Q3 2024 Polaris Inc Earnings Call
Good day and welcome to the players third quarter 2024 earnings conference call and webcast.
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Speaker Change: I would now like to turn the conference over to J C. Weigelt Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you Rocco and good morning, or afternoon, everyone I am J C. Weigelt Vice President of Investor Relations at Polaris. Thank you for joining us for our 2024 third quarter earnings call. We will reference the slide presentation today, which is accessible on our website at IR Polaris Dot Com joining me on the call today are Mike <unk>, our chief.
Speaker Change: Executive Officer, and Bob Mack, our Chief Financial Officer, both have prepared remarks, summarizing the third quarter as well as our expectations for the remainder of 2024, then we'll take your questions. During the call we will be discussing various topics, which should be considered forward looking for the purpose of the private Securities Litigation Reform Act of 1995 actual.
Speaker Change: <unk> could differ materially from those projections in the forward looking statements you can refer to our 2023 10-K for additional details regarding the risks and uncertainties.
Speaker Change: All references to the third quarter actual results and 2024 guidance are for our continuing operations and are reported on an adjusted non-GAAP basis, unless otherwise noted please refer to our Reg G reconciliation schedules at the end of the presentation for the GAAP to non-GAAP adjustments now I will turn the call over to Mike speeds go ahead, Mike.
Mike Speeds: Thanks, Jason and good morning, everyone. Thanks for joining us today before we get started I wanted to take a minute to acknowledge the immense devastation, resulting from hurricane saline and Milton.
Mike Speeds: Our team has been checking in with our dealers in impacted areas and we've provided support sending Polaris Rangers to assist search and rescue teams and traveling to hard to reach areas and we've donated players generators to those without power.
Claris employers employees have also donated generously to the Red Cross Salvation Army and other organizations to help with the costs associated with the devastation from these massive storms on behalf of the player Sam I want to send our thoughts and prayers to those impacted by the storm now.
Mike Speeds: Now onto our Q3 update.
Mike Speeds: Why we told you, we're taking actions to lower production and shipments to protect our dealer network during challenging macroeconomic backdrop.
Mike Speeds: As a result, our third quarter sales dropped 23%. This included additional shipment cuts during the quarter in response to a lower than anticipated retail environment.
Mike Speeds: While these actions negatively impacted our short term results. They were unnecessary moved to support our strong partnership with dealers and to hold firm to our commitment to reduce dealer inventory.
Mike Speeds: As I discussed on our Q2 earnings call, we continue to make prudent moves to manage profitability in this part of the cycle, while remaining focused on our long term strategy that includes delivering acceptable customer exceptional customer experience through a strong healthy dealer network investing in innovation to fuel future growth and maintaining agile and efficient operations.
Mike Speeds: Our size and scale in the industry as well as our consistent focus positions us to outperform competitors as markets stabilize.
Mike Speeds: I'm pleased with our progress through the third quarter on reducing dealer inventory as we are now below where we started the year with lower than expected retail in the third quarter and the year, we again lowered our shipment expectations to ensure we meet our commitments to bring or V dealer inventory down 15% to 20%.
Mike Speeds: We expect this challenging retail environment to persist into next year and as such we will continue to protect dealers through superior inventory management.
Mike Speeds: I'll talk more about promotions in the following slides, but I want to note here that throughout the third quarter, we observed a higher than expected promotional environment as other Oems continue to deal with elevated inventory levels and higher than normal non current inventory.
Mike Speeds: As a result these other Oems are aggressively promoting to move these vehicles in a challenging retail environment.
Mike Speeds: Some of this promotional activity is driving unsustainable short term share movements as these oem's focus on cleaning up unhealthy inventory.
Mike Speeds: While we will not chase many of these aggressive promotional moves the elevated level drove higher costs for Polaris as we targeted specific segments to protect.
Mike Speeds: Our margin saw added pressure from the additional shipment reductions as well as higher promotional costs within the quarter. This resulted in a gross margin profit decline of 180 584 basis points and an adjusted EPS decrease of 73%.
Mike Speeds: Elevated competitive dealer inventory, coupled with the promotional behavior I just spoke to as lead to choppy market share results, while share was down across our segments in the quarter year to date and on a rolling 12 month basis, we've held share in a worthy with strength in Ranger employers expedition.
Mike Speeds: I couldnt be prouder of our team's continued focus on improving our operational effectiveness to position us to emerge from this period as a stronger more efficient and better company.
Mike Speeds: Outside of innovation, our largest focuses on continuing to enhance our overall operating effectiveness.
Mike Speeds: And we drive and to drive strong lean practices improved supply chain logistics and operations.
Mike Speeds: Last quarter, I mentioned improvements in achieving our build schedules and I think it's important for me to continue to provide you with proof points and evidence of our progress for example, within one of our largest plants. We've seen output increased by approximately 20% compared to historic levels with the same amount of labor input.
Mike Speeds: At our largest plant we've seen in almost 10% increase in vehicles coming off the line clean compared to 2023.
Mike Speeds: We currently have the fewest number of or V vehicles on hold in our factory since before the pandemic. This marks a 50% decrease in rework.
Mike Speeds: Lastly, we achieved a 7% reduction in our per hour plant costs at two of our larger clients.
This past quarter I spent time in Huntsville, and Monterey talking to our manufacturing leaders and teams on the line.
Mike Speeds: Ah firsthand, how much progress, we're making to improve working conditions, making it easier for them to do their jobs and driving improved efficiencies by eliminating redundancies and inefficiencies in our manufacturing processes. We've enabled a more productive and cost effective use of our skilled labor force.
