LCI Industries Q1 2023 Earnings Call
Adjust production schedules to better align with moderating retail demand and keeping dealer inventories at appropriate levels.
Spike near term declines retail demand has remained similar to pre pandemic levels and early indicators from winter and spring retail point to healthy consumer interest <unk>.
Secular trends such as the growing Gen Z demographic and younger buyers and the growth of peer to peer rental rv's continue to bring new consumers to the outdoor lifestyle underscored by the $67 million North Americans planning and RV trip. This year, a 16% increase over 2022 based on RBI data.
Our reputation for quality and culture of innovation have continued to help us capture market share and drive strong content expansion during the quarter content per towable RV increased 21% from the prior year to 50 $881 of content per motor home RV for the quarter increased 27% from the prior year to 30 985.
As we capture consumer demand for sophisticated products like refrigerators, ABS suspensions air conditioners, Pop-top chassis and windows with the upcoming model changeover in mid 'twenty three we're already seeing successful content gains in the next generation of RV models of about $200 million based on current run rates.
In the first quarter, we kicked off our partnership with <unk>, the largest utility trailer builder in the country supplying axles for their entire trailer lineup.
These types of partnerships with Premier manufacturers go a long way to help strengthen libert brand and gives us a great entry point to add even more content over the long term.
Actual facility consisting of about 150000 square feet opened last quarter in Texas to support this new partnership in the South.
Moving to aftermarket revenues decreased 13% year over year, primarily due to lower sales in the automotive aftermarket.
Need for products like mattresses, awning suspensions air conditioners, and appliances have created massive opportunities for growth, particularly as we see increased spend as people upgrade their rvs illustrating the value of our recent acquisitions like <unk> Gerard and way we.
We expect appliances, one of our newer product categories to particularly support growth in the next three to five years is approximately 2 million rvs begin to enter the repair and replacement cycles. Further. We've also worked to build out our automotive aftermarket offerings highlighted by the recent introduction of the forefront grille guard and Bull-bar specifically designed for the <unk>.
Ronco, adding lipper content to an iconic SUV models.
The approximate 500000 rvs entering the repair and replacement cycle each year help to extend the growth trajectory of our RV aftermarket business aftermarket continues to add a countercyclical support helping to offset the impact of the RV business when production tips.
We believe what was originally a $1 $6 billion addressable market a decade ago is now closer to $5 billion and that we've never been in a better position to capture that market share and expand content or.
Our mission to deliver a first class customer experience has become very impactful with the expansion of after market and.
In the first quarter lipid took on approximately 300000 communications calls in cases on top of $1 2 million for the entire year of 2022, showing the incredible demand for customer support.
Consumers make repairs and upgrades to their vehicles.
With the summer season, right around the corner deliberate teams have significant opportunity to interact with customers and collect in person feedback critical to enhancing our innovative offerings as well as to provide support for a large portfolio of products and services.
We attended a few rallies earlier this quarter in lipid representatives met with RV enthusiasts from around the country finding ways to creatively engage campers and our beers has led to a great return on investment for our business, helping us to build real trust and relationships with people, who not only keep coming back to deliver our brand, but also are out there advocating for us while they are.
And on the road.
Turning to the North American adjacent markets first quarter revenues were down slightly largely driven by some softness in the housing and trailer markets.
We are just now starting to see some softness in marine but it's important to note that near term declines in marine should be more subdued than what we're seeing in <unk> due to the fact that marine production has been far steadier and did not rapidly increase like the RV production over the past couple of years on marine and other adjacent markets have been providing critical support to our overall performance, particularly.
<unk> in January when RV production was almost totally shut down transit and school buses are also a big part of our adjacent markets and those markets are starting to see stability. This year.
We're also continuing to develop our marine customer experience programs as we head into the summer boating season, our cabins group now boasts over 2400 members our passion for innovation combined with our focus on customer experience should continue to drive this segment as we expand our product offerings and execute on our diversification strategies.
Our international business was nearly flat for the first quarter of 2023 compared to 2022 with supply chain constraints. Finally, beginning to ease European customers are receiving critical parts like RV chassis is starting to replenish inventories to meet pent up demand.
