Q1 2024 Brunswick Corp Earnings Call
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Operator: Good morning, and welcome to Brunswick Corporation's first quarter 2024 earnings conference call. All participants will be in listen-only mode until the question and answer period. Today's meeting will be recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Neha Clark, Senior Vice President, Enterprise Finance, Brunswick Corporation. Thank you, and you may now begin.
Good morning, and welcome to Brunswick Corporation's first quarter 2024 earnings Conference call.
All participants will be in listen only mode until the question and answer period.
Today's meeting will be recorded if you have any objections you may disconnect at this time.
I would now like to introduce <unk> Clark Senior Vice President.
Clark: Enterprise Finance Brunswick Corporation.
Clark: Thank you and you may now begin.
Clark: Good morning, and thank you for joining US with me on the call. This morning are Dave Foulkes, Brunswick's, CEO and Ryan Guillaume <unk> CFO.
Neha J. Clark: Good morning, and thank you for joining us. With me on the call this morning are Dave Foulkes, Brunswick CEO, and Ryan Gwillim, CFO. Before we begin with our prepared remarks, I would like to remind everyone that, during this call, our comments will include certain forward-looking statements about future results. Please keep in mind that our actual results could differ materially from these expectations.
Clark: Before we begin with our prepared remarks, I would like to remind everyone that during this call. Our comments will include certain forward looking statements about future results.
Clark: Keep in mind that our actual results could differ materially from these expectations.
Neha J. Clark: For details on these factors to consider, please refer to our recent SEC filings and today's press release. All of these documents are available on our website at brunswick.com. During our presentation, we will be referring to certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the Reconciliation sections of the unaudited Consolidated Financial Statements accompanying today's results. I will now turn the call over to Dave.
Clark: For details on these factors to consider please refer to our recent SEC filings and today's press release.
Clark: All of these documents are available on our website at Brunswick Dot com.
Clark: During our presentation, we will be referring to certain non-GAAP financial information.
Clark: Reconciliations of GAAP to non-GAAP financial measures are provided in the appendix to this presentation and the reconciliation sections of the unaudited consolidated financial statements accompanying today's results I.
Clark: I will now turn the call over to Dave.
Dave: Thanks, Nate and good morning, everyone.
David M. Foulkes: Thanks Neha, and good morning everyone. Brunswick had a solid start to the year, delivering sales, margin, and adjusted earnings per share consistent with expectations, despite continued customer caution in the face of economic uncertainty. Our performance benefited from continued market share gains, the wealth of recently launched and well-received new products, and Comprehensive Cost Control Measures across our business, which are set by higher promotions and discounts on some product lines. We also continue to make good progress on our strategic initiatives.
Dave: Once that had a solid start to the year delivering sales margin and adjusted earnings per share consistent with expectations. Despite continued customer caution in the face of the economic uncertainty.
David M. Foulkes: Our performance benefited from continued market share gains.
David M. Foulkes: Wealth of recently launched a well received new products.
David M. Foulkes: And comprehensive cost control measures across all businesses.
David M. Foulkes: Offset by higher promotions and discounts on some product lines.
David M. Foulkes: We also continued to make good progress on our strategic initiatives.
David M. Foulkes: Oh first quarter net sales of $1 $4 billion and adjusted earnings per share $1 35 were in line with our guidance range and consistent with the anticipated restrained or at least season marine dealer OEM and retail wholesale order pattern.
David M. Foulkes: Our first quarter net sales of $1.4 billion and adjusted earnings per share of $1.35 were in line with our guidance range and consistent with the anticipated, restrained, early season Marine Dealer OEM and retail wholesale order pattern, which reduced production rates across our product businesses compared to the first quarter of 2023 when pipelines were being filled. Berkere Marine continued to capture market share, with its first quarter U.S. outboard retail share up 200 basis points versus the prior year.
David M. Foulkes: Which drove reduced production rates across our product businesses compared to the first quarter of 2023, when pipelines with being filled.
David M. Foulkes: Quickly marine continued to capture market share with first quarter U S outboard retail share up 200 basis points versus prior year.
Dave: Oh early season boat unit retail performance is tracking with our outlook of flat to 2023.
David M. Foulkes: Our early season boat unit retail performance is tracking with our outlook of flat to 2023, as we move into the core 2024 retail selling. We continue to work closely with our channel partners to maintain balanced current model field imagery levels, and we closed the first quarter with 36.1 weeks on hand in the U.S., which is in line with historical norms. In addition, during the quarter, we successfully completed a debt issuance of $400 million to cover the refinance of our only near-term debt, further solidifying our cash position and balance sheet.
Dave: As we move into the call. It 2024 retail selling season, we continue to work closely with our channel partners to maintain balanced current model field inventory levels.
Dave: When we close the first quarter with $36 one weeks on hand in the U S.
Dave: In line with historical norms.
Dave: In addition, during the quarter, we successfully completed a debt issuance of $400 million the top of the refinance about only near term debt.
Dave: This solidifying our cash position and balance sheet.
Speaker Change: I'll now turn into some segment highlights for the quarter.
David M. Foulkes: I'll now turn to some segment highlights for the quarter. Our propulsion business delivered lower sales and earnings versus a record first quarter of 2023 as both manufacturers and dealers moderated order patterns and managed production of current model year products and pipelines ahead of the annual model year changeover. We expect OEMs to remain cautious through the model year changeover as they assess consumer sentiment and monitor the macro environment. Mercury continued to outperform the market, gaining 330 basis points of U.S. outboard market share in engines 150 horsepower and above.
Speaker Change: Our propulsion business delivered lowest sales and earnings versus our record first quarter of 2023.
Speaker Change: Both manufacturers and dealers moderates at order patterns and manage production of current model year products on pipelines.
Speaker Change: Head of the annual model year changeover.
Speaker Change: We expect Oems to remain cautious through them, albeit changed yoga as they assess consumer sentiment and monitor the macro environment.
Speaker Change: Mercury continued to outperform the market, gaining 330 basis points of U S outboard market share and engines 150 horsepower and above.
Speaker Change: Oh engine parts and accessories business continued its steady performance with sales and earnings down modestly from the first quarter of 2023 as anticipated.
David M. Foulkes: Our engine parts and accessories business continued its steady performance, with sales and earnings down modestly from the first quarter of 2023, as anticipated, but increasing sequentially over the prior quarter. Early season weather patterns have been supportive of boating in the northern U.S. and, with normalized inventory levels across the dealer network, should contribute to growth for the remainder of the year. As expected, Navico Group had lower sales and earnings versus the first quarter of 2023 but delivered sequential sales growth and consistent earnings versus the prior quarter.
Speaker Change: But increasing sequentially over the prior quarter.
Speaker Change: Early season weather patterns have been supportive of boating in the northern U S and with normalized inventory levels across the dealer network continued strong boating participation should contribute to growth for the remainder of the year.
Speaker Change: As expected medical group had lowest sales and earnings, especially in the first quarter of 2023, but deliberate sequential sales growth and consistent earnings versus the prior quarter.
Speaker Change: Navajo Group continues to focus on investments in new products, including the recently launched Sim Rad NSX ultra wide multifunction display, which is being very well received by customers.
David M. Foulkes: Navico Group continues to focus on investment in new products, including the recently launched Simrad NSX ultrawide multifunction display, which has been very well received by customers, and is preparing for several important new product launches during the remainder of the year.
Speaker Change: That is preparing for several important new product launches in the remainder of the year.
Speaker Change: Finally, our boat business performed to plan with exceptional retail performance by Boston Whaler and sea Ray It early season boat shows.
David M. Foulkes: Finally, our boat business performed to plan, with exceptional retail performance by Boston Whaler and Sea Ray at early season boat shows, while continuing to introduce new models to support market share gain. Sales and earnings were below prior year, consistent with lower planned production levels, while operating margins improved sequentially. Freedom Boat Club continues to deliver steady membership sales, and same club sales in the quarter were mid-single-digit percent above the prior year. Freedom has now expanded to 413 worldwide locations.
Speaker Change: So do you wait to introduce new models to support market share gains.
Speaker Change: Sales and earnings but below prior year.
Speaker Change: With lower planned production levels, while operating margins improved sequentially.
Speaker Change: Freedom boat club continues to deliver steady membership sales and.
Speaker Change: And the same club sales in the quarter were mid single digit percent above prior year.
Speaker Change: Freedom has now expanded to 413 worldwide locations.
David M. Foulkes: Shifting to external factors now, U.S. GDP and employment remain stronger than anticipated, Flowing the recent pace of disinflation and, consequently, the likely cadence of Fed rate reduction, which in turn is keeping consumer loan rates high.
Speaker Change: Shifting to external factors now.
Speaker Change: U S GDP unemployment remained stronger than anticipated.
Speaker Change: Following the recent pace of disinflation, and consequently, the likely cadence of fed rate reduction, which.
Speaker Change: Which in turn is keeping consumer loan rates high.
David M. Foulkes: We are, however, seeing a higher proportion of buyers with high credit scores financing their purchases than in recent prior periods. An interest in the recently launched Brunswick Retail Finance Program continues to increase, with more than 35% of Brunswick boat dealers having enrolled. The marine industry is continuing to lobby against the proposed NOAA East Coast Vessel Speed Regulation and advocate for technology-based solutions. However, the exact contents of the proposed rule remain unknown, making an analysis of its impacts difficult.
Speaker Change: We are however, seeing a higher proportion of buyers with high credit scores financing that purchases, but in recent prior periods.
Speaker Change: I'm interested in the recently launched Brunswick retail Finance program continues to increase with more than 35% of Brunswick boat dealers having enrolled.
Speaker Change: The marine industry is continuing to lobby against the proposed Noah East coast vessel speed regulation.
Speaker Change: Advocate for technology based solutions.
Speaker Change: However, the exact contents of the proposed rule remain unknown.
Speaker Change: An analysis of the impact is difficult.
Speaker Change: As noted dealer sentiment is generally sequentially improving.
David M. Foulkes: As noted, DELA sentiment is generally sequentially improving. But with appropriate imagery levels, they are carefully placing wholesale orders, particularly for current mobile year value product lines. We are working with dealers to deploy a portfolio of targeted discounts and promotions. On a per unit basis, retail and wholesale program spending is in line with pre-pandemic levels, but floor plan support spending is higher. Our investments in digital platforms continue to drive benefits across our brands, with more than a third of Bob Group's sales being digitally assisted in the first quarter. Additionally, our surveys continue to show strong voting participation levels, supportive of steady P&A demand.
Speaker Change: But with appropriate inventory levels, they are carefully pacing wholesale orders.
Speaker Change: Particularly if the current multi year value product lines.
Speaker Change: We are working with dealers to deploy a portfolio of targeted discounts and promotions.