Mike Speeds: We're also recognizing savings in areas, such as material and logistics and we continue to closely monitor hiring and spending to align with the current demand environment.
Mike Speeds: Innovation is the lifeblood of our industry and we remain committed to strategically spending on key R&D investments players is and will remain the innovation leader our industry. It is what we're known for and that is what will enable us to emerge from these challenging times as a better positioned company.
Mike Speeds: With the new product introductions, we've made over the past 18 months, we have the most compelling lineup of products as we enter 2025 and we also have exciting new product set to launch next year.
Mike Speeds: Third quarter retail was down 7%, which was slightly below our expectations driven by persistent inflation elevated interest rates and financially stressed consumers.
Well it was encouraging to see the fed take action with a 50 basis point rate cut in September we're not seeing any immediate impact on retail and we do not believe one cup will stimulate demand in this environment.
Mike Speeds: Consumers remain cautious with discretionary spending, especially for larger purchases and it will likely take more interest rate cuts and time to improve the financial position before spending returns on pre pandemic levels.
Mike Speeds: Specifically within our off road utility was down low single digits with Ranger slate slightly outperforming atvs, while recreation was down for the eighth straight quarter growth and crossover was a bright spot at over 25% led by the players expedition.
Mike Speeds: Feedback coming out of our dealer meeting in August was positive with dealers appreciating our candor around the industry and our commitment to lower inventory deal.
Mike Speeds: <unk> also responded well to the pricing updates, we made as well as the new razor pro lineup.
Mike Speeds: On road retail in Q3 was driven by softness in the heavyweight segment, given recent competitive launches and overall weak industry.
Mike Speeds: Despite that we continue to hold our number one share position in the midsize segment, we expect on road retail to remain soft for the remainder of the year.
Mike Speeds: And marine pontoon pontoon retail was down high teens with better performance from Bennington, We were encouraged by orders coming out of our summer dealer meeting driven by innovation across all of our brands.
Mike Speeds: As I mentioned earlier, the promotional environment remains elevated as Oems and dealers continue to face specific pockets of unhealthy inventory levels to be clear from the standpoint of current and non current inventory we are well within historic norms. This is not the case with other Oems who have put increased pressure on dealers to move older non current inventory.
Mike Speeds: Which has been a burden on dealers' profitability for far too long.
Mike Speeds: As a result of investments we've made over the past several years, we were able to be surgical about where and when we allocate promotional dollars where it makes sense from a retail and profitability standpoint, we've added promotions, but there are also situations, where Oems and dealers are running aggressive promotions and taking losses on vehicles to help correct.
Mike Speeds: Their inventory position in those situations, we have decided not to participate.
Mike Speeds: We view these as extreme and aggressive promotional strategies as temporary and driven by both dealers and Oems cleaning up non current inventory as quickly as possible.
Mike Speeds: Sentiment from dealers remains focused on their inventory position as they navigated lower retail and higher interest rate environment. We continue to work towards our goal of reducing inventory by 15% to 20% this year and the actions required to get there are well underway fourth quarter shipments are currently planned to be well below retail as we continue to work with dealers through this <unk>.
Mike Speeds: <unk>. They have stated that they appreciate the partnership and are willing willingness to offer several months of free flooring as we work towards our dealer inventory targets.
Mike Speeds: Again, our goal is to provide a bit of relief for our dealers as we wait for a cyclical recovery in consumer discretionary spending patterns and while this effort is having a negative impact across our business. We view it as a crucial step in the long term collective success of Polaris and our dealers I'm now going to turn it over to Bob.
Bob Mack: Brad you with more detail on our financials.
Bob Mack: Thanks, Mike and good morning, or afternoon to everyone on the call today.
Bob Mack: Third quarter sales declined 23% versus last year. The decline was driven by our decision to actively reduce dealer inventory in the second half of the year by shipping less product to dealers. The drop in sales was slightly more than expected given lower retail in the quarter, which caused us to take out more shipments than originally scheduled.
Bob Mack: Mix was negative and net price continued to be a headwind for our financials is the promotional environment remained elevated.
Bob Mack: <unk> sales were negatively impacted by the lower factory shipments and slower whole goods retail. We also continue to see pressure from snow inventory leftover from last year's weak season.
Bob Mack: Gross profit margins were negatively impacted by our decision to cut shipments along with lower mix and elevated promotions.
Bob Mack: Improvement in our factory operations and supply chain execution provided a benefit of six points to gross margin versus the prior year, but this was partially offset by a three point headwind from lower absorption.
Bob Mack: Force reduction that took place in July also had a positive impact on EBITDA. However, this was not enough to offset the headwinds I just referenced.
Speaker Change: Turning to off road sales were down 24% due to lower volume and negative mix given the snow season is just beginning I will focus my comments on off road vehicles for RV, including Atvs and side by sides.
Speaker Change: North American RV retail in the quarter was down 3% with weakness in razor and atvs, partially offset by strength in the crossover category.
Speaker Change: As Mike noted Polaris Ranger retail was down low single digits. We believe the RV industry was also down low single digits and continues to deal with headwinds from higher interest rates inflation and lower discretionary spending for big ticket items.
Speaker Change: Share loss in the quarter was moderate and driven more by specific actions from other Oems to manage their own inventory challenges than by fundamental share shifts. We do not believe these tactics to be sustainable and therefore, if you look at share on a longer term basis, we upheld or b share year to date.
Speaker Change: Gross profit margin was negatively impacted by absorption at our plants due to lower volumes mix and net pricing as we continue to see meaningful year over year headwinds from an elevated promotional environment. These headwinds were partially offset by the improvement in operations costs that I referenced earlier, which primarily benefited the off road business.
