Q3 2024 BRP Inc Earnings Call
Right.
[music].
Good morning, ladies and gentlemen, and welcome to the <unk> Inc's fiscal year 2024 third quarter results conference call for participants who use the telephone line. It is recommended to turn off the sound on your device.
I'd now like to turn the meeting over to Mr. Philip Shen. Please go ahead.
Thank you Sylvie good morning, and welcome to ERP, and Prince Gulfport, a third quarter of fiscal year 'twenty four.
With me. This morning are shows the boys are the president and Chief Ethics, and Sebastien Martel Chief Financial Officer.
Before we move to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call and that the actual results could differ from those implied in these statements.
The forward looking information is based on certain assumptions.
Subject to risks and uncertainties and I invite you to consult brt's MBNA for completely studies.
Also during the call reference will be made to supporting slides and you can find the presentation on our website at <unk> Dot com under the Investor Relations section, so with that I'll turn the call over to deal with it.
Good morning, everyone and thank you for joining us.
<unk> delivered a sound performance in the third quarter as our team continued to demonstrate its commitment and resilience in a dynamic environment.
We maintained our momentum in gaining market share in the off road category and delivered financial results that came in close to our expectation.
However.
Like the rest of the industry and despite our continued solid execution, we are seeing signs of softening demand in certain product category more particularly in international markets.
Situation lead us to proactively take a more cautious approach for the upcoming quarters as we strive to maintain a solid value proposition for dealers.
We remain committed to continue to lead our industry and to further grow our market share we.
We believe that our proactive action will further solidify <unk> position for long term success.
Let's turn to slide four four key financial highlight of the quarter.
Revenue reached $2 5 billion below our expectation due to softer demand in international markets.
To a lesser extent, a temporary slowdown at the Texas, Mexico borders.
Which impacted deliveries of side by side and ETV over three weeks.
Near to the end of the quarter.
This situation is now back to normal.
With a strong product mix and tight expense management, we still delivered normalized EBITDA of $445 million and normalized diluted EPS of $3 or 6% both coming in close to our expectation.
Turning to slide five for a look at our retail performance.
In North America, our retail sales were about flat with continued solid growth in the RV and snowmobile.
Set by decline in personal watercraft pontoon and three wheel.
Due to a different timing of shipments this year compared to last.
As you May remember supply chain issue last year forced us to ship late in these product categories.
It resulted in stronger than usual revenue and stronger retail in third quarter of fiscal year 'twenty three impacting the year over year compatibility.
Excluding these affected categories, our retail sales were up 21% compared to an industry that was up mid single digits.
Our performance at retail continued to be strong in Latin America.
With the 30% growth.
Demand was softer in Asia Pacific and EMEA, but we still outperformed the market in the ladder.
Also.
We are expecting very low shipment in the short term in the middle East countries.
By the conflict.
Turning to slide six we.
We see that we have continued to gain share since the beginning of the year in the North American power sports market.
Since fiscal year 2016, we have gained 17 points of market share to reach a proactive actively 37%.
More than one out of three products sold at retail is a <unk> product.
We have outperformed the industry in the RV snowmobile and personal watercraft, which shows the strength and the diversity of our product portfolio.
Moving to slide seven.
At the beginning of the quarter in August and September year over year growth remained positive in line with the trend observed in recent quarters.
However, since October we have started to see incremental sign that the macroeconomic and geopolitical environment is affecting the industry.
As you can see if we zoom in on the RV market demand began to soften in all our region with more important decline in the EMEA and Asia Pacific.
This trend is continuing into November.
Reflecting this situation and considering the macroeconomic environment, we are proactively adjusting our wholesale shipment plan for the coming quarters.
This scenario is reflected in the updated guidance that sebastien will discuss in a moment.
Now, let's turn to slide eight for year round product.
Revenue were down 8% to $1 $2 billion the.
The decline was primarily driven by the different timing of shipment of two wheel vehicle compared to last year and the temporary the boarder slowdown which impacted or the shipments.
At retail can them side by side and.
Another very strong quarter with retail up low teen percent, notably driven by solid market share gain in the utility segment.
All industry growth came from the premium vehicle category.
This market dynamic is very favorable for <unk>, given our significant market share in higher end models.
As for ITV our retail was up mid single digit.
Led by strong growth in the mid Cc segment, driven by the success of our newly introduced auto lender platform.
We are pleased with the momentum of our off road business.
The strength of our lineup puts us in a good position to continue outperforming the industry.
Looking at three wheel vehicle.
We ended the season 'twenty three with retail down low single digit compared to an industry that was up low single digits.
The slight decline came from the ryker.
While consumer interest remain high entry level buyers have been more resilient lately is it lately sorry.
Meanwhile, despite our F <unk> R T.
