Q4 2023 Polaris Inc Earnings Call
Hello, and welcome to the Polaris Q4, and full year 2023 earnings call and webcast. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad and to withdraw from the question queue. You May Press Star then two.
Speaker Change: I would now like to hand, the call to J C. Weigelt. Please go ahead.
Speaker Change: Thank you Jay and good morning, or afternoon to everyone, everyone I'm J C. Weigelt Vice President of Investor Relations at players. Thank you for joining us for our 2023 fourth quarter and full year earnings call. We will reference a slide presentation today, which is accessible on our website at IR Dot Polaris dotcom.
Speaker Change: Joining me on the call today are Mike <unk>, our Chief Executive Officer, and Bob Mack, Our Chief Financial Officer, Bolthouse prepared remarks summarized in the fourth quarter and full year as well as our expectations for 2024, then we'll take your questions. During the call we will be discussing various topics, which should be considered forward looking for the purpose of that.
But Securities Litigation Reform Act 1995, actual results could differ materially from those projections in the forward looking statements you can refer to our 2022 10-K for additional details regarding risks and uncertainties.
Speaker Change: All references to the fourth quarter and full year 2023 actual results and 2024 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis, unless otherwise noted please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments now.
Speaker Change: I will turn it over to Mike speech go ahead, Mike. Thanks, J C. Good morning, everyone and thank you for joining us today.
After what could only be categorized as a turbulent year. We ended 2023 with share gains across all three of our segments.
Mike: While there was plenty that went right and aligned to the execution of our longer term strategy. We faced several challenges, particularly in the fourth quarter as costs continue to run higher than we anticipated, which drove a miss to our margin and EPS guidance.
While our performance was below expectations. There was much that went right 2023, it started with us delivering on our commitment to bring industry, leading innovation to our customers.
Mike: Road, we introduce two brand new category defining vehicles. This year, the Polaris expedition and the Ranger XD 1500.
Mike: Together with the launch of a completely redesigned razor XP last spring. We now have the most competitive lineup of off road vehicles the industry has ever seen.
Mike: We also launched the all new lock in write backs system with entirely new purpose built accessories, and attachments, resulting an endless customization and a remarkably intuitive platform.
Mike: And on road, specifically Indian motorcycles, we launched the Indian pursued elite sport cheap, which raises the bar for the American V twin performance cruisers.
Mike: In marine.
We introduced the new Bennington S and S V lines. This past summer and early feedback has been positive, indicating these new models strengthened bennington value offering within the pontoon market.
Mike: It was also a year to celebrate our race teams when we launched the <unk> in 2021, we were bullish on the quality and performance of the vehicle and we were right the.
Mike: The success of this vehicles had in crossing the finish line before all others is a testament to our customers expect from Polaris.
Mike: Our drive to innovate and push the envelope as what.
Mike: Of what is possible from horsepower to suspension technology has led Polaris to top the racing World again.
Mike: Not only did we win the Baja 1504 hundred as well as the San Felipe a $2 50 in 2023.
Mike: We just secured a monumental win at the 48 annual Dakar Rally, which is one of the most grueling races, covering over 4000 miles in two weeks through unforgiving terrain in Saudi Arabia.
Mike: And some late breaking news Polaris swept the podium at the King of the Hammers Desert Challenge.
Mike: We also can I forget about another successful racing ear for Indian motorcycle, where we took first place in American flat track and Subaru against hats off to our players race teams and our talented engineers on such a successful year.
Mike: In addition to record levels of innovation, we stabilized dealer inventory removing the challenges of product availability, we've been doing with for several years.
Mike: Another highlight is the execution of our capital deployment strategy and the health of our balance sheet.
In 2023, we generated over $500 million of adjusted free cash flow and we're putting that cash to work, we returned $326 million of that cash flow to shareholders between dividends and share repurchases. Our capital deployment strategy has been consistent and we expect to continue to lean into organic investments our dividend and share repurchases.
Mike: All of which center around our goal to generate shareholder value.
Mike: Well, we certainly have a lot to be proud of execution against our financial commitments fell short of our expectations, our largest challenge centered around our manufacturing facilities. We did not achieve the efficiencies we'd plan, which resulted in a margin pressure throughout the year.
Mike: It is important to note that operational costs did start to improve later in the year, but not to the level, we'd expected them to.
This coupled with lower manufacturing volumes and difficulty producing new products led to significant margin pressure.
Mike: Add to that higher than anticipated product liability and warranty spend in our EBITDA margins came in below our expectations as well as below 2022.
This was disappointing for me and our team and we are focused on addressing the root causes of the inefficiencies with a focus on driving improved processes within sales inventory operations planning.
Mike: Okay.
Mike: North American retail was up 7% driven by utility and snow, while we expected positive snow performance relative to last year results were weaker than expected given the lack of snowfall in most regions.
It was encouraging to see our side by side retail up low double digits driven by continued strength in our range of vehicles.
Mike: Utility saw strength, our recreational business continue to see pressure given higher interest rates and economic uncertainty.
Mike: We ended the year, gaining slightly over a point of share in off road more if you exclude used vehicles that have little profitability associated with them.
Mike: Share gains are positive season to date snow as we were able to deliver all of our snow check units before the season started.
Mike: While sharing our on road and marine segments was under slight pressure in the quarter, we did gain share in both segments for the year, driven by better product availability and new products.
Mike: Our sales results during the quarter were slightly lower than our expectations, given lower retail than we anticipated and lower net price due to an increase in promotional activity. We saw heavy discounting of non current inventory by competitors in November and December we increased our promotions for current inventory and response and our strategies seem to play out well as we saw.
Mike: Retail increased meaningfully in both of those months.
Mike: We view this situation as short term until competitive non current inventory is lowered.
Mike: We also made the decision within the quarter to lower our recreational offered shipments specifically certain models of razor given continued lower retail and our goal of maintaining targeted levels of dealer inventory.
Mike: Yeah.
Mike: We feel these decisions are important given the seasonal trends of our product lines and to proactively manage dealer inventory.
Consistent with last quarter, we saw an uptick in floor plan finance interest as a result of increased inventory and higher interest rates. This is expected to remain a headwind into 2024.
Mike: These pressures on revenue also negatively impacted margins in the fourth quarter.
Mike: In addition, we saw elevated warranty costs in the quarter driven by a $23 million warranty expense in our <unk> business within our on road segment. This charge was associated with a battery component failure, which was caused by a supplier who had previously filed for bankruptcy.
These issues, coupled with elevated operational costs I mentioned earlier as well as the impact of product liability claims drove lower than expected margins are resulting EBITDA margin was down 377 basis points versus last year in the fourth quarter.
Mike: We've increased our accrual for product liability claims due to the challenging litigation environment. Most of the increase relates to product produced before 2018. This pressure along with higher year over year interest expense drove adjusted EPS down 43% to $1 98, falling short of our guidance.
Mike: The fourth quarter concludes a year it can be defined by a volatile macro environment inconsistent consumer demand and a lapse of a lack of execution on our part.
Mike: While I'm proud of our ability to take share and generate strong adjusted free cash flow during the year, we need to operate more efficiency efficiently if were to hit our long term margin targets.