Speaker Change: As we look to the fourth quarter snow shipments will ramp as we ship into the season, but we still expect total shipment volumes for the segment to be down meaningfully both sequentially and year over year given the decisions. We made in July and September to actively manage dealer inventory by shipping less product <unk>.
Speaker Change: Promotions are expected to remain elevated we expect a year over year headwind to abate given this elevated promotional environment began in the fourth quarter of 2023.
Speaker Change: Therefore, we expect gross profit margin to be flat to up slightly compared to last year factoring in the absorption headwind neutral net price and operational savings.
Speaker Change: Switching to on road sales during the quarter were down 13%, reflecting the broader industry contraction of almost 10% in North America.
Speaker Change: Indian motorcycles last modest share during the quarter driven by weakness in the heavyweight category somewhat offset by share gains in mid size.
We saw good momentum exiting the quarter and expect modest share gains through the end of the year with momentum from the summer scout launch and targeted promotions on heavyweights.
Speaker Change: The drop in gross profit margin was driven by negative mix given the weakness on the heavyweight side and lower absorption, partially offset by operations benefit.
Speaker Change: I do want to remind you that in the fourth quarter of 2023, we booked a sizable one time warranty expense in our European business to appeal that is expected to provide a year over year benefit to the comparable gross profit margin in the fourth quarter of this year.
This benefit is expected to be partially offset by headwinds from mix and price.
Speaker Change: In Marine sales were down 36% as the industry continues to be challenged by elevated dealer inventory levels and higher interest rates impacting consumers decision to purchase.
Speaker Change: As we continued to reduce shipments in the quarter, we have brought marine dealer dealer inventory down by approximately 35% versus the beginning of the year.
Speaker Change: As Mike noted, we did see positive momentum from our August dealer meetings with the innovation across our portfolio. Our current plan reflects fulfillment of these orders taking place in the next few quarters.
Speaker Change: Gross profit margin was down given negative mix and volume pressure driving less fixed cost absorption.
Speaker Change: We also had some parts shortages during the quarter as we shifted towards production of model year 2025 boats. We believe our challenges with these suppliers are resolved we do not expect further impacts in the fourth quarter.
Speaker Change: Moving to our financial position, we are lowering our expectations for cash generation. This year due to our updated business performance with less cash from earnings.
Speaker Change: We are driving working capital savings through reductions in inventory specifically in raw materials.
Speaker Change: Finished goods will take longer to normalize as we balance keeping our plants running efficiently based on committed levels of raw material inflow and dealer inventory level, we expect to end the year with our share count flat year over year and remain committed to our goal of reducing the number of basic shares outstanding by 10%.
Speaker Change: Year to date, we used cash to continue to fund our investments in innovation and key strategic capital projects and returned over $190 million to stockholders in the form of dividends and share repurchases remain confident in our financial position and are driving our teams to improve working capital and this part of the economic cycle.
Speaker Change: Now, let us move to guidance and our updated expectations for 2024, as we discussed last quarter, we plan to reduce dealer inventory by 15% to 20% for the fiscal year better positioning us and our dealers for a continued challenging market environment in 2025.
Speaker Change: This commitment requires alignment with current retail trends, our shipments and dealer inventory positions.
Speaker Change: Given this coupled with softer than expected retail performance in the quarter, we needed to further reduce our shipments. This resulted in further pressure on our business heading into the fourth quarter and thus a reduction in guidance.
Therefore volume is expected to be a bigger headwind than we originally modeled for the fourth quarter, we expect modest pressure on EBITDA margins as the volume and mix headwinds are mostly offset by the workforce reduction actions. We took in July as well as easier comps due to one time expenses, we had last year in on road, which I already discussed and product liability, which was elevated.
Speaker Change: In Q4 of 2023.
Speaker Change: I want to make a point regarding our operations and the journey, we are on to realize greater efficiencies through our own plants.
Speaker Change: We had a target this year of realizing approximately $150 million in operational efficiencies through lean lean materials and logistics.
Speaker Change: What was not in our plan as we entered the year was approximately $140 million of negative absorption that we expect this year due to volume cuts I'm proud to say that our teams have done a great job finding opportunities to overcome this headwind with evidence provided by Mike earlier, as well with it and as well as within materials logistics and other areas, we expect to end the year.
Are realizing close to $280 million of operating efficiencies, which more than offset the expected negative absorption that should help create greater earnings power as we emerge from this part of the cycle.
Speaker Change: The immediate impact of the Hurricanes experienced in the last few weeks were immaterial to Q3 financially. However, we expect some longer term disrupt disruption to impacted geographies that we will need to manage through it from a retail perspective, more importantly, youre doing all that we can to help the impacted communities recover.
Our guidance reflects our team's current year end projections any incorporates current retail trends and our commitment to reduce dealer inventory by 15% to 20% relative to last year.
Speaker Change: I want to reiterate what I said last quarter and say that many of these headwinds are not traditionally experienced in an industry that has typically grown low to mid single digits annually from a unit perspective. This is a unique period, where we see our partnership with dealers as more important than short term wins and believe the actions. We are taking this year set us up for long term success in the market.
Speaker Change: We have a long record of driving innovation that leads to enhanced value for our customers and margin expansion for our business you can see the improvements we are making this year on operating efficiencies and this is just the beginning it continues to be a meaningful opportunity to expand margins in future years.
We've also been a strong cash generation business with low working capital requirements, allowing us to invest in ourselves as well as maintaining our record of consistent dividend payments and opportunistic share buybacks.
Speaker Change: Although the timing is uncertain, we have a positive outlook on our business from the perspective of sales growth margin expansion cash generation and attractive returns. We believe the decisions. We are making today are in the best interest of all our stakeholders, including customers dealers employees and our stockholders.