<unk> model have experienced positive momentum throughout the year.
Turning to slide to seasonal product on slide nine.
Revenue were down 15% to $869 million, primarily due to the exceptional high level of shipment last year and previously as previously explained.
Looking at our retail performance, we are very pleased with the success of our Cedar product lines.
We completed season 'twenty three in North America, with an outstanding performance for sea Doo, leading to an all time high market share.
Furthermore, we ended the season with the number one market position in all of the segments in which we compete and the number one position in all provinces and states.
As far as <unk> PON, two retail was up over 200% for the season.
We ended with the number three market position in the U S, but very close to the first two players.
In Canada, we estimate that we finished the season with a solid mid 20% market share.
Turning to snowmobile wild.
While still relatively early we are off to a very good start with our strongest season to date retail in the last 10 years.
Looking ahead retail trends for snowmobile are positive and we are well positioned with the strong level of pre sold unit.
Moving to slide 10, with power sport parts accessories, and apparel and OEM engines.
Revenue were up 6% to $315 million, notably driven by higher sales of aircraft and Jim and opinion gearbox.
We also continued to benefit from our growing product portfolio and the larger vehicle fleet in use which led to higher sales of replacement parts and accessories driven by the link ecosystem.
We are notably seeing solid trend for the new <unk> are with buyer, adding many accessories to there.
This trend demonstrates the benefit of developing highly integrated accessories, which are available right.
All of the vehicle.
Moving to marine on slide 11.
Revenue were down 6% to $104 million due to a lower volume of both shipment.
In general dealer have high inventory and with higher financing cost data remain cautious about accepting deliveries during the off season.
Looking at retail sales.
From an industry perspective, we continue to see the category being more impacted.
By higher and higher and higher interest rates.
For Q3 menu to retail was down low, 20% and <unk> down mid 30%.
As for <unk>, although it's still early in the season in Australia retail was up low single digits.
I am proud that our new <unk> boat the freestyle X one a good design award in Australia.
Disprize illustrate the strong appeal and the excellence of our new both design and technology.
This is the main reason why we remain confident about the potential of our marine business for the coming years, Despite current industry challenges.
With that I'll turn the call over to Sebastien.
Thank you Jose and good morning, everyone, while our top line performance for the quarter fell short of our expectations due to lower deliveries, resulting from an unforeseen slowdown of the mix of the Texas, Mexico border. Our continued focus on efficiency and cost management helped us generate solid margins, which coupled with a favorable tax rate allow us to deliver.
Normalized EPS roughly aligned with our projections.
Looking at the numbers, we reported revenues of $2 5 billion, a decrease of 9% compared to last year, primarily due to the different timing of shipments and slower deliveries of <unk> product was previously discussed.
We generated $627 million of gross profit representing a margin of $25 four up 120 basis points from last year, primarily driven by a positive pricing impact net of cost inflation lower turbulent cost a favorable product mix. These benefits were probably are.
Set by less efficiency with some of our assets due to lower volume than expected.
Marine business and efficiencies higher sales program and unfavorable foreign exchange rate variation in the quarter, which impacted margins by 120 basis points.
Moving further down the P&L, we generated normalized EBITDA for the quarter of $445 million, representing a strong margin of 18%.
And our normalized net income reached $238 million, resulting in a normalized earnings per share of $3 six.
Looking at the cash flow, we generated $695 million of free cash flow. So far this year of which we returned $409 million to our shareholders through dividends and by completing our and CIBC <unk>.
Repurchasing a total of three 5 million shares.
Moving to an overview of our network inventory on slide 14, our network inventory remains balance at the end of the third quarter only up 24% versus pre COVID-19 level, while our retail is up 43% over the same period.
Phil Despite improved days of inventory in the network. We are cognizant of the mounting pressure that our dealers faced particularly due to high inventory values and increasing floor plan financing.
In this context and in response to recent industry trends and the mounting macroeconomic pressures affecting our consumer behaviors, we have decided to proactively adjust our production schedules.
This decision is aimed at ensuring our dealers' inventory remains aligned with prevailing market conditions in order to protect our dealers value proposition.
And make sure that our mutual success is sustained.
Turning to slide 15 for an update on our guidance.
As we look to the fourth quarter, we expect to continue outperforming the industry, especially as we accelerated shipments of the new Maverick, our sport side by side and the new ATV Outlander mid Cc platform as we sustain our momentum in utility side by side and as we progress through the snowmobile season, which is already off to a good start.
However, given the aforementioned challenging industry and macroeconomic backdrop, we have adjusted our shipment plan for the remainder of the year and are revising our guidance accordingly for fiscal 'twenty. Four we now project total company sales to be up 4% to 5% from.