Speaker Change: Per unit basis retail and wholesale programs spending is in line with pre pandemic levels.
Speaker Change: Floor plan support spending is higher.
Speaker Change: Our investments in digital platforms continue to drive benefits across our brands with more than a third of bulk group sales digitally assisted in this first quarter.
Speaker Change: I'll surveys continue to show strong boating participation levels.
Speaker Change: A steady P&A demand.
Speaker Change: Overall boat show results were encouraging with interested buyers strong lead generation and sales above prior year levels on a unit basis and with a richer product mix.
David M. Foulkes: Overall, both show results were encouraging, with interested buyers, strong lead generation, and sales above prior year levels on a unit basis and with a richer product. Our Boston whaler and CRA businesses demonstrated exceptional retail performance at early boat shows, with new models supporting market share gain. Mercury Marine performed well at all major boat shows, recording the highest outboard share at Dusseldorf, Miami, and other key events.
Speaker Change: Our Boston Whaler and sea Ray businesses demonstrated exceptional retail for four months at early boat shows with new models supporting market share gains.
Speaker Change: Mercury Marine performed well at all major boat shows recording the highest outboard share this adult Miami and other key events.
David M. Foulkes: Shifting now to a global view of revenue in the quotes, overall, we saw a 22% sales decline on a constant currency basis, excluding acquisitions. Moving now to U.S. Retail Performance, U.S. industry new boat unit sales in the quarter declined versus the first quarter of 2023. Brunswick's internal retail data outperformed the overall market, with particular strength in our premium brand. Our year-to-date global internal unit retail sales are flat to the prior year, including a solid start in the first weeks of the second quarter. It is not uncommon to see differences in SSI reporting and internal data at this point in the season, and our expectation of a flat retail market for the full year currently remains unchanged.
Speaker Change: Shifting now to our global view of revenue in the quarter overall, we saw a 22% sales decline on a constant currency basis, excluding acquisitions.
Speaker Change: Moving now to U S retail performance U S industry, New boat unit sales in the quarter declined versus the first quarter of 2023.
Speaker Change: Brunswick, and tell a retail data outperformed the overall market with particular strength in our premium brands.
Speaker Change: Our year to date global incidental unit retail sales are flat to prior year, including a solid start in the first weeks of the second quarter.
Speaker Change: It is not uncommon to see differences in Ssi reporting and internal data at this point in the season.
Speaker Change: And our expectation of a flat retail market for the full year currently remains unchanged.
Speaker Change: U S outboard engine industry retail unit declined 9% in the first quarter versus prior year.
Ryan M. Gwillim: U.S. outboard engine industry retail units declined 9% in the first quarter versus the prior year. Mercury continues to outperform the market with an overall share gain of 200 basis points in the quarter. We continued to successfully manage both pipelines, and we ended the quarter with U.S. inventory at 36.1 weeks, in line with expectations and historical norms, and with 13,500 units in the pipeline versus nearly 18,000 units in 2019. International boat pipelines were slightly higher, which is normally the case.
Speaker Change: It continues to outperform the market with an overall share gain of 200 basis points in the quarter.
Speaker Change: We continue to successfully manage both pipelines and we ended the quarter with U S inventory at $36 one weeks in line with expectations and historical norms.
Speaker Change: And with 13 and a half thousand units in the pipeline versus nearly 18000 units in 2019.
Speaker Change: International boat pipelines with slightly higher which is normally the case.
Speaker Change: Notably our first quarter U S boat pipelines declined with the ended the fourth quarter of 2023, which is unusual given the first quarter is commonly a period of building pipelines ahead of the selling season.
Ryan M. Gwillim: Notably, our first quarter U.S. boat pipelines declined versus the end of the fourth quarter of 2023, which is unusual given the first quarter is commonly a period of building pipelines ahead of the selling phase, underlining the caution being exhibited by our channel partners. I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.
Speaker Change: Underlining the caution being exhibited by our channel partners.
Speaker Change: I'll now turn the call over to Ryan to provide additional comments on our financial performance and outlook.
Ryan M. Gwillim: Thanks, Dave, and good morning, everyone. Brunswick delivered a solid first quarter, consistent with guided expectations, despite a continued cautious macroeconomic environment. Compared to a strong first quarter in 2023, net sales in the quarter were down 22%, resulting in an adjusted EPS of $1.35. Gross margins have remained resilient, adjusted operating expenses were down $11 million versus Q1 2023, and free cash flow performed better than anticipated as CapEx spending continues to moderate given the conclusion of several major capital projects in 2023.
Ryan M. Gwillim: Thanks, Dave and good morning, everyone.
Ryan M. Gwillim: We delivered a solid first quarter consistent with guidance expectations. Despite a continued cautious macroeconomic environment.
Ryan M. Gwillim: Versus a strong first quarter 2023 net sales in the quarter were down 22%, resulting in an adjusted EPS of $1.35.
Ryan M. Gwillim: Gross margins have remained resilient adjusted operating expenses were down $11 million versus Q1, 'twenty two 'twenty three and free cash flow performed better than anticipated as capex spending continues to moderate given the conclusion of several major capital projects in 2023.
Ryan M. Gwillim: First quarter sales were below the prior year as the impact of continued measured wholesale ordering patterns by dealers and OEMs, coupled with higher discounts in some business segments, was only partially offset by annual price increases, market share gains, and benefits from well-received new products. Adjusted operating earnings were down versus the prior year as a result of the impact of lower net sales, unfavorable changes in foreign exchange rates, and slightly higher input costs, which more than offset benefits from significant cost control measures throughout the enterprise. Now we'll take a look at each reporting segment, starting with our propulsion business.
Speaker Change: First quarter sales were below prior year as the impact of continued measured wholesale ordering patterns by dealers and Oems.
Speaker Change: Coupled with higher discounts in some business segments was only partially offset by annual price increases market share gains and benefits from well received new products.
Speaker Change: Adjusted operating earnings were down versus prior year as a result of the impact of lower net sales.
Speaker Change: Unfavorable changes in foreign exchange rate.
Speaker Change: And slightly higher input costs, which more than offset benefits from significant cost control measures throughout the enterprise.
Speaker Change: Now, we'll take a look at each reporting segment, starting with our propulsion business.
Ryan M. Gwillim: Sales and earnings were lower as anticipated, as both manufacturers and dealers moderated order patterns, managing production of current model-year products and pipelines ahead of the retail season and model-year change. However, Mercury continued to gain outboard engine share, as Dave discussed earlier, and together with the impacts of 2023 pricing gains and aggressive cost control measures, partially offset the impact of lower sales, unfavorable changes in foreign currency exchange rates, the lapping of prior year favorable variances related to timing of capitalized inventory, and lower absorption from reduced production.
Speaker Change: Sales and earnings were lower as anticipated as boat manufacturers and dealers moderated order patterns managing production of current model year products and pipelines out of the retail season and model year change.
Speaker Change: However, mercury continued to gain outboard engine share as Dave discussed earlier and together with the impacts of 2023 pricing gains and aggressive cost control measures, partially offset the impact of lower sales unfavorable changes in foreign currency exchange rate the lapping of prior year favorable variances related to timing of capitalized inventory.
Speaker Change: Tori and lower absorption from reduced production.
Ryan M. Gwillim: The engine parts and accessories business continued its steady performance, with sales and earnings down modestly from the first quarter of 2023, as anticipated, but sequentially increasing over the prior quarter. Sales in the high-margin products business were down very slightly, while year-over-year distribution sales trends continued to improve. Segment operating earnings and margins decreased primarily due to the sales declines, which offset the impact of pricing and cost control. Note that our transition into the Brownsburg, Indiana, distribution facility is essentially complete, increasing our ability to service our international P&A customers in a more timely fashion.
Speaker Change: The engine parts and accessories business continued its steady performance with sales and earnings down modestly from the first quarter of 2023 as anticipated, but sequentially increasing over the prior quarter.
Speaker Change: Sales into high margin products business were down very slightly while year over year distribution sales trends continued to improve.
Speaker Change: Segment operating earnings and margins decreased primarily due to the sales declines, which offset the impact of pricing and cost control.
Speaker Change: Note that our transition into the Brownsberg, Indiana distribution facility is essentially complete increasing our ability to service our international PNA customers in a more timely fashion.
Ryan M. Gwillim: The result in the first quarter was growth in product sales in international regions while sales into U.S. channels were slightly down as dealers remained cautious with their inventory levels, which remained normalized during the off-season. Navico Group reported a sales decrease of 24%, driven by reduced sales to marine OEMs as they moderate orders to control the pipeline of their current model year products, partially offset by strong new product momentum and improved RV sales.
Speaker Change: The result in the first quarter was growth in product sales in international regions, while sales into U S channels were slightly down as dealers remain cautious on their inventory levels, which remain normalized during the off season.
Speaker Change: Never called group reported a sales decrease of 24% driven by reduced sales to marine Oems as they moderate orders to control the pipeline of their current model year products, partially offset by strong new product momentum and improved RV sales trends.
Ryan M. Gwillim: Segment operating earnings decreased from the impact of lower sales and increased discount activity, which was only partially offset by lower operating earnings. Finally, our boat business delivered sales and earnings in the quarter consistent with expectations, while continuing to ensure healthy pipeline inventory levels as we enter the prime retail selling season. Sales are down 26% versus Q1 2023 due to softer wholesale orders as our channel partners continue to order cautiously ahead of the model year changeover, partially offset by the favorable impact of carryover pricing and share gains. Our premium brands continue to perform well at both wholesale and retail. Adjusted operating earnings were down primarily due to lower sales and lower absorption from reduced production, partially offset by focused cost reduction activity.
Speaker Change: Segment operating earnings decreased from the impact of lower sales and increased discount activity, which was only partially offset by lower operating expenses.
Speaker Change: Finally, our boat business delivered sales and earnings in the quarter consistent with expectations, while continuing to ensure a healthy pipeline inventory levels as we enter the prime retail selling season.
Speaker Change: Sales were down 26% versus Q1 2023 due to softer wholesale orders as our channel partners continue to order cautiously ahead of the model year changeover.
Speaker Change: Partially offset by the favorable impact of carryover pricing and share gains.
Speaker Change: Our premium brands continue to perform well at both wholesale and retail.
Speaker Change: Adjusted operating earnings were down primarily due to the lower sales and lower absorption from the reduced production, partially offset by focused cost reduction activities.
David M. Foulkes: Freedom Boat Club, which is included in Business Acceleration, had another solid quarter, contributing approximately 9% of the boat segment's revenue during the quarter while seeing very steady membership levels despite the macroeconomic uncertainty. Strong performance across our businesses allowed our first quarter performance to match expectations. Despite our year-to-date internal boat retail being flat to 2023, the continued economic uncertainty is resulting in cautious ordering patterns by our channel, making the rate and timing of wholesale acceleration and the balance of peak season wholesale sales between the second and the third quarters more difficult to predict.
