

Reduced compared does those peak pandemic pandemic frenetic retail days.

The timing question, Scott is very difficult to answer because it really all depends on retail.

We continue to monitor retail on a on a weekly basis in our business.

And certainly dealer ordering patterns will be a combination of the seasonal retail activity that we see here in the in the late spring to summer months.

In addition to some of the Destocking.

Levels that they're looking to achieve over the course of this calendar year as I stated previously.

We will stay disciplined and not introduce model year 'twenty four product.

Until later this summer.

And that should allow us a good chunk of the late spring and early to mid summer to try to focus on those model year 'twenty two products, but we.

We cannot and will not prognosticate on.

Exactly when sort of retail.

We'll pivot in a way to reignite dealer orders to a higher level that is that is difficult to forecast and we just need to remain extremely agile on a literally weekly basis to react to what the market and the dealers are telling us.

Yes.

Got it thanks again guys.

Thank you.

Our next question comes from Fred Wightman with Wolfe Research you May proceed.

Hey, guys I just wanted to follow up on the industry commentary that you gave if we go back and just sort of look I understand that the overall levels have come down but last quarter. I think you guys were expecting wholesale and retail to be pretty much imbalance. Now you are calling for a little bit of Destocking. So can you just sort of walk through what exactly changed and maybe what the feedback from dealers is.

And what do you think that means for like a quote unquote normal inventory level going forward.

Yes, Brian This is Mike our last formal comment on industry shipment and retail levels was all the way back in mid December .

And here we are in late March and so a lot has changed since mid December and Thats why <unk> seen not only the RV industry Association, but almost every other one of our OEM or supplier peers.

Their forecasts as well on on <unk>.

Industry volume in 2023.

So.

And we just continue to be more enlightened.

The reality of market conditions, and what our dealers are telling us in terms of desired turn levels.

Going forward and so the numbers that we offered in our prepared comments today, our latest thoughts.

They are a little bit more progressive in terms of the amount of field inventory that we believe needs.

Needs to be expelled from the field.

And we'll see if that happens, but our businesses.

Have operational plans from a sensitivity standpoint.

That are lower than those numbers in order for us to prepare in the event things get worse and.

And we also have the ability to react relatively quickly if retail were to be better than expected.

This summer as well so so that's our latest range, it's not really candidly too far off what.

A lot of our other peers are saying.

Candidly many of you the sell side analysts, where we're generally in a similar range as most everybody else. So.

Totally fair and then just on Asps as we think about that moving into the back half of the fiscal year can you help us out, particularly on the <unk> side is that going if the rate of change going to be sort of similar or do you think it will stay positive on a year over year basis, what should we sort of looking for or expecting given the discount.

Yes in terms of the pricing activity, it's been pretty stable here the last couple of quarters and even going back into Q4, So we're still annualizing.

Fred on some.

Of the <unk>.

Nice activity that we did earlier last year.

We're expecting more stability.

And we'll continue to match that with the inflationary pressures, which continue to be elevated on the motorized side.

From the chassis costs, but on the towable side, a lot more stability that we're seeing there and so that's how I would think about pricing as we go forward.

Mixed things going on in the AFP as well of course.

There always is.

In terms of the higher end units.

In the results and the volume that we're seeing there.

Or the higher the premium brands within Grand design for example.

Having more success.

So youll have some mix impacts that will continue.

But the pricing activity itself should be pretty minimal based on what we're seeing in the on the cost side of the equation.

Understood. Thanks, a lot.

Thank you. Our next question comes from Bret Jordan with Jefferies. You May proceed.

Hey, Good morning, guys. This is Patrick Buckley on for Bret Jordan, Thanks for taking our questions.

Yes, good morning.

Given the current elevated interest rate environment.

Should we expect to see a change to a new lower optimal level of dealer inventory compared to pre pandemic levels.

Okay.

Well, let's see.

It's a good question in the sense that I think dealers are trying to answer what the right inventory levels are as well and I think dealers are still.

Primarily focused on.

Having the right level and mix of.

Inventory on their lots to optimize whatever retail is available to them.

But I think your question also infers that the cost of carrying that inventory is.

He has hired to them as well, which we certainly certainly acknowledge and.

I think thats one of the reasons why you are seeing dealers be very serious and proactive here with addressing their model year 'twenty two inventory.

As quickly as they can.

It's a good thing if dealers return.

Or exceed historical turn levels.

I think when we saw dealers go through the 2020 late 2020 to early 'twenty two time period, we saw dealers become X X.

Extremely financially healthier in terms of gross margins.

And higher churn levels, lower working capital and as an OEM, we think thats a good thing.

So we would welcome higher turns.

From the dealers, obviously, there would be a transitional period, where dealers as we've forecasted would have to.

Reduced their inventory levels overall in order to probably get to that point.

But we are supportive of working through that transition with dealers, we feel that our operations and production processes allow us to be a good OEM partner and supplier to the dealers even at higher churn levels. So so I anticipate the answer to your question is yes.

The challenges is we don't know the exact timing.

Got it that's helpful. Thank you.

And then I guess could you talk a little bit more on that the current pricing environment. It sounds like maybe more specifically on motorized.

You saw pretty healthy year over year increase in Asps. This quarter. It sounds like you guys expect that to be a little bit more sustainable given the chassis shortage.

Or should we expect some moderation there moving forward.

I would say when you speak about pricing, we have to break it down by each of our businesses, but I would I would generally say on the motorized side.

While there has been.

Very meaningful year over year inflation from an ASP standpoint that affects retail customers.

The cost environment on motorized is is probably not yet in a stable enough environment in <unk>.

Order for there to be deflationary movement that <unk>.

Reaches the end customer.

Especially on the newest model year product.

<unk> seen more stable.

Cost environments, and some of the rest of our business and in fact on some categories. We are seeing some deflationary cost trends.

That we believe are very healthy and helpful for us to.

Look at potentially even winding back pricing a little bit.

In the future, but each business each product category.

We'll continue to evaluate and do it do what they think is right.

Got it that's all for me thanks, guys.

Thank you.

Our next question comes from David Whiston with Morningstar You May proceed.

Thanks, Good morning.

Yeah.

I guess first on on SG&A, how much more can you cut there if any.

Should you need to.

Good morning, David This is Mike.

Well.

That answer really depends on on.

Whether you want to cut simply muscle or do you want to start cutting into the bone and.

We managed SG&A very intentionally most of our SG&A is within the business units and the brands themselves.

A combination of a number of different types of costs and we feel that our businesses have been.

Very intentional and appropriate with managing.

The SG&A year to date, however, if the marketplace continues to be softer.

Then.

We would like or that where even forecasting.

All of US here, we will have to look very carefully at some of the further cuts we can make on expenses.

And potentially structure as well.

But.

We want to stay very prudent and disciplined.

Certainly don't want to create excessive overhead or bureaucracy. There are several things that we need to continue to invest strategically in.

That are important to our future that we would have to evaluate further as well. So so the net answer to your question is we do continue to have the dial to be able to turn SG&A spending down.

It's just a trade off in terms of your strategic investments your structure.

What level, you think youll need to live at here, while we're writing through this this down cycle.

Okay. Thank you for that and on your EV.

A little over a year I think since the unveiling I'm just curious how is the consumer interest for it relative to your initial expectations a year ago.

And do you see maybe.

Within the <unk> momentum accelerating maybe more than you did when a thought of a year or two ago given that it is picking up on the light vehicle side.

Yes. Thanks for the question on the EV in January of 2022, we introduced.

The <unk> RV, one which was the concept.

<unk>.

And we saw great reaction to that now about 15 months ago in January of 2023, we introduced a prototype version of that <unk>. We currently have.

Probably around 10 to 12 vehicles.

That are being used in the market today.

By different stakeholders that we trust.

They are using the product to give us real world feedback.

As to how it operates.

Certainly such such metrics says.

Mileage travel range.

Off the grid capabilities and in terms of duration of the batteries there.

And so we continue to get that feedback and along with internal engineering and manufacturing development work.

<unk> progress towards a possible launch of that vehicle.

Consumer interest in the <unk> has been what we would characterize as very strong and we can capture a lot of that interest digitally.

In ways that our marketing team on the Winnebago brand is using.

Both measure, but also capture that interest so.

But yes, we believe that the.

That the adoption of electric vehicle technology in passenger cars.

And last mile delivery.