From a profitability standpoint, the realignment of our production schedule to this new shipment plan is generating some short term inefficiencies, which coupled with higher sales program, we expect will impact margins in the fourth quarter.
As a result, we now project normalized EBITDA to be flat to up 2% for the year and normalized EPS to end between 11 10, and 11 35 note that our results include a headwind of about $1 40, coming from higher depreciation and financing costs over the last year as we continue to invest to generate future growth.
And we are impacted by higher interest rate levels.
As we approach the next few quarters with a more cautious stance, we are committed to staying agile and efficient and to continue diligently managing our expenses all the while continuing to set solid foundations for the long term future of our business. We strongly believe our organization is well positioned to continue outperforming the industry.
And emerge from this cycle, even stronger on that I will turn the call over shortly.
And Chris the best team.
I want to take a moment to share the success of the second edition of our yellow date.
Last year, we choose intimidation as our global cause.
On November 17, we rally our employees dealers and other providers and partners to take a stand against all forms of intimidation.
Our entire network embraces that cause.
And join in our global movement, which make me very proud.
In conclusion.
With this trend of our lineups, we continued to deliver robust market share gains over the last 12 months.
However, like the rest of the industry, we are seeing softer demand in certain region.
Although we anticipate the few challenging quarters.
They remain positive.
We are known to be agile and we will make the appropriate adjustments as needed.
Since we became <unk> 20 years ago, we have never shy away from investing in our future to build a resilient organization that is gear up to respond to market fluctuation.
I am confident in our long term strategy.
With our commitment to operational excellence and constant investment in innovation, we are managing the business for continuing success.
I am proud of our employees and I, thank them for their relentless effort.
So acknowledged our dealers for their support.
Together, we will continue to deliver market shaping product and remain the number one OEM in the industry.
On that note I'll turn the call over to the operator for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Please note that out of consideration for all callers today, we ask that you. Please limit yourself to one question and one follow up.
We'd like to ask a question. Please press star followed by one on your Touchtone phone well here at three Tom prompt acknowledging your request.
If you would like to withdraw from the question queue simply press Star followed by two and note that if youre using a speakerphone you will need to lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions.
And your first question will be from Craig Kennison with Baird. Please go ahead.
Hey, good morning, Thank you for taking my question.
So I guess im not surprised at all that Youre seeing a slowdown given the macro environment I'm just curious what you think capex.
October and November that.
It wasn't part of the ecosystem in.
In prior months, it's just surprising to me that maybe it just happened so quickly.
Good morning, Craig.
As you know.
We monitoring constantly consumer demand and the macroeconomic environment.
And each one was in line with our projection and it continue into August and September.
But October.
The decline the decline in almost all markets, but especially international.
And the trend is continuing in November at least with our numbers then.
We believe that dealers have adequate.
Level of inventory and use survey dealers, often and you know that they have pressure on the higher inventory costs.
So considering the macro environment, you know the European and APAC situation Bill forget there is two conflict.
In the Crane and Middle East.
And the dealer challenges in the industry trend.
Then proactively we decided to adjust the shipment for the coming quarter and all of this is in the context of we continue to gain share. We believe we have enough inventory out there in the network.
To continue our momentum, but we want to be more cautious to make sure that we protect the value proposition and we are convinced this is the right thing to do for the long term.
Thank you.
Thank you.
Next question will be from Robin Farley of UBS. Please go ahead.
Great. Thanks, I Wonder if you have any thoughts about that.
<unk> targets that you have out there your longer term targets.
You see those as impacted or think that they can still be intact. You had talked last quarter about even if the revenue didn't get there. The EBITDA is still could so just wondering how youre thinking about those and then also.
I don't know if you quantified in your comments there you definitely talked about the outlook softening.
Would you kind of put a ballpark.
Your expectations for retail and <unk>.
North America.
And in Q4 and into 2020 for kind of what you are.
Current expectations are now with the reset.
Good morning Robin.
First on the 25 day initiatives are changing the artist same that our focus is the same but obviously that guy just explained with the recent industry trends.
North America, and international and the macroeconomic environment, we now working with more conservative industry numbers going forwards.
We want to be again, the responsible and we proactively reduced shipments to improve the inventory return.
And we believe that fiscal year 'twenty five revenue could be down.
Next year and at this point with the trend we're seeing we don't expect to achieve the 25 target.
Now again I would like to remind you that we are well positioned with the inventory we have to continue to gain market share.
And we.
<unk> target to remain the OEM of choice and on this I will give.
The mic to <unk> just to give you an idea about the numbers.
Yes, good morning, Robyn and it is obviously still early and we still have a few months to go before we firm up the assumptions for the planning for next year, but generally we are expecting a softer industry.
And from a profitability standpoint heading into next year.
Obviously, we expect demand for premium products to remain strong.