On another positive note our international businesses continue to be an innovation incubator, highlighting <unk> ability to design and market sophisticated products that should be popular with north American customers pop top units were once almost exclusively known as European products, but have now gained traction in the U S and add meaningful content to the beef end markets one of the fastest growing market.
In the RV space and.
In addition to pop types are critical window products are starting to gain popularity and rvs as well, becoming yet another avenue to generate revenue and content growth using our great European product lineup.
We'll keep leveraging these types of reductions across our global footprint and when supply issues winding down we expect our international businesses to provide a positive impact to our performance heading further into 2023.
I'll now move onto our innovation highlights we believe our focus on innovation and building our R&D capabilities is unparalleled in our industry consumer choice is driving the evolution of content and with younger generations more attracted to the outdoor lifestyle than ever we've increased our focus on innovative products that will match their interests.
Our offerings like new leveling systems, new Windows systems, and slide outs, Pop-top ABS suspension, <unk> electric <unk> as well as one control camera technology and tire pressure management systems have helped us strengthen our competitive advantage and drive long term market share expansion.
Any of these products just mentioned have bearing newly developed market share and we believe we have a great runway with these products over the long term. In addition, we are continuing to work towards a partnership around electrification components and products to make sure that we have a seat at the table around all things electrification of totals in the RV market.
Last year, we launched ABS brakes for RV and utility trailer axle system, which we believe has been one of the most well received and best Tech product introductions and lipids 30 year history.
We're now at a 70000 unit run rate with ABS, which represented 20% of the market and we expect our market share to continue to increase significantly over the next five years as we believe this technology, we've developed for the industry becomes standard safety equipment on all rvs.
Based on the feedback that we've received we have found that consumers are very interested in more products like our ABS brake technology that have a laser focus on safety.
Many of you know that our culture is a main differentiator here at Lipper and very critical to our success.
As we have stated in previous quarters, we believe that a strong culture starts with experience in carrying leaders at the top who work to create opportunities for our team members. So they can become leaders in their own right. Our emphasis on in house leader development as Abel team members to become the next generation of leaders at Lippard, We believe as I said before great leadership directly impacts the outcome of written.
<unk> and higher retention is directly correlated to increases in innovation safety efficiency and quality all of which are key drivers of success of any business.
In the first quarter, we hosted our annual pack at event in Northern Indiana more than 500 LCI team members showed up impact over a 108000 items that we don't need it to the boys and girls club, the Bulker and St. Joe counties as well as other organizations and local schools.
It was yet another opportunity to demonstrate how business can be a force for good utilizing our teams to make an impact in the communities, where we live and work. Additionally, we launched our serve with purpose platform to create meaningful serving opportunities that connect our beers to each other and nonprofit organizations through purpose driven volunteering that we believe will forever change the communities where people.
Campbell.
<unk> currently has six serve ambassador families across the U S. We traveled fulltime and help advance our community serving goals ultimately, bringing the RV community closer together our viewers everywhere are loving. The fact that we are taking the initiative to help connect them to serving opportunities while their campaign overall, we cannot be prouder of these accomplishments and our global team.
Efforts to give back to those in need.
We look forward to our culture initiatives, having even more impact in the rest of 2023.
Moving on to capital allocation, we are focused on fortifying our balance sheet through cash generation and diligent management to maintain ample liquidity with modest leverage we are executing a balanced deployment strategy continuing to pay down debt and at the same time investing in innovation and operational enhancements that should drive efficiency quality and profitability throughout our business.
We're still receptive to strategic M&A opportunities, but our focus on keeping a strong balance sheet and making growth investments in our business in the first quarter of 2023, we purchased a small after manufacturer in Texas to help us expand capacity in that market.
We also allocated 7 million to growth in automation, capex and while our spending will be down in 'twenty. Three we still expect to spend some additional dollars on targeted high return investments that remainder of the year in closing I'd like to reiterate that we believe lippard is in a good position to deliver strong results over the long term our diversification strategy cultural foundation of.
Operational focus and our ability to quickly flex our operations puts us on a path to deliver long term value for customers and shareholders and to further our leadership in the outdoor recreation space as well as other diversified markets that we're in.
To thank all of our incredible teams for their hard work this quarter and we look forward to delivering further progress throughout 2023, finally, I would like to thank Brian Hall for the hard work and dedication. He has shown over the course of his tenure at liver.