Speaker Change: Freedom Boat club, which is included in business acceleration had another solid quarter contributing approximately 90% of the boat segment's revenue during the quarter.
Speaker Change: <unk> seen very steady membership levels, despite the macroeconomic uncertainty.
Speaker Change: Strong performance across our businesses allowed our first quarter performance to match expectations.
Speaker Change: Despite our year to date internal boat retail being flat to 2023.
Speaker Change: The continued economic uncertainty is resulting in cautious ordering patterns by our channel partners, making the rate and timing of wholesale acceleration and the balance of peak season wholesale sales between the second and the third quarters more difficult to predict.
Speaker Change: Despite the challenging conditions, we remain focused on moving forward with our new product plans and growth initiatives.
David M. Foulkes: Despite the challenging conditions, we remain focused on moving forward with our new product plans and growth initiatives and driving resilient EPS and cashflow while continuing to balance production to support retail sales and manage pipelines. As a result, we are not materially changing guidance as we enter the main selling season. Please see the appendix for additional guidance regarding anticipated segment metrics. I will wrap up the financial update by sharing certain updated P&L, cash flow, and other capital strategy assumptions for the full year.
Speaker Change: And driving resilient EPS and cash flow, while continuing to balance production to support retail sales and its pipelines.
Speaker Change: As a result, we are not materially changing guidance as we enter the main selling season. Please.
Speaker Change: Please see the appendix for additional guidance regarding anticipated segment metrics.
Speaker Change: I will wrap up the financial update by sharing certain updated P&L cash flow and other capital strategy assumptions for the full year.
David M. Foulkes: First, we increased their dividend by 5% in February and now anticipate a full-year dividend of $1.68. Next, FX is trending more negative than our initial expectations given the continued strength of the U.S. dollar, and we now anticipate up to a 15 million dollar negative earnings impact due to FX rates. We hope to offset a portion of this impact with a slightly lower effective tax rate of approximately 22%. Lastly, as we continue to see near-term dislocation in our stock price and our cash generation remains strong, we anticipate spending approximately $250 million on share repurchases throughout the year, up $50 million from our initial estimates. I will now pass the call back over to Dave for his concluding remarks.
Speaker Change: First we increased our dividend by 5% in February and now anticipate a full year dividend of $1.68.
Speaker Change: Next FX is trending more negative than our initial expectations given the continued strength in the U S. Dollar and we now anticipate up to a 15 million dollar negative earnings impact due to FX rates.
Speaker Change: We hope to offset a portion of this impact with a slightly lower effective tax rate of approximately 22%.
Speaker Change: Lastly, as we continue to see near term dislocation in our stock price and our cash generation remained strong we anticipate spending approximately $250 million on share repurchases throughout the year.
Speaker Change: $50 million from our initial estimate.
Speaker Change: I will now pass the call back over to Dave for concluding remarks.
David M. Foulkes: Thanks Ryan.
David M. Foulkes: We launched an extraordinary 25 new products across our businesses and brands during the quarter, representing an important contributor to near-term and future growth, and I'd like to highlight just a subset. At the Miami International Boat Show, we introduced some exciting additions to the Flightboard product line. The Flight Air and Flight Air Pro are the most attainable models in the brand portfolio, and their enablers to expand participation to a broader set of consumers, allowing significantly more people to enjoy the flight boarding experience.
David M. Foulkes: We launched an extraordinary 25, new products across our businesses our brands during the quarter, representing an important contributor to near term and future growth.
Speaker Change: To highlight just a subset.
David M. Foulkes: At the Miami International Boat show, we introduced some exciting additions to the flight board product line.
David M. Foulkes: Flight and flight that pro or the most attainable models and the brand portfolio.
David M. Foulkes: They're enablers to expanding participation to a broader set of consumers allow.
David M. Foulkes: Allowing significantly more people to enjoy the flight boarding experience.
David M. Foulkes: Yeah.
David M. Foulkes: Mercury expanded its joystick control technology to a broader set of single-engine boat applications. Its joystick steering for single-engine vessels is compatible with the Mercury Verado family of V8, V10, and V12 outboard engines from 250 to 600 horsepower. Mercury also launched the fourth and fifth models in its expanding Avatar electric outboard product line. The 75E and 110E are the most powerful models introduced to date. We're also very excited about the many new boat models launched across our boat brands, including the new award-winning Boston Wheeler 365 Conquest and Harris 250 Crown, which both debuted at First Quarter Boat Shows and feature Mercury high-horsepower outboard engines and advanced Simrad electronics. We are seeing a very positive response to the recently launched Simrad NSX UltraWide, which is the industry's first full-functionality, high-definition, multifunction display and showcases the seamless interface of the latest Simrad Android operating system.
David M. Foulkes: Mercury expanded its joystick control technology to a broader set of single engine boat applications.
David M. Foulkes: It's joystick steering for single engine vessels is compatible with the Mercury Berardo family of D. A V 10, it would be 12 outboard engines from 250 to 600 horsepower.
David M. Foulkes: Mercury also launch the fourth and fifth models and the expanding abbots all electric outboard product line.
David M. Foulkes: The 75 feet and 110 E. The most powerful models introduced to date.
David M. Foulkes: We're also very excited about the many new boat models launched a cross sell both brands.
David M. Foulkes: Including the New award, winning Boston Whaler, 365 conquest, and Harris to 50 Crown.
David M. Foulkes: Which both debuted at first quarter boat shows.
David M. Foulkes: It's your Mercury high horsepower outboard engine and advanced electronics.
David M. Foulkes: You're seeing a very positive response to the recently launched <unk> NSX ultra wide, which is the industry's first full functionality high definition multifunction display and showcases the seamless interface.
David M. Foulkes: At this time right Android operating system.
David M. Foulkes: In addition, we launched the new Lowrance Eagle, which is the latest offering in the brand's entry-level fishfinder chartplotter lineup and features improved clarity and depth performance through high-definition sonar. And finally, we continue to expand our Boteca certified pre-owned boat business with the opening of the newest Tampa location, which is strategically located near Freedom Boat Club's largest corporate territories in Tampa Bay, in Southwest Florida. Teka's newest location will serve as a facility to accelerate certified pre-owned sales across the Southwest Florida region.
David M. Foulkes: In addition, we launched a new low rents Eagle, which is the latest offering in the brand's entry level. So she find a chart plots of lineup features.
David M. Foulkes: Features improved clarity and depth before months through high definition sonar.
David M. Foulkes: And finally, we continue to expand our boat check a certified pre owned boat business.
David M. Foulkes: With the opening of the newest Tampa location, which is strategically located near freedom boat clubs largest corporate territories in Tampa Bay in southwest, Florida.
David M. Foulkes: With Texas newest location will serve as the facility to accelerate certified pre owned sales across the southwest Florida region.
David M. Foulkes: Before we conclude, I'm thrilled to highlight the exceptional accomplishments of our teams from across the enterprise that were recognized with a record high number of awards in the first quarter. Brunswick was named to Forbes 2024 America's Best Large Employers list for the sixth consecutive year and also named to Newsweek's list of the most trustworthy companies in America for the second consecutive year. Brunswick innovation also continues to be recognized, including with the Consumer Electronics Show Innovation Award for the Mercury Abitur 20E and 35E electric outboard motors.
Speaker Change: Before we conclude I'm thrilled to highlight the exceptional accomplishments of our teams from across the enterprise.
David M. Foulkes: We were recognized with a record high number of awards in the first quarter.
David M. Foulkes: Brunswick was named to Forbes 2020 for America's Best large employers list for the sixth consecutive year.
David M. Foulkes: Also named to Newsweek's list of the most trustworthy companies in America for the second consecutive year.
David M. Foulkes: Brunswick innovation also continues to be recognized.
David M. Foulkes: <unk> with the consumer Electronics show Innovation Award.
David M. Foulkes: Mercury Abbott's or 'twenty E and F 35, the electric outboard motors.
David M. Foulkes: And we received many awards for our products, innovation, customer service, and marketing at early season boat shows, including a record 16 total awards at the Miami Boat Show. Thank you again to all our talented Brunswick employees who make this recognition possible. That's the end of our prepared remarks. We'll now open the line for questions. Thank you.
David M. Foulkes: And we received many awards for our products innovation customer service and marketing early season boat shows.
David M. Foulkes: Leading a record 16 total awards at the Miami boat show.
David M. Foulkes: Thank you again to all of our talented Brunswick employees, who make this recognition possible.
Speaker Change: That's the end of our prepared remarks, we'll now open the line for questions.
Speaker Change: Thank you.
Operator: We will now be conducting the question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants to study using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Well now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
David M. Foulkes: You mean, if I start to feel like to withdraw your question from the queue.
David M. Foulkes: This isn't a study using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please where we poll for questions. Thank you.
David M. Foulkes: Okay.
David M. Foulkes: Thank you and our first question is from the line of James Hardiman with Citi. Please proceed with your questions.
James Lloyd Hardiman: Hey, good morning. Thanks.
James Lloyd Hardiman: Thanks for taking my questions I wanted to dig in a little bit on the retail.
Operator: One moment, please, while we poll for questions. Thank you. Thank you. And our first question is from the line of James Hardiman with Citi. Please proceed with your question.
James Lloyd Hardiman: Commentary.
James Lloyd Hardiman: Favorite topic, China trying to tease out.
James Lloyd Hardiman: The industry data versus what what do you think is right. So just so unclear your internal internal both data for Brunswick.
James Lloyd Hardiman: You guys are flat.
James Lloyd Hardiman: But you don't think the industry is flat.
James Lloyd Hardiman: Hey, good morning. Thanks for taking my questions. I wanted to dig in a little bit on the retail commentary, you know, favorite topic trying to tease out the industry data versus what you think is right. So just so I'm clear, your internal, the internal boat data for Brunswick suggests that you guys are flat. But you don't think the industry is flat today. That's more a commentary on how you think the industry is going to be for the year. Just wanted to make sure I understood that.
James Lloyd Hardiman: That's more of a commentary on how you think the industry is going to be for the year just want to make sure I understand that maybe I guess, just more broadly I'm sure you're aware your biggest customer.
James Lloyd Hardiman: Guidance for the second straight time today.
James Lloyd Hardiman: And in particular really seem to be surprised by the retail momentum. So far this year. So just trying to connect those two dots you guys seem to think that retail is going very much as planned.
James Lloyd Hardiman: Seem to be surprised by the weakness so help us understand.
Speaker Change: Yeah. Thanks, James Yeah, a couple of things I guess Youre correct, our internal retail.