Yes.

Is only going to help the RV consumer consider that technology credible.

Focus when introducing ultimately someday and electric RV van to the market is that the consumer experience.

Is is enhanced.

And not degraded and so we will come to market. When we feel that we can provide a consumer experience on an electric RV.

Meets the reputation and the standard that is associated with our Winnebago brand and so we feel we feel good about our progress.

It's not about being first it's about ultimately being best in terms of what we bring to the market and Thats and Thats been our focus.

Yes.

Okay, and just one more thank you for that.

Cynical investor following you guys right now.

Could look at your backlog and say well, Mike did say it was really high and that's going to come down which it has.

But once that that final backlog is burned off when it make us top line is just going to be in a lot of trouble.

I don't think you would probably agree with that but what's your reaction to that sentiment.

Well, we're acutely aware David the backlog certainly as you can see the numbers in the earnings release.

At the end of February .

And.

We have confidence that ultimately.

The dealers will place orders when they think it's right for their business and.

We really do not want to operate a business that is excessively pushing inventory into the market, we've been very intentional and even vocal.

A high percentage of the time, we run.

A production planning process across our businesses, where almost every unit on the line has either a dealer name or a customer name.

I did make a comment in our prepared statements. This morning.

That the revenue.

Online is the one I worry about the most in terms of its stability and consistency month to month quarter to quarter.

That line will continue to be under some pressure.

In the next couple of quarters and.

And we will have to continue to.

Optimize that in a healthy way.

As the market allows what we can control most of the time even back to your SG&A question is the profitability of the business.

We are willing to.

Give us a little bit of market share up at times in order to maintain a profitable healthy business and so we're not going to chase.

Every last wholesale unit or every last retail unit. If it means we have to cut our profitability in half for example.

And so it's.

It is a balance between the top line and the bottom line, but.

We're very pleased with our Q2 results I think we're especially pleased to demonstrate that the profitability of the businesses as we've been stating structurally.

Structurally present, and I think thats, what we will continue to focus on most in Q3 and Q4 is the profitability of the business.

The top line will be a little bit more out of our control depending on market conditions, David the one thing I'll add to that just to supplement what Mike thinking we included some information on this in our supplemental deck.

A deck that is posted online.

Supplemental financials, which is a very healthy consumer and a very healthy interest in the outdoor lifestyle, which gives us a lot of confidence long term.

In our top line.

That information I think you'll find useful as well in terms of the number of households that are participating in the outdoors and camping. The number of households that are eager to buy an RV or get into the RV lifestyle. So I won't go into all of that information, but encourage you to look at it as well because I think it's also.

A good indicator of.

The stability that is to come.

Going to continue to face some near term volatility in the top line, but obviously our focus is.

Even more so on the long term and we feel good about.

The state of the industry long term.

Okay. Thanks for the color I appreciate it.

Okay.

Thank you.

Our next question comes from Joe <unk> with Raymond James You May proceed.

Hey, guys good morning.

First question I want to go back to something you mentioned earlier, Mike about desire dealer inventory turn level.

The question on the last call. So I'll go ahead Phil.

Then that you would have with returns.

Thank you.

Youll have to kind of shake out.

Yes, Joe ultimately.

Yes.

There'll be a consolidated number the one that you probably just referenced are asked about there and as you know that number is broken down by each of our businesses. We believe that dealers will desire to have higher churn levels on their <unk> products.

Versus their motorized products, so that historically won't change.

But if we can get some retail stability in the market in 2023 and by that I mean that the dealers have increased confidence that the retail sales will be at a certain level of range. I think then that they will work to set their net.

Their net consolidated churn levels at a little bit higher level then.

And then.

What they were at pre pandemic. So so two and a half to three would be a good range I think for them you will find some dealers that will be more aggressive and say they'd like even higher turns and you will see some other dealers that are comfortable with maybe something on the lower side of that but.

I think that's not a bad range for the dealers to shoot for we have to set up our business to react to whatever turn level that they ultimately end up settling in as they settle at two two and a half or three.

We obviously need to compete.

To serve them.

At whatever level that they turned to so.

But.

Here would be higher would be better and some would be surprised that an OEM would say that.

But I think our financial health for our dealers and higher churn levels.

At high fill rates would be a good thing and I think winnebago industries would be advantaged to that end.

Got it.

Youre sitting with historically.

Lines sequentially from Q1 to Q2 this quarter, we actually thought sequential increase further.

Further now below two.

Concerned about maybe over shipping in the quarter, particularly for retail doesn't materialize.

Like you think it will.

Yes. The question, whether we are concerned that we did over ship in Q2 or that we could over ship in a future quarter.

Just given that it.

Usually from a seasonal perspective to see a sequential increase.

Shipment and Youre down below two turns.

Yeah, Thanks, Joe for the clarification there.

I don't think our businesses in hindsight here three weeks into Q3 feel that we did anything in Q2 that jeopardize the business in any significant way.

Again to be fair to our businesses.

We had we had produced units that the dealers had ordered from us that they subsequently canceled and so when that happens and we ended up with open inventory on our lots we will work in a careful intentional and smart way to place that in the field.

A unit has a significantly better chance of retailing when it's on a dealer lot than if it's auto manufacturers a lot and so.

Q2, you certainly saw us deal with some of that open inventory in Q3, and Q4 I think what you'll end up seeing in probably into our Q1 fiscal 'twenty four year I think youll end up seeing some of that.

If the inventory the inventory in the field is going to retract in the neighborhood of 30% to 35 units like we had stated in the call. This morning.

We will be a part of that inventory destocking.

And so we will need to see some destocking in our businesses as well probably over the next three fiscal quarters and so I'm really focused now on Q3 and Q4 of this fiscal year to make sure that to your point we.

Don't over shift we are great partners.

With our dealer channel.

And that we helped set the inventory levels in the market that are.

That are right and healthy in our long term interests. So and that's why I stated that that revenue line is the is the line that probably could have more volatility in the quarters to come.

Just one last one if I could on that last point it doesn't sound like you are expecting any major changes from them.

Margin standpoint in the second half on the total side either.

We feel that our business as we've stated previously as is.

Is being run with good discipline.

And so we've we've stated very clearly at times repeatedly that.

We believe we've established a new financial floor in the business and.

And while we certainly don't provide formal guidance or forecast.

Our expectation.

In future quarters as similar to what you saw this quarter that each of our business segments can deliver double digit adjusted EBITDA yield.

And we will see if we can maintain that in future quarters some of that will depend on.

The stability of the overall marketplace, but but our business structurally is in a is in a good place.

Not see wild swings in profitability that surprise us.

Not to say that could never happen, but.

We believe our leaders are managing the business.

<unk> and <unk>.

Especially profitability wise paying very close attention to.

So what we think is fair to make.

Got it thank you guys.

Thanks, Joe.

Thank you.

Our next question comes from James Hardiman with Citi. You May proceed.

Hey, good morning, Thanks for taking my call.

Maybe a similar vein of question to what to what Joe was asking there, but I wanted to talk a little bit about share of shipments.

We don't have the February data, but it does seem like you may have had a greater share of shipments in the in the second quarter. I guess why do you think thats. The case is that a good thing or a bad person is that right.

We've got a good thing or a bad thing and why do you think that.

That happened in Q2, and then as I think about the broader.

Full year, I guess with calendar year guidance.

Which makes it a little bit trickier.

But the difference between how youre seeing the industry.

One of the smaller players.

Relative to your big peer in the industry Association I don't think Theres a ton of daylight on the retail assumption.

Should I read this as you think of your shipments will decline, maybe a little bit less than the rest of the industry.

Help us parse out a little bit of that.

Yes James.

It's a fair question and we have stated in past Q&A is that.

We do not obsess about shipment share at the end of the day, we do believe as Im sure most businesses do that retail share as is the ultimate.

Judge and jury on the health of your business.

We certainly pay attention to shipment share to the degree that it.

Supports our retail ambitions and our shipment share through the years has risen in a very close and coordinated fashion, obviously with the retail show rise in our business the last six or seven years.

I'd say the shipment share.

Ken Ken.

Very from quarter to quarter.

Up or down anywhere from 50 to 150 basis points, one one in the RV business and.

And I'm not sure. We historically have read much into that where we are a different OEM than our peers with different mix.

Different supply chain constraints.

Some things that are headwinds affect us better or worse than our competitors.

Vice versa.