Mike: Moving forward I believe our teams are aligned to drive operational improvements in 2024, while delivering share gains.
Mike: Let's now talk about retail trends as well as the data at the dealer level.
Mike: Speaking retail was lower than our expectations in the fourth quarter driven by recreational portfolio within our off road as well as our snowmobile business two important things to note here.
Mike: First as a reminder, our utility product makes up almost 60% of our off road sales with the main product being a ranger side by side.
Mike: The purchase of these vehicles tends to be less discretionary in nature. They are primarily used for work purposes.
Mike: Recreation makes up the remaining 40% with the main products being the razor and general side by side.
Recreational off road vehicle retail continued to see softness in the quarter, which marks the fifth straight quarter of negative retail in a recreational portfolio.
Used vehicles tend to be more discretionary purchases and are more sensitive to economic conditions and the health of the consumer we feel higher interest rates, coupled with economic uncertainty are negatively impacting retail.
Mike: Second we expect a positive contribution from our snow business, given an easy comparison to last year and improved product delivery into the channel.
Mike: While we executed on an improved deliveries growth was lower than expected given poor snow conditions in the fourth quarter and we expect this to continue into the first quarter of 2024.
Mike: As mentioned earlier, our promotional levels were elevated in Q4, given the competitive dynamics I explained earlier, we do expect promotions to remain elevated into Q1 of 2024.
Mike: We're expecting industry retail to be down modestly in 2024 well.
Mike: While the industry will be challenged we anticipate being able to grow share given our strong core product portfolio, a full year of retail for Polaris expedition, and Ranger XD as well as additional new products expected to launch in 2024.
Mike: We recently concluded our biannual or V dealer survey that includes close to 700 responses.
And to me it from dealers worsened relative to the last time, we conducted the survey in the spring.
Mike: This survey conveyed that while dealers see promotional activity, helping they continue to be concerned about the broader economy, coupled with higher interest rates and the resulting impact on consumer demand.
Mike: Dealers believe system inventory is still too high while our channel inventory is healthier than many others, we have opportunities to improve specifically in areas like razor and marine where we began making adjustments in 2023 and we've built those continued improvements into our plans for 2024.
Mike: We believe our channel inventory is within an optimal range for Ranger and Indian motorcycle and that we still have an opportunity to build inventory with claris expedition and Ranger XD given field dealer feedback.
Mike: That said, we intend to operate in a disciplined manner to ensure dealer inventory levels remain at optimal levels in 2024.
Mike: We will balance out of the industry plays out with the need to have the right inventory in the field to maintain our competitive positioning.
Mike: Wrapping up my comments on the core in the year, we won the retail and share battle by playing offense in a complex and competitive environment.
Mike: While our financial execution fell short we did continue to make significant progress on executing against our strategic agenda.
Mike: We entered 2020 for focus on execution at all levels to ensure we gained share and expand margins and execute against our financial commitments.
Mike: I'll now turn it over to Bob who will summarize our fourth quarter performance and provide initial guidance and expectations for 2024.
Bob Mack: Thanks, Mike and good morning, or afternoon to everyone on the call today.
Bob Mack: Fourth quarter results were driven by lower factory shipments lower net price higher finance interest impacting both sales and margins.
Bob Mack: Made the decision during the quarter to scale back off road vehicle shipments given a choppy retail environment.
Bob Mack: Motions were in line with our plans, but continued to be higher year over year.
Bob Mack: Manufacturing costs remain elevated and as Mike mentioned, we booked a sizable warranty expense during the quarter in our on road segment.
Bob Mack: Similar to the third quarter, we continued to see higher product liability costs relative to a year ago. This COVID-19 delayed cases progress through the court system.
Bob Mack: P G and a continued its pace of record breaking records with growth of 14% in the quarter and gross profit margin expansion of over 300 basis points are P. G. Ne business continues to be a competitive advantage for us with the most recent addition of an offering in marine.
Bob Mack: Today sales.
It's a P G&A products, which includes accessories installed at the factory make up approximately 20% of total sales with very attractive profitability.
Bob Mack: Looking at 'twenty 'twenty four we expect P. G&A to continue to be a positive contributor with growth and margin expansion.
Bob Mack: In our off road business revenue increased 3% driven by double digit growth in utility snow and commercial related product lines somewhat offset by a 20% decline in recreational products.
Bob Mack: We continue to see increased demand for premium vehicles, including the players expedition. Northstar addition, chapter crossover category gained almost 10 points of share during the quarter.
Bob Mack: Ranger X D 1500 had minimal impact on retail during the quarter, given we began shipping in November.
Bob Mack: Utility saw mid teens retail growth, which was a bit higher than previous quarters. We saw strong traction with their agricultural customer base, which tend to have a demonstrated need for the product.
Bob Mack: Unfortunately, overall snow retailers, but softer than expected given the late arrival of snow across much of North America, and uncharacteristically high temperatures in the Midwest.
Bob Mack: Season to date, we have gained modest share.
Bob Mack: As we conclude the season, we expect lower shipping volumes for the upcoming season, given the elevated inventory at dealers as the industry grapples with the lack of snow.
Margins in the quarter were pressured by higher promotional levels finance interest and mix as we sold fewer razors and more snowmobiles, which typically have a larger moat lower margin profile.
Bob Mack: We expect a somewhat challenging first quarter on a year over year basis, driven by the lack of snowmobile shipments in the quarter and the channel refill on O R V that occurred in 2023.
Bob Mack: Recall that in 2023, we shipped a large volume of sleds late in the snow season, and we're also finishing up on some channel refill to get dealer inventory to a healthier place.
Bob Mack: We do expect share gains to continue given our strong product portfolio as well as new products launching later this year.
Bob Mack: We are also planning for margins to expand as we realize manufacturing efficiencies at our two largest clients.
Bob Mack: So while it might be a challenging start in 2024, we believe we have the momentum to continue to improve our share position and operational efficiencies setting us up to emerge stronger as we enter the back half of our five year strategy.
Bob Mack: Switching to on road I want to start off with a highlight that is Indian motorcycle marked its first year of profitability in 2023.
Bob Mack: Mike Dougherty and the team have done a great job building Indian motorcycles into the number two motorcycle brand globally and we look forward to its continued success.
Operator: Hello and welcome to the Polaris Q4 and full year 2023 earnings call and webcast. All participants will be in listen-only mode.
Bob Mack: Sales during the quarter were down 24% as the motorcycle market continued to be challenged given a difficult macro backdrop and high interest rates impacting monthly payments for consumers.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad. And to withdraw from the question queue, you may press star, then two.
Bob Mack: We were also up for the full year against a difficult comparison to 2022, when we were refilling the dealer network with bikes given supply constraints.
Bob Mack: Indian motorcycles last modify modest market share during the quarter driven by competitive pressure in the heavyweight space, which was somewhat offset by continued strength in midsize.