Speaker Change: With that I will turn it back over to Mike to wrap up the call go ahead Mike.
Bob.
Mike Speeds: Looking on my 2024 forward looking comments from last year at this time I can't help but notice how many of the headwinds we discussed remain relevant as we enter 2025.
Mike Speeds: We're staying true to our cautious approach regarding consumer trends and we will continue to remain agile to align with demand trends we.
Mike Speeds: We do not expect a significant change in demand as we move through the end of 2024 and ended 2025, well, it's encouraging to see the fed cut rates, we believe more needs to be done and to get consumers back into dealerships.
Mike Speeds: With adjusted dealer inventory profiles in our fem additional flooring support and reduced shipments were working hard to ensure dealers know Polaris as their partner of choice and then we have a vested interest in their success.
Mike Speeds: We expect players dealer inventory to be well below historical trends in terms of days sales outstanding as we head into 2025. This coupled with lower interest rates means dealer should see reductions in flooring costs associated with their Polaris inventory.
Mike Speeds: I know many of you were building out your models for 2025, and I want to be clear that while it may be easy to think of all the headwinds. This year will turn into a tailwind next year, it's not that simple we're not predicting a retail rebound in 2025 at this point as I said previously we believe consumers need many more interest rate reductions coupled with.
Mike Speeds: Time to enable their improved financial position and confidence to spend on large more discretionary items.
Mike Speeds: Therefore, we will approach 2025 with caution and we will continue to focus on the things, we can control to position us to emerge stronger operationally and competitively.
Mike Speeds: We knew the second half of the year would be difficult given the headwinds associated with cutting shipments as a result of continued macroeconomic headwinds.
Mike Speeds: As we look into the fourth quarter and 2025, we do not expect a rapid recovery as we continue to navigate the environment our goals are simple.
Mike Speeds: They close to dealers to ensure we maintain inventory at the right level and mix to meet demand.
Mike Speeds: Drive innovation and execute on new product launches in 2025 and.
Mike Speeds: And continue to implement lean and expand our operational improvements.
Mike Speeds: Our goals are within our control, we will navigate through this environment and set ourselves up for 'twenty five 'twenty six and beyond to begin to deliver on our through cycle targets for sales growth meaningful margin expansion and attractive returns as the global leader in power sports.
Mike Speeds: We have the best team in power sports, we have been through challenging economic cycles before and I'm confident that we will continue to skillfully manage through the current environment. We have the right long term strategy and we are executing on initiatives today that will enable us to emerge an even stronger company on the other side of the cycle with that we thank you for your continued support and I'll turn it over.
Mike Speeds: For Q&A.
Mike Speeds: Okay.
Speaker Change: Thank you if you'd like to ask a question. Please press Star then one on your telephone keypad.
Speaker Change: If your question has already been addressed like to remove yourself from queue. Please press Star then two.
Once again the star one if you have a question.
Speaker Change: And today's first question comes from Meghan Alexander with Morgan Stanley. Please go ahead.
Meghan Alexander: Hey, good morning, Thanks for taking our questions.
Meghan Alexander: Wanted to start maybe unsurprisingly by asking about dealer inventory you didn't comment on where it lives or I guess, where it trended versus last quarter, but if I'm doing my math correct I think based on your comments the last two quarter. It would seem to imply dealer inventories up relative to the end of <unk>. So I'm just trying to understand why that would be the case.
Meghan Alexander: Given the commitment you know you've talked about to reducing inventory in the channel I understand it can take time to adjust shipment schedules and that can be driving some timing discrepancies, though is that the answer and that's the case, maybe you could just tell us where dealer inventory levels today on October 22nd versus the end of the call.
Meghan Alexander: <unk>.
Speaker Change: I think the concern is that optically it seems like there hasn't been a lot of progress made on Destocking and retail is also worse than you expected. So just trying to understand whether this means destocking could actually continue into 'twenty five if we don't see an acceleration in retail through the end of the year. Thank you.
Speaker Change: Yeah, I mean look it's it is a it is a complicated.
Speaker Change: Process you know we were as I talked about in my prepared remarks, we were with dealers in August in Las Vegas. This obviously it was top of mind.
Speaker Change: What we conveyed both Bob and I, both conveyed as you know we can't shut this down overnight, we've actually seen a couple of our competitors who tried to do that.
And what ended up happening is they cut off their current inventory, which was creating challenges for the dealers to actually move things that were under a more current demand and they were left with much older inventory and so that now you see that turning into really high promotional levels and some of the dynamics that they're fighting through in the fourth quarter. When most of this should have probably been.
Speaker Change: Somewhat cleared up.
Speaker Change: As we look.
Speaker Change: As we look sequentially.
Speaker Change: Dealer inventories down we pull a couple of things out one is youth because its the prime stocking season last.
Speaker Change: Last year, if you recall, we had all sorts of recalls on our youth products. So we were delayed in shipping and very late for the season.
Speaker Change: And then obviously the snowmobile business when you look at core or V. We.
Speaker Change: We have made progress sequentially or main points of progress relative to the 15% to 20%.
Speaker Change: Happen as we get to the end of October and November then December and it's a pretty steady cadence as we adjusted our affirm profiles and that's when the shipments really are brought down hard for for for the dealers. Obviously the weaker retail are in the third quarter presented some challenges that is.
Why we went back in and change our production schedules, we are going to hit the down 15% to 20% period.
We were clear with dealers that it was going to happen later in.
Speaker Change: In the year, because we had to be mindful of the fact that you know we had a lot of inventory on order coming over you can't just slow this thing down overnight the dealers by and large had been very supportive.