So so if in fact in our quarter two period, we took a little bit of shipment share.

I would tell you that was not an overarching objectives. It just happen because we thought it was the right thing to do to ship ship, what we shipped.

And I don't anticipate in future quarters, a dramatic <unk>.

Increase or decline in our in our shipment share going forward. It's generally stayed in a pretty pretty steady steady range and listen as the supply chain in improves.

<unk>.

That allows us to stay in that range I think relatively.

Comfortably so.

I would say in businesses like our letter on the aluminum pontoon side, where we have a young fast growing market share taking brand that is expanding its product line as market expansion possibilities.

That would be a specific business where we.

We could rationalize that shipment share well timing wise be ahead of retail share.

As we continue to grow.

That brand in that business, but even there as the pontoon market is called <unk>.

Have to make sure that shipment share and retail share are not completely out of out of whack. So.

So I guess the net answer is we thought Q2 was responsible.

And it really wasn't driven by any shipment share ambitions of significance.

One other thing I'll add to that Jamie.

Just briefly sorry, one other thing this is Brian I'll add to that to Mike's comments, we've talked historically about this but just as a reminder, okay.

What we saw through the peak of the pandemic as some of the tier two and tier three brands accelerate their shipments.

To make up for call. It a lack of sufficient capacity by the tier one brands to meet the full demand in the marketplace and so we've been talking about how some of those tier two tier three brands, we will start to ease on dealer lots as the dealers sell select back to the top brands, including the ones in our portfolio.

Leo of course, and so perhaps what youre seeing a bit of in Q2, although it's just it's just a quarter.

Perhaps what youre seeing is some of that return to the tier one brands and the preference by dealers for those brands and we've been talking about that for some time. So just a reminder, on that impact got it as well.

So just to clarify on the full year guide I mean, do you think I mean, it's not a huge gap, maybe 3% difference right.

Eight to 10000 units do you think the difference between you and the RV IAA is youre, a little bit more bullish on retail or youre, a little bit more I guess conservative.

Conservative in terms of what you think the inventory drawdown will be.

James I would say it would be the latter.

I am I.

I'm, probably a little bit more skeptical than some of our.

Our peers are other stakeholders that the that the inventory drawdown can be as dramatic as some has forecasted if it happens obviously our business will deal with it but I think we've tried to be a little bit more moderate.

Dealers are competitive.

I mean, there will be a point in time, where 10000 units were taken out of the market and 20000 units were taken out of the market and then 30000 units were taken out of the market there will be dealers at some point that go okay, I'm ready to I'm ready to sort of stabilize my my turn level my inventory level and compete.

While other dealers would continue to have an appetite to destock and so.

Because of how fragmented the dealer channel is.

Debt.

Thats sort of coordination in inventory lowering.

I'm skeptical that it can be.

As much as people are forecasting in a short period of time I E. Here the next sort of saw.

Six six to eight months.

For sure, Yes, I think we're all skeptical one more one more for me.

You've talked a couple of times about.

Dealer orders being canceled the elevated finished good.

Open inventory.

Presumably.

Youre going to get.

Lower margins on that that kind of product is that how much of that is they are heading into the back half of the year for you guys.

Is the majority of that been sold through or is it sort of just as significant or more significant in Q3 Q4, how do we how do we think about that.

Well I think what we're pleased James with relative to our Q2 performance is that we were able to move through a meaningful amount of open inventory, especially on our <unk> business and still produce the profitability or margins that you saw in the report this morning.

So while there will.

Most likely still be some of that in our next two fiscal quarters. Our responsibility is to make that as low as possible by adjusting our production schedules.

And I think we've demonstrated that we.

We will stay disciplined in negotiating with dealers as best we can to move those from our lots to their lots and so.

Listen this is a very noisy environment in terms of uncertainty around retail.

A very noisy environment in terms of dealer ordering behavior. There are very very prudent right now with what they're ordering.

And so the.

The least amount of open inventory than any of our businesses can have is certainly best for all parties, but.

We managed through that pretty effectively in Q2 and and so.

Yes.

We don't enter Q3.

With.

A giant discounting challenge on our hand with with.

What's on our launch our teams work at every day.

Makes sense, thanks, Mike Thanks, Brian .

Yes.

Thank you.

Our next question comes from Griffin, Brian with da Davidson You May proceed.

Yeah, Thanks, guys with Griffin on for Brandon.

I guess my first question is kind of what results and commentary today, you think trough.

Margins and overall earnings.

Fiscal 'twenty three.

Thanks for the question, we really won't respond to that to that question because that would assume that we know exactly what will happen with the market in terms of retail stability.

What will happen to the market in terms of supply chain stability.

Or where the inflation curve is headed so.

I think you always hope that future quarters are better than the quarter. You. Just finished whether you are writing a high or whether you're traveling through a down cycle.

But we do not offer forward looking.

<unk> and consequently, I won't comment on the probability of of the numbers that you saw being.

At a certain place in the cycle, we really are taking.

Each we run the business.

With a long term perspective, but we manage the business.

Hopefully well in the short term and we will just take each quarter as it comes in.

We had been very vocal though that.

That we've been working for many years on <unk>.

Improving in raising the financial floor of our business. So that we can ride through cycles from a profitability yield standpoint, and a balance sheet liquidity standpoint to be.

Healthier than most people most people think we can be in and.

And I think quarter two was a good step in demonstrating that.

That.

That's happening.

Yes, Okay. That's fair I guess, just a second quick one here.

Digging into the financial help you're giving dealers.

How much front end discounting are you offering grand design.

And is there any concern on backend discounting given the slower dealer churn.

Yes, again, we don't share for competitive reasons, primarily.

And talking about our businesses individually, we do not share.

Counting levels by brand.

Nor the different forms of discounting that happened in the value chain. So.

Grand design continues to be a well run business a brand thats very popular with dealers and consumers.

And our team is working very hard to keep the product fresh and vibrant and the pricing relationships between Grand design product and its main competitive product.

In the right place so that dealers can be successful turning the Grand design line at every tail. So.

But again I think.

You saw.

<unk> margin stability in this quarter that.

Should reflect well on the Grand design team and our Winnebago <unk> team.

In terms of how they're managing the business.

Okay, Great. That's all for me thanks, guys.

Thank you. This concludes the Q&A portion of today's conference I'd like to turn the call back over to our host.

Thank you that at the end of our second quarter earnings call. Thank you to everyone for joining and enjoy the rest of your day.

Yes.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day and thank you for standing by welcome to the fiscal 2023 second quarter Winnebago Industries Financial results Conference call. At this time, all participants are in a listen only mode after that.

Speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to turn.

The call over to Ray Posadas, Vice President of Investor Relations and market Intelligence you may begin.

This call is being broadcast live on our website at Investor <unk> Dot net and a replay of the call will be available on our website later today.

News release with our second quarter results was issued and posted to our website earlier this morning.

Factors are identified in our SEC filings, which I encourage you to read.

With that I would now like to turn the call over to our President and CEO Michael Happe.

Thanks, Greg.

Good morning.

We appreciate your interest in Winnebago industries, and taking the time to discuss our fiscal 2023 second quarter earnings results.

I will provide an overview of our performance during the quarter and then pass the call to Brian Hughes to cover our financial results in more detail.

I will return and offer some closing thoughts before we turn to your questions.

Winnebago Industries' second quarter results continue to demonstrate the resilience of our unique business model in the face of macroeconomic uncertainty and a dynamic outdoor industry environment.

Taking great care of its employees customers and ultimately investors.

And while we have much work to do to realize our grander vision and potential. This quarter is a good example of being able to produce solid financial results in the face of adversity.

And despite a continuation of many of the same macro dynamics, we experienced in the first quarter.

Including general pressure from moderate inflation.

Interest rates and supply chain and consistency.

As well as challenging comparisons to the year ago period of tremendous growth.

Continuous efforts to improve the efficiency of our operations reinforced by our commitment to disciplined production and cost management.

Allowed us to sustained competitive double digit margins across our callable motor home and marine segments.

Though we must continue to anticipate and actively manage these trends throughout the rest of our fiscal year.

I am immensely proud of how our Winnebago industries team members have risen to the challenge and delivered strong results.

Each of our premium brands is engaged daily on the difficult decisions necessary to balance market share and profitability.

Long with customer and employee relationships.

Doing so well allows us to simultaneously invest in industry, leading innovation.