I would now like to hand the call to Jacey Weigelt. Please go ahead. Thank you, MJ, and good morning or afternoon, everyone. I'm J.C. Weigel, Vice President of Investor Relations at Polaris. Thank you for joining us for our 2023 fourth quarter and full year earnings call. We will reference this slide presentation today, which is accessible on our website at ir.polaris.com. Joining me on the call today are Mike Speetzen, our Chief Executive Officer, and Bob Mack, our Chief Financial Officer. Both have prepared remarks summarizing the fourth quarter and full year, as well as our expe-
Bob Mack: On road gross profit was down 3300, 23 basis points due to the previously mentioned warranty expense booked in the quarter.
Gross profit margin for Indian motorcycles was up nearly 600 basis points, marking the sixth straight quarter expanding margin over 250 basis points, helping them achieve profitability this year.
Bob Mack: In Marine sales were down 41% as the industry continues to deal with the elevated dealer inventory levels higher interest rates impacting the consumers decision to purchase.
Bob Mack: We made the decision earlier in the year to curtail shipments given the trends, we were seeing which resulted in lower volumes in the fourth quarter.
Bob Mack: Gross profit margin was down 368 basis points given top line pressures. However, our team continues to actively manage the variable components of their cost structure to protect profits.
Bob Mack: With the season concluded Beddington Godfrey Hurricane all took share in 2023.
Bob Mack: We're excited about the future of our marine business as they continue to refresh their portfolio as well as add new dealers to the network.
Bob Mack: With boat show season upon us the early read is that dealers continue to feel they are high on inventory and retail seems to be trending flat to slightly down versus 2023.
Bob Mack: Quickly reviewing our full year performance by segment retail ended up being more challenging.
<unk> sales were at or above our guidance and we gained share in each segment with a strong operating of competitive products opt.
Bob Mack: Operationally, we have walked through the challenges in off road and again it was great to see on road and specifically Indian motorcycles be profitable this year.
Bob Mack: Moving to our financial position, we concluded the year with significant year over year growth in operating and adjusted free cash flow.
Bob Mack: During the year, we use this cash to support Capex investments returned $326 million to shareholders in the form of dividends and share repurchases.
Bob Mack: We are in a strong financial position ending the year with a net leverage ratio of one six times, which is in the middle of our one to two times range, we like to manage the business.
Bob Mack: During the quarter, we completed our inaugural investment grade public senior notes offering by issuing long five year bonds springs, our mix of variable to fixed rate debt to 68% fixed and 32% variable.
Bob Mack: We repurchased one 6 million shares in 2023 and remain well ahead of our target to repurchase 10% of our outstanding basic shares before the end of 2026.
Bob Mack: We believe that we are well set up for a variety of scenarios in the broader market with our balance sheet and believe we can replicate last year's cash generation from a dollar perspective in 2024.
Now, let's move to guidance and expectations for 2024, we are initiating guidance say, calling for 'twenty 'twenty four sales to be down a difficult retail environment, coupled with a reduction in shipping volumes as we lap dealer inventory fill in RV and marine and the timing of snow shipments, which favorite 2023.
Bob Mack: Most of these headwinds are expected to be realized in the first quarter.
Bob Mack: It is worth repeating what Mike said on dealer inventory and then our goal of strong discipline around dealer inventory. This year is based off the declining industry retail environment.
Retail estimates or our opinion on competitive positioning of inventory changes, we will update our levels of dealer inventory.
Bob Mack: Promotions in interest and finance interest are expected to remain elevated as we progress through the year, which also adds pressure to our top line and margin.
Bob Mack: By segment sales within off road are expected to be down mid single digits, driven by a tough comp in the first quarter and lower shipment volumes of snow in some models within O R V.
Bob Mack: These headwinds are expected to be somewhat offset by retail and channel fill of new products, such as the Ranger X D products scheduled to launch in 2024.
Bob Mack: We expect off road to take share in 'twenty 'twenty four given its strong competitive portfolio.
Bob Mack: On road sales are expected to be flat year over year as we continue to see a soft market given higher interest rates. Our expectation is that the on road gain share with some very exciting products launching later this year.
Marine sales are expected to be down mid teens percent as we work to reduce inventory in the channel in the midst of a challenging industry.
Bob Mack: We believe Bennington New S. NSP lineup gives us a great opportunity to continue taking share in the pontoon market.
Bob Mack: Our margin guidance calls for expanding both gross profit and EBITDA margins as you can see with our guidance. The expansion happens at the gross profit level with savings that efficiency is expected to be realized in materials logistics and at our plants.
We are targeting over $150 million in operational savings with an even larger funnel of opportunity.
Bob Mack: Within the plants, we see costs coming down with a renewed focus on lean manufacturing practices as well as being more efficient with the production of our new vehicles. We also expect savings from the capital investments we've made in Monterey Vietnam in Roseau, which include new paint system and back shop vertical integration.
Bob Mack: Operating expense dollars are expected to be up 1% to 2% relative to 2023, driven by wage inflation and returned to target payouts on incentive compensation being mostly offset by cost reduction actions across the business.
Bob Mack: We have planned for product liability cost to remain at a similar level to 2023 as we continue to work through case backlogs. Additionally.
Additionally, headwind to gross profit and EPS, but not EBITDA is that depreciation is up approximately 15% relative to 2023 due to the tooling associated with the launch of new products introduced last year.
Bob Mack: A couple of other items to note include modestly higher year over year interest expense. This impacts our dealer floor planning finance interest cost as well as debt costs. We have planned for three rate cuts in the second half.
We are planning a higher tax rate as we do not expect the same amount of R&D credits.
Well as the benefit of some other one time items that helped lower the rate in 2023.
Bob Mack: Foreign currencies remain volatile and are expected to once again be a headwind we have planned for the Canadian dollar at <unk> seven to the Euro at 1.07, and the peso at $17 five.
We believe we are well hedged changes in the Canadian dollar and peso below these rates.
Bob Mack: Accounting for all of these items, we are guiding to adjusted EPS between $7 75, and $8 25, which is a decline of 10% to 15% relative to 2023.
Bob Mack: For the first quarter, a few things to note.
Bob Mack: As I mentioned, we have a meaningful headwind to sales due to the trend in snow shipments last year as well as channel refill you know RV and marine given such headwinds, we expect sales to be down approximately 20% in the first quarter.
Bob Mack: Higher promotions year over year at a similar run rate to the fourth quarter.
We continue to experience headwinds and pricing finance interest and stable BBB inefficient opt.
Bob Mack: Operational costs that we incurred during the fourth quarter, and lastly, FX and interest expense continued to be unfavorable year over year.
Bob Mack: So putting this together for the first quarter, we have a number of headwinds predominantly the sales headwinds and pressure on margins that are expected to result in breakeven adjusted EPS.
Bob Mack: We expect to see closer to flat sales year over year and the remaining three quarters of 2024 share gains from new products offsetting a slower industry D.
Bob Mack: <unk> sales volumes, coupled with meaningful margin expansion as we go through the year and realize the savings and efficiencies from our efforts to fix our plants will yield year over year margin with it.
We expect another year of strong cash flow generation as the team continues to drive working capital down.
Bob Mack: It is also encouraging to see the early progress we've made at our plants from building the new vehicles more efficiently to reinvigorating lean processes.
Speaker Change: Before Polaris my career was with the industrial sector and I am encouraged by the renewed focus I see on lean at our plants.