David M. Foulkes: And I guess just more broadly, as I'm sure you're aware, your biggest customer gave guidance for the second straight time today. And in particular, they seem to be surprised by the retail momentum so far this year. So just trying to connect those two dots. You guys seem to think that retail is going very much as planned, while they seem to be surprised by the weakness. So help us.
Speaker Change: Essentially flat for the year, including in the first couple of weeks of April.
Speaker Change: And you're right. This is often a dislocation at this time of year in particular between Ssi industry data.
Speaker Change: Which I'm sure you saw it was down about 10% in the main powerboat.
David M. Foulkes: Yeah, thanks, James. Yeah, a couple of things, I guess.
James Lloyd Hardiman: Segment versus our internal retail.
David M. Foulkes: You're correct. Our internal retail is essentially flat for the year, including in the first couple of weeks of April. And you're right, there's often a dislocation at this time of year, in particular between SSI industry data, which I'm sure you saw is down about 10% in the main powerboat segment versus our internal retail. SSI suggests that the industry is down 10, and Brunswick down about 5, so we would be dislocated by something like 5% for Brunswick.
James Lloyd Hardiman: Ssi suggests that industry.
James Lloyd Hardiman: Industry is downturn and Brunswick down about five so we would be dislocated by something like 5%.
James Lloyd Hardiman: For Brunswick.
James Lloyd Hardiman: I think the because a couple of things in the first quarter in particular, which is about 15% I think of the total.
Speaker Change: Yeah, we're talking about relatively small numbers with a with a wider spread.
David M. Foulkes: I think the, because of a couple of things, in the first quarter in particular, which is about 15% of the total. Here we're talking about relatively small numbers with a wider spread. And then I think for the first quarter, there's a particular phenomenon where I think SSI registrations, you would think some would leak into the following month of the next quarter, but they would be compensated by leakage from the last month of the prior quarter.
James Lloyd Hardiman: And then I think for the first quarter Theres, a particular phenomena.
James Lloyd Hardiman: I think Ssi registrations.
James Lloyd Hardiman: You would think with some would leak into the following months or the next quarter, but they would be compensated by leakage from the last month of the prior quarter.
James Lloyd Hardiman: But in the first quarter the leakage from.
James Lloyd Hardiman: Q4, 2023 it's very low because the sales are extremely low in the in Q4, So I think that the.
David M. Foulkes: But in the first quarter, the leakage from Q4 2023 is very low because the sales are extremely low in Q4, so I think that the leakage tends to be more out into Q2 and less in into Q1, which is the end of the prior year. So I think that's probably at least part of the phenomenon. Of course, we can't say exactly what, independently, the total industry is doing. We think we are gaining some share, which we noted at about 50 basis points, but I think that's unlikely to fully account for the SSI to Internal Retail Delta, and we expect, as usual, that the gap will close as we go forward.
James Lloyd Hardiman: The leakage tends to be more out into.
James Lloyd Hardiman: Q2 and less in.
James Lloyd Hardiman: Into Q1 versus the end of the prior year. So I think that's probably at least part of the phenomenon.
James Lloyd Hardiman: Of course, we we can't say exactly what independently what the total industry.
James Lloyd Hardiman: We think we are gaining some share.
James Lloyd Hardiman: Which we noted it was about 50 basis points, but the but I think that's unlikely to fully account for the asset side too.
James Lloyd Hardiman: Internal retail Delta and we expect as usual that they will we got will close as we go forward.
James Lloyd Hardiman: Okay.
David M. Foulkes: Got it. And then the point about your biggest retailers is just sort of the disconnect. And I would add, you know, a lot of retailers sound a lot more negative than you guys in the first three, three and a half months of the year. Any thoughts on what feels, at least in the short term?
Speaker Change: Got it and then the point on your biggest retailers, it's just sort of a disconnect.
Speaker Change: You know a lot of retailers sound.
Speaker Change: A lot more negative than you guys on the on the first three three and a half months.
Speaker Change: Here Hany.
Speaker Change: Any thoughts on.
Speaker Change: What feels at least in terms of like a bit of a disconnect.
David M. Foulkes: Yeah, obviously, I can't, you know, speak for them, but I would say that we would probably both agree, I expect we would agree that sales of our product, our premium product lines, which, of course, they're, they're a big part of CRE, to some extent a Harris Pontoon brand, but mainly Ciré and Wehler. I don't know what they said about it, but sales of Ciré and Wehler have been strong, so if there is a weakness,
Hany: Yeah, obviously I can't speak.
Hany: Speak speaks.
Hany: Speak to them, but I would say that.
Hany: We would probably both agree I'd expect we'd agree that sales of our product our premium product lines, which of course, there they're a big part of sea Ray whaler.
Hany: To some extent, a harris pontoon brands, but mainly CRA and whaler I don't know what they said about it but I know with sales of sea Ray and where they have been strong.
Hany: So if there is a weakness.
David M. Foulkes: In other parts, I don't know exactly what those parts are and how I might account for them. I would tell you it's very clear that CRE and Weyler had a good Q1, as reflected in sales at Miami, for example, and Dusseldorf that we published.
Hany: The other parts.
Hany: I don't know exactly what those parts are and how long might account for it I would tell you, it's very clear that sea Ray and whaler had a good.
Hany: Q1.
Hany: As reflected in sales at Miami for example, in just the stuff that we published.
Speaker Change: Got it and if I could just sneak in one more.
James Lloyd Hardiman: Got it. And if I could just sneak in one more,
David M. Foulkes: Next month, six weeks are going to be critical. What are you looking at most closely? I feel like us as analysts, we become sort of weathermen this time of year. And for you guys in particular, giving you a business, the weather seems like it's critical, but maybe, you know, walk us through what you need to see or don't want to see in the context of your ability to hit the full year.
Speaker Change: Well six weeks are going to be critical what are you looking at most closely.
Speaker Change: I feel like us as analysts may become sort of weather. This time of year and for you guys in particular, giving you any business.
Speaker Change: Whether it seems like it's critical but maybe you know what.
Speaker Change: Cut through what you need to see or don't.
Hany: What I see in the context of your ability to hit the full year.
Speaker Change: Well I mean, what does that but I don't think it's one of the major factors were looking at unless there's some you know extreme situations.
David M. Foulkes: Well, I mean, weather's there, but I don't think it's one of the major factors we're looking at unless there's some, you know, extreme situation that's unanticipated. We'll be looking internally at order rates, which will be, for example, Mercury and Navico Group, which will be driven by production rates at mainly our OEM customers. To some extent, we'll be looking at order rates from retailers for P&A and other things. Right now, I think the industry overall has a pretty healthy proportion of current model product. I think about 75% of product in inventories is current model year versus the prior model year, which is pretty decent.
Speaker Change: Situations.
Hany: Anticipated, we will be looking at certainly our order rates.
Hany: Which will be.
Hany: So for example, Mercury and NAPCO group, which would be driven by production rates.
Hany: Finally, our OEM customers to some extent will be looking at order rates from retailers, the PNA and other things including for fanatical.
Speaker Change: Not really.
Speaker Change: I think as we go into the model yet right.
Speaker Change: Right now I think the industry overall is pretty healthy proportion of current module product tape outs I think about 75% of.
Speaker Change: Product and inventories as current multi year versus the prior model year, which is pretty decent.
David M. Foulkes: But as you approach June 1st and the model year changeover, obviously, this is a period where they'll be, you know, relatively trying to minimize additional current model year product. When we cross into June, we would hope and expect to see an acceleration, because they'll have to live with 25-month-a-year product for the next year, obviously. Um... in a very promotional environment, a more promotional environment, as we see at the moment. Obviously, the penalty of carrying a prior model year product is higher than it would be in a less promotional environment because they're adding discounts to clear I model your product once they go into June and beyond.
Hany: As you as you approach during the first and the model year changeover.
Hany: This is a period where there'll be.
Hany: Relatively kind of minimize additional current model year product when.
Hany: When we cross into June.
Speaker Change: We would.
Hany: I hope and expect to see an acceleration.
Hany: Because they will have to live with 25 multiyear product for next year obviously.
Hany:
Hany: In a very promotional environment promotional environment as.
Hany: As we see at the moment.
Hany: Obviously the penalty of carrying <unk>.
Hany: Model year product is higher than it would be.
Hany: In a less promotional environment, because theyre, adding discounts to clear right.
Hany: My mother your product once they go into June and beyond So we would ask that we referred to this issue of trying to understand exactly when the point of inflection as is going to be we would expect it to be a little bit more abrupt. This year may be done in the past few years, just because of the promotional environment really penalizes people for holding.
David M. Foulkes: So, you know, we would expect, we refer to this issue of trying to understand exactly when the point of inflection is going to be, we would expect it to be a little bit more abrupt this year, maybe than in the past few years, just because the promotional environment really penalizes people for holding prior model years, current model year versus Accelerating with new, but we'll be looking back to ask. We'll be looking at order rates from, Oh, we had customers primarily.
Hany: Probably model your current model year versus.
Hany: Accelerating with new but we'll be looking back to your question, we will be looking at order rates from what.
Hany: Well, we have customers primarily.
Speaker Change: That's really good color. Thanks, and good luck through these next few weeks and months. Thanks, Dave. Thank you very much James.
James Lloyd Hardiman: That's really nice color. Thanks and good luck these next few weeks and months. Thanks, David.
Speaker Change: Okay.
Operator: The next question is from the line of Scott Stember with WSAM-KM. Please submit your questions.
Scott Lewis Stember: The next question is from the line of Scott's timber with Whatsapp can please proceed with your questions.
Scott Lewis Stember: Good morning and thanks for taking my question. You're welcome. Have you seen any change on the credit side, whether it's the credit worthiness of customers coming in? And have you seen any tightening on the retail side from a credit perspective?
Scott Lewis Stember: Good morning, and thanks for taking my questions.
Scott: Youre welcome Scott.
Scott: Have you seen any change on the credit side, whether it's our the credit worthiness of customers coming in.
Scott: And have you seen any tightening at the retail side on a credit perspective.
Speaker Change: We have seen.
David M. Foulkes: We have seen, um... People with high credit scores coming back into the market with financing a bit more than we saw in recent periods, I would say. So I would say, yeah, people with good credit scores are coming back and financing a little bit more than they were in prior periods, credit tightening. I don't think there's any particular tightening at the moment. We're in a relatively stable period, I would say, and have been for the last probably six months, in terms of rates and [inaudible] Credit Score Requirements
Speaker Change: People with high credit scores coming back into the market with financing a bit more than we saw in recent periods I would say.
Speaker Change: So I would say people with good credit scores are.
Speaker Change: Coming back and financing a little bit more than they were in prior periods.