And the digital business capabilities needed to compete effectively in the future.

The value of our growing and diverse portfolio of premium brands is evident in our second quarter performance and validates that we are a stronger organization in 2023 than we were in 2019.

Ultimately in the second quarter, Winnebago industries achieved $866 $7 million and net revenues consolidated gross margin of 16, 9% and.

And adjusted earnings per diluted share of $1 88.

Our second quarter results were driven by a few key factors.

First the strength of our innovative premium product portfolio.

Which continues to resonate with an increasingly diverse population of outdoor lifestyle consumers.

We have strong conviction in the ongoing appeal of our premium RV brands, which have maintained net stable market share even as overall RV market demand has softened.

And on the Marine side, the <unk> brand of aluminum pontoons has achieved extraordinary market share growth, making the marine segment, our fastest growing category with consumers currently.

The complementary and steady demand for the iconic Chris craft brand in the fiberglass boat category also contributed to the growth in marine in the quarter.

We are extremely proud of the suite of premium products, we have in the market today.

But we are not content to stand still continuously investing to develop industry, leading innovation remains a core pillar of our strategy.

On the marine side, the recent launch of the Chris Craft Calypso 32 at the Miami International Boat show in February is just the latest example.

The Calypso 32 is the first Chris craft to be fully connected to the owner through the mic Chris craft.

Enabling real time monitoring of GPS engine battery and builds data as we continue to expand and enhance our consumers' customer digital experience.

Bartlet as recent launches of the new entry level brand ARIA and its ultra high end offering reserve are giving dealers more reasons to commit increased showroom space to this young exciting pontoon brand.

On the RV side Grand designs imagine aim travel trailer was named RV Pros 2023, best new product of the year.

And it's math extension of the popular momentum toy Hauler line offers increased affordability the customers when they need it most.

Our Winnebago brand continues to expand for plans of its many travel trailer product.

Add new paint options to the iconic rebel class B four by four line.

And launch a proprietary partnership with adventure wagon on a Mercedes class B chassis, giving the hash tag Van life consumer a modular interior platform for the ultimate flexibility and functionality.

The new <unk>, new <unk> luxury diesel line at the fourth floor plant offering and now come standard with a lithium ion house battery system.

Furthermore, the recent unveiling of the second generation prototype Winnebago brand <unk>.

And all electric zero emission RV.

And Chris Craft's first zero emission all electric concept bolt the launch 25 GTE.

<unk> emerging technology becomes accretive to the consumer experience.

The next key factor contributing to our second quarter results is our continued commitment to operational excellence and maintaining our highly variable cost structure.

Winnebago industries is leveraging enterprise capabilities in strategic sourcing and.

And across the board made the order production planning philosophy.

And strengthened consumer insights.

Tape, our operations and enhance our ability to respond quickly and appropriately to evolving market conditions in ways that allow our business to sustain strong profitability through economic and industry cycles.

We will continue to work closely with our dealer partners to maintain appropriate and balanced overall inventory levels and product mix and an increasingly dynamic demand environment.

We also continue to watch very closely any agent channel inventory and work precisely with our dealers to address in a mutually beneficial manner.

All of these efforts had a direct impact on our ability to produce competitive double digit margins across all of our segments in the second quarter.

Resulting in a lower than anticipated impact to motorized revenue during the second quarter.

We are fortunate that our outstanding Winnebago industries team is adept at navigating these challenges to mitigate the impact of supply inefficiency on our top and bottom line.

Although we are fine having less practice on that going forward.

Though the frequency and severity of supply constraints are decreasing.

Global supply chains continue to be very dynamic presenting ongoing risks and must be monitored closely.

Looking ahead, we will continue to actively manage and navigate a dynamic demand environment.

With a focus on profitability through disciplined production and cost management, leveraging our highly variable cost structure and by working closely with our dealer partners.

We will also continue to capitalize on our strong balance sheet and cash flow generation.

To make strategic investments in our business and our future reinforcing our golden threads of quality innovation and service and ensuring our increasingly diverse portfolio of premium brands continues to resonate with consumers.

Winnebago industries remains well positioned to further strengthen our enterprise capabilities.

Capitalized on growth opportunities through the cycle.

And achieve our long term value creation goals.

With that summary, I will now turn the call over to our Chief Financial Officer, Bryan Hughes to review, our fiscal 2023 second quarter financial results in more detail.

Ian.

Thanks, Mike and good morning, everyone.

Second quarter revenue were $866 7 million, reflecting a decrease of approximately 26% compared to $1 2 billion in the second quarter of fiscal 2022.

As Mike mentioned these results are lapping record high pandemic driven demand from the prior year.

The expected decline in unit sales was partially offset by carryover price increases across all segments.

Our effort to diversify our portfolio of premium brands across multiple segments in the outdoor recreation space beneficial this quarter.

As evidenced by the variability of the growth versus prior year in each segment.

<unk> sales increased 16% in the quarter.

<unk> sales were down just 3%.

And Tom wholesale with portfolio, leading sales results. The past two years was down 47% on the tougher comp.

The mix of our businesses. Therefore produced a meaningfully improved consolidated sales result relative to the RV industry.

While the mix of our business is beneficial our team demonstrated disciplined execution within each segment as horrible motor home and marine all drove double digit EBITDA margin in the second quarter.

Gross profit for the quarter decreased 32, 2% to $146 8 million from $216 6 million during the second quarter of 2022.

Gross profit margin of 16, 9% with 170 basis points lower than last year.

Declines were driven by lower volume higher material and input costs.

Deleverage in productivity loss from supply disruption, but were partially offset by carryover price increases that were implemented last year.

Operating income was $76 8 million for the quarter, a decrease of 43, 9% compared to $136 8 million for the second quarter of last year.

Second quarter net income was $52 8 million 42, 1% lower than the $91 2 million recorded in the prior year period.

Reported earnings per diluted share was $1 52.

Compared to reported earnings per diluted share of $2 69.

In the same period last year.

Adjusted earnings per diluted share decreased 41% year over year from.

From $3 14.

Two $1 88.

Consolidated adjusted EBITDA was $88 4 million for the quarter.

Decrease of 41, 3% from $150 7 million in the prior year quarter.

Our adjustment following adoption of this new accounting pronouncement result in adjusted EPS to be on an equivalent basis with how we have been doing the adjustment previously.

We recognize the economic benefit of the call spread overlay that we implemented when we issued the convertible note.

I will now go over our performance by segment, starting with our cable segment.

Revenues for the total segment were $342 5 million for the second quarter down.

Down 47% compared to the prior year.

To put our second quarter performance into context revenues for the total segment are up 36, 6% compared to the second quarter of fiscal 2019, and up 28% compared to the second quarter of 2020.

Higher to the outstanding demand catalyzed by the pandemic.

We are confident the long tail impact of our record growth period, we will continue to propel Winnebago industries for years to come.

Even as the environment normalizes and setup tough year over year comparison.

Segment, adjusted EBITDA was $39 3 million down 69% from the prior year period.

Primarily as a result of deleverage and higher discounts and allowances compared to the prior year when demand with elevated.

Adjusted EBIT margin was 11, 5% down 410 basis points year over year, but up 100 points sequentially.

Backlog decreased to $278 2 million down 85, 1% from the prior year when dealers were focused on increasing their inventory.

Turning to our motor homes segment, we delivered second quarter revenue of $403 8 million down approximately 3% from the $417 6 million recorded during the prior year period.

This slight decline was the result of unit volume decline, partially offset by carryover price increases and favorable product mix.

The Mercedes Benz, we call remedy was implemented earlier than we had anticipated and the impact therefore had a smaller impact in the second quarter than what we had anticipated and communicated at our prior earnings release.

Rather than the $50 million impact we had expected, we now estimate slightly less than $10 million impact to revenue.

Working capital remains elevated in part due to the recall.

Segment, adjusted EBITDA was $42 5 million, representing a decrease of seven 8% from the prior year.

Adjusted EBITDA margin was 10, 5% down 50 basis points from the second quarter of 2022, due to deleverage productivity and supply chain challenges, partially offset by carryover price increases.

Backlog for the motor homes segment decreased 66% year over year to $872 7 million driven by normalizing levels of dealer inventories.

Dealer inventory Motorhomes are gradually returning to more appropriate level the pocket of replenishment opportunities remain.