That obviously is going to help from a mix perspective, and we do expect our <unk>.
Green business to be stronger as well next year as we've had challenges with the ramp up of production and that impacted profitability.
However, despite these benefits that we do we do expect some offsets.
Again with lower volume less efficient use of assets, probably higher sales programs as well because we are seeing other Oems running with higher inventory and also higher promotional environment and also again, we invest in the business. So we should expect higher depreciation as well next year.
Opex will probably run higher as well as a percentage of revenue than we did this year, we are continuing to invest in growth projects.
All in all when you combine all of these elements with a software revenue.
We could lose a point or so of EBITDA margin compared to this year again as George mentioned on the strength of our lineup store brand, we are super well positioned and we expect the fundamentals of around 25 to continue generating growth for us specialty market share gains.
But we believe we are taking the right actions to support our dealer and also we prefer obviously retailing current products than non current products and Thats why we are diligent in managing inventory.
Okay. That's very helpful color for next year. Thank you.
Thank you next question will be from James Hardiman.
Please go ahead.
Hey, good morning.
Thanks for taking my call and I think that was it was really good color on sort of next year obviously.
We can hold you to that it's pretty early but I think you mentioned a softer industry for next year, just just to clarify is that softer than previously expected or do you actually expect the industry.
To be down next year.
If so what does that mean.
How do you think about your own retail.
Fiscal 'twenty five.
Yes.
I said that we still got a few months ago before we firm up the assumptions for guidance next year, but given the macroeconomic and political backdrop. There we expect the industry to be down next year.
To give you more color when we.
We talked in Q4 on.
On our results and the guidance for next year.
Okay, but to clarify.
The industry will be down.
Your own retail will be down or do you think.
Market share gains will be more than enough to offset that.
Still early still early.
To give any color for next year.
We'll obviously monitor how the situation is evolving in the fourth quarter and Thats, obviously going to be a big driver as to how we we.
Set up for next year.
But we're confident in that.
That confidence continued to gain market share with the threat of our lineup.
With the trend with the premium we're confident to continue our momentum with market share.
Makes sense and then on the inventory front.
It sounds like days on hand are are lower than they were pre pandemic could you maybe quantify what that number was and how that compares to pre pandemic.
Want to get a feel for what should we should expect for the end of this year.
And whether or not we should be factoring in any sort of inventory correction as we look to fiscal 'twenty five.
The.
Today as we mentioned there when you look at our inventory turns they are healthier than pre COVID-19, but we want to operate with.
Higher inventory turns than pre COVID-19 and dealers as well as <unk> want that.
The expectation for this year is that inventory at the end of Q4 will probably be flat to up single digit versus where we are where we are at Q3.
Obviously very dependent on the hull, the snowmobile season will evolve, but it's off to a good start.
Next year some of the wholesale adjustments that we will do.
We will be as a result of managing the inventory in the network.
If you were to ask me, we said what you want that inventory to be lower at the end of next year than it is today.
It's certainly something that I would like to see because as I said, we prefer retelling current products the non current products.
So given the current backdrop and the softness in the market running with leaner inventory is beneficial for us because it's less programs and beneficial for the dealers as well because less discounts.
Got it.
Okay.
If I may ask that was the follow up if I may ask a follow up with a follow up I'll have a follow up.
Yes.
You think your peers will see the key.
Current environment in much the same way.
Like there is may be risk, if you're taking a really conservative approach.
Hoping to finish.
Next year with lower levels of inventory of your peers are doing the same.
You could ultimately lose market share, but b still feel the effects of a dealer channel.
It feels like it has too much inventory.
But I don't know I don't want to predict what the peers are doing or will do but one thing I can tell you pre COVID-19, we had less inventory than our competitor and we've been gaining share since fiscal year 16.
And we're doing this by <unk>.
Protecting the value proposition.
The dealers than we.
Billing, we truly believe in our plan that way.
We are.
Increasing the inventory return.
Protect the dealer profitability. This will pay off long term and this we had pre COVID-19 from fiscal year 16 to fiscal year 'twenty. One we are gaining share with less inventory than our peers.
And we want to make sure that again, we're protecting the value proposition for our dealers and that will be.
That will be.
More successful going forward.
Very helpful. Thanks for the color guys.
Thank you.
Next question will be from Martin Landry at Stifel. Please go ahead.
Hi, good morning.
I'd like to just get some color on.
The order of magnitude of your <unk>.
<unk> costs <unk>.
Production cuts sorry for that.
Youre, making in Q4 can you give us.
Just an idea.
How much you've cut your production for Q4.
Well the best way to read it and I'll say is by looking at the adjustments we made on the guidance. So again with one quarter to go.
We've adjusted guidance downward.
To reflect.