Speaker Change: I know, we still have work to do but the opportunity is great. Our teams are aligned on our plan and we look forward to reporting out on our progress through the year.
Speaker Change: With that I'll turn it back over to Mike to wrap up the call go ahead Mike.
Mike Dougherty: Bob We launched incredible new products in 2023 that strengthen our competitive position and we're not coming off the gas there is much more to come in 2024, where we will once again demonstrate why we are the leader in our sports.
Mike Dougherty: Operationally, we must do better and we will improve cost and quality remain a major focus for us. Our teams are poised to execute on the opportunities across our business to lower cost improve quality and increase margins.
Mike Dougherty: Last quarter, our teams began working on many of these initiatives and I'm confident that we have the focus momentum and the best team to execute.
Mike Dougherty: While the environment is uncertain our commitment to maintain an optimal level of dealer inventory is cleared we worked hard to ensure the profitability of our dealers is maximized and our ability to maintain a healthy competitive and appropriate level of inventory is an important part of that equation, our focus and commitment here is unwavering.
We remain committed to our capital deployment strategy, which is to invest in our operations remain a dividend aristocrat and repurchase shares with our free cash flow yield hovering around 12%. We can just we continue to see our stock as an attractive investment.
Mike Dougherty: 2024 also marks the halfway point to our 2026 targets and while the first couple of years added additional challenges we believe there's a path to our 2026 targets.
Executing in 2024 is critical to meet those targets and my team and I are focused on what needs to get done over the next 12 months to ensure those long term targets are met.
While 2024 is that setting up to be a robust year from a retail standpoint, we will build on our leadership position with empower sports with the most innovative products in the industry unmatched customer experiences and stronger operational fundamentals, we have the best humans power sports and we know what needs to get done. This year. We thank you for your continued support and with that I'll turn it over to.
Mike Dougherty: M J to open the line up for questions.
M J: Thank you very much.
M J: I'll now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys to.
M J: A J your question. Please press Star then two.
M J: Today's first question comes it comes.
M J: Fred Wightman with Wolfe Research. Please go ahead.
Fred Wightman: Hey, guys. Good morning, Thanks for the question.
Fred Wightman: You gave us some high level thoughts on sort of the sales and earnings outlook for the first quarter and I know you guys have some moving pieces year over year, just with snow in an ORP restocking, but can you just give us some more detail on the either the segment performance or sort of the margin performance that you guys are assuming there and maybe how to think about.
Fred Wightman: You know that implied improvement for the remainder of the year.
Speaker Change: Sure. So you know first of all if you look at the debt.
Speaker Change: <unk> dropped for the year on revenue I mean, most of it we're seeing it in the first quarter and it's.
Two primary factors our snow in off road, although both marine and motorcycles are our Dow about unit shipments also plus we have the continued high promo level from Q4.
Speaker Change: Which is higher than what it was in Q1 of 'twenty three.
Speaker Change: Opex is expected to be flat for the year, it'll be relatively flat sequentially versus Q4.
Speaker Change: As I said on the call we did and we did we anticipate product liability accrual cost to be higher.
To continue at their high level in 2024.
I expect them to be pretty consistent with what we saw in 2023 as we worked through some of these older cases related to the pass phrase a recall.
Speaker Change: Well, it's any other cases, we have.
Speaker Change: So I mean, those are the big pieces for the quarter.
In terms of what's causing the the challenge in Q1, it's really that this adjustment around getting dealer inventory keeping dealer inventory at we know where we see the optimum level given what was a little bit slower retail in Q4 than we expected and what we think will be a fairly tepid retail picture in Q1, and you get into the rest of the year.
Speaker Change: The quarters.
Speaker Change: Start to look a lot more consistent.
Speaker Change: And our sales will be relatively flat with 2023, and the rest of the quarters and you'll start to see the earnings improvement from the operational efficiency.
Efficiency gains come through if you think through how the how the math sort of works.
Speaker Change: You know what we see in Q1 is really the inventory we built in Q4. So we are seeing improvement in Q1.
Speaker Change: Sequentially in terms of cost it just gets a map.
Masked by the fact that we're gonna be so far down on volume.
Youll see that.
Speaker Change:
Speaker Change: The factory hours the impact of not having those factory hours start hurts. So you won't necessarily see that margin improvement won't stand out, but its there and you know we've been working hard through.
Speaker Change: The Q4 and into Q1.
Speaker Change: To make sure that we're going to continue to drive that performance through the year.
Speaker Change: Remember Fred that Q1 is typically a pretty low quarter for us anyway, and you know for years, we've had the benefit of that snow business delivering late which obviously is not optimal for customers. So we've got that business in a much much better spot and you know as Bob mentioned dealer inventories now essentially at a at an optimal level.
I I look at it is that it's essentially when our performance is kind of bottoming out there's a number of factors.
Speaker Change: Together at one time and when you look at Q2, and three and four you're not this isn't a heavy back end loaded plan, it's it's essentially getting back to.
Shipping to retail.
We obviously have opportunity in front of us to get cost out through the remainder of the year, but this isn't something where we're not generating earnings in Q1, and making it all up in Q4, it's really us getting back to a.
Speaker Change: Running the business on a more normalized basis essentially starting in Q2 and the team came out of the gate strong in January I can tell you. We are monitoring even more measures and metrics than we have before specifically around the operations of the business and I'm encouraged with what I've seen so far and we're going to stay on top of it to make sure that.
Speaker Change: Executes.
Speaker Change: Really helpful and then Mike just coming back to the industry retail outlook. I think you made a comment you're expecting that to be down modestly is there anything else you can share just in terms of performance across categories with the cadence of the year. I think you mentioned you were assuming a couple of interest rates as well how does that shake out.
Mike Dougherty: Yeah, I mean, I, you know I'd say a couple of things I mean, one you know obviously the broader industry is going to behave as it will and for US. It's our relative performance and we did it this past year in terms of gaining share in all three segments and I'm really confident given the new products that we came out with obviously late in the year.
Mike Dougherty: Getting a full year of that with our expedition and XD.
Mike Dougherty: The marine team has done not just in Bennington, but with Godfrey and Hurricane and then you know in our on road segment, we've got some as Bob Ts, We've got some very intriguing news coming this year.
Mike Dougherty: You add on top of that the dealers, obviously have become a lot more discerning in what they want to have in their dealerships and we know that they're pushing out a lot of those weaker brands and that really benefits us because we continue to demonstrate that we are the leader and there's a reason behind that and I think that the dealers appreciate the adherence we have to making sure that the deal.
Mike Dougherty: Inventory stayed in appropriate lever level. So you know as Bob mentioned in his prepared remarks, you know we're going to make sure we're watching retail and we're going to monitor our shipments and we're not going to get out ahead of our skis and we're going to make sure that.
Mike Dougherty: We have the right inventory at the right dealers.
Mike Dougherty: But we're not going to ignore trends and if the trends are better or worse, we're going to adjust our shipping plans accordingly.
And on the rate cut Fred we've got about.
Mike Dougherty: About $73 25, bip rate cuts built in in the back half of the year in the late Q3 Q4.