Best of luck and thank you for all that you've done for our business and our teams I'll now turn to Illinois, and <unk>, our CFO to give more detail on financial results will end.
Thank you Jason our consolidated net sales for the first quarter decreased 41% to $973 million compared to the prior year period, primarily impacted by a reduction in R&D and production.
For the month of April sales were down 37% to $338 million versus April 2022, primarily due to the decline in wholesale RV shipments as.
As Jason noted we are seeing the effectiveness of our diversification strategy and our results this quarter, while sales to North America RV Oems declined 64% sales in our adjacent markets aftermarket and international businesses only declined 5%.
This significantly lessens the impact at the year over year declines in the RV industry production.
The decline in Q1, 2023 sales to North America RV Oems once again, driven by a decrease in wholesale shipments, partially offset by double digit content expansion in <unk> and motor homes Com.
Content per towable, RV unit increased 21% to $5881, while content per motorized unit increased 27% to $3985 compared to the prior year period.
Total content growth can be attributed to organic market share gains at 15%, while the acquired revenues contributed 7% of the year over year growth.
Sales to adjacent industries grew 1% versus the prior year period.
Offsetting some of the reduction in RV sales.
Sales growth was primarily from acquisitions and pricing adjustments to our transportation products.
Set by lower sales in North American Marine OEM and manufactured housing.
Marine content per power about decreased 3% to $1608, primarily due to price decreases associated with year over year declining input costs and changes in product mix.
Q1, 2023 sales to the aftermarket decreased 13% compared to the prior year period.
Given by a decline in automotive aftermarket sales.
International sales decreased 1% year over year, representing 11% of our total company revenue as exchange rates negatively impact results by approximately 4%.
Due to the strength of the dollar compared to the euro and British pound.
Excluding the exchange impact organic growth would have been 3%.
Led by the strength in our rail market.
Gross margins were 19, 1% compared to 28, 2% in the prior year period due to elevated input costs and the impact of fixed production costs and lower sales volumes.
We continue to expect reduced margin pressure in the second half of 2023 due to increased production supporting enhanced profitability as we move through the year.
Operating margins decreased compared to the prior year period in line with expectations as we absorb fixed costs on lower sales base.
GAAP net income in Q1 of 2023 was $7 3 million or <unk> 29 per diluted share compared to $196 2 million or $7 71 per diluted share in Q1 of 2022 and this is due primarily to the lower RV demand EBIT.
EBITDA decreased 83% to $52 5 million for the first quarter compared to the prior year period.
Noncash depreciation and amortization was $32 5 million for the three months ended March 31, 2023, while noncash stock based compensation expense was $4 7 million for the same period.
We anticipate depreciation and amortization in the range of $130 million to $140 million. During the full year 2023, primarily due to the increases in capital investments to enhance production capacity and ensure further manufacturing efficiencies.
For the three months ended March 31, 2023 cash generated from operating activities was $75 million was 17 million used for capital expenditures 6 million used for business acquisitions and $27 million returned to shareholders in the form of dividend.
Operating cash flows were negatively impacted by lower sales and partially offset by the positive changes in working capital net of acquired businesses.
It generated $130 7 million more cash in the first three months of 2023 compared to the same period in 2022.
As inventories continue to normalize we expect further improvements to working capital and positive impact to cash flow.
At the end of the first quarter, we had an outstanding net debt position of $1 1 billion to three times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses and the impact of other noncash items.
As we look forward, we are focused on continuing to maintain a strong balance sheet and targeting a long term leverage of one five times net debt to EBITDA.
In the near term, we are working to integrate recently completed acquisitions, which we expect to positively impact our operating cash flows in the coming quarters.
For the full year 2023 capital expenditures are anticipated in the range of $80 million to $100 million.
We continue to expect that RV production levels will remain volatile in the short term as a result, we estimate the April consolidated sales results are down 37% to be indicative of for Q2 2023 results.
As RV OEM production.
Suppressed while the dealer base, the right inventory levels for expected demand.
The sales decline is primarily driven by the reduction in RV production as we anticipate Q2 2023, RV shipments between 75% to 85000 units.
Looking forward to Q2 and beyond we are anticipating RV shipments to improve to more in line with those experienced in the back half of 2019, which resulted in an estimated RV shipment range of 310 to 330000 units for the full year 2023.