Speaker Change: I'm gonna be with dealers again on Monday, and Tuesday of this week and our dealer Council, where we have our top dealer representatives come in and we'll obviously continue to reinforce our commitment to bring inventory down in and continue to work through that obviously retail performance in the fourth quarter is gonna be key.
Speaker Change: October results are encouraging, but we don't tend to get overly excited about one months because we've seen how volatile the environment has been a and I suspect as we clear out of October we're gonna see dealer inventory have a meaningful move down and then we'll continue that progress into November and December.
Speaker Change: That's really helpful. Thanks, Mike.
Speaker Change: I mean, you just.
Speaker Change: Answered the question a little bit, but can you just maybe give us some more pointed answer on what's baked into your outlook for retail and for Kayo, and then I wanted to just follow up a little bit on your comments on 2025 do you you know I understand you're not predicting a retail rebound in.
Speaker Change: It was prudent to maybe think that way at this point, but do you see enough to think that retail is at least stabilized such that retail can be flat in 'twenty five or you know you were trying to say that we could continue to see retail compound declines into tiny tiny five.
Speaker Change: I think it's probably a little early for US I can tell you that based on what we're seeing right now it feels like the trend is is probably slowing in terms of retail reduction but.
Speaker Change: But the fact that you know we've got a rec space you know continues to decline for the eighth straight quarter, and we saw albeit slight negative we saw a ranger business the utility business, including a T V.
Speaker Change: Go negative in the third quarter and so we're obviously keeping a close eye on that that had been a more resilient segment.
Up until the third quarter.
Speaker Change: We don't want to overreact to one quarter's trend, but when I step back and I look at the environment. We've had one interest rate cut it really hasn't done much I think not just for our business, but in the broader economic sense, you know inflation. Although it has come down is still running in the mid to high twos.
Speaker Change: And I think there's just a lot of economic uncertainty right now I think certainly getting past the election is going to be helpful.
Speaker Change: But we're going to make sure that as we exit the year, we're gonna have dealer inventory at an all time low from a DSO standpoint, we think that's going to position us well when if retail continues to see negative movement. The volatile nests between retail and shipments is gonna be essentially out of the system, because we've gotten ourselves to a point, where we can match.
Speaker Change: Mentioned retail, albeit maybe a little bit different by quarter for the year. It should be a much less volatile pattern, but we're going to keep a close eye on it and you know the health of the consumer is the primary thing that we're we're watching right now.
Speaker Change: That's helpful. Thanks, Mike I'll pass it on.
Speaker Change: Thank you. Our next question today comes from Craig Kennison with Baird. Please go ahead.
Craig Kennison: Hey, good morning. Thank you for taking my question. It really has to do with our F M.
Craig Kennison: If you just look from the outside it feels like the right tool, but maybe a little too focused on units or dsos without.
Craig Kennison: Enough weight placed on like actual dealer floorplan cost and so I'm wondering to what extent you can make.
Craig Kennison: Changes to our F. M to avoid you know I guess AR and inventory problem in the future just reinforced that strong partnership you have with your dealer network.
Speaker Change: Yeah, I mean, we've been having a fair number of conversations.
Speaker Change: With dealers and you know certainly one of the things that we do know that we haven't historically because we haven't had too is we dollar rise are what the profiles look like and you know and obviously bang that against what the interest rate, obviously with with the fed making the move the October rate comes down. So the dealers are going to see you know a little bit of.
Speaker Change: Relief starting to flow through their statements.
Speaker Change: And it is something that we keep front and center. It's why by the end of this year, we're going to have our DSO are well below where we were pre pandemic because what that does is it allows for us not just to account for the box count, but also for the value of the inventory and the.
Speaker Change: Associated interest rate that comes along with that I think the benefit. We have is is that it also make sure that we're keeping inventory current you heard in my prepared remarks.
Speaker Change: We've talked to you specifically a couple of times about the data that we have internally that we get through lightspeed and we know that of all the Oems are inventory is the most current.
Speaker Change: And I think that's a direct attribute to our affirm it allows us to make real time adjustments and you know at the end of the day, that's really what the dealer needs as they need the inventory that's going to move the fastest.
Speaker Change: And be the most current that allows them to.
Speaker Change: Preserve as much margin as they can and be able to avoid the interest costs as we look into 'twenty five with any inventory that we're targeting and the flooring coverage that we provide the dealers, which averages out around 90 days, we believe we're going to be in a position where they're they're risk for.
Speaker Change: <unk> is gonna be minimized significantly.
Speaker Change: And because they're gonna be turning inventory faster they've got flooring coverage that covers the majority of the time period that we're targeting the DSO at and then we're being mindful of the mix of inventory relative to the demand trends.
Speaker Change: Great Mike. Thank you and then I guess the other side of that is are you confident that dealers will reward.
Speaker Change: Polaris with market share, even if you maintain more rational shipment levels. So you know you don't want your deal is just to be focus on dumping whatever.
Speaker Change: <unk> is causing the most pain, if you're not causing them pain, while they still focus on prioritizing Polaris.
Speaker Change: Yeah, I mean, it's a it's a delicate balance right because you know, we certainly can't walk in and tell them not to focus on some of this other stuff because the financial health of their dealership they need to get that inventory moved the key is is once we get through we need to make sure that you know a we're maintaining the floor space that we deserve.
Speaker Change: M B that we've maintained our priority that's why I referenced it.
Speaker Change: Earlier, that's why we do things like our dealer Council.
Where it's not just me, it's it's Bob and it's you know the other members of our Oh RV team.
Speaker Change: That are listening in and taking the feedback and Theres a number of things that we did coming out of the last meeting we had with them in terms of simplifying the North Star rewards program.