They'd all over the map right now as to what people think the fed is actually going to do so we planned relatively conservatively there.
Well, let's see how the year develops.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question is from Megan Alexander with Morgan Stanley. Please go ahead.
Yeah. Thanks for taking our question, maybe if we could follow up on the on the <unk> comments. There is there any way you can maybe quantify the product liability accrual impact to the fourth quarter I think that shows up in G&A and it seems like it was maybe a 35 million dollar headwind just looking at your your run rate prior so.
Speaker Change: Maybe we could start there.
Speaker Change: Yeah that's.
That's relatively accurate I mean, most of our overspend in Q4 in G&A was the increase in the product liability accrual and.
Speaker Change: It's.
Speaker Change: Really just a confluence of.
Speaker Change: We had a lot of cases are going through the court system. In Q3 Q4, we update our analysis on those accruals are twice a year.
Speaker Change: And both for incurred but not reported cases, plus specific cases that we are aware of and where theres been discovery and we have knowledge of those kind of facts and in sometimes rulings from pre trial motions and so.
Speaker Change: That that update to that accrual was was larger than what we were anticipating a larger than it's been historically and it's really just driven by that.
Speaker Change: The quantity of cases, they kind of got moved in the in the last couple of quarters and the impact they had on that analysis.
Speaker Change: So as you think about Q do you think about 2020.
Speaker Change: Four in Opex.
We're gonna we've kept a similar run rate for legal knocked that fourth quarter run rate, but the full year and then our Opex is is basically flat and it's a combination of the you know the headwinds are the.
Speaker Change: I mean, a merit and cost of living type increases.
Speaker Change: Returning the bonus pool, we plan it at full.
Full payout, which obviously, we don't share given that we missed our guidance and then the tailwind we've done some some cost cutting in and work around efficiency in the organization as we head into the year, obviously, we're being.
Speaker Change: Being very judicious on hiring and things like that but we didn't want to cut a R.
Speaker Change: Focus on engineering.
Speaker Change: The engineering and innovation.
Speaker Change: Given that really the challenge for 'twenty 'twenty four is really just this first first quarter revenue dropped. So we've continued to keep those investments and obviously, we'll we'll look at all of that if the year turns out to be material different than what we think it is today and Megan I just.
Speaker Change: I said it in my prepared remarks, but it merits re emphasizing it you know the majority of these costs are associated with products that are back before 2018 and.
Speaker Change: Turning to keep in mind as you know during COVID-19 the legal the court system kind of essentially shut down and his just kind of gotten back into getting up to speed and so the pace and and movement of these cases has been happening pretty quick and as you can imagine we're obviously trying to do the best you can to stay on top of it.
Speaker Change: You know Bob mentioned that we've planned 24 at a very similar level to what we saw in 'twenty three.
We're keeping a close eye on it obviously you know I think it it's not unique to us.
Speaker Change: The legal environments.
Speaker Change: The challenging right now in cost overall of settlements.
Speaker Change: And trials and all that are much higher than they have been historically, so we do have product liability insurance. So we do have that benefit factored in as we think about financial guidance and how we want to handicap potential risk.
Speaker Change: Okay, Great. That's helpful. And then maybe the same question on promotions.
Speaker Change: What are you seeing today relative to the fourth quarter in terms of those promotional levels and you know in the context of inventory up 5% versus 19, I think your expectation was for it to be flat to slightly down so.
How should we think about that promotional impact to the first quarter and what's kind of your confidence level that this is all contained to the first quarter.
Speaker Change: Well I mean, you know a couple of things we ended up doing probably a bit more in the fourth quarter as I mentioned, given some of the competitive dynamics around non current inventory.
Speaker Change: As best we can we can tell the debt is coming down.
Speaker Change: Relative to where it has been but if you look at the first quarter of 'twenty four versus first quarter 'twenty three our dealer inventory was probably 40 days lower than optimal.
Speaker Change: So there was very little promo in the channel we were all still trying to get ourselves caught up in the first quarter and so when you do that year over year comparison, its pretty substantial you know look it's really going to come down to the amount of discipline that that we and others are going to have around dealer inventory, making sure that there isn't non current inventory.
And on the floor are in excess as well as just making sure that we're watching retail and making the adjustments to the shipments and we know we.
We've made that commitment we've heard others now starting to voice that which is encouraging.
Speaker Change: And I think that's going to be an important dynamic to make sure that you know promo.
It remains in a in a relatively contained fashion our team's done a lot over the past few years in terms of the investments we've made in our CRM system. So that you know as we go out with offers you know obviously youll have blanket offers that are around financing that we know are.
Speaker Change: Pretty successful and obviously hit a certain tier.
Speaker Change: To your bracket of a credit rating, but a lot of our other offers go through and are much more targeted to customers that had been in the playoffs family for a while and we know it's time to upgrade and we're really trying to do that so that we ended up with a much more efficient use of that money than just doing a blanket offer.
Speaker Change: Okay got it thanks, Mike.
Speaker Change: Yep. Thank you.
Next question is from Craig Kennison with Baird. Please go ahead.
Craig Kennison: For taking my question really goes to the 'twenty 'twenty six plan.
Craig Kennison: For investors to believe it I think they need to believe in significant margin expansion, which frankly is harder to believe given some of the operational challenges that.
Craig Kennison: You faced in 2023, I guess, how would you frame the potential to achieve that 2026.
Craig Kennison: Margin plan and what are some of the key drivers.
Craig Kennison: To achieving it in and maybe your confidence level in some of those drivers as well. Thank you.
Speaker Change: Yeah, I think you know I feel I feel pretty good about everything that the margin.
Speaker Change: EBITDA margin is obviously, the one were contending with right now and you know I'd say, it's a couple of things Craig I mean, its obviously why we have have pushed the team hard to work on the inefficiencies you know.
Speaker Change: If you go back in time, our factories, we're dealing with you know a fair amount of.
I don't want to say chaos, but you know there was a fair amount of inefficiency and given what was happening from a supply chain standpoint, and during that time period I would tell you we kind of lost our way the lean focus.
Speaker Change: Making sure that we were managing down to the daily cost budgets and the plant. It was all focused on trying to get product out you know if you remember the days of dealer inventory, having an 80 day deficit relative to targets I give the team a lot of credit for working hard to get the product out so that we could make sure that we're getting consumers of the product that they needed.
The issue really started this past year, when we saw the supply chain, becoming less and less of a factor yet the performance in the factory wasn't improving and a lot of the things that happened during COVID-19 really came back to work against us.
Speaker Change: Specific examples would be you.
Speaker Change: You know in our indirect versus direct labor you know typically you have more direct labor than you do indirect and in some of our plants that balance got out of whack and that's really driven by you know needing extra teams to go out and do rework and supplemental quality checks because you're moving product through a essentially a secondary assembly line.
Speaker Change: Material flow you know at one point, we had a thousand tractor trailers.
Speaker Change: With parts and then in Monterrey.
Speaker Change: And that is really a symptom of an inefficient material flow process now the good news is yes. We have we have a lot of work in front of us, but we have a very skilled team we brought some new team members and very steeped.
Speaker Change: And lean principles we.