As we continue to reduce our cost structure and material cost headwinds.
<unk> ability will be limited through the second quarter, and we anticipating operating profit margins to return to mid to high single digits in the second half of 2023.
Debt at the end of our prepared remarks, operator, we're ready to take questions. Thank you.
Absolutely we will now begin the Q&A session, if you'd like to ask a question you May press star followed by one on your telephone keypad. If for any reason you would like to remove your question you May Press star followed by two.
As a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Kathryn Thompson with Thompson Research group.
Your line is now open.
Hey, Good morning. This is actually Brian Biros on for Catherine Thank you for taking our questions.
First wanted to ask you about the OEM production rates you guys touched on in the prepared commentary.
You can see it.
If the production levels are coming back at the rate that you previously expected I guess that Q1 when.
When we talked to earlier.
We've heard chatter.
Some are taking a little bit longer to gives dealers a little bit more time to adjust their inventory levels of 22 units now that the model year 'twenty for us an extra shift.
So maybe they're taking a little bit longer to bring production levels back in just curious to see how that squares with previous expectation you guys had.
Sure.
So this is Jason.
First off I think we saw some units being pulled forward.
Just on a significant discounting that we were aware of over the over the course of.
The entire first quarter.
And that's a lot of the dealers trying to get rid of the 2022 units and then I think what we're seeing coming into Q2 is that there is there's more of this in approximately 35% of the total inventory out there in the field that we've heard from our dealer touch points. Our 2022 units. So there'll be continued movement of those and I think.
What's going to slow down and what we're already seeing some of those are what's going to slow down some production on wholesale for Q2 is the fact that they just don't want to build a bunch of 'twenty threes and put them out. There is 24 is get released here in the next couple of months so.
I think we are.
Going to see a slowdown in wholesale a little bit maybe to mirror. What we saw in Q1 is around 77000 units.
Based on the fact that that there is not demand for units to replenish inventory, but they just don't want to start loading dealer lots up with 24 units when theres still plenty of 'twenty three 'twenty twos out there. So we expect wholesale to pick up in Q3 as the Alaska depleted. So that's how I'd answer that.
Got it that's helpful.
Oh well.
Yes, Thank you and a follow up I guess just on the kind of plays into the same question just on the higher inventory costs flowing through I think you guys previously called out maybe.
Four to 500 basis point headwind from the higher price inventory and having to sell through during the lower volume quarters here in Q4, Q1, I guess, maybe a little bit in Q2.
I guess, just given the current run rates and the outlook as we sit today I guess, what does that higher cost inventory flow through rate look like now.
Thank you.
Hey, Brian This is Brian .
<unk>.
Yes, that's playing out about what we anticipated we certainly have been consuming some higher costs I would say probably the more meaningful.
Product category for US now is a lot of any imported product and a lot of the higher container cost of freight.
We're still pulling a lot of that through steel and aluminum have balanced out for the most part they are still a lot of it's volatile market. So it'll continue to move up and down, but probably not as meaningful as what it was historically, so we picked up sequentially a little bit of margin.
From what we anticipated and getting into some some cheaper inventory layers and would expect that to continue to play out through the second quarter.
Assuming materials stayed pretty stable in the back half is probably back half of the year is where we start to see more of that benefit. So it's playing out pretty consistent with what we anticipated.
Sure.
Thank you.
The next question is from the line of Fred Wightman with Wolfe Research. Your line is now open.
Hey, guys. Good morning, I was just wondering what retail number you have baked into that 303.
<unk> 310 to $3 30 wholesale outlook.
Yes, So we're planning right now on $3 40 to $3 60, and Thats based on a significant level of dealer touches.
And a lot of the big dealers have weighed in on that and you know three.
340 to $3 50 is about the consensus out there.
Which we agree with perfect and then yes.
Yes Super helpful. And then Jason you made a comment about some recent softness in Marine I think you also said pricing softness in manufactured housing, but can you just sort of walk through what exactly you were referring to if there is sort of a downtick in production rates.
On the marine side, if thats something to be worried about or or any other color there would be helpful.
Yes, I think just to start with marine.
We're starting to see rates get pulled back a little bit because dealers are relatively full there.