Speaker Change: Making sure that were communicated with them around the RF EM inventory levels, new product is a key and making sure we get product to address certain segments.
Speaker Change: And it's why we continue to reinforce that everything we're doing right. Now is we want to be the OEM of choice with with the dealers and when you're dealing with you know 70 or 80% of our network being multiline, it's really important for us to work the relationship and obviously the financial side of it is really important but there's so many other aspects that I think we clearly.
Speaker Change: Work harder and probably do a better job than most of making making sure. We're doing that I think that's going to reward us when we get on the other side of this cycle.
Speaker Change: Great. Thank you.
Speaker Change: Thanks, Greg.
Speaker Change: Thank you and our next question today comes from those that skins with Keybanc capital markets. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions, maybe just one on the $280 million of of operational savings that you guys realized versus the kind of $1 50 prior.
Speaker Change: If you could just provide a bit of color on kind of what was the delta in terms of.
Speaker Change: Realized opportunities there and then as we look out to next year, how should we think about the 280 million in terms of being recurring meaning.
Speaker Change: How should we be thinking about like the extent to which you know that's volume driven or one time whats, what's more permanently kind of out of the base.
Speaker Change: Thanks.
Speaker Change: Sure.
Speaker Change: So if you think about the you know we went into the year as we said with target of $1 50.
Speaker Change: We've been able to overdrive that it's been a mix of different things I would say the two largest areas have been spend at the plants and that includes labor.
Speaker Change: And then materials and logistics and.
Speaker Change: You know the materials work has come from supplier negotiations come from product design changes things like that.
Speaker Change: Logistics, we've just been operating more efficiently and.
Speaker Change: They haven't had to do as many expedites and late shipments and things like that that that cost of premium on the planned spend side. Its been just good efficiency on an indirect labor are trying to move out temporary labor.
Speaker Change: Reducing over time, so as you think about the $2 80.
Speaker Change: You know in terms of what stays when it comes back there's probably about 25% of it is tied more closely to production.
Speaker Change: And so you know if that loss of production came back then some portion of that cost.
Speaker Change: It comes back because that's what it takes to get that production up.
Speaker Change: The vast majority of it 70, 75% will will stay and you know we're not out of opportunities here, either you know, Mike and I were just down in both of the major plants as he said and you know while we've made good progress you know we've only really been focused on one line at each plant and those arent even done so there's there's a lot.
Speaker Change: Opportunity left to go in terms of.
Speaker Change: Getting more efficient and will continue to drive that into into 25, Yeah and I think Noah you know I've made a couple of comments about getting more output for.
Speaker Change: For the same labor input and I think that that's where we have the opportunity.
Speaker Change: When volume eventually comes back that we would be able to add more into the production schedule and not necessarily have to add the labor in at the at the same rate and those are the areas, we're going to drive for more efficiency.
Speaker Change: I mean look this is a huge focus for us I mean, we know we're in a down part of the cycle for power sports and we're using this time to very quickly and rapidly move through and it's it's not just our factories. It's every element of our operational supply chain logistics you name it as well as into.
Speaker Change: Our structure as a company you know we talked about at the last call, where we took actions to to really take down the complexity and things that are that we have as a company and we're going to make sure that those things remain permanent it allows us to put the money into things like innovation, and then be able to drive the margin improvement when we get on the other side of this cycle.
Speaker Change: Thanks, maybe just just one more on you you kind of touched on this in terms of kind of talking about.
Speaker Change: Maybe higher levels of promo from some competitors.
Speaker Change: But when you talk to your dealers, maybe just your sense of kind of competitive inventory in dealerships in baby.
Speaker Change: Tom maybe a tough question to answer but what inning.
Speaker Change: Kind of dealers are in general in terms of getting their kind of overall inventory levels healthy. Thanks.
Speaker Change: Yeah, I mean, it's it's actually not tough to answer because we have a lot of data. So we're able to see it across you know call. It the top five Oems.
We know that we are in are either number one or number two position when it comes to.
Speaker Change: Days sales outstanding AR, and then Theres, a pretty substantial drop off.
Speaker Change: After us and one other large competitor.
Speaker Change: And I think those are the areas that we know dealers are really working through.
Speaker Change: Those Oems are leaning in and putting huge discounts in financing incentives around that inventory a lot of that inventory is aged it's model year 'twenty two.
Speaker Change: And so they've really got a challenge in front of them. It's why I was very deliberate about saying that there are certain areas, where you're just not going to participate I'm not going to go in and take the value of a of a general or an expedition down to try and compete with something that is you know two or three years older than our product. It just it does.
Speaker Change: You can make a lot of sense and it's not sustainable we know that they've just got to work through that and you know I think it's taken a little bit longer I think the weaker retail backdrop has not helped and I think some of these other Oems probably had a lot more product produce and were slower to make some of the cuts that are we in an a b or b you have made.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question today comes from Fred Wightman with Wolfe Research. Please go ahead.
Speaker Change: Hey, guys. Good morning. This is sort of a follow up to Noah's question, but I guess, if we think about the $3 25 that you guys have out there for this year now can you just give us the big building blocks from a bridge perspective, just the puts and takes knowing what you know now sort of what comes back.
Speaker Change: Next year I mean, three twenty-five should we be thinking about that up down flat.
Speaker Change: How would you encourage us to model that.
Speaker Change: Okay.
Speaker Change: Yeah, I'll, let Bob give a little bit more I I look I I think we've still got persistent headwinds as we get into 'twenty five I mean, it's tough to know exactly where retail is going to go the good thing is.