Speaker Change: Credit tightening I don't think there's any particular tightening at the moment, we're in a relatively stable period I would say and have been for the last probably six months I would say in terms of rates and.
Speaker Change: And.
Speaker Change: Credit score requirements.
Speaker Change: Got it and then over to on the parts side.
Scott Lewis Stember: Got it. And then over on the parts side, looks like sell-in was down 3%. Looks like the RV side is picking back up a little bit. But could you maybe talk about what you're seeing at POS, actual retail demand, what's being pulled through?
Speaker Change: It looks like sell in was down 3%.
Speaker Change: Looks like the RV side is picking back up a little bit but could you maybe talk about what youre seeing at P. O S. Actual retail demand what's being pulled through.
David M. Foulkes: Um, yeah, I think the retail demand is still pretty solid. Our products business was down a little bit by 3%.
Speaker Change: Both.
Speaker Change: Yeah, I think that the retail demand is still pretty solid.
Speaker Change: Products business was down a little bit about 3%, but it's.
David M. Foulkes: But, you know, it's close to flat, but it's probably going to be probably, I think what we're seeing in the P&A distribution business is a bit of a reflection of what we're seeing in all of our retail channels, which is people know the product is available. And so they're not inclined to build as much inventory at the moment. Obviously, they're watching their own balance sheets. So I just think that we're seeing the effect of ready availability on people's willingness to buy at the moment. I don't think there's probably anything more to it than that.
Speaker Change: Close to flat because it's going to be probably I think what we're seeing really on.
Speaker Change: On the distribution business is a bit of reflection of what we're seeing in all of our retail channels, which is people know the product is available.
Speaker Change: And so they're not inclined to to build as much inventory at the moment, obviously, they're watching their own.
Speaker Change: Balance sheets, so I, just think that where we're seeing the effect of.
Speaker Change: <unk> C O M P.
Speaker Change: People's willingness to stock at the moment I don't think there's anything probably more to it than that no. They do anything I would point out also as our Brownsberg, Indiana facility is running at almost 100% capacity, it's up and running and we have put behind us the kind of startup periods and that efficiency is.
David M. Foulkes: No, the only thing I would point out also is that our Brownsburg, Indiana facility is running at almost 100% capacity. It's up and running, and we have put behind us the kind of startup periods, and that efficiency is allowing us to serve all of our customers a little bit better, but certainly, our international customers are able to get product quicker. Inventory levels in the channel seem to be quite normal, and so we would anticipate, given we're laughing at periods of a little bit slower time compared to the end of last year, that the next three quarters for P&A should be growth.
Speaker Change: Growing us to service all of our customers a little bit better, but certainly our international customers are able to get product quicker.
Speaker Change: Inventory levels in the channel seem to be quite normal and so we would have anticipated given we're lapping periods of.
Speaker Change: I'm, a little bit slower times of the end of last year that the next three quarters for <unk> should be should be growth quarters.
Scott Lewis Stember: Got it. And just one quick last question, David, you talked about, I guess, model year changeovers. Can you maybe talk about the timing here? Obviously, when you have a lot of, maybe not you, but your competitors have 24 models in the pipeline, it kind of What are you looking at from a timing perspective and maybe from a pricing perspective?
Speaker Change: Got it and just one quick last question, David you talked about I guess model year Changeovers can you maybe talk about that.
Speaker Change: The timing here, obviously when you have a lot of maybe not you, but your competitors up 24 models in the pipeline.
Speaker Change: Slows things down a little bit what are you looking at it from a timing perspective, and maybe from a pricing perspective.
Speaker Change: Yeah.
Speaker Change: Yeah, I think the you mean the model year changeover period.
David M. Foulkes: Um, yeah, I think the, I mean, the model year changeover period can't be... We can't legally, if you like, or based on regulations, introduce the new model year into commerce before the 1st of June. But often, it's somewhere between the 1st of June and maybe into the end of July, depending on what the kind of prevailing environment is. [inaudible] The penalty of additional discounts for prior model year products at the moment, we'd expect most of our customers, and certainly we will be introducing new model year products on the earlier side of that, mainly in the first part of June.
Speaker Change: It can't be.
Speaker Change: We can't legally if you like Oh based on regulations do.
Speaker Change: G model year into Congress before the first of June.
Speaker Change: But also in its somewhere between the first of June and maybe into the end of July depending on what the kind of prevailing environment is.
Speaker Change: But given.
Speaker Change: I don't see a traditional discount still primarily a product at the moment, we would expect.
Speaker Change: Most of our customers and certainly we will be introducing new multiyear product on the earlier side of that.
Speaker Change: Mainly in the first part of June.
David M. Foulkes: So, you know, we're now running in a period where it's just six weeks mainly to the Mollier changeover. So we would expect people to be cautious about building on the tree in this period, and that's exactly what we're seeing. Sorry, what was the last part of your question, Scott? I missed it.
Speaker Change: So.
Speaker Change: Now running in a period, where it's just six weeks mainly to the model year changeover. So we would expect people to be cautious about building inventory in this period and that's exactly what we are seeing.
Speaker Change: Sorry, what was it is not part of your question Scott I missed it I'm, sorry, Yeah, and just general thoughts on pricing.
Scott Lewis Stember: Yeah, and just on general thoughts on price.
David M. Foulkes: Our pricing, yeah, our pricing will be very modest this year, and we'd expect that across the industry.
Speaker Change: Oh pricing, our pricing will be very modest this year and we'd expect that across the industry.
Scott Lewis Stember: Got it. All right. Thanks, guys. That's all I have.
Speaker Change: Got it alright, thanks, guys. That's all I have.
Speaker Change: Thank you.
Operator: The next question is from the line of Megan Alexander with Morgan Stanley. Please proceed with your question.
Speaker Change: The next question is from the line of Megan Alexander with Morgan Stanley. Please proceed with your questions.
Megan Christine Alexander: Yeah, thanks very much. Thanks for taking our question. Maybe just a quick follow-up on some of the questions that have been asked. In the slides and the prepared remarks, I think you talked about doing some more targeted discounts and promotions, I think mainly on higher floor plan support at this point. So a two part question, I guess, you know, is this just being absorbed somewhere else in the P&L at this point, given you didn't really change the guide around it?
Megan Christine Alexander: Yeah. Thanks, very much thanks for taking our question maybe just a quick follow up on some of the questions that have been asked in the slides and the prepared remarks, I think you talked about getting some more targeted discounts and promotions I think mainly mostly on higher floorplan support at this point. So two part question I guess.
Megan Christine Alexander: Is this just being absorbed somewhere else in the P&L at this point given you didn't really change the guide around it and then second point is you know given you cant really time reflection of one retailer or is it going to start to order. The 20 fives I guess why not be more aggressive or maybe you are with supporting.
Megan Christine Alexander: And then the second point is, you know, given you can't really time the inflection of when retailers at themes start to order the 25s, I guess, why not be more aggressive? Or maybe you are with supporting dealers in terms of promotions that retailers and pushing through these prior year models? Or is it, you know, to Scott's question earlier, more a question of the competition at this point?
Megan Christine Alexander: Dealers in terms of promotions at retail.
Megan Christine Alexander: These prior models or is it you know to Scott's question earlier more more a question of the competition at this point.
Speaker Change: Yeah, So we definitely I would say.
David M. Foulkes: Um yeah, so we definitely, I would say your discounting is Ow. Really, when we say increased discounting, we're talking about versus prior year primarily, as opposed to versus plan. The discount rates are pretty much as planned, but in terms of targeting, yeah, we certainly do support a kind of prior model year, moving prior model year product in collaboration with our retail partners, but the other parts of targeting are really around the model lines and segments that we target.
Speaker Change: Discounting is.
Speaker Change:
Speaker Change: Really when we say increased discounts we were talking about versus prior year, primarily as opposed to business plan.
Speaker Change: Discount rates are pretty much as planned but in terms of target, saying, yeah. We certainly do support that kind of prior model year.
Speaker Change: Moving probably monthly product in collaboration with our retail partners, but the other parts of targeting are really around.
Speaker Change: Model lines and segments that we target.
David M. Foulkes: Our premium product lines are not requiring a lot of Discounting and Promotional Support. At the moment, it's not zero, but it's not particularly high versus some of the value product lines and fiberglass and some of the less expensive. The less expensive, I guess, more value-orientated parts of our aluminum product line that require more support. Even kind of some of the pontoon.
Speaker Change: Our premium.
Speaker Change: Private lines and not requiring a lot of.
Speaker Change: Discounting and promotional support.
Speaker Change: At the moment, it's not zero, but it's not particularly high versus some of the value product lines and fiberglass and some of the less.
Speaker Change:
Speaker Change: The less expensive I guess more value orientated parts about aluminum product line that require more support.
Speaker Change: Even the kind of some of the pontoon.
David M. Foulkes: Product lines require more support, so it's really about which product lines and segments require support. The other thing that we're cognizant of, obviously, is some of our models will be significantly changed at the model year, some less significantly changed at the model year. So the ones that are being significantly changed, obviously, we would add more promotional support to move out the prior model year product. So those are more the kind of targeting things that we're talking about. I think broadly. The discounting promotion is not different from the plan, just higher than priority.
Speaker Change: Product lines require more support so, it's really about which product lines and segments.
Speaker Change: My support.
Speaker Change: Other thing that we're cognizant, obviously as some of our models will be.
Speaker Change: Significantly changed at multiyear some less significantly changed Somalia. So the ones that are being significantly changed obviously, we would.
Speaker Change:
Speaker Change: Add more promotional support to to move out the prior model year product. So those are more of a kind of targeting things that weren't.
Speaker Change: We're talking about I think broadly.
Speaker Change: Discounting and promotion is not different to plan just higher than prior year.
Speaker Change: Okay.
Megan Christine Alexander: I understand. Thank you. That's helpful. And maybe just one quick follow-up, you know, FX, an incremental headwind, you know, nice to see that you think you'll be able to offset it with the tax rate and good to see the higher share repo. But, you know, just given what's gone on with the Fed and the uncertainty, understanding it's early in the year, you know, was there any thought to lowering the full-year guide? Or maybe you can give us some context around how you thought about that.
Speaker Change: Understood. Thank you that's helpful and maybe just one quick follow up you know FX is an incremental headwind you know nice to see that you think you'll be able to offset it with tax rate and good to see the higher share repo, but you know just given what's gone on with the fed and the uncertainty understanding. It's early in the year was was there any thought.
Speaker Change: To lowering the full year guide or.
Speaker Change: Maybe you can give us some context around how you thought about that.
David M. Foulkes: No, not really. I think when we gave ourselves some space in the guide at the beginning of the year, I think, you know, $7 to $8 is a pretty decent amount of space. If we thought that it was under threat, obviously, we would have considered it, but we don't think it is at the moment. Yeah, certainly, there are some ups and downs, and I'm very pleased that we were able to cover, even in Q1, the FX headwind.