I think they are expecting a good retail season.
But to that our production rates are down 15 ish percent for the for the next quarter and that really just started here in late.
Late April so, it's pretty it's pretty fresh and on the housing side.
They had a.
We had some down production or lower production in Q4 coming into Q1, but.
With some of the touch points, we've had with our housing or housing housing.
Housing customers there they're expecting.
A good run the rest of the year so.
And Fred This is Brian I don't think Thats changed much from what we had been communicated previously we thought that on tune would run at least until end of the second quarter. It made it just at the beginning of the second quarter and it started to slow some but I think it really depends on the category of both some of the fiberglass stuff seems to be doing a little bit better.
And maybe not inventory that the level of pontoons. So.
But everything seems to be slow and in line with what we had previously thought.
It makes sense, just a clarification, but down 15% is that a sequential comment year over year comment what exactly is that.
But just based on rates last quarter, so and.
We don't have production schedules out past another month or so so it just near term and I think that the marine dealers and Oems are just being very cautious given the environment and.
The dealers arent.
Dealer inventories and bloated.
But they're just being cautious with how they proceed in a free deals really strong. This summer then they'll need to don't need to reload a lot quicker than the RV guys.
Makes sense. Thank you.
Okay.
Thanks Rod.
The next question is from the line of Dan Moore with CJS Securities Dan. Please go ahead.
Thank you good morning.
Ryan Thanks for all your help best of luck in million welcome and look forward to meeting.
Thanks for the update on the wholesale and RV wholesale and retail outlook for the year.
Jason when you think about kind of RV demand.
Given all of the surge in new buyers that we've had over the last few years, where would you peg kind of a normalized view once we get through recessionary fears et cetera.
What's sort of the new normal.
In terms of retail demand for RV in your mind.
Hey, Dan.
Good question I think.
That is we're going to we're going to have to slow roll back into a normalized number so I don't know if that.
Normal.
Find that next year or whether that's in <unk> and.
In 'twenty four 'twenty five.
I think a good I think a good number for the industry is $4 50.
To 500.
The demographics are just.
They are great for our business and our industry and more and more new buyers are coming in and Theres just more places for people to find our views and ultimately.
4% to 500000 units is and isn't a big number.
On the total population in North America. So.
We feel good about that number and I feel as soon as we get through some of the the heavy inventories and some of the economic struggles we've got out there with inflation and interest specifically, we get we get back to that number and I think most people in the industry feel feel similar.
Alright, It doesn't mean, we can't go after Mark I mean, you can't go bigger.
Got it got it just switching gears to aftermarket. If you gave this I apologize just kind of price versus quantity in the 13% decline year over year and kind of what's your outlook for Q2 and the remainder of the year.
Hey, Dan It's Brian I would tell you, it's not driven a lot by price.
Really the automotive side of the business has had some.
Channel issues, a lot of inventory out there. So we saw some slowness in volatility in orders I think that we've gotten through a lot of that a lot of the wholesale distributors I think are right sized and their inventories today, we're starting to see some.
Orders pick up here over the last month or two and expect that to continue as they enter into their busy season as well here for the spring summertime. So.
So I think that we're past what appeared to be some of the worst than what we saw in aftermarket and expect that to continue.
At least flat line and then start to grow from from here in the short term and a couple of comments I'd make Dan on that is.
We said automotive was kind of responsible for.
The decline in aftermarket sales, but RV is holding strong and I think.
The thing about our views is that we've we've been peeling away at inventory dealer inventories and our inventories since June of last year. When the volume really started dropping off so we're we're almost a year and working through this and as you know a lot of these cycles that we have in this industry don't last longer than 2014 to 18 months, so almost a year through getting through.
Some of that but our RV business remaining strong at the automotive stuff, while it's been down the last couple of quarters is starting to come back we've seen some nice orders the last few weeks.
<unk>.
Very helpful last for me is on cash flow.
Sounds like we're still targeting another release of the $180 million of inventories. This year is that correct.
<unk> jumped a bit maybe part of it was the acquisition, but that offset.
Offset a little bit of inventory benefit in Q1. So just how do we think about Ah is progressing for the remainder of the year.
What may be operating cash flow could look like for 'twenty three thanks again.