Speaker Change: We have engaged some external folks to come in who are more hands on not consultants to.
To help us identify the issues we've seen the progress starting the momentum shift in Q4.
Speaker Change: And we've tailored our internal review process, such that you know, Bob and I are sitting down with the business unit presidents and their operational leaders on a pretty regular basis to review, how we're doing making sure that we're keeping the cadence going in that this isn't short term fixes. These are really fixing some of the more systematic things.
We've got to get after so I have a I have a lot of confidence in that and it's really going to be key for us to have a bending of the curve. That's why you see us targeting a positive EBITDA improvement versus 23, because that'll really start to build the momentum and as you can imagine a lot of the enhancements and the changes and the improvements we're making.
Speaker Change: They're not happened on day, one in 'twenty, four and we've obviously factored that into our guidance. They start gaining momentum as we get into the second half and what happens then is you really get that momentum of those cost improvements and the 25 and then you know I'm not sitting here, making a call, but if you can get some positive <unk>.
Speaker Change: Revenue momentum.
Speaker Change: You know if the market's just either flat or up slightly that puts this business in a much much better position to leverage that growth and get that margin expansion I think the rest of the pieces play out you know I mean, our <unk>.
Capital deployment return on invested capital those things you know I feel really good about our it's really going to be predicated on one of our execution of the cost improvements internally and then too.
Speaker Change: Does the broader macro start to improve late in 'twenty four and into 'twenty five.
Speaker Change: Yeah, I think one thing to keep in mind too Craig as you know when we put these targets out here. If you look at where we are for 'twenty four.
Speaker Change: You know, we got a point and a half of headwind from FX.
Speaker Change: FX and interest rates on the finance interest side and so you know we would be mid thirteen's on a constant currency constant interest basis. So we have made actually improvement from 2021. It's just we've had these headwinds that's not an excuse me. He said we've got to overcome those but we are making some progress.
Speaker Change: And I think you'll see if you look at where we're targeting for the year that's come in with a pretty flat Q1, and so the the Q2 Q3 Q4, we'll will certainly be.
Significantly better I think youll start to see what the real potential is and that we're closer to our targets maybe than it appears on a full year basis. The other thing is you know the.
Our factory in Vietnam is just coming online for motorcycles.
Speaker Change: You know right around now.
Speaker Change: Some of the Mexico facilities have started limited production. So just like Mike said about the exit rate on the improvements in the plants also the exit rate on the new facilities as we leave 24 will be a lot better than it has started 2004 it because theyre just starting production in those and it takes a while to ramp up the.
Speaker Change: Get the factories full.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Thanks.
Speaker Change: Thank you. The next question comes from Joe <unk> with Raymond James. Please go ahead.
Joe: Thanks, Hey, guys. Good morning first.
Joe: First question was on gross margin in the 70 to 100 basis points improvement Youre looking for the here and you talked a lot about the FX that accrual headwind lower shipments and pricing. It sounds like you know in terms of good guys. If you will most of that $50 million of cost savings will hit cost of goods.
Joe: And it also sounds like you're expecting to recoup a lot of that $70 million of incremental manufacturing costs you incurred in the <unk>.
Joe: Half of last year do I have that math right.
Speaker Change: Yeah, I mean, the when we talked about $150 million of improvements that that's all going to hit in G. P and it's it's really split between materials logistics and plant materials and commodities would be the largest peach piece logistics.
Speaker Change: The smallest and then the plants is in the range of of getting out that $70 million that we talked about.
Speaker Change: Okay, and the incremental manufacturing costs, you expect to recoup all of that.
Speaker Change: Well it is the way I guess the way I would come out of Joes to say, we didn't get after enough of it in 'twenty three and so the piece that we missed is definitely coming out in 'twenty four.
Speaker Change: We did get costs down in 'twenty three we just didn't get it down near as much as we had targeted and aside.
Aside from the actions that we've been taking Theres also a momentum around.
Speaker Change: Certain commodity is already starting to.
Come down sequentially and that obviously takes some time to roll through inventory, so Bob Bob and the team have this pretty well pegged out in terms of the buckets that need to happen and that's what we're basically review it on a weekly monthly basis.
Speaker Change: Okay, and just one quick housekeeping.
Question, the incremental impact from the snowmobile shipments in the RV and marine restock in Q1 of last year.
Speaker Change: Combined for about $250 million incremental.
Speaker Change: Rental revenue is that right.
Last year, Yeah, Q1, no you mean, the impact Q1, no I'd say, it's much higher than that Joe.
Okay, and we said we'd be 20% down from last year and it's almost.
Speaker Change: There's some impact in marine and motor cycle, but the bulk of it is still an RV and Joe. That's you know I made the comment on the question earlier around it it's essentially the bottoming out of our performance because if you look at it you're getting essentially the majority of the revenue decline is in the first quarter and it's you know, it's two things well three with promo, but you know what.
Speaker Change: Snowmobile fixing.
Speaker Change: Fixing the business. So we don't have that hangover of late deliveries.
As well as the fact that we don't have the 40 days of DSO inventory opportunity in front of US. So you know once you get into Q2, you're kind of back into a ship.
Speaker Change: Shifting to retail so the stability with an industry that we're assuming is down slightly but we're outperforming giving our products set up.
Speaker Change: You get into a far more normalized set of quarters Q2, three and four.
Got it okay. Thank you.
Speaker Change: Thank you. The next question is from Tristan Thomas Martin with BMO capital markets. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Continuing on the margin thread.
Speaker Change: How are you thinking about segment margins gross margins next year.
Yeah.
The I mean, we will see the bulk of the segment gross margin.
Speaker Change: Our improvement will be in off road, because the two factories that have been.
Praful had been underperforming.
Our really our Monterey and and are our two largest factories and so those are primarily focused on off right. So you'll see the bulk of that in off road.
Speaker Change:
Speaker Change: And on road.
Speaker Change: Pretty flat year Indians continue to focus on margin it'll it'll.
Mostly depend on what the kind of heavyweight versus mid size mix looks like and that will just depend on how the industry plays out.
Speaker Change: But obviously heavyweights carry a little more gross gross margin than our midsize and then in marine will they're continuing to do a really nice job of managing margins given lower shipments and you know the great thing about that business is it's a pretty variable cost structure. So we've been able to get at the cost structure.
Speaker Change: To help maintain overall EBITDA margins, even though gross margins were a little bit down so.
Speaker Change: Thank you will see where most of the improvement comes in off road.
Yeah.
Okay. Thank you and then just one more given the ex the 50 and under next edition. The initial shipment I think was pushed a little bit later than you thought.
Speaker Change: Is there a chance that 'twenty four shipping for this new kind of announce product is actually higher than the incremental new product shipping in 'twenty three.
Yeah, that's I mean, it's tough to say I mean, I think the the opportunity we have with XD and expedition given the positive reception.
Speaker Change: I suspect that that's going to be you know if you think about those are not completely but.
Speaker Change: Highly incremental in terms of new segments.
Speaker Change: We certainly will cannibalize some customers off of general for expedition, and the core Ranger business for XD, but.