Speaker Change: No not really I think when we gave ourselves some space in the guide at the beginning of the year I think the seven to $8 is pretty decent amount of space that we thought that was under threat. Obviously, we would have considered it but we don't think it is at the moment, yes, certainly there are some ups and downs and I'm very pleased that we were able to cover.
Speaker Change: Even in Q1 that the FX headwind.
Speaker Change: Headwind.
David M. Foulkes: I think it's obviously, given the market today, particularly, it's good to be in the market with more share repurchases. We're obviously biasing to the first half of the year on that. So no, no, no consideration of changing guidance.
Speaker Change: It's obviously given the market stay, particularly it's good to be in the market with more share repurchases, obviously by biasing to the first half of the year.
Speaker Change: On that so.
Speaker Change: No no no consideration of changing guide at the moment.
Speaker Change: Okay, great. Thank you so much.
Megan Christine Alexander: Okay, great. Thank you so much.
Speaker Change: Our next question is from the line of Craig Kennison with Baird. Please proceed with your question.
Operator: Our next question is from the line of Craig Kennison with Baird. Please proceed with your question. Yeah, thanks. She just asked my first question, so maybe I'll just pivot. Dave, you mentioned the Atlantic speed limit proposal, which has gotten a lot more attention.
Craig R. Kennison: Yes, Thanks, Josh you've just asked my first question. So maybe I'll just pivot Dave you mentioned the Atlantic speed limit proposal, which has gotten a lot more attention lately among the analyst community, but you also mentioned I think a possible technology based solution that might supplant a regulatory.
Speaker Change: Based solution just I'm wondering you know do you have inventory innovation in the pipeline.
Craig R. Kennison: Our next question is from the line of Craig Kennison with Baird. Yeah, thanks. I should just have...
Speaker Change: And could that be part of the solution and do you think regulators might listen if you have that that sort of pitch to our offer.
Speaker Change: Yeah.
David M. Foulkes: Yeah, we think we've been very active in promoting existing and potential near future technological solutions. The proposed rule is really a huge overreach and completely ineffective way of approaching this. I think that it's basically a placebo, but it is what it is.
Speaker Change: Yeah, we I think we've been very active in promoting existing and potential near future technological solutions.
Speaker Change: Solutions.
Speaker Change: The proposed rule is really a huge overreach and completely been effective.
Speaker Change: <unk> way of approaching this.
Speaker Change: I think that it's basically a placebo.
Speaker Change: But.
Speaker Change: It is what it is.
David M. Foulkes: So I think, first of all, there's negligible evidence of a lot of poets 35 feet and above contributing to whale deaths in any significant numbers. We could trace one whale with an ID. So this is really, you know, it's complete overreach. If you really wanted to try and address this, then we have to combine boats and infrastructure, for example, with AIS systems or tracking or sonar or vision systems.
Speaker Change:
Speaker Change: So I think the first of all there's negligible evidence of a whole lot of posts.
Speaker Change: 35 feet and above.
Speaker Change: Contributing to Oh, well deaths and any any significant numbers, we could trace one.
Speaker Change: In the last 20 years.
Speaker Change: So of a whale with an IV. So this is really a.
Speaker Change: It's complete overreach, if if you really wanted to try and address this.
Speaker Change: Then we used the combined votes and infrastructure for example, with AI systems for tracking or sonar oral vision systems. There are a lot of ways to do this much.
David M. Foulkes: There are a lot of ways to do this in a much more effective way than is currently being proposed. Concerning the rule, we don't exactly know what the rule is. We know what some of the kind of drafts were.
Speaker Change: Much more effective way than is currently being proposed.
Speaker Change: Concerning the rule, we don't exactly know what the rule is we know what some of the kind of drafts.
Speaker Change: But it's we don't see it until it gets published if it gets published.
David M. Foulkes: But we won't see it until it gets published, if it gets published. And I would say the impacts are somewhat difficult to project. I think one of the analysts did an analysis based on 60,000 boats affected with a life of 20 years, which gives you a replacement of 3,000 boats, and then with our market share. But there are a couple of factors to consider here. One is that the proposed rule that we saw has the limits effective in the off-season, from November through April, which is mainly off-season football in that part of the market.
Speaker Change: And I would say the the impacts are somewhat difficult to project.
Speaker Change: I think one one of our one of the analysts data analysis based on 60000 boats affected with it.
Speaker Change: Life of 20 years, which gives you a replacement of 3000 boats and then without market share, but the there are a couple of factors to consider here one is that the.
Speaker Change: Proposed rule that we saw has the limits effective in the off season basically from November through April, which is mainly off season for boats.
Speaker Change: That part of the market.
David M. Foulkes: And the assumption would be that somebody with, say, a 37-foot boat wouldn't replace it with a 34-foot boat. So I think it's really difficult to project how this kind of plays out. But we're concerned about it, really because of the precedent it might set as opposed to the necessarily specifics of this particular implementation. It's just a huge overreach.
Speaker Change: And the assumption would be that somebody would say 37 foot boat wouldn't replace it with a very full for both so I think that it's really difficult to project. How this kind of plays out but it's.
Speaker Change: We're concerned about it.
Speaker Change: Really because of the.
Speaker Change: The precedent it might set as opposed to the.
Speaker Change: Necessarily specifics of this particular implementation, it's just a huge overreach.
Speaker Change: That's helpful. Thanks, David.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Mike Swartz with true Securities. Please proceed with your question.
Operator: Our next question is from the line of Mike Swartz with Truist Securities. Please proceed with your question.
Michael Arlington Swartz: Hey, good morning, guys. First question: I may have missed it, but did you say what global weeks on hand or pipelines were at the end of the quarter, and then, as it pertains to the four-year guidance, what are you assuming are either weeks on hand or pipelines by the end?
Michael Arlington Swartz: Hey, good morning, guys.
Michael Arlington Swartz: First question I may have missed it but did you say what global other weeks on hand are pipelines were at the end of the quarter and then just as it pertains to the full year guidance. What are you assuming or either a weeks on hand are pipelines by the end of the calendar year.
Michael Arlington Swartz: Yeah.
David M. Foulkes: I think we somehow have the end of the calendar year in the 37-ish range. Yeah, about 37. Yeah, down a couple of weeks from the end of the year.
Michael Arlington Swartz: We've somehow at the end of calendar and the 37 ish range.
Michael Arlington Swartz: He sat down a couple of weeks ended the year.
Michael Arlington Swartz: Okay, so I'll be 37 by the end of the year.
Michael Arlington Swartz: So 37 by the end of the year.
David M. Foulkes: Yes, that's right. It's 36 right now, and we expect about 37 by the end of the year. That is what we are planning our production around, I would say, maybe more correctly.
Speaker Change: Yes, that's right, it's really fixed right now and we expect about 37 by the end of the year.
Speaker Change: Okay that is all of.
Speaker Change: That is what we are planning our production around I would say more maybe more correctly at the moment.
Michael Arlington Swartz: Gotcha. And then just a second question, we get a lot of feedback on this from people in the industry, but I guess, what are you doing to address affordability? I mean, I would assume there are things you can do around pricing, things you can do around content, but maybe at a high level, you know, what things are you addressing through affordability, maybe with your model, your 25 product line?
Speaker Change: Got you and then just second question, we get a lot of feedback on on this from people in the in the industry, but I guess, what what are you doing to address affordability I mean, I would assume there's things you can do around pricing things you can do around content, but maybe at a high level. You know what things are you are you addressing three or four.
Speaker Change: The ability maybe with your model year 'twenty five product line.
Speaker Change: Yes, certainly I mean I think the.
David M. Foulkes: Yeah, certainly. I mean, when you're thinking about making a vote affordable, there's lots we can influence in terms of base content. So, to adjust base content, we might do, I think, a couple of things. One is that we offer, versus pretty much everybody else, the broadest possible product line. We have boats, as we've said, that sell for $1,000, and boats sell for more than a million dollars. So there are lots of ways to enter the market with us as it is.
Speaker Change: When you're thinking about making about affordable there's lots we can influence in terms of.
Speaker Change: <unk> content.
Speaker Change: So.
Speaker Change: We might adjust based content.
Speaker Change:
Speaker Change: I think a couple of things one is we offer versus pretty much everybody else. The broadest possible product line, we have boats as we said that sell for $2000.
Speaker Change: And boats to sell for more than a million dollars. So there are lots of.
Speaker Change: Ways to enter the market with us as it is.
David M. Foulkes: We can certainly..., control-based content so that we make sure that we offer maybe a rung on the ladder that wasn't typically available. But there are broader considerations about resale value and other things that consumers are very aware of. You certainly, there's certainly some boats that you just don't want to decontent. This is very similar to a car.
Speaker Change: We can certainly.
Speaker Change: Controlled based content, so that we make sure that we offer maybe a wrong on the latter there wasn't typically available, but there are broader considerations about resale value and other things that consumers are very aware of.
Speaker Change: You certainly theres certainly some boats that you just don't want the content. This is very similar to a car.
Operator: If you want to sell it again after three years and it doesn't have some key piece of content on it, then the resale is going to be lower. And I think people are smart enough to know that they consider resale when they're buying something. So yeah, we have a broad product line. And we'll certainly be adjusting in some cases. Some base content to maybe add a, you know, a rung on the ladder that wasn't there before, but really, the product line does a lot of the heavy lifting for us, I think.
Speaker Change: On a salad again after three years and it doesn't have.
Speaker Change: Some key piece of content on it than the resale is going to be lower and I think people are smart enough to know.
Speaker Change:
Speaker Change: Consider resale when that when they're buying something.
Speaker Change: Yeah, we we have a broad product line that was certainly in some cases be adjusting.
Speaker Change: Some based content, so maybe add a.
Speaker Change: On the latter that wasn't there before but really the product line. There's a lot of the heavy lifting for us I think.
Matthew Robert Boss: Our next question is from the line of Matthew Boss with J.P. Morgan. Please proceed with your question. Okay.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks.
Speaker Change: Our next question is from the line of Matthew Boss with J P. Morgan. Please proceed with your question.
Matthew Robert Boss: Great, thanks. So, Dave, just to follow up on wholesale, could you just elaborate on the visibility that you have in the second quarter relative to the back half wholesale orders, and just maybe how best to think about the drivers behind the OEM caution that you cited today relative to the sequential wholesale improvement that's expected throughout the quarter?
Matthew Robert Boss: Great. Thanks.
Matthew Robert Boss: Dave just to follow up on on wholesale could you just elaborate on the visibility today.
Matthew Robert Boss: In the second quarter relative to the back half wholesale orders in it and just maybe how best to think about the drivers behind the OEM caution that you cited today relative to the sequential wholesale improvement expected throughout the year.