Hey, Dan it's Lillian good morning, and good to meet you. So I think we're still anticipating the benefit from the inventory pulling through and and benefiting the operating cash flow.
There has been a little bit of Lumpiness.
Other working capital that will work through but I would say overall for the year, we're expecting still to have very strong cash generation for the business.
And Dan to add to that seasonally our receivables are at a low point in the fourth quarter. So you would typically as that builds back up in the first quarter, you would see that negative impact on cash, but that's pretty normal and I would expect that to be pretty consistent in the rest of the year until we get to the fourth quarter, which is when we then tend to pull out of that cash in.
But certainly feel really good about the inventory reductions through through April now or cumulative cumulatively for the year down $150 million in inventory so certainly.
I would say exceeded my expectations from how quickly we've been able to generate the cash out of it so I feel pretty good about our targets for the full year.
I'd also say with the inventory that is something that the team is very laser focused on and actively monitoring and measuring how we're progressing on those targets.
Thank you.
The next question is from the line of Craig Kennison with Baird.
Greg Your line is now open.
Hey, good morning, Thanks for taking my questions and congratulations Brian and Lillian.
A question on content per unit, how do you see your content per unit trending in your key segments as the year unfolds.
Yes, Craig from a content perspective, we finally this is the first quarter, we havent really talked about price, creating a lot of noise in that content. So on a year over year basis prices kind of.
A bit.
Consistent.
So everything has been organic growth and acquired growth. So that's the first clean number we've had for a while I do think there is a little bit of price left I mean, obviously were.
As costs continue to come down we will continue to provide some some price give backs to our customers as well so theres a little bit more to go there, but it's not to the tune of what we were talking about over the <unk>.
12 to 18 months or so so.
Definitely good traction there I know, we've got a good model changeover on the RV side coming up here. This.
In a few months so we're anticipating a lot of new business to come through the RV side.
Definitely everywhere in a lot of our younger markets, we're still looking at good solid.
Mid to high single digit and sometimes double digit type content gains in some of those categories I think a little bit of the noise, you're seeing on the on the marine side and the content number that that we.
Just communicated.
Down a little bit a lot of that is price.
That has seen some price give backs in that category as well as I think some mix changes in the marketplace. So just looking at the mix and the powerboat segment.
As it shifts more away from pontoons that certainly impacts our content opportunity a little bit. So I think youre seeing a little bit of that in the down 3% number that we tend to and we've never Craig we've never had more of a robust launch on innovation than we've had in the last couple of quarters. So we mentioned.
Yes, I mean thats a.
Three to $400 at our to every single axle out there on.
Probably 100000 axles.
There is.
A new window products with integrated shades. The one control additions, we continue to gain more market share there I'm not.
We've been talking for a couple of decades now about just to continually rising target on on content because of all the.
Product introductions and refreshes on existing products that have been continually.
Thank you and then Jason maybe a question on your aftermarket business.
Curious how you would define your sweet spot for your automotive and RV aftermarket is it typically in year. One after the RV is purchased by a consumer.
Or.
Does the pekin aftermarket revenue occur at a later period.
I think you've got a little bit of both I mean, the way we look at a lot of the aftermarket revenues for RV or just in terms of upgrades and repairs and services. So I would say the repairs and services is probably a little bit heavier.
And Thats generally occurring.
Probably years two to three to four.
Based on.
Various data that we have but there's certainly upgrades that happen upfront.
Are the vehicles out there today can come equipped with a lot of our prep opportunities. So you know.
We'll proper vehicle for cameras or for slide toppers are for something like that that the consumer might want and they have the.
Part to attach it with on the unit and then they have to buy the actual physical piece in the aftermarket, but I'd say, it's more heavily weighted toward.
A few years under the ownership with repairs and services and then on the automotive side, it's more it's a lot of hedges and towing and storage and.
Truck accessories things like that that are generally bought upfront.
Would the vehicle perfect. Thank you.
Thank you.
The next question is from the line of Bret Jordan with Jefferies Bret.
Brett. Please go ahead.
Good morning, guys.
Good morning Chantal.
The feedback Youre getting I guess, you talked about recent color from the Marine channel and obviously a lot of RV channel checks to come up with your retail estimate are you getting any color as far as sort of the cadence of a retail sales traction you talked about strong show interest, but are we seeing any pickup in buying as we get into the summer months.