Speaker Change: Given the bulk of that is incremental it's it's probably going to outpace any other potential new products that we would have just given the size of those markets.
Yeah, and there'll be a little bit of.
We weren't shipping expeditions are pretty well in Q4 there'll be a little there'll be some incremental on expedition, but then you know as.
As Mike said most of XD.
Speaker Change: We will be will be incremental to the X D that shipped in 2023, which was pretty low.
Yeah.
Speaker Change: Okay.
Yeah. The next question is from <unk> Khan with RBC capital markets. Please go ahead.
Alright, great. Thanks, and good morning, just I guess, maybe going back to the margin side, but more on the promotional angle I'm, obviously, taking into account that you do have a bit of cost savings in this gross margin expectation now what kind of competitor promotional activity or are you baking into this number sort of what did you underwrite.
Speaker Change: In terms of your 'twenty guidance.
Speaker Change: Could folks get a bit more aggressive to clean out inventory and how would you respond to that.
Speaker Change: And market.
Speaker Change: <unk>.
Speaker Change: Yeah, I think what we're expecting you know as Mike said.
Speaker Change: In his remarks.
Speaker Change: We saw some competitors had a fair amount of 'twenty remodel year carryover inventory was cleaner that really ramped up the promotional spend and we had to respond even though we had current inventory we had to respond. So you know it did not lose share to people buying 20 threes with a lot of room on them.
Speaker Change: That was effective in Q4 that inventory is winding down so we expect that 23 versus 24 dynamic.
To start to abate in Q1, but like we said we do think Q1 first of all where we're lapping a kind of a low promo quarter, because we had all the channel fill in Q1 of last year, so promos across the industry, where the lowest point of 2023 in Q1. So we're lapping that with Q4, which was the most aggressive.
With as it plays through the year I think is as Mike said.
Many of our competitors in the industry are having the same message. We are they were going to try to keep dealer inventory at reasonable levels and shut in retail.
And it takes some dealer inventory out through the course of the year I think.
Speaker Change: Based on kind of what we've seen so far it looks like people are all following a similar path to us that there'll be a pretty conservative with shipments in the early part of the year.
Speaker Change: Which should help the inventory be in a better position across the space as we get into the second quarter.
So you know we're.
Speaker Change: We're planning on promo being.
Speaker Change: Relatively in line with this year.
Speaker Change: And then it's going to be highly dependent on what happens with dealer inventory.
Okay, Great and then I guess, just one on I'm, just kind of the overall industry dynamics one of the questions. We've been getting with the industry softness over the last call. It three to four months as you know.
Speaker Change: 24 be sort of a step backwards towards industry volumes pre pandemic is there some sort of a broad industry normalization happening in units and or margins just wanted to get I guess from your vantage point and you did call out that most of the weakness. This year is going to be in Q1, and then normalization. How do you view sort of overall industry volumes, what do you consider.
<unk> to be normal for your unit volumes as well as margin just any perspective on what you're hearing from dealers and are seeing out there.
Speaker Change: Well I mean, you know like I said in my prepared remarks, we anticipate the industry is going to be down.
And you know for some reason I think theres been a view that the industry got a massive uptick is is it related to what happened with Covid and you know it.
Speaker Change: Essentially if you go back in time really what happened was we had a year, where just a ton not just assuming are we the industry.
Everything was sold off of dealers' floors, and then we spent the last few years just trying to get caught up so you know with industry being down a little bit next year.
Speaker Change: We think that the volumes are still hovering at or below where they've been historically.
And from my standpoint, it's really two things are going to have to get resolved I think the uncertainty around the economy as it relates to our discretionary products, the rec products marine and things like that.
Speaker Change: As well as interest rates I mean, what people, even though the financing isn't a the impact of the interest rates isn't some significant monthly impact to their payment people just generally don't want to finance at the top of the market and so we do think that you know and you can see it every time the fed talks about or hints at what they're going to do with interest rates you see things.
Speaker Change: To shift and I think once the rates do start to move I think that is going to be positive for the industry. You know people want to be and we're not seeing some surge abused vehicles, where people are just saying hey, we want out one of the interesting facts that we've seen we've talked about it in prior calls we track repurchase rates you know everything for.
Speaker Change: Customers, who bought some three months ago that people were in the market a year ago five years ago 10 years ago.
Speaker Change: And those repurchase rates actually got stagnant.
Speaker Change: During the pandemic, a surge because new people coming into the category, we're willing to pay a lot for vehicles and what we've seen is since that fevers kind of lowered the repurchase rates pretty much across every category. We track had actually started ticking back up.
Speaker Change: And I think that's good for the industry, because we know that people are out there they've got aging product, we've got a ton of new product and innovation out in the marketplace and I think we just need to see some things settle out during 'twenty four and I'm optimistic as we get out of 'twenty for the setup is much better heading into 'twenty five both for us as a company as well as potentially for the industry.
Speaker Change: Great and maybe if I could sneak in one on the marine side one of the marine firms that has a year ended June is pointing to a pretty significant.
Revenue decreases in our wild well above kind of what you're playing here for 'twenty four I guess you know.
Speaker Change: Just maybe if you could talk about where youre playing in marine you know in terms of is it a bit of a expectation that with those rate cut expectations, maybe the marine business picks up in the back half of the year. Just how are you thinking about that business over the course of 'twenty four and the comfort level with the mid teens down guidance well I mean look it's it's it's tough tough to it.
Speaker Change: No but.
You know, we took a pretty firm stance through the course of 'twenty, three working with Ben Duke and his team.
Speaker Change: As we saw the retail environment slowing feedback from dealers around dealer inventory levels and the interest costs associated with those.
And it's why we made a series of cuts to our marine production through the course of the year and so as we head into <unk>.
Speaker Change: Two to 24, we're still being very cognizant that the first and second quarter are really going to be key as dealers get a sense of what the boating season looks like how much inventory they want to take a position on the dealers are obviously, taking a far more aggressive stance because the Oems essentially of all caught up.
Speaker Change: You know I can't think of the last time, we've had a supply chain issue within our bidding.
Pennington hurricane or Godfrey businesses, and so they know the manufacturing system can move pretty quickly and so.
Speaker Change: We've taken a conservative approach to what we think is going to happen this year and if things end up a little bit better we can react and obviously as we demonstrated in 'twenty three if things don't play out as anticipated, we'll we'll make those reductions to make sure. We keep dealer inventory in check Bob made that point I mean, you know the one good thing about our boat business in a downturn.
They can react quickly and we actually were able to improve EBITDA margins in that segment, despite having lower than anticipated volumes.
Speaker Change: The other benefit we're seeing in marine Mike talked about it a little bit but as as the marine market has been challenged dealers during COVID-19 when they couldn't get the boats. They want it picked up a lot of side brands smaller brands are niche niche products and you know as they focused on their floor plan interest in the cost of care.
Speaker Change: Being inventory they pushed a lot of those brands out which has created some more space for US. We've also been pretty successful you know upgrading dealer just adding dealers, which is something particularly in Burlington, we haven't been able to do in a long time.
Speaker Change: Because we haven't had the inventory so to supply a new dealer. So both of those things I think are helping us a little bit.