Bob Mack: Pretty much across our business. We've you know by the time, we get out of any of the year, we feel really good about where our inventory is up.
Speaker Change: You know I I flat is probably a good starting point.
Speaker Change: It's really tough to say I mean, we have a lot of puts and takes in terms of certainly tailwind of a lot of operational savings you know, it's no surprise that some of our bonus programs have been cut back and so there'll be some compensation expense that comes back into next year and certainly interest rates are going to be helpful. From the standpoint of you know it lowers the cost of our debt.
Speaker Change: It lowers the cost of borrowing for the dealers. It certainly helps our customers, but I think it's a question I mean, there's no telling how many cuts we're not going to prognosticate around what we think is going to happen. We do think it's going to take many cuts and time for our consumers to get out from underneath.
Speaker Change: Elevated levels of that there's a lot of purchases that have been made they've been dealing with high inflation.
Speaker Change: The good news for US is that you know a lot of these products are starting to get age there are four or five years and in some of these segments. We know that that starts to hit the cycle when they're going to want to.
Speaker Change: Look for a new product and whether that happens in 25 or 26 as anybody's call at this point.
Speaker Change: Yeah, I mean, I'd like Mike said, we're not about to get into giving our E.
Speaker Change: EPS puts and takes for 2025, but you know in terms of the positive.
Speaker Change: We will have the carryover the ops efficiencies and you know we'll continue to focus on those are the carryover obviously of the head count actions we took in July.
Speaker Change: Interest rates, which impacts flooring impacts retail rate buy downs, and obviously our own debt. So some positives no question, but then.
Speaker Change: The industry I think is going to continue to be challenged at least into the first half of the year and you know maybe we will see.
Speaker Change: Six of the impact of interest rate cuts. However, they flow out through the year I would think it would be.
The real impact of that is probably going to be more back half weighted but it's kind of early to tell.
Speaker Change: And then you know obviously, Mike mentioned the bonus there'll be some headwind from from that normalizing hopefully next year commodities have been a little sporty last couple of months I don't know that that's going to be a long term trend.
Speaker Change: But there's probably some pressure there and.
Speaker Change: Couple of other kind of general corporate things, Yeah, I mean, Fred but part of that philosophy as we look at this as given the uncertainty where you know the goal is let's get the inventories down to where we believe they should be.
Speaker Change: If things turn out better next year I have more confidence and want to play more offense and then have to be talking about cutting production schedules.
Speaker Change: All the work, we're doing to get the factories more efficient leaning them out we're gonna be able to respond faster.
Speaker Change: And see those patterns coming and be able to take advantage of them. If they emerge if they don't then we've sized the business appropriately and we'll be ready for the recovery whenever that happens.
Speaker Change: Makes sense and then just on the marine business quickly another cut to the outlook. There I mean, we've seen some other people in our space look to divest our marine assets, given how long that recovery looks like it might take can you just talk about how important the marine businesses to the platform going forward. Yeah. I mean look I you know I know that the news.
Speaker Change: <unk>, probably has everybody's scratching their head and looking at us look.
Speaker Change: Look our business, we make really good money the EBITDA margins in our marine business are pretty much right now on par with the company.
Speaker Change: They're running it well they've been able to react quickly the the market is down.
Speaker Change: There is some competitive behavior at the very low end of the pontoon segment that we just are going to steer clear of it because these are very low value low margin boats that are driving some shorter term share moves that you know frankly are probably not relevant for us when we look at the the mid to larger boats across.
Speaker Change: Tenant Godfrey, we're actually doing really well from a share standpoint. The market is just slow I mean these are not.
Speaker Change: These are not cheap vehicles interest rates are high a lot of people bought boats in 2020 one.
Speaker Change: I think I think it's going to be a little bit of time for that to work through the system. The good news for US is we held two of our dealer meetings over the summer in August we do one for Bennington and one for Godfrey Hurricane.
Speaker Change: Then the new product launch for Bennington is the largest we've ever had Godfrey we're now entering two new segments with the center console in the 32 foot Dayboat.
Speaker Change: The orders for all those products were very strong which was encouraging because dealers really recognize.
Speaker Change: The focus around innovation that we've got that business.
Speaker Change: And we loved so we're getting that business ready for when the market turns and we think we'll be in a great spot given the the top positioning we have with pontoons as well as deck boats.
Speaker Change: We've been aggressive taken inventory down all year and even starting late last year. So it will be down.
Speaker Change: Quite a bit by the end of this year I think as compared to 12.
Speaker Change: 2023, and an even historic levels. So.
Speaker Change: We think it's well we will ship the stuff that dealers want for 'twenty Fives, We think we've got a good mix of model year 'twenty five 'twenty four out there in the in the field or we will as we ship the 20 fives.
Speaker Change: And and then we'll see how the season develops but you know we bought kind of a fundamentally different business. When we bought market leaders. They continue to be market leaders, we've improved our.
Speaker Change: Our EBITDA margins on those products through the cycle compared to where they were when we bought them and the businesses generate tremendous cash flow I mean, we've.
Speaker Change: <unk> gotten well in excess of $550 million back already on the purchase just cash flow off the business. Since we've owned it. So I think I think we have a strong marine business and we have changed our commitment to that.
Speaker Change: Makes sense. Thank you.
Speaker Change: Thanks Rod.
Speaker Change: And our next question today comes from Joel <unk>.
Speaker Change: With Raymond James. Please go ahead. Thanks.
Speaker Change: Thanks, Hey, guys good morning.
Speaker Change: First question on off road I'm, a little surprised that you didnt doing here in the quarter given the launch timing of some of your model you're at 25.
Speaker Change: Back in the spring.
Speaker Change: Theory.