As always we continue to work closely with our dealer partners to ensure they have the products they need at the appropriate time to meet consumer demand.

Finally, let's turn to our Marine segment with continued its strong performance in the second quarter.

Revenues were $112 9 million up 16, 1% from the prior year as a result of carryover price increases.

We remain encouraged by the continued and growing demand in the marine market for our brands, particularly our letter which continues to outperform the aluminum pontoon category and gain market share.

Adjusted EBITDA for the Marine segment with $14 4 million 11, 4% higher than the same period last year.

And adjusted EBIT margin was 12, 8% 50 basis points lower than last year.

Our backlogs were down 14, 1% compared to the second quarter of the prior year as we continue our work to replenish dealer inventories in the marine space.

As always we will continue to closely monitor demand trends and our marine markets and manage our production accordingly.

Moving now to the balance sheet as of the end of the quarter Winnebago industries had approximately 591 million in outstanding debt, representing a net debt to EBITDA ratio of approximately 0.7 time.

Our healthy balance sheet continues to be a strength for us and continues to support our balanced capital allocation strategy.

We made further progress in the strategic investments, we are making in our business to drive growth and improve our operation.

For example, the manufacturing capacity expansion, we are constructing for both our marine businesses are nearing completion, and we expect both to come online in the back half of the fiscal year.

We remain committed to balancing these investments with returning capital to our shareholders as evidenced by the payment of our quarterly dividend for the quarter, which as a reminder, with increased by 50% to 27 per share during the fourth quarter of fiscal 2022.

Lastly, I know, we're all watching with great interest the stability of the banking industry. Following the collapse of the Silicon Valley Bank and signature bank.

And others that have shown signs of vulnerability, including most recently credit Suisse.

Our own banking relationship with institutions that are believed to be sound.

We likewise had been monitoring the situation closely and to this point are not aware of key supplier.

Our dealers that have been exposed to the bank failures.

Nor are we hearing a situation that would impact the availability of credit at the wholesale or retail level.

This remains a fluid situation and we will continue to monitor the impact to key stakeholders as they evolve.

With that I will now turn the call back to Mike to provide some closing comments Mike back to you.

Thanks, Brian in anticipation of a robust Q&A session I will be brief in our closing comments.

The current softening of consumer demand for Rvs, we remain confident that our opportunities for growth and long term value creation are robust.

And our long term targets for revenue market share and profitability.

Appropriate and achievable.

Engagement in the outdoors continues to be extremely healthy during 2023.

Consumers young and old increasingly diverse and always adventurous or using their rvs and boats or in some cases rental indoor friends rvs and boats, two experienced physical and emotional well being outdoors.

Our supplemental slides contain fresh updates on those participation trends.

As many on this call are aware the RV industry Association recently lowered their expectations for calendar 2023, RV shipments too.

A mid range of 334000 units in response to a weakening macroeconomic environment.

Higher interest rates and an anticipated reduction in consumer discretionary spending.

While we respect the impact these trends are having on the end market consumer the outlook. We have based on our business plans is a bit more optimistic.

Based on what we are seeing in the market hearing from our dealers and customers. We are currently expecting shipments for calendar 2023 to be in the $340 to 345000 unit range.

Anticipating the dealer channel to destock about 30% to 35000 units over the 12 month calendar period.

Of course, there is no clear crystal ball that we nor any of our dealer or supplier friends have.

And the ultimate numbers will still be determined by the yet to be seen retail vitality of the spring and summer selling season, and the plethora of elements that contribute to consumer confidence.

Our investors can rest assured that we run multiple sensitivity scenarios into our operational and financial planning models and are prepared to navigate through anything worse.

Or better.

As we have previously stated we are not counting on a dramatic rebound in RV shipments to achieve our previously announced.

Fiscal 2025 financial targets.

Our success towards achieving those goals is primarily predicated on.

Our organic growth can and likely will be augmented with inorganic opportunities, we maintain ample financial flexibility to be opportunistic and expanding our platform.

But only if we believe in the strategic imperative of those possible acquisitive additions.

Looking ahead, we are confident that Winnebago industries is well positioned to maintain and grow market share and further expand the baseline profitability of our business.

Each of our fiscal quarters in 2023 or any other year has its own flavor and can be affected by short term unanticipated challenges.

I am more concerned about the consistency of the revenue line in the months ahead than I am with our ability to turn a solid profit yield.

The former revenue is dependent mostly on the macro wholesale market available to us.

While the latter profitability yield is more of a competency that we can impact directly.

We have the right talent, a diversified portfolio a premium outdoor lifestyle brands, a commitment to innovation and operational excellence.

All backed up by a strong financial discipline and a balanced capital allocation strategy.

We remain resolute in building a premium outdoor lifestyle company that delivers value to customers and shareholders for the long term.

That concludes our prepared remarks. This morning, I will now turn the call back over to the operator, who will open the line to your questions.

Thanks again for your interest in Winnebago industries.

Okay.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Yes.

Okay.

Our first question comes from Alex <unk> with Baird You May proceed.

Yeah. Thanks, gentlemen, good morning, and thank you for all that helpful context on the industry.

Maybe I just wanted to touch on cash flow actually yes modest cash flow from operations in the first half year and another recall has impacted working capital.

How should we be thinking about that in the second half though.

Hey, good morning, Alison Thanks for the question this is Brian .

Yes, we continue to be challenged with working capital in particular inventory.

Due to the recall as well as other supply chain challenges that we have that of course is further amplified by the continued decline in retail.

The pull through and so.

We ended up having more finished goods on hand of course than what we've had historically.

Going forward the right way to think about it is yes, we do expect some of that working capital to unwind as we catch up so to speak with the decline we're seeing in the end markets and we would expect then that working capital would be a net contributor to cash flow versus a detractor as it's been for the past year and a half an hour or so.

So that's how we're thinking about it.

Yes.

Helpful and then just.

Just on the Marine segment strong quarter. There, we don't have a long history of the data from an inventory standpoint, but it did increase.

With 95% over 4000 units whats the right level of inventory there for the current environment you have room to expand that still given your market share gains or is there.

Hi, Dan.

Yes, yes.

Hey, good morning, Alex This is Mike.

Primarily your question pertains to brand.

And before I get to the <unk> brand I'll, just acknowledge that the Chris craft brand continues to have low inventory in the field, so well thats, our smallest marine business and really the smallest of our.

Our five branded businesses overall from.

From our Chris craft standpoint, we continue to have an opportunity to put more inventory into the dealer channel in a healthy manner.

But let us standpoint, we have to recognize that they are a business in transition at a very healthy positive transition.

And while inventory is certainly.

Elevated and then.

Historical gross unit numbers. This is a brand that has went from roughly zero percent market share five years ago to approaching about 75% share in the aluminum pontoon market. They also just have recently introduced two new brands to their product lineup. So they went from three brands to fiber.

And you are seeing some pipeline fill from especially the introduction of a brand called the ARIA, which is a more entry level pontoon brand that allows us to go from competing in about 40% of the aluminum pontoon market to competing in about 70% of the aluminum pontoon market.

The last factor I mentioned for bar Lev and we don't talk about this much.

To go after retail business and so.

You will likely probably see.

The inventory levels on bar on the marine side remained elevated historically, but most of that we believe is appropriate because of the barletta transition now we are carefully watching the aluminum pontoon category.

That has certainly slowed down.

Here in recent months.

We will we will manage production rate.

And any expansion of these new brands or into new markets.

At an appropriate and disciplined level.

Great. That's helpful context, Thats all for me thanks, guys.

Thanks Allison.

Thank you. Our next question comes from Williams, starting here with BMO capital markets. You May proceed.

Hey, good morning.

You guys called out Mercedes Benz recall, I had a $10 million headwind to sales in Q2, how much of a tailwind in three and four to do you guys expect thanks.

Yes.

It's hard to predict if there is a catch up.

<unk>.

The forward view, we're not counting on it to be clear.

There might be some but we're not counting on that.

Okay, and then what percent of dealer inventory currently is model year 'twenty cure earlier.

So good morning, this is Mike.

We are paying very close attention to that subject and here. Just recently conducted an analysis of all of our brands on the RV and marine side.

And have understood specifically, what those numbers are we're not going to share that number externally.

But we know what that number is.

Many of our businesses, we feel very comfortable.

The model year 'twenty two inventory is.

Is not unhealthy.