I think we're going to see it as a kind of a wait and see I mean summer summer.
Some are purchasing in some of our activity is really just starting to happen now. So I think we'll have a really good view of that over the next.
Next couple of months, obviously wholesale production is way down and we've kind of matched.
Almost unit per unit on wholesale to retail in the first quarter, but this is one of the the heavy retail really starts so.
I think we're optimistic.
Dealers are expanding they're making acquisitions, they're trying to get better they are anticipating.
Retail selling season. So we have no reason to anticipate that theres not going to be a lot of buying out there.
And again some of the early activity. We've heard is there's a lot of interest in there is there is purchasing again.
We're not that far off of 2019 number so far this year and it was a 460000 unit retail year.
And we're estimating.
340 to $3 60, as we said earlier so.
15% or so off 1919 is $4 60 number right now and I think that.
It might stay that way, which gets us to that high end of that $343 60 range. So.
We're optimistic.
Yes, Brett I was going to add there I think.
I think that.
Early on you saw retail pretty strong actually if you look back over the last six months I think the comp to 2019 has been really favorable in less than 5% off of that March is really the first retail month, we've seen that slipped.
Meaningfully beyond that.
But I think weather.
I hate to always tout weather, because that's something that at this time of year, we are always watching closely but.
I think that retail slowed some some of that could be attributed to weather because there were a couple of my touch points was hearing that online sales were performing really really well at many of our many of the dealers. So.
Pete folks, who just weren't getting out due to weather, but there are at least order in online. So I think there was a cut there's some positivity out there and we will wait and see what these meaningful months of retail really look like.
I think I have been saying you really got to wait and see what April may retail is hard tough to gauge off the lowest retail months, we have in the year, which are through the winter months. So.
So these next couple of months will be important to watch one of our other real positive there is that our industry better than most I think the Oems and dealer body collaborate really well when they've got to move product.
Participate discounts and.
To try to do what they can to move units.
We're seeing a lot of that out there right now I mean, there's some heavily discounted product going out there either to the Oems and the dealers to the to the retail consumers are just from the dealers at the retail consumers and ultimately that's good for the consumer that gives them more of a reason to buy and not have inflation is.
A big reason not to buy if there is some significant discounting out there and as you know there's not been really any discounting prior to last year for the prior three years. So I think it's good news for the consumer and the consumer is pretty healthy right now so I think we.
We will see we will see it in the next couple of months.
Okay, and then a question on the balance sheet. I think you said Q2 might look a lot like April down 37.
Dropping a good EBITDA quarter of prior year Q2 does that creating a leverage ratio issues in the short term or is your inventory liquidation going to de lever and keep the covenants okay.
Yes, no we're pretty comfortable with how things are progressing as were looking looking at the movement through this year with the inventory.
Depletion that we're anticipating that that we feel pretty good about our position.
Okay Brian .
Alcohol in the second half ramp.
Yes, yes, yes, I think certainly have those quarters fall off and certainly would be our expectations here in the first part of the year with the inventory reductions.
Now that as we were talking earlier receivables stabilize.
We will be able to drop even more of the inventory benefit to the to the cash line.
Okay, great. Thank you.
Thank you.
Thank you Brian . The next question is from the line of Brandon <unk> with D. A Davidson Brandon Your line is now open.
Good morning, Thank you for taking my questions.
First just a clarification I think you said multi year 'twenty two inventory about 35% of the new inventory in the market is multi year 'twenty two I guess I'm thinking as multi year 24 has come out could you speak to how much model year 'twenty three inventories in the channel right now and maybe how 20 fours tripling and could impact sales of those <unk>.
<unk> and potentially have another kind of model year 'twenty two situations, but maybe not to the same extent.
Yes, I think just strictly because of the low production of 'twenty threes Theres, just not a lot out there.
We don't have a really good check for that and Theres just not a lot of good field inventory consolidated numbers for us to look at but we.
People have been paying close attention to the 'twenty twos and Thats why I think we have a better number.
But I don't think 'twenty threes as a concern I haven't I've got a lot of it we've got a lot of checkpoints with dealers and Oems.
Nobody is really.
Talking about that are talking about it as a possible issue.