Mostly production cuts and so that's the main driver from a topline point of view.
If you look at or we're expecting a strong quarter four for year round products, because we're going to catch up from the.
The Texas, Mexico situation that happened in the third quarter. So it was probably about 100.
Over $100 million of revenue coming from that.
But also we have maverick ours to ship the new way TV platform Thats shipping in high end side by sides as well as we will have a decent quarter there and were.
Were delivering the final snowmobiles, which for which we have preorders from dealers and customers as well.
Expecting you're expecting a good quarter as well for seasonal products.
Okay and just.
Trying to understand a little bit what's your what's your approach to.
Promotional activity.
Some Oems you've mentioned promotional.
So what's your strategy to protect.
Market share on a go forward basis do you want to match. These promotions like how are you thinking about that.
First some of our competition right now are having promotion on model year of 23% and 24.
We have no promotion on 24.
But obviously like normal.
Have promotion on 23, then we trying to be balance.
Again to protect.
Our brands and their value proposition.
And to continue our momentum, but it's a fine line, but at this point, we have more promotion obviously than last year, but we are still we believe.
In the normal pack like.
Like we had pre COVID-19.
Okay. Okay. Thank you and best of luck.
Sure.
Next question will be from Joe.
<unk> of Raymond James.
Thanks, Hey, guys. Good morning, I guess first question was hoping to get a little more clarity on the softer demand.
And the adjustments to production it sounds like it's mostly off road and mostly marine.
But.
Is it really more across the board or is it primarily in those two categories.
That's correct.
<unk>.
In Marine it's where we've adjusted we've also adjusted PNA because seems same story for <unk> versus.
Versus units, we want to be diligent in managing the inventory in the network as well.
And so we've made adjustments to the PNA shipment plan.
Based on the current inventory in the network, we do have a bit of visibility there.
And also expectations on retail in the fourth quarter as well.
And just a follow up on that.
It looks like based on your revised guidance youre expecting double digit growth for year round products in Q4, and obviously a lot of that catch up.
Talked about earlier from the slowdown at the at the border, but it also looks like your marine revenue guidance implies double digit growth in Q4, so help us understand.
That dynamic given that demand is soft in that category.
Yes, we are lapping a very easy quarter last year in Q4 for Marine we were in.
At the beginning of the ramp up of the new menu to boats.
And as you know it was a challenging ramp up until last year, we had very little shipment on the marine side and so this year.
Now that the production is running much more smoothly.
We are expecting to deliver.
The new product to the market ahead of <unk>.
Obviously dealers need these units for <unk>.
And just one last one if I could the renewal of the CIB.
The timing of that is that impacted at all by the fact that the Canadian tax on buybacks.
In fact January one or.
Or is that not in your thinking.
Obviously, we don't like the tax there we don't think that.
And we think that the government missed the mark in putting this type of in play, but it's not impacting our decision whether or not to do buybacks.
2% types that they are putting in place. If you look at what we've done in terms of investments over the last five years.
<unk> is meant to.
Stimulate companies to do investments in the business, but if you see the amount of Capex, we've done the R&D we've done over the last five years.
We've done buybacks it has held us back.
And so no not related to anything on timing.
Okay. Thank you guys.
Thank you next question will be from <unk> <unk> at <unk> capital.
Capital markets. Please go ahead.
Yes, good morning, everyone.
Just to come back on the promotional activities could you mention maybe quantify more color about the impact in the quarter and weather next year, you're going to be trending in line with pre pandemic level or above in order to.
Maintain our dealer inventory is a good level.
Good morning Bernie.
For the quarter.
Promotional environment was a headwind of 101 hundred basis points in the quarter versus last year, you might recall that when we issued guidance. We said, we expect promotional environment to be a headwind of 200 basis point, we got a positive tailwind of 300 during COVID-19. The expectation is that we would keep a 100 basis points.
This year yeah.
Year to date, we're running at 190 basis points. So we're still within our expectations on our assumption and I think the end of the year, we will probably in that 200 basis points for next year again, given that we are diligent in managing inventory I think that's going to help us in being less promotional.
And making sure that we focused on dealer profitability and as you know dealers are making more money selling our products and I think that is what's going to be driving our retail performance more than discounting.
Non current units.
Okay, perfect and just in terms of capital deployment.
<unk> ended up the quarter with a leverage of one four I would be curious to get more color about whether you still expect some working capital reversal in Q4, and how does the market softening.
Capital deployment, which respect to a potential <unk>.
Product launches or.
Opportunity may be to look more closely and then over the next 12 or 24 months, given the softening market environment.
Okay.
Theres a few follow ons on that question, but obviously given the production cuts we've done.