We have a couple of places where our model year 'twenty two inventory is a little heavier than I would like.

The businesses are aware of that and working with the channel partners precisely to try to take care of that so we do not view model year 'twenty two inventory for Winnebago industries.

As a significant headwind.

Here in the rest of 2023.

We really do not plan to introduce our model year 'twenty for product for the RV business.

Till later this late summer.

Probably again in that July .

Through August to September timeframe.

We'll certainly began talking about model year 'twenty four product.

Some of our dealer events coming up in the future.

But our model year 2000, and for timing is still a little ways off which is which is good because it gives us some more time to allow the dealers to focus on that model year, 'twenty, two and 'twenty three inventory.

Perfect. Thank you.

Thank you.

Our next question comes from Scott <unk> with Roth <unk> Partners you May proceed.

Good morning, guys and thanks for taking my questions.

Hey, good morning, Scott.

Can you maybe dig a little bit more into the <unk> side of the business.

You talked about I guess, some promotional activity in the quarter your margins at least sequentially held up pretty pretty darn well. So could you just talk about the level of discounting that you've had to do.

And.

And if there was anything else that helped the profitability in total in the quarter.

Scott This is Mike I'll speak to.

Some of the discounting behavior that we're seeing and then Brian can add some more meat to the bone on the on the margin side.

From a discounting standpoint, we certainly have been seen.

Dealer promotional activity at retail.

Return here over the last year.

To move product.

And you have seen that some of the shows and in some cases you see a graduated level of promotional activity based on the age of that inventory.

Excuse me our businesses had provided.

<unk> Sir.

Certainly support to help dealers address excessively aged inventory and that is that is.

And activity that we've done ever since I've been here now seven years. So this is really a return to what we believe is a healthy partnership with our dealers on excessively aged inventory.

The last form of discounting I would say is that.

<unk> backlogs have retracted and dealers in some cases have canceled orders that they had once submitted we have had in the last six months.

An elevated level of finished goods open inventory.

Higher than we're used to seeing and consequently, we've been obviously working carefully with our dealer partners, especially on the RV brands to move that.

Inventory in a careful way and you can tell from the margins that we reported this last quarter that we were not forced to do anything irrational with those discounts.

But we have been active in discounting some of that open inventory that we've had on our own on our own lots and we will continue to monitor that side of our business carefully.

Going forward, Brian you want to comment on margin, yes. Thanks, Mike just briefly Scott if you look at the discounting relative to what we've done historically, most notably pre pandemic.

It's very consistent for Q2 Theres some seasonality of course in the business. So the discounting in Q2 was similar on the motorized side to our pre pandemic levels and on the <unk> side, maybe just a little bit elevated but less than a point expressed as a percent of sales just to give you some perspective there.

No.

Pretty consistent overall with the pre pandemic activity.

Got it and then on the motorized side sales were only off a few percentage points and obviously some of that has to do with the faster than expected resolution of the <unk>.

Printer recall, but.

<unk> were up pretty sharply.

Inventories year over year, I know that the pipeline has been pretty barren for a while but could you maybe just talk about what.

Was there an accelerated build out of product.

Refilling dealer pipelines as retail further falls in the supply chain is easing.

Scott I would say you've hit on a couple of the factors as to why motorized revenue declined significantly less than our than our told those revenue.

The first factor I would say is as you said the faster resolution of the Mercedes safety.

Safety recall issue allowed us to return to shipping those Mercedes chassis that had been stuck.

On our lot for many months.

<unk> is our Newmar business.

<unk> has been working for the better part of the last year and a half to have a better cadence of production.

Because of supply chain consistency.

Particularly on the new Echo that we introduced to the market about a year ago.

As well as our view of Navient product.

And so that's allowed us.

To shift certainly some more inventory to the dealers behind those strong retail sales.

In order to make sure that they continue to have enough on those particular brands.

You are also seeing the benefit dollar wise of some of the year over year pricing actions that we had taken in previous quarters, we did not raise price significantly in Q2 on our motorized product, but the year over year comp is definitely being aided by some of the prior price increases.

We took when inflation was at a more elevated level.

Alright, if I could just sneak one last one in.

Been talking about how the total I guess dealer situation needs to be.

It needs to be rebalanced and.

As we work through clearing out to 'twenty. Two is what is the timeline for when you would expect to start to.

Benefits from dealers going back to ordering products such as Grand design.

Okay.

Well dealers do continue.

<unk> products, such as Grand design currently.

It certainly the rate is.

Reduced compared to those peak pandemic pandemic frenetic retail days.

The timing question, Scott is very difficult to answer because it really all depends on retail.

We continue to monitor retail on a on a weekly basis in our business.

And certainly dealer ordering patterns will be a combination of the seasonal retail activity that we see here in the in the late spring to summer months.

In addition to some of the Destocking.

Levels that they're looking to achieve over the course of this calendar year as I stated previously.

We will stay disciplined and not introduce model year 'twenty four product.

Until later this summer.

And that should allow us a good chunk of the late spring and early to mid summer to try to focus on those model year 'twenty two products, but we.

We cannot and will not prognosticate on.

Exactly when sort of retail.

I'll pivot in a way to reignite dealer orders to a higher level that is that is difficult to forecast and we just need to remain extremely agile on a literally weekly basis to react to what the market and the dealers are telling us.

Yes.

Got it thanks again guys.

Thank you.

Our next question comes from Fred Wightman with Wolfe Research you May proceed.

And what do you think that means for like a quote unquote normal inventory level going forward.

Yes, Brian This is Mike our last formal comment on industry shipment and retail levels was all the way back in mid December .

And here we are in late March and so a lot has changed since mid December and Thats why <unk> seen not only the RV industry Association, but almost every other one of our OEM or supplier peers.

Their forecasts as well on on <unk>.

Industry volume in 2023.

So.

And we just continue to be more enlightened.

The reality of market conditions, and what our dealers are telling us in terms of desired turn levels.

Going forward and so the numbers that we offered in our prepared comments today, our latest thoughts.

They are a little bit more progressive in terms of the amount of field inventory that we believe needs.

It needs to be expelled from the field.

And we will see if if that happens, but our businesses.

Have operational plans from a sensitivity standpoint.

That are lower than those numbers in order for us to prepare in the event things get worse and.

And we also have the ability to react relatively quickly if retail were to be better than expected.

This summer as well so so that's our latest range, it's not really candidly too far off what.

A lot of our other peers are saying.

Candidly many of you the sell side analysts, where we're generally in a similar range as most everybody else. So.

Totally fair and then just on Asps as we think about that moving into the back half of the fiscal year can you help us out, particularly on the <unk> side is that going if the rate of change can be sort of similar or do you think it will stay positive on a year over year basis, what should we sort of be looking for or expecting given the discount.

Yes in terms of the pricing activity, it's been pretty stable here the last couple of quarters and even going back into Q4, So we're still annualizing.

Fred on some of the <unk>.

Nice activity that we did earlier last year.

We're expecting more stability.

And we will continue to match that with the inflationary pressures, which continue to be elevated on the motorized side.

From the chassis costs, but on the TOBA side, a lot more stability that we're seeing there and so that's how I would think about pricing as we go forward.

Mixed things going on in the AFP as well of course.

There always is.

In terms of the higher end units.

In the results and the volume that we're seeing there.

Or the higher that the premium brands within Grand design for example.

Having more success.

So youll have some mixed impacts that will continue.

But the pricing activity itself should be pretty minimal based on what we're seeing in the on the cost side of the equation.

Understood. Thanks, a lot.

Thank you. Our next question comes from Bret Jordan with Jefferies. You May proceed.

Hey, Good morning, guys. This is Patrick Buckley on for Bret Jordan, Thanks for taking our questions.

Yes, good morning.

The current elevated interest rate environment should we expect to see a change to a new lower optimal level of dealer inventories compared to pre pandemic levels.

Yes.

Well, let's say that's a good question in the sense that I think dealers are trying to answer what the right inventory levels are as well.

Dealers are still.

Primarily focused on.

Having the right level of and mix of <unk>.

Inventory on their lots to optimize whatever retail is available to them.

But I think your question also on first that the cost of carrying that inventory.

Is higher to them as well, which we certainly certainly acknowledge and.

I think thats one of the reasons why you are seeing dealers be very serious and proactive here with addressing their model year 'twenty two inventory.

As quickly as they can.

Got it.