They are just saying hey look part of the reason, we're taking some time off in the coming weeks rolling into the fourth holiday July 4th holiday is just to limit the amount of 23 that gets stacked on the 'twenty twos that are already out there. So I think the Oems are being really disciplined.
Obviously, you have this type of situation pop up over the last couple of decades I've been here.
<unk> seen the Oems be as discipline.
Act as quickly as they have to to truly make some of these decisions that are going to be better for the industry and the dealers and the longer term here.
And Brandon I would add that <unk> talked a couple of the larger financial institutions in the space.
We havent seen inventory age over 365 days since I think back to 2018, and any kind of meaningful way, but as you know back then it was pretty typical to have some units age to that point, but we've just now for the first time since 2018 had some.
<unk> start to age out and.
But it's a pretty normal levels compared to what the industry has seen historically.
Dealer floor planning.
Pretty low number as well so.
Okay, Great and just one last follow up just on pricing and affordability of new Rfps right. Now do you feel like we've reached a new baseline for the price of a new RV or do you feel like over the next couple of years pricing could come down.
Felipe.
Yes, I think youre going to see some I don't know about meaningful way because youre going to see some of the cost of doing business and certainly labor inflation, that's likely not going away.
But there was certainly a period over 'twenty, one to 'twenty two where.
The materials costs were significantly inflated above normals that above levels that we feel are abnormal.
So.
Our our thoughts on that is probably some price will come out of it and we've already seen some of that in our product pricing to our customers over the last couple of months with our index agreements.
Specifically on aluminum and steel.
So some of that some of that will come out, but a lot of it will stay and like I said over the course of the next few quarters, probably there'll be some.
Discounted units back to the consumer that give them maybe.
A much lower price on product than what they would have got it.
Six months ago.
Okay.
Great. Thank you.
Yeah.
Thank you.
Last question today is from the line of Tristan Thomas Martin with BMO capital markets interest in please go ahead.
Good morning.
One can you maybe go into a little more detailed kind of with channel inventory levels at the large dealership chains versus some of the mom and pops are pushing Morocco basis.
Yes, I think that.
Outside of having more 'twenty two that's more of a I think the mix of.
The mix of product they have the dealer ships are probably what they dislike the most but I don't think inventory levels and number of units on the dealer lots or are the big concern. So.
We can get rid of some of these 20 twos and I think that again.
With the low amount of wholesale production Thats planned over the next couple of months going into the July 4th holiday.
Shutdown, there that that will really help get rid of some of the 'twenty twos and we feel that the dealers are going to have inventories that theyre going to need to reload at in Q3 Q4, if they wanted to have ample product for the the next season.
But that's how we.
Talk about that.
Okay. Yeah, I was just curious.
The larger chains are maybe a little bit leaner than some of those margin.
I would say that I would say the larger chains are probably.
The best balancing their inventory because they can they're good at getting rid of product quick quickly and they're going to getting product quickly when they need it because they've got the order sizes to be able to do it.
Alright got it.
Camping world called out there seeing multiples come in on there.
Dealership prospects what are you guys seeing for your M&A multiples you are looking at.
Well, certainly I think certainly for everybody in our industry that the multiples are there going to be lower for a period than what they were.
At the peak of Covid and even in some cases pre COVID-19, but.
Yes, we're hearing a lot, especially in the dealer side.
Multiples are coming back to a more.
Reasonable reasonable level.
Obviously, we're not we're not we're looking and continuing to stay active in M&A. We are just not making a lot of meaningful acquisitions right now to just be intelligent on our cash preservation and balance sheet. So.
But the small deals that we have done have been very reasonable multiples.
Alright, thank you.
Thanks, Chris.
Thank you Tristan that concludes our Q&A session for today's call I'll now turn the call back over to Jason for any concluding or additional remarks.
So everybody thanks for jumping on the call today and while the RV industry remains challenged just remember that.
We're almost a year end.
So we've dealt with a lot of the big hurdles already.
We're really excited about our diversification opportunities in progress I think that's helped us.
But things really well.
Diversified categories that really performing well and we need them to perform well in a time like this so we're excited present progress next quarter's meeting we will see you then thanks Bye bye.
That concludes the LCI industries Q1, 2023 earnings call.
You all for your participation you may now disconnect your lines.
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Yes.
Okay.
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