David M. Foulkes: Yeah, well I think that the drivers as I mentioned earlier really.
David M. Foulkes: Yeah, well, I think that the drivers, as I mentioned earlier, really are retailers not wanting to hold more current model year inventory than they really have to to support sales before the changeover, which will, for most people, be in June, because they have to apply typically additional discounting or promotions of some kind to move prior model year product. So as soon as somebody is in the showroom of a dealer in June, and now, you know, they are faced with a 25 model year and a 24 model year.
Matthew Robert Boss: Hum.
Matthew Robert Boss: Retailers not wanting to hold more.
Matthew Robert Boss: Current model year inventory, then they really have to do to support sales before the well the changeover, which will for most people be in juice.
Matthew Robert Boss: Because they have to apply typically additional.
Matthew Robert Boss: Additional discounts and promotions of some kind to move prior multi year product. So as soon as somebody has been the showroom of a dealer in.
Matthew Robert Boss: June and now you know faced with a 25 multi year 24 model yeah.
Matthew Robert Boss:
David M. Foulkes: On the floor, the dealer is typically going to have to apply more promotional activity around the 24 model year. So I think that's what's driving it. I think also there's just general caution at the moment around, you know, how the consumer is going to behave. Is there a difference in behavior versus recent experience?
Matthew Robert Boss: On the on the on the follow up on the floor. The deal is typically going to have to apply more promote.
Matthew Robert Boss: Promotional activity around the 24 months a year. So I think that's what's driving it.
Matthew Robert Boss: I think also there's just general caution at the moment around how the consumer is going to behave as they are at.
David M. Foulkes: France of behavior versus.
Matthew Robert Boss: Recent experience.
Ryan M. Gwillim: I think we, at the moment, we don't have a huge amount of insight into dealer orders in Q3 for our smaller product, particularly for a larger product like the bigger boats, the bigger Harris's, the Whalers, the Sea Rays. The orders are much more visible to us, and it takes a long time to build one of those boats anyway, so if you want it in June, all of us in Q3, you're already ordering it essentially, and we know that, you know, Q3 orders are already strong for those brands. So it really depends. The visibility we have is less for value products and more for premium products.
Matthew Robert Boss: I think we are at the moment we.
Speaker Change: We don't have a huge amount of insight.
Ryan M. Gwillim: Into dealer orders in.
Speaker Change: In Q3 for a smaller product, particularly.
Speaker Change: For our logic product like the premium like the bigger the bigger boats the bigger harrises the whaler as the sea rays.
Speaker Change: Orders are much more visible to us and it takes a long time to build one of those boats anyway. So if you want it in in June.
Ryan M. Gwillim: Obviously in Q3.
Speaker Change: Your.
Speaker Change: Marty ordering and essentially and we know that you know Q3 orders.
Matthew Robert Boss: Our already strong for those brands. So it really depends the visibility we have is less floor value product to multiple premium product I would say.
Matthew Robert Boss: And then maybe Ryan, to follow up, just given the caution on overall first half wholesale orders, could you speak to how you're managing costs in the expense base to offset the related absorption headwinds? Yeah.
Speaker Change: Great and then maybe Brian to follow up just given the caution on an overall first half wholesale orders could you speak to how you're managing costs and the expense base to offset the related absorption headwind.
Brian: Yeah, obviously, you know our first quarter kind of speaks for itself right. We took $11 million of opex out versus the same quarter last year.
Ryan M. Gwillim: Yeah, obviously, you know, our first quarter kind of speaks for itself, right? We took 11 million out of OPEX versus the same quarter last year, and all of our business units played a part, wasn't just one unit or corporate. So we have cost programs throughout the entire company to watch manageable costs, so things like spending on travel and things like that, but also making sure that we're keeping our gross margins as strong as possible, right? It's a two-part story.
Brian: And all of our business units played apart wasn't just one unit or incorporate so we have cost programs throughout the entire company both.
Brian: To watch manageable costs, so things like spending on travel in.
Matthew Robert Boss: And things like that but also making sure that we're keeping our gross margins as strong as possible right.
Matthew Robert Boss: It's two part story you can only take out so much opex at a time, but if you keep your gross margins stronger.
Ryan M. Gwillim: You can only take out so much OPEX at a time, but if you keep your gross margins stronger, that obviously plays a big role over time, and we've shown the resoluteness of those margins here over the last several quarters. So we will continue to be very mindful of cost as we progress, but obviously, as new models come out with the model year and other new products come out where product margins continue to grow, that will help the gross margin line as well. So all of that is kind of ingrained in everything we do today.
Matthew Robert Boss: Obviously plays a big role over time, and we've been we've shown the resolute this of of those margins here over the last several quarters. So we will continue to be very mindful of cost as we progress.
Matthew Robert Boss: But obviously as new models come out with tomorrow here in other new products come out where product margins continue to grow that will help the gross margin line as well. So all of that is kind of ingrained in everything we do today.
Operator: Our next question is from the line of Fred Wightman with Wolf Research. Please proceed with your question.
Speaker Change: Great Best of luck.
Speaker Change: Our next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Frederick Charles Wightman: Hey guys, I'm hoping we could just put some of the retail and wholesale discussions about the first half and the back half in the context of the 2Q guide that you put out there. So on earnings specifically, it looks like that's a little bit below the street. And you've talked about some of the difficulties predicting.
Frederick Charles Wightman: Hey, guys I'm, hoping we could just put some of the retail and wholesale discussions about the first half in the back half in the context with the <unk> guide that you put out there. So on the earnings specifically it looks like that's a little bit below the street.
Frederick Charles Wightman: You've talked about some of the difficulty is predicting.
Frederick Charles Wightman: OEM build schedules. So if we look at that 2Q number today, is that sort of where you thought it would be at the start of the year? Are you assuming a little bit more back half waiting, just given the fact that it sounds like people are holding off until Model Year 25 starts to hit? How should we think about the cadence, I guess, versus where it was three months ago?
Speaker Change: OEM build schedules. So if we look at that <unk> number today is that sort of where you thought it would be at the start of the year are you assuming a little bit more back half weighting just given the fact that it sounds like people are holding off until model year 'twenty five start to hit Hum.
Speaker Change: How should we think about the cadence I guess versus where it was three months ago.
Ryan M. Gwillim: Q2 is maybe a touch lower, but if you look at the first half of the year and think, we basically hit Q1, I think the street consensus for Q2 was like 203, and the middle of our guidance range is 195, so in the fall of the first half, we're definitely at 8 cents. So it's really not a big delta here, but yes, for some of the factors that I just mentioned, I think we wanted to put a range in there that is achievable under a range of potential scenarios. So that's what we were considering, Brian.
Speaker Change: You can see is maybe a touch lower but if you look at the first half of the year and.
Speaker Change: When you think we basically hit Q1, I think the street consensus would keep C was like two or three in the middle of our guidance range is 195, so in the pull of the first half where it makes sense definitely.
Speaker Change: So it's really not a big.
Speaker Change: Delta here, but yes for some of the factors that I just mentioned I think we wanted to put it we always want to put a range in there that is achievable.
Speaker Change: Hum.
Speaker Change: In a in a range of potential scenarios. So that's what we were considering Brian yes, most of that expense can be derived from FX.
Ryan M. Gwillim: Those are the eight cents that could be derived from FX. I mean, that is obviously playing a little bit bigger of a role.
Ryan M. Gwillim: That is obviously, playing a little bit bigger of a role.
Ryan M. Gwillim: And just, we did have a comment earlier about tax rate versus FX. The FX impact is more negative than the tax rate goodness is positive. So tax rate can play a little bit of a role, but in and of itself won't get all the way there to cover FX if it continues to be as strong of a dollar as it has been, you know, the first 15.
Brian: And just do we get to a comment earlier about tax rate versus FX. The FX impact is more negative than the tax rate goodness is positive so tax rate can play a little bit of a robot in and of itself won't get all the way there in a tougher FX if it continues to be.
Ryan M. Gwillim: Strong I'm a dollar asset has been you know the first 15 weeks.
David M. Foulkes: I think maybe one other consideration here is obviously the back half of 23, that was a tough half, but the fourth quarter, particularly when we were de-stocking heavily in the face of reduced orders from OEMs, provides us with better confidentiality.
Speaker Change: That makes sense I think one of the.
Speaker Change: Well, maybe one other consideration here is obviously in the back half of 'twenty three that was tough.
David M. Foulkes: Yes.
Speaker Change: Fourth quarter, particularly when we with Destocking heavily in the face of <unk>.
Speaker Change: Reduced orders from Oems provides us with a better competition.
Frederick Charles Wightman: That's fair. And if we just shift to freedom. Is there, you know, we've covered this sort of Nubo retail environment in a handful of ways so far on this call, but if you think about freedom, it doesn't sound like you're seeing any signs of churn or unusual cancellations. Is there anything that you can just sort of share as far as stickiness or maybe how that could potentially be an offset to some of these people who are delaying or deferring purchases near term?
Speaker Change: That's fair and if we just shift to freedom.
Speaker Change: Is there either.
Frederick Charles Wightman: We've covered this sort of new boat retail environment.
Speaker Change: Handful away so far this call, but if you think about freedom.
Speaker Change: It doesn't sound like you're seeing any signs of churn or or.
Speaker Change: Unusual cancellations is there anything that you can just sort of share as far as stickiness or maybe how that could potentially be an offset to some of these people who are delaying or deferring purchases them.
David M. Foulkes: Yeah, I...
David M. Foulkes: Yeah, I don't know about the very last part about the, could be, I suppose, an offset. That's definitely possible.
Speaker Change: Near term.
Frederick Charles Wightman: Yeah.
Speaker Change: I don't know about the very last part about the could be I suppose an offset.
Speaker Change: Definitely possible churn is still in that 10% range, which is where it's.
David M. Foulkes: Churn is still in that kind of 10% range, which is where it's been and in recent history. I would say obviously freedom continues to benefit from not having been subject to the cumulative inflation impact that both certainly have from a purchase perspective and also not really subject to the higher rate interest rate environment because nobody, as far as we know, a few people are kind of financing their entry fee. So we think it's overall just a bit more kind of immune to the broader macroeconomic stuff that's impacting durable goods purchases.
Speaker Change: It's been in recent.
Speaker Change: History, I would say, obviously freedom continues to benefit from not having been subject to.
Speaker Change: The.
Speaker Change: Cumulative inflation impact that.
Speaker Change: Folks certainly have from a purchase perspective, and also not really subject to the higher rate interest rate environment.
Speaker Change: Cause nobody as far as window, a few people are kind of financing that entry fee.
Speaker Change: So it's we think it's overall just a bit more of that.