As a good thing if dealers return.

Or exceed historical churn levels.

I think when we saw dealers go through the 2020 late 2020 to early 'twenty two time period, we saw dealers become extremely financially healthier in terms of gross margins.

And higher churn levels, lower working capital and as an OEM, we think thats a good thing.

So we would welcome higher turns from the dealers, obviously, there would be a transitional period, where dealers as we've forecasted would have to.

Reduced their inventory levels overall in order to probably get to that point.

But we are supportive of working through that transition with dealers, we feel that our operations and production processes allow us to be a good OEM partner and supplier to the dealers even at higher turn level. So so I anticipate the answer to your question is yes, the challenges as we.

Don't know the exact timing.

Got it that's helpful. Thank you.

And then I guess could you talk a little bit more on that in the current pricing environment. It sounds like maybe more specifically on motorized.

It's all pretty healthy year over year increase in Asps. This quarter. It sounds like you guys expect that to be a little bit more sustainable given the chassis shortage.

Or should we expect some moderation there moving forward.

I would say when you speak about pricing, we have to break it down by each of our businesses, but I would I would generally say on the motorized side.

That while there has been.

Very meaningful year over year inflation from an ASP standpoint that affects retail customers.

The cost environment on motorized is is probably not yet in a stable enough environment in.

In order for there to be deflationary movement that reaches the end customer.

Especially on the newest model year product.

We are seeing more stable.

Cost environments, and some of the rest of our business and in fact on some categories. We are seeing some deflationary cost trends.

We believe are very healthy and helpful for us to.

Look at potentially even winding back pricing a little bit in.

In the future, but each business each product category.

We'll continue to evaluate and do what do what they think is right.

Got it that's all for me thanks, guys.

Thank you.

Our next question comes from David Whiston with Morningstar You May proceed.

Thanks, Good morning.

I guess first on on SG&A, how much more can you cut there if any.

Should you need to.

Good morning, David This is Mike.

Well.

That answer really depends on.

Whether you want to cut simply muscle or do you want to start cutting into the bone and.

We managed SG&A very intentionally most of our SG&A is within the business units and the brands themselves.

It's a combination of a number of different types of costs and we feel that our businesses have been.

Very intentional and appropriate with managing the SG&A year to date. However, if the marketplace continues to be softer.

Then.

We would like or that where even forecasting.

All of US here, we will have to look very carefully at some of the further cuts we can make on expenses.

And potentially structure as well.

<unk>.

We want to stay very prudent and disciplined.

Certainly don't want to create excessive overhead or bureaucracy. There are several things that we need to continue to invest strategically in.

That are important to our future that we would have to evaluate further as well. So so the net answer to your question is we do continue to have the dial to be able to turn SG&A spending down.

It's just a trade off in terms of your strategic investments your structure.

What level, you think youll need to live out here, while we're writing through this this down cycle.

Okay. Thank you for that and on your EV.

There have been a little over a year I think since the unveiling I'm just curious how is the consumer interest for it relative to your initial expectations a year ago.

And do you see maybe.

And within the RV <unk> momentum accelerating maybe more than you did when you thought about a year or two ago given that it is picking up on the light vehicle side.

Yes. Thanks for the question on the EV in January of 2022, we introduced.

The E R V, one which was the concept.

<unk>.

And we saw great reaction to that now about 15 months ago in January of 2023, we introduced a prototype version of that the <unk>. We currently have.

Probably around 10 to 12 vehicles.

That are being used in the market today.

By different stakeholders that we trust.

They are using the product to give us real world feedback.

As to how it operates.

Certainly such such metrics says.

Mileage travel range.

The grid capabilities in terms of duration of the batteries there.

And so we continue to get that feedback and along with internal engineering and manufacturing development work.

<unk> progress towards a possible launch of that vehicle.

Consumer interest in the <unk> two has been what we would characterize as very strong and we can capture a lot of that interest digitally.

In ways that our marketing team on the Winnebago brand is using.

Both measure, but also capture that interest so.

But yes, we believe that the.

That the adoption of electric vehicle technology in passenger cars.

And last mile delivery.

Yes.

Is only going to help the RV consumer consider that technology credible.

Focus when introducing ultimately someday and electric RV van to the market is that the consumer experience.

Is is enhanced.

Not degraded and so we will come to market. When we feel that we can provide a consumer experience on an electric RV.

Meets the reputation and the standard that is associated with our Winnebago brand. So we feel we feel good about our progress.

It's not about being first it's about ultimately being best in terms of what we bring to the market and Thats and Thats been our focus.

Sure.

Okay, and just one more thank you for that.

Clinical Investor following you guys right now.

Could look at your backlog and say well, Mike did say it was really high and you are going to come down which it has.

But once that that final backlog is burned off when it make us top line is just going to be in a lot of trouble.

I don't think you'd probably agree with that but what's your reaction to that sentiment.

Well, we are acutely aware, David the backlog certainly as you can see the numbers in the earnings release.

At the end of February .

And.

We have confidence that ultimately.

The dealers will place orders when they think it's right for their business and.

We really do not want to operate a business that is excessively pushing inventory into the market, we've been very intentional and even vocal.

At a.

A high percentage of the time, we run.

Production planning process across our businesses, where almost every unit on the line has either a dealer name or a customer name.

I did make a comment in our prepared statements. This morning.

The revenue.

Online is the one I worry about the most in terms of its stability and consistency month to month quarter to quarter.

That line will continue to be under some pressure.

In the next couple of quarters and.

And we will have to continue to.

Optimize that in a healthy way.

As the market allows what we can control most of the time even back to your SG&A question is the profitability of the business.

We are willing to give.

Give us a little bit of market share up at times in order to maintain a profitable.

Healthy business and so we're not going to chase.

Every last wholesale unit or every last retail unit. If it means we have to cut our profitability in half for example.

And so.

It is a balance between the top line and the Bottomline, but.

We're very pleased with our Q2 results I think we're especially pleased to demonstrate that the profitability of the businesses as we've been stating.

Structurally present, and I think that's what we'll continue to focus on most in Q3 and Q4 is the profitability of the business.

Deck that is posted online.

Supplemental financials, which is a very healthy consumer and a very healthy interest in the outdoor lifestyle, which gives us a lot of confidence long term.

In our top line.

That information I think you'll find useful as well in terms of the number of households that are participating in the outdoors and camping the number of households that are eager to buy.

An RV or get into the RV lifestyle. So I won't go into all of that information, but I encourage you to look at it as well because I think it's also.

A good indicator of.

The stability that is to come.

We're going to continue to face some near term volatility in the top line, but obviously our focus is.

Even more so in the long term and we feel good about.

The state of the industry long term.

Okay. Thanks for the color I appreciate it.

Okay.

Thank you.

Our next question comes from Joe <unk> with Raymond James You May proceed.

Hey, guys good morning.

First question I want to go back to something you mentioned earlier, Mike about desire dealer inventory turn level.

Just a question on the last call. So I'll go ahead Phil.

<unk> sort of been that you would have to return.

Neighborhoods that you expect youll have to kind of shake out.

Yes, Joe ultimately.

Toric, we won't change.

But.

If we can get some retail stability in the market in 2023 and by that I mean that the dealers have increased confidence.

But the retail sales will be at a certain level of range. I think then that they will work to set their net growth there net consolidated churn levels at a little bit higher level than.

Then.

We obviously need to compete.

To serve them.

At whatever level that they turn to so.

But.

Here would be higher would be better and some would be surprised that an OEM would say that.

But I think financial health for our dealers and higher churn levels.

At high fill rates would be a good thing and I think winnebago industries would be advantaged to that end.

Got it.

Youre sitting with historically.

Historically have declined sequentially from Q1 to Q2 this quarter, we thought your thoughts to increase further.

Further now below two.

Concerned about maybe over shipping in the quarter, particularly at the retail doesn't materialize.

Like do you think it will.

Yes. The question, whether we are concerned that we did over ship in Q2 or that we could over ship in a future quarter.

Yes.

Given that.

Usually from a seasonal perspective to see a sequential increase.

Shipment and Youre down below two turns.

Yeah, Thanks, Joe for the clarification there.

I don't think our businesses in hindsight here three weeks into Q3 feel that we did anything in Q2 that jeopardize the business in any significant way.

Again to be fair to our businesses.