It is going to impact the tailwind that we were expecting from working cap that we were expecting 400 million. So we'll probably be short of that but still we are expecting a tailwind in the fourth quarter.
We will be generating over $1 billion of free cash flow this year and so some of that went through the in CIB. We as you saw we just re initiated our in CIB and so we'll be opportunistic on that area as well.
And as we said our priority is to continue to invest in our business with Opex with Capex sorry.
Because we're we're obviously very focused on growing this business and we've been successful doing so and we will continue on focusing on that.
And as for the M&A.
Again, we've always been opportunistic if it happens will.
We will obviously consider it if it is strategic to our business.
Certainly something that we looked at but we're not unnecessarily.
In the market looking for M&A activity today.
Perfect that's great color. Thanks.
Thank you next question will be from John Chu at BNP Paribas. Please go ahead.
Hi, guys. Thanks for the question maybe given.
Given the kind of softer demand can you talk about our cost base and how you can kind of.
Maybe places where you can kind of cut at the cost to kind of protect the margin.
On that thanks.
Yes.
Always varies.
How soft the market is.
First thing we wanted to be strategic on what we look at when we when we address costs.
Want to be flexible as well.
But we want to protect the business for the long term.
So the last thing we want is for <unk>.
This is lee and activities, such as R&D and key marketing activities that will hurt the business on the long term, but.
But we want to be tactical as well and address the short term headwinds that we might see in the business. So where there is there is room to adjust our cost structure in the short term.
Yet the plan for the long term as well.
Okay got it and then I think you kind of talked about expectation a little bit for industry retail going into next year, but maybe can you think about.
The different geographies, obviously international software.
In October does that kind of trend, where north America kind of outperforming international continue into next year.
And if you look to our results in Q1, Q2, and Q3 I mean, we saw some weakness since the beginning of the year in EMEA and APAC, It's a market.
The market that fluctuated a lot in.
In the last three quarters now obviously.
And in the tail end of Q3, it was worse than what we were expecting.
United States is still okay, but there is some you know.
Key economic data that we are following that.
We need to be cautious.
In lymphoma, and the rate is still low at two 9%.
<unk> and <unk> at the end of October.
Inflation is going down three two at the end of October the closer to the target to.
Consumer confidence declined in July since July from 71% to 61 in there.
Credit card balances and record high then there is a sign that the U S is also softening.
And this combined to the international market, particularly EMEA and APAC and again the two conflict.
In the World, that's why we prefer to be prudent.
Okay very helpful. Thank you guys. Good luck.
Thank you next question will be from Jonathan Goldman at Scotiabank. Please go ahead.
Good morning, and thanks for taking my question.
On the retail trends I was wondering if you can discuss the cadence of detail. How it's changed in November did you see the pace of declines accelerate versus October show any moderation or any color on the cadence would be helpful.
Well Amit we.
We don't have industry numbers, yet for November but.
Our retail is.
It is still up.
But we expect the industry to be down in November.
Okay perfect. Thank you and then second on the competitive dynamic presentation calls that an elevated discounting by competitors, our new model year units.
Do you have a sense if that's.
Largely as a reflection of the worsening industry, a weaker consumer or may be accompanying specific to competitive strategy.
Maybe a share gain approach.
I think I think in some industry.
Gaining significant market share.
And some competitor want to defend their position and this is why our sledding in the RV.
Discount.
What surprised us is discount on model year, 'twenty, three but model year 2000 and for product.
At this time of the year its quite aggressive.
But to defend their market share position.
Okay. Thank you guys I appreciate the color.
Thank you.
Next question will be from Jenny Katz of Morningstar. Please go ahead.
Good morning, Thanks for taking my questions I Hope you can maybe elaborate on your earlier.
Question about the marine business because.
Revenues are turning positive again, then can we.
Tim profitability at least at the gross profit line is hit a trough and so credit potentially turn positive again in the fourth quarter.
Well.
Marine had another tough quarter in Q3.
Obviously, the longer ramp up of boats.
Very little shipments because of dealer inventory.
Number one reason the weaker industry is obviously not helping in this quarter. We also had a special charge coming from our legacy <unk> business.
Where we.
I had a special charge on inventory and that impacted profitability significantly.
And so our plan is obviously for the turnaround to happen.
Some of it we will see in the fourth quarter, but the expectation is that next year, we'll see a much improved profitability on the marine front.
Okay, and then from a pricing perspective.
Theres probably some.
It will be harder to raise price.
Next year.
Cole.
And could there be some pressure on gross margin and if so what levers do you guys have a plan to mitigate headwinds.
Thank you.
Well, obviously pricing is top of mind, especially in this higher inflationary environment and inflation on costs on salaries is still there. So it will be we will be diligent in making sure that we price.
Price our products in line with the cost structure that we have.