Speaker Change: Offset some of the weakness and I mean go back and look at the data I mean last year, we pulled revenue down in our marine business over 20% and then we've got guidance that says we will be down another mid teens in 'twenty four so.
We are responding appropriately to the category and.
Speaker Change: It's going to be important to see what happens and hopefully we're going to have.
Goodbye.
Great. Thanks, so much for all that color.
Speaker Change: You bet.
Speaker Change: Thank you. The next question comes from Robin Farley with UBS. Please go ahead.
Great. Thanks, most of my questions.
Robin Farley: Dan answered just wanted to circle back to your your 'twenty 'twenty six schools that.
Robin Farley: But you are maintaining and just to clarify is that on the revenue side as well.
Robin Farley: Kind of maintaining that and what do you think will be the bigger the biggest drivers of that top line I know you mentioned.
Robin Farley: The idea about interest rates and economic uncertainty.
Speaker Change: Clearing up.
Speaker Change: It seems like it would take more than just kind of getting back to.
Speaker Change: Previous economic outlook is there.
Speaker Change: I guess I just want to clarify is that is it revenue goal without any type of acquisition or is there something new in terms of product line that we don't know about yet.
That will see between now and 2026.
Speaker Change: Looking for kind of what those drivers might be thank you.
Speaker Change: Yeah, you know, we've obviously, we've done a lot of math around and Bob can talk to in more detail.
About you know what what the you know to get to those numbers, what 25, and 26 really need to look like.
Speaker Change: It's not Super sporty I mean, obviously, we can't have another couple of years like we've had from a broader economic perspective.
What gives me confidence is I do think we're at the end of a what was probably I think a record tightening cycle.
As well as you know coming out of an environment that I don't think anybody could have ever predicted in terms of COVID-19 and get everybody back to work in.
Speaker Change: Just sort of the other geopolitical things that were going on and it's not to say that there won't be more issues in front of us, but I do think we're getting into a more stabilized environment and when you couple that with what we've done.
Speaker Change: If I go back years ago. The knock on US was we were losing share we didn't have the new products coming out I mean, we have fixed that and we've fixed it significantly and we're not done and the teams got more product coming out. We're obviously not going to spend time talking about that now, but you know.
Speaker Change: Rest assured when I look at what happened.
Speaker Change: Starting back in 2015, 2016 time period from a share standpoint.
It's great that we gained share last year, it's great that excluding youth, we gained more share than anybody else.
Speaker Change: But we still have a lot more that we're going to get back and we're going to go after that are.
Speaker Change: We are not building in acquisitions.
Speaker Change: Given where our stocks trading I made some comments about our free cash flow yield.
Speaker Change: There is hard to imagine a better investment than players stock right now from my perspective, and so I.
I'd be hard pressed to be convinced that we need to go out and buy some other company to try and meet our revenue growth objective I think for US. The biggest challenge is going to be around margins that I talked about it earlier in terms of.
Speaker Change: Craig's question the <unk>.
Things that we're doing and the things that are under our control I feel confident that we're going to be able to get after them and we're pushing the team hard the team understands what's at stake in.
Speaker Change: They're highly committed and driven in and I wouldn't bet against them.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you. Your next question comes from David Macgregor with Longbow Research. Please go ahead.
David Macgregor: Yeah, Hi, everyone. Thanks for taking the questions.
David Macgregor: Mike I wanted to ask you about tariffs and Theres a pretty good chance, we'll end up with a Republican White House last time around these terrorists are pretty disruptive to the P&L.
David Macgregor: Can you just talk about progress you've made in terms of reassuring or near shoring back to the North American free trade zone, and we're able to put any numbers around that progress.
Yeah, I mean, it certainly isn't the the.
Topic that it used to be around here I think we've resigned ourselves that these things feel like they're probably going to be permanent.
David Macgregor: Lord knows what's going to happen here in 'twenty four but.
David Macgregor: We can't control any of that I mean, we have agreed our government relations team and they're constantly advocating for us.
Even though there aren't a ton of them, but the exemptions, making sure that those get renewed and in those types of things and pleading our case, because we do think we're being incredibly disadvantaged.
David Macgregor: As the global leader in power sports the real the truly only U S based company and we're the only ones really paying tariffs.
David Macgregor: It seems a little wrong to say the least.
David Macgregor: The near shoring opportunity is something we've continued to push you know I would say, we've made inroads, but theres still a lot more to do and frankly I think there's a lot more to do in terms of shoring not shoring, but locating our sourcing within Mexico, given how larger footprint is.
David Macgregor: So that we make sure that we've got continuity of supply and we've got things being produced in the region.
David Macgregor: As opposed to coming from continents away and being subjected to the vulnerabilities and the risk of the supply chain and then obviously that does give us potential tariff benefit, but we haven't built in some substantial improvement we know we know really well what those tariffs are in.
How to calculate them and you know look if we get some level of good news that'd be great I'm not counting on it I think even if there's a republican.
David Macgregor: In the White House, I think the pressure relative to China is still so great that it's going to take a while if those things go away for them to act.
David Macgregor: Acted on so we're going to continue to do what we do and act like a permanent and do what's right for the business.
David Macgregor: Top of the hour I'll pass it on thank you.
Speaker Change: Thank you.
Thank you. The next question is from Jamie Katz with Morningstar. Please go ahead.
Jaime Katz: Hi, Good morning. Thank you for all the color you guys have offered this morning I have two quick ones first any update to what youre seeing with lending standards from your finance partners and then if you can share maybe how you guys are thinking about price versus mix in the RV.
Segment, and how that trends over the next few quarters that would be really helpful. Thanks.
Speaker Change: Sure I'll take the financing question first.
Speaker Change: <unk> really been pretty consistent.
Speaker Change: Our pen rates have improved as we've as we've seen smaller kind of niche lenders leave them leave some of the markets. You know some of the credit unions and things have backed off some of their financing so.
Speaker Change: That usually plays well for us that our pen rates up about 100 basis points in.
Speaker Change: In the quarter and for the year approval rates have remained consistent.
Speaker Change: And fight those are up about eight points.
Speaker Change: In Q4 versus the rest of the year, we don't see major trends there I think what we have seen is.
Speaker Change: Lenders, pushing a little bit harder on on debt to income and bar, where cash flow as opposed to just relying on you know kind of credit ratings and fight goes.
Speaker Change: But you know I think.
Speaker Change: In terms of credit quality and availability that hasnt really been the hinder its the rate has been more of a driver in terms of people willing less willingness.
Speaker Change: To finance.
Price promo I think you know.
Speaker Change: I think across the industry you see.
Pricing itself.
Speaker Change: MSR piece to be relatively flat I don't think anyone sees a great opportunity to take a bunch of price this year.
Speaker Change: And promo, we talked about being relatively flat other than the lapping.
Speaker Change: Kind of Q1, where we will have higher levels in Q1.
Speaker Change: Relative to what.
Speaker Change: What we had last year.
Speaker Change: Thank you.
Yeah.
Speaker Change: Thank you. This does conclude our question and answer session and the conference is now concluded.
Speaker Change: Thank you for your participation you may now disconnect your lines.
Yes.
Yeah.
[music].