We had we had produced units that the dealers had ordered from us that they subsequently canceled and so when that happens and we end up with open inventory on our lots we will work in a careful intentional and smart way to place that in the field.

Unit has a significantly better chance of retailing when it's on a dealer lot than if it's auto manufacturers a lot and so.

If the inventory the inventory in the field is going to retract in the neighborhood of 30% to 35 units like we had stated in the call. This morning.

We will be a part of that inventory destocking.

Don't over ship, we are great partners.

With our dealer channel.

And that we helped set the inventory levels in the market that are.

Right and healthy in our long term interests, so and that's why I stated that that revenue line is the is the line that probably could have more volatility in the quarters to come.

Just one last one if I could on that last point it doesn't sound like you are expecting any major changes.

From a margin standpoint in the second half on the total side either.

We feel that our business as we've stated previously as is being run with good discipline.

And so we've we've stated very clearly at times repeatedly.

We believe we have established a new financial floor in the business.

And while we certainly don't provide formal guidance or forecast.

Our expectation.

In future quarters as similar to what you saw this quarter that each of our business segments can deliver double digit adjusted EBITDA yield.

We'll see if we can maintain that in future quarters, some of that will depend on the.

The stability of the overall marketplace, but but our business structurally is in a is in a good place to not see wild swings in profitability that surprise us.

Not to say that could never happen, but.

We believe our leaders are managing the business.

Well.

Especially profitability wise paying very close attention to.

So what we think is fair to make.

Got it thank you guys.

Thanks, Joe.

Thank you.

Our next question comes from James Hardiman with Citi. You May proceed.

Hey, good morning, Thanks for taking my call.

Maybe a similar vein of question to what to what Joe was asking there, but I wanted to talk a little bit about share of shipments.

We don't have the February data, but it does seem like you may have had a greater share of shipment in the in the second quarter. I guess why do you think thats. The case is that a good thing or a person is that right.

We've got a good thing or a bad thing and why do you think that.

That happened in Q2, and then as I think about the broader.

Full year, I guess with calendar year guidance, which makes it a little bit trickier.

But the difference between how youre seeing the industry.

One of the smaller players.

Relative to your big peer in the industry Association I don't think Theres a ton of daylight on the retail assumption.

Should I read this as you think of your shipments will decline, maybe a little bit less than the rest of the industry.

Help us parse out a little bit of that.

Yes James.

It's a fair question and we have stated in past Q&A is that.

We do not obsess about shipment share at the end of the day, we do believe as Im sure most businesses do that retail share as is the ultimate.

Judge and jury.

On the health of your business.

We certainly pay attention to shipment share to the degree that.

It supports our retail ambitions and our shipment share through the years has risen in a very close and coordinated fashion, obviously with the retail show ryzen our business the last six or seven years.

I would say the shipment share.

Ken Ken.

Very from quarter to quarter.

Up or down anywhere from 50 to 150 basis points, one one in the RV business and.

And I'm not sure we historically have read much into that where we're at.

Current OEM than our peers with different mix.

<unk> supply chain constraints.

Some things that are headwinds affect us better or worse than our competitors.

And vice versa.

So if in fact in our quarter two period, we took a little bit of shipment share.

I'd tell you that was not an overarching objectives.

It just happened because we thought it was the right thing to do to ship ship, what we shipped.

And I don't anticipate in future quarters.

<unk>.

Increase or decline in our in our shipment share going forward. It's generally stayed in a pretty pretty steady steady range and listen as the supply chain in improves.

<unk>.

That allows us to stay in that range I think relatively.

Comfortably so.

That would be a specific business where we.

We could rationalize that shipment share well timing wise be ahead of retail share.

As we continue to grow.

That brand in that business, but even there as the pontoon market is called <unk>.

Have to make sure that shipment share and retail share are not completely out of out of whack. So.

So I guess the net answer is we thought Q2 was responsible.

And it really wasn't driven by any shipment share ambitions of significance.

One other thing I'll add to that Jamie.

Just briefly sorry, one other thing this is Brian I'll add to that to Mike's comments, we've talked historically about this but just as a reminder, okay.

What we saw through the peak of the pandemic as some of the tier two and tier three brands accelerate their shipments.

Leo of course, and so perhaps what youre seeing a bit of in Q2, although it's just it's just a quarter.

So just to clarify on the full year guide I mean, do you think I mean, it's not a huge gap, maybe 3% difference right.

Eight to 10000 units do you think the difference between you and the RV IAA is youre, a little bit more bullish on retail or youre, a little bit more I guess conservative.

Conservative in terms of what you think the inventory drawdown will be.

James I would say it would be the latter.

I am I.

I'm, probably a little bit more skeptical than some of our.

Dealers are competitive.

While other dealers would continue to have an appetite to destock and so.

Because of how fragmented the dealer channel is.

That.

Thats sort of coordination and inventory lowering.

I'm skeptical that it can be.

As much as people are forecasting in a short period of time I E. Here the next sort of six.

Six six to eight months.

For sure Yeah, I think we're all skeptical one more one more for me.

You've talked a couple of times about.

Dealer orders being canceled the elevated finished good.

Open inventory.

Presumably.

Youre going to get.

Lower margins on that that kind of product is that how much of that is they are heading into the back half of the year for you guys.

Is the majority of that been sold through or is that sort of 50 significant or more significant in Q3 Q4, how do we how do we think about that.

So while there will.

Most likely still be some of that in our next two fiscal quarters. Our responsibility is to make that as low as possible by adjusting our production schedules.

And I think we've demonstrated that we.

We will stay disciplined in negotiating with dealers as best we can to move those from our lots to their lots and so.

Listen this is a very noisy environment in terms of uncertainty around retail is a very noisy environment in terms of dealer ordering behavior. There are very very prudent right now with what they're ordering.

And so the.

The least amount of open inventory than any of our businesses can have is certainly best.

Best for all parties, but.

We managed through that pretty effectively in Q2 and and so.

Again.

We don't enter Q3.

With.

A giant discounting challenge on our hand with.

With what's on our lots our teams work at every day.

Makes sense, thanks, Mike Thanks, Brian .

Yes.

Sure.

Thank you.

Our next question comes from Griffin, Brian with da Davidson You May proceed.

Yeah. Thanks, guys. This is <unk>.

Brandon.

I guess my first question is kind of what results and commentary today you. Thank.

Thank you trough.

Margins and overall earnings.

Fiscal 'twenty three.

Thanks for the question, we really won't respond to that to that question because that would assume that we know exactly what will happen with the market in terms of retail stability.

What will happen to the market in terms of supply chain stability.

Or where the inflation curve is headed so.

I think you always hope that future quarters are better than the quarter. You. Just finished whether you are writing a high or whether you're traveling through a down cycle.

But we do not offer forward looking.

<unk> and consequently, I won't comment on the probability of of the numbers that you saw being.

At a certain place in the cycle, we really are taking.

Each we run the business.

With a long term perspective, but we manage the business.

Hopefully well in the short term and we will just take each quarter as it comes in.

We have been very vocal though that.

That we've been working for many years on <unk>.

Improving in raising the financial floor of our business. So that we can ride through cycles from a profitability yield standpoint, and a balance sheet liquidity standpoint to be.

Healthier than most people most people think we can be in and.

And I think quarter two was a good step in demonstrating that.

That.

That's happening.

Yes, Okay. That's fair I guess, just a second quick one here.

Digging into the financial help you're giving dealers.

How much front end discounting are you operating Grand design dealer.

Any concern backend discounting given the slower dealer churn.

Yes, again, we don't share for competitive reasons, primarily.

And talking about our businesses individually, we do not share.

Counting levels by brand.

Nor the different forms of discounting that happened in the value chain. So.

Grand design continues to be a well run business a brand thats very popular with dealers and consumers.

And our team is working very hard to keep the product fresh and vibrant and the pricing relationships between Grand design product and its main competitive product.

In the right place so that dealers can be successful turning the Grand design line at every tail. So.

But again I think.

You saw.

<unk> margin stability in this quarter that.

Should reflect well on the Grand design team and our Winnebago <unk> theme.

In terms of how they're managing the business.

Okay, Great. That's all for me thanks, guys.

Thank you. This concludes the Q&A portion of today's conference I'd like to turn the call back over to our host.

Thank you that at the end of our second quarter earnings call. Thank you to everyone for joining and enjoy the rest of your day.

Yes.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2023 Winnebago Industries Inc Earnings Call

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