Speaker Change: <unk> immune to the broader macro economic stuff, that's impacting durable goods purchases.
David M. Foulkes: Freedom continues to expand, and we were very pleased to see increases in kind of year-over-year same club sales. That's very satisfying, so yeah, the model is working very well and certainly helps our boat business by pulling in additional units.
Speaker Change: Freedom continues to expand.
Speaker Change: And we were very pleased to see increases in.
Speaker Change: Kind of year over year same club sales.
Speaker Change: That's very satisfying.
Speaker Change: Yes, the model is working very well.
Speaker Change: And certainly helps our boat business pulling through additional units.
Operator: The next question is from the line of Jaime Katz with Morningstar. Please proceed with your questions.
Speaker Change: Thanks, a lot.
Speaker Change: Yeah.
Speaker Change: The next question is from the line of Jamie Katz with Morningstar. Please proceed with your questions.
Jaime M. Katz: Hi, thanks for taking my question. I want to focus on Freedom Boat Club. I think the statement on the call was that same-same store sales or whatever metric was used was that mid-single digits, and I'm curious if there's been a shift that you've seen from what would traditionally be buyers to maybe members in the club, and whether there's any way to discern that, and then after that, is FBC still sort of slated to run at that mid-single-digit Thank you.
Jaime M. Katz: Hi, Thanks for taking my question and I wanted to focus on Freedom boat Club I think.
Jaime M. Katz: Statement on the call was that seems same store sales or whatever metric lithia stores that mid single digits and I'm curious if there has been a shift that you've seen from what would traditionally be buyers to maybe members in the quad and whether there's any way to discern that.
Jaime M. Katz: Then after that.
Jaime M. Katz: FCC is still a startup slated to run at that mid single digit rate growth.
Jaime M. Katz: Over at the rest of the year. Thanks.
David M. Foulkes: Yes, thank you. Yeah, we're delighted with the performance of Freedom, not just in the domestic market but also now in the European market, where there's a heavy presence in the Australian market, and you should expect to see it expanding to other regions, other geographies as well since the model seems to be very robust in those areas. I don't know if, but I can tell you we may have the data to track if recent members are kind of trading off buying a boat for going into freedom. I don't have that data, but we could take a look at it to see if there's any particular trend in that regard. I will go back to...
Speaker Change: Yes. Thank you yeah, we're delighted with the performance of freedom not just in the domestic market, but also now in <unk>.
Speaker Change: European market, where there's a heavy presence in the Australian market and you should expect to see us expanding to other.
Ryan Gwillim: Region other geographies as well since the model seems to be very robust.
Speaker Change: In those areas.
Speaker Change: I don't know.
Speaker Change: I can tell you we we may have the data to track its recent members.
Speaker Change: Kind of trading off buying a boat going into freedom I don't have that data, but we could take a look at it to see if there's any particular trend in that regard.
David M. Foulkes: I go back to.
David M. Foulkes: The original data that we got when we were contemplating the acquisition of Freedom was that very few Freedom members were contemplating buying a new boat. But one of the things that we do benefit from now is that Freedom has a concierge service so that anybody who's in Freedom and wants to buy a new boat is directed to one of our brands. Extremely helpful.
Speaker Change: The original data that we got when we were contemplating the acquisition of freedom and that was the very few freedom members were contemplating buying new boats.
Speaker Change: But one of the things that we do benefit from now is the freedom has a concierge service so that anybody who is in freedom and wants to buy a new boat is directed to one of our brands.
David M. Foulkes: Extremely helpful. Yeah Freedom continues to grow and we anticipate.
David M. Foulkes: Yeah, freedom continues to grow, and we anticipate, uh, yeah, solid growth through the balance of the year. I can't remember the growth rate exactly, but we're anticipating... I don't know, did we publish it? No. Okay. Yeah, we didn't publish a growth rate, but I think, yeah, we expect solid growth through the balance of the year.
Speaker Change: Solid growth of the balance of the I can't remember the growth rates exactly that we're anticipating.
David M. Foulkes: Yeah.
Speaker Change: I don't know do we publish it no.
Speaker Change: Okay, Yeah, we didn't publish growth rate, but I think yeah, we expect the.
Speaker Change: Solid growth through the balance of the year.
Jaime M. Katz: Okay, and then I know this was touched on earlier, but I'm assuming that the flattish market outlook is contingent on some internal look for interest rates, so do you care to share with us what your internal expectations for rate movements are over the remainder of the year?
Ryan M. Gwillim: Okay, and then I know this was touched on earlier, but I'm, assuming that the flattish market outlook is contingent on some internal look for interest rates. So.
Jaime M. Katz: Do you care to share with us what your internal expectations for rate movements over the remainder of the year.
David M. Foulkes: Yeah, I think just like everybody else, that is changing with time. So yeah, I don't think we have any specific insights.
Jaime M. Katz: Yeah.
Speaker Change: Yeah I think.
Speaker Change: Just like everybody else is that changing at this time. So I don't think we have any specific insight.
David M. Foulkes: Our call for a flattish market did not anticipate multiple interest rates. I think it is separate from the overall interest rate environment, so we would not tie those two together on a one-for-one basis. Maybe one thing to consider as well is
Speaker Change: Our call for a flattish market did not anticipate.
David M. Foulkes: Multiple interest rate I think it is separate from the overall interest rate environment, we would not tie those two together.
David M. Foulkes: On a one for one basis, maybe one thing to consider as well is that.
David M. Foulkes: Maybe one thing to consider as well is that, because of, I mean, some of the promotional activity is dealers buying down interest rates or offering promotional rates. So there are many people who are financing their purchases and not financing it at the base rate. They may be financing it at $4.99 or $5.99 with a promotional financing rate.
Speaker Change: Cause I mean, some of the promotional activity is.
Speaker Change:
Speaker Change: Dealers buying down interest rates, so our offering promotional rates. So there are many people who are financing their purchases are not not financing at the base rate. They may be financing. It at 499 of our slide 99 with a promotional financing right.
Operator: Our next question is from the line of Jian Su with BNP Paribas. Please proceed with your question.
Speaker Change: Right. Thank you.
Jian Su: Our next question is from the line of Jan Sue with B N. P. Powerbar. Please proceed with your question.
Jian Su: Hi guys, thanks for the question. There were some questions about, I guess, new boat sales, but I wanted to ask about engine retail, which was down, looks like, 9% per the slides, and you gained some shares, and maybe, let's say, you were down, I don't know, 6 or 7%. It's like, how does that track versus your expectations going into the year? And, yeah.
Ryan M. Gwillim: That's kind of in line with our initial expectations for the quarter. We are very confident in our ability to continue to outperform the market and take share, certainly in the 150 horsepower and greater categories. So we don't see that stopping. Retail, obviously, is going to be a function, as Dave said earlier, on OEM production schedules and also a little bit of the repower channel, which continues to be strong, where we also take share.
Ryan M. Gwillim: So we're kind of performing as anticipated right now, and again, subject a bit to the OEM production schedule of our core consumers, continuing to take more share, even if the industry as a whole is slightly more sluggish.
Jian Su: Okay, got it. And maybe also following up on that in propulsion, I think mix was a benefit last year as you were kind of restocking some of the higher horsepower engines. Sounds like Maybe that continues a bit because you're kind of mentioning the higher horsepower again, or is it, or do we kind of see a more normalization of that mix effect?
Ryan M. Gwillim: Yeah, so there are two components to the mix, right? There's the product component and then the customer component. I would say the product component continues to be positive, as again, market share gains and high horsepower continue, and that premium product continues to be quite strong. And then the consumer mix changes from quarter to quarter, depending on who is buying it at wholesale. And in Q1, it was pretty neutral.
Jian Su: Okay, thank you.
Operator: Thank you. Our next questions are from the line of Joe Altobello with Raymond James. Please submit your questions. Thanks. Hey guys.
Joseph Nicholas Altobello: Hey guys, good morning. So, first question, maybe big picture, you mentioned the Lattice U.S. marine industry this year, Q1's down 10 percent, and I know the months do start to get more important over the spring and summer, but what's going to get retail to turn positive, and does pricing need to adjust to start to see unit growth again?
David M. Foulkes: Hi Joe, do you think pricing needs to adjust? I mean, I think at the moment, obviously, the transaction prices are quite different from, you know, whether it might be an MSRP or kind of recent historical pricing because of the promotion and discounting environment, particularly on value product lines. So, you know, one of the things that we do now that is an increasingly used capability is the ability to do A-B testing in pretty localized portions of the market to see whether incremental promotional discounting activity will drive additional sales. So some places we see it well, some places not necessarily so much, so I think that, I don't think at the moment.
Joseph Nicholas Altobello: You know, transaction prices are, broadly, a big lever. But you know, they are certainly transaction prices that are certainly improved by the discounting and promotion levels. In terms of what will drive the consumer some more, in addition to what we can offer, I think obviously good weather in the season will be really helpful. It always is. But then a little bit more clarity in the macro environment would obviously be helpful.
David M. Foulkes: Got it. Okay. And just to follow up on that, you said you anticipate shipping Model Year 25s a little earlier than normal. Any sense for when we might see competitive product in the channel, and could you guys have a bit of an advantage for a few weeks?
Joseph Nicholas Altobello: I think most people will be implementing the model changeover relatively early this year, so I don't know that we'll get an advantage or not. I would say, though, that We continue to gain market share on both sides. We talk a lot about the engine side, but just based on SSI, we're up 50 basis points, um, so far this year, so I think our new product investment that is flowing through to a lot of you know really nice contemporary designs with a lot of really strong and unique and differentiated technology is really helping us overall.
Joseph Nicholas Altobello: And that's what we will continue to do across our product lines, making sure we have the most contemporary looking and best featured boats. So I think that is probably a bigger source of competitive advantage for us. Great, thank you.
David M. Foulkes: Okay, great, thank you.
Operator: At this time, we've reached the end of our question and answer session, and I'll hand the floor back to Dave for his closing remarks.
David M. Foulkes: All right, thank you all very much for joining us and for the great questions. As you saw, despite the challenges, retail is currently proceeding more or less in line with our expectations. And we delivered a very solid quarter. I think the resilience of our portfolio is very much on display. Gross margins held up really well, and our cost control discipline is on display as well. I think we did a really nice job in the quarter, and we'll continue to do that.
David M. Foulkes: Field imagery levels remain extremely well balanced, so we don't have excess imagery, and we think we're really set up well for the balance of the year. Our free cash flow continues to be strong, and obviously, we did a really timely debt issuance, so that allows us to increase share repurchases at a time when, you know, today I'm pleased that we're going to be in the market with more share repurchases early in the year. We're going to bias that, obviously, to the first half of the year. So, overall, I think it was a solid quarter and a very balanced view of the year ahead.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.