But one of the huge benefits we have is our obviously our manufacturing footprint put us.
The majority of what we produce isn't Mexico, and so obviously, we have a better cost advantage that are coming out of the production facilities. We have and also in our approach to designing our products through modularity and what we've just recently launched the new ATV platform.
It is under this new design approach and so the majority of our lineup.
Is on on.
This modular design and so that's obviously helping us.
With better margins.
<unk> versus the competition and so it's giving us a.
A hefty competitive advantage.
Thanks.
Yes.
Thank you next question will be from Luke Hannan of Canaccord Genuity. Please go ahead.
Thanks, Good morning, Joey I think you mentioned earlier that for three wheeled vehicles. It was entry level sales that were a little bit softer is that consistent with what you saw from your other product lines as well and then maybe just following up on that how have you been able to can you maybe describe.
<unk> described the share capture that you've been able to do within the entry level portion of your broader product lines versus premium given that theres been a bit of a washout of those lower and Oems in the market. Thanks.
Yes, if I can give you some some debt that we follow under value versus premium trend.
Obviously, it's dependent different from one product category to the other but on the side by side in Q3 and this is the industry.
The value product, we're down about mid.
Double digit.
When the premium was up.
About 20% and this is definitely helping us.
Our numbers for the three wheeled vehicle because we closed the <unk>.
<unk> 23.
In Q3, the ryker category, which we consider a value with our tree will line up was down about 20%, but the <unk>.
The high end model were up 20% and the trend that we saw since the beginning of the year, where there is more traction.
On the premium.
Consumer.
<unk>.
Lower household income.
Or more is it time to finance the product.
Is affecting deferred you then this is continuing that being said overall, if you step back and you look at the Big picture, we want to win in each category, but we have more SKU.
The premium product and I think this is one of the reasons why we're continuing to gain share in this tougher environment.
Okay. Thank you.
Thank you next question will be from Cameron <unk> with National Bank Financial. Please go ahead.
Yeah. Thanks, maybe just a bigger picture question.
Owned sort of the competitive environment.
I know in the past you've made some commentary about.
Potential downturn scenario, there might be an expectation that some of the smaller players in power sports might choose to exit the industry, we've actually seen some exits even in a good environment. So I'm just wondering what your thoughts around if we have kind of a protracted downturn in the industry call it a year or so.
What do you think will happen with some of the marginal competitors I mean, do you think you'd still want to see it still potentially we could see a trend where.
These these companies we'd be investing less in power sports.
I mean, this is very difficult to predict what our competitor will do but if we're focusing a lot of things and.
The dealers the dealer right now with the slowdown in the industry. Some dealer have at least they have option to this site and we believe that.
With the space that now our business is requiring these this space into service shop.
Some dealer could be.
Would make the decision to drop some product line and this is.
We're seeing we're seeing from time to time and this could happen.
In this downturn than I don't want to comment on what the competition could do but I think that there will be some dealer will have to make some calls on deep keep everything or indeed dropped some smaller line for them.
Okay that makes sense and just as a kind of a follow up and sort of related is just thinking about your capex. As we look ahead to next year, obviously, you're not in a position to guide at this point, but.
Sure.
Part of your market share gains here have been continuing to invest in new product.
Just directionally what do you think capex might do in fiscal 2025, I mean, do you think youll still obviously continue to invest significantly in product line or will we see an easing off of that.
We should see continued investments in Capex there.
<unk> similar to what we have this year is something that would be reasonable to volatile.
Okay.
Very good thanks very much.
Thank you.
Next question will be from Mark Petrie at CIBC. Please go ahead.
Yes, thanks, and thanks for all the comments, thus far very helpful. Just a couple of follow ups I guess specific to the fiscal 'twenty for guidance.
Implies about 100 basis points lower EBITDA margins for the year versus what you had previously provided so.
I think you said programs are in line with expectations. So it was the lower run rate.
Just simply lost leverage on the slower volumes or are there is there another factor.
The majority of it.
Lower leverage from manufacturing side, given the we'll call. It the short term production cut that we did.
So less time to rebalance, our production and be more efficient and the other one is opex as a percentage of revenue will be slightly higher because of the cut in production.
Yes understood.
Okay Perfect and then also just following up on.
The comments you shared with regards to sort of the demographics of the customer.
And sensitivity there can you just update us in terms of what Youre seeing.
From the customer.
That's active in the business today, who is new to the industry returning returning to ERP.
And any sort of color you can provide on demographics that would be helpful.
We didn't see any trend change.
To the industry and this is we don't have that done this but we are hearing from dealers and that there is more.
For the customer with lower income there is more.
Credit to reject approval, but we don't have any hard facts on this.
It's more on the anecdote that we're hearing from dealers, but they accept that.
Mark we don't see any change any change that obviously the household income is still higher than it was pre COVID-19.
The new and trend same ballpark, but it's more the entry lower household income customer who has more difficulty to finance their product.
With the high interest rate and I think the bank are more restrictive than they used to be.
Yeah understood. Okay. Thanks for the comments and all the best.
Thank you.
Next question will be from Tristan Thomas Martin at BMO Capital markets. Please go ahead.
Hey, good morning.
Of your your kind of euro fiscal 'twenty for guidance for revenue how much of that is selling.
I'm not sure I understand your question.
I mean, how much of that is either incremental new product launches our channel. So.
Well the.
As I said the inventory the plan for inventory in Q4.
Versus Q3 was b would be flat to.
Single digit channel fill is going to happen more with the new products that we launched in side by side on the high end side by side sold the Maverick <unk> is obviously something that.
We will be channel fill.
The new ATV platform as well as where we're going to be seeing.
We're going to be seeing more deliveries.
Uh huh.
And obviously there is some replenishment thats happening on the RV side, but the main driver of Q4 wholesale.
Okay.
And then I just want a follow up to I believe it was James volatile will follow up.
Just kind of like your playbook is let's say the industry gets a little bit softer than you think are the competitors get more aggressive is it fair to assume that you would rather.
Low shipments then continue to ship in the NAFTA subsequently promote.
Yes.
I would like to remind that we have been through those cycles. Many many times and that personally been through a few of those.
Over my 30 years at VIP and one thing we've learned over time is when you see these situations develop.
You always better to be proactive and we've been we've.
We've been gaining share.
Since fiscal year 2016, we.
We have developed an incredible value proposition for the dealers and we want to protect that and this is what we're doing we just proactively.
We just proactively reacting to a softer demand to make sure that we protect that and we convinced this is the right thing to do for the long term.
Alright, thank you.
Sure.
Next question will be from Sean.
<unk> Khan at RBC capital markets. Please go ahead.
Okay, great. Thanks, and good morning, I'm, just following up on kind of the dealer inventory question from just earlier.
Yes, you said you wanted inventories to ideally be lower kind of by the end of next year I guess can you maybe shed a little bit color on is that really if demand plays out according to your expectations, what our dealers telling you in terms of their plans for fiscal 'twenty five internally do you have a magnitude on how much lower they would like inventories to be given the floor plan financing costs, and maybe just kind of a follow up.
Are there any incentives are.
Ways, you're looking to help them with the.
Planned financing cost at the current rate environment continues.
Yes first of all this situation is not it's not bad in the network that we're in better shape than pre COVID-19 as we talked earlier in the prepared remarks inventories up 24%, yet our retail is up 43%.
However, dealers have seen price increases MSRP that have gone up and so the value of the inventory is higher.
The mix as well as more richer. So we sell more high end models from in all product categories and product mix as well as different there is a lot more side by sides with higher MSRP more switch as well.
So despite the.
The dollar is increasing by 24% of the value is up 50% and so when you factor in as well.
A financing cost of this probably increased by 300 basis points for the dealer <unk> seeing the impact of the monthly floor plans.
And so.
That's why we want to be diligent in managing the inventory, especially in the current economic context.
We do support our dealers with free floor plan period, and we do support dealers as well when we come out of the season.
And there is more inventory and so we've been active in the past to do this and.
And we will continue going forward.
And so we're.
We want to we want to make sure that we manage that inventory so there might be a reduction of inventory.
Low teen percentage for next year that will be a nice number to achieve.
But again the situation today is not a disaster, it's very much.
Very healthy when you compare to <unk>.
<unk>.
Great. Thanks very much.
Thank you next question will be from Brian Morrison of TD Securities. Please go ahead.
Thank you many of my questions were asked but I wanted to ask about what youre seeing in terms of pricing in the used market I think the question was transferring I didn't understand the answer.
Theres, obviously been some softness here, but are you seeing an acceleration of October November and if so what do you see the magnitude of year decline in used prices.
Yes, we do have a bit of visibility on the used market, but the used market is still healthier than pre COVID-19.
The gap of annuity use has increased.
I mean, it was almost zero during COVID-19 now it has to increase.
But someone looking into trade in a used product will get a good value because msrp's have gone up quite a bit in the last two to three years. So.
And plus there hasnt there.
Been a shortening of supply in the last two or three years or there is not actually a big huge market.
Contrary to what people might.
Might expect and so it's still very healthy Brian.
Okay. Thanks very much.
Thank you.
At this time Mr. <unk>, we have no other questions. Please proceed.
In Q2, and thanks, everyone for joining us this morning and for your interest in VIP. We look forward to speaking with you again in March for our fourth quarter Conference call. Thanks, again, everyone and have a good day.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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