Dealers the ability to discount.
Speaker Change: 24 hours and it doesn't seem like that here I know, it's small, but actually I went to cat M. So did the launch timing help at all and did you see by trading down to lower price points or were they just chasing promotions.
Speaker Change: Yeah, I mean by definition in the last two parts of your question are the same.
Speaker Change: We in your your hypothesis is correct.
Speaker Change: Share gains came from.
Speaker Change: From from primarily the Japanese and I would tell you that in some instances it's share gains that are getting them back on par with where they had been a year or two earlier and a lot of it had to be was really driven by moving our non current product with very heavy discounts I mean, we were talking about discounts that are.
Speaker Change: And the $5000 range with financing offers dealer cash you name it and I think those are areas. We just are not going to participate on the.
Speaker Change: The segments, where we have new products, they're doing fine the broader market backdrop is not great.
Speaker Change: But you know we have a lot of confidence in the innovation and I think when you look at something as simple as expeditionary expeditions up 25%.
Speaker Change: In a in an area that you know rack of all categories. There's probably most challenge and I think that just speaks to the power of the new products and you know, we're we're going to stay focused on the things that add value to this company over a long term, we're not going to get caught up in some of the short term discounting and moving of non current unhealthy inventory.
Speaker Change: Understood and maybe just maybe a question for Bob you lowered your sales guidance for the year not gross margin and I think if my math is right or implies gross margin flat to up year over year.
Speaker Change: What's driving that.
Bob Mack: Yeah, So a couple of things.
Bob Mack: There's a there's a chunk of it is mix.
Bob Mack: Just just by nature, you know the in Q4 will ship Ah.
Bob Mack: A lot of our snowmobiles for the season.
Bob Mack: And in Q3, you typically ship a fair amount of youth and Atvs I should kind of going into both the holiday season in the hunting season. So you know that will that has a positive impact from them from a mixed standpoint also will start to shift the boats that came out of that.
Bob Mack: The dealer shows and those tend to be higher option boats. So those tend to be good margin in those and then also from a year over year perspective, remember we had a.
Bob Mack: <unk> 20, plus million dollar a warranty item at two P. L last year that doesn't repeat this year. So that drives some of that debt at G. P improvement on a year over year basis.
Speaker Change: Got it okay. Thank you.
Bob Mack: Yep.
Speaker Change: And our next question today comes from James Hardiman with Citi. Please go ahead.
Hey, good morning, Thanks for taking my questions. So, hoping maybe you could just walk us through the third quarter.
Speaker Change: Retail environment obviously.
Speaker Change: Retail was down but it was actually down a little bit less than than the <unk> declines that we saw for both or views and overall, so I guess I'm, a little I'm surprised as to the surprise that it was.
Speaker Change: Worse than you expected was it just merely a function of July was good and then things slowed from there or was there something that you would hope would would sort of catalyze better numbers later in the quarter that just just never came to fruition.
Speaker Change: Yeah, I mean I I.
Speaker Change: Say a couple of things one I think we were surprised.
Speaker Change: Surprised by the level of non current inventory the depth of the non current inventory I mean, obviously, we see some of the data.
Speaker Change: And you know and I do think that the backdrop from a consumer standpoint, you know July looked okay.
Speaker Change: And then things kind of progressively got worse from there. That's why you know even though October looks good we're very cautious because we've seen this game before where are.
Speaker Change: You know.
Speaker Change: So there'll be kind of volatility month to month around what we're seeing.
Speaker Change: Look I think it's a lot of the stuff we talked about I mean, there's a lot of non current inventory.
Speaker Change: And some of the other Oems, there's just a lot of inventory.
Speaker Change: And so there's a heavy focus around that.
Speaker Change: And that's if I'm a dealer I'm trying to get rid of some of that stuff because I'm paying interest on it and even if I have to take a loss I just wanted to get it out of the door. So I think theres some of that but I mean, the backdrop from a consumer standpoint hasn't gotten better.
Speaker Change: Interest rates moved a little bit given the fed's action.
Speaker Change: It takes time for that to roll through and as we said I don't think one interest rate is going to do it I think it's going to have to be multiple multiple I mean, if you look at the economic data coming out right now credit card debts at an all time high auto delinquency rates are up I mean, the good thing is we're not seeing some huge spike in delinquency rates for power sports, we're keeping a close eye on that but you know the consumers.
Speaker Change: Just not in a in a great spot and so you know I think for US. It's just we're going to focus on the things. We can control we're going to work diligently through October November and December to get the inventory down and at the same time keep focusing on the making the operations are better than they have been.
Speaker Change: Got it and then.
Speaker Change: On the inventory front I think the big concern among investors is that there's still going to be more work to be done as we enter 2025, maybe.
Speaker Change: The level of confidence that youre going to finish this year with the appropriate level of inventory and might be a couple of times called out.
Speaker Change: DSO progress that you're making maybe put a finer point on that whereas retail and where inventory versus 2019.
Speaker Change: I guess I'm surprised to hear the comment that the starting point for next year.
Speaker Change: Flat EPS, if we're not.
Speaker Change: I'm seeing significant inventory drawdown right.
One to one wholesale to retail environment I would be surprised if you didn't grow EPS given some of the tailwind, but I would think we'd come back, but maybe I'm not thinking about this the right way.
Speaker Change: Yeah, well I mean first of all we're not going to get into a 25 guidance discussion here.
Speaker Change: I gave you guys. What I think is a starting point for next year and obviously, we're going to work to make sure. We do everything we can to drive performance I think what it signals is is that we don't see a rebound coming there's nothing in front of us data wise that would signal that.
Speaker Change: Inventory by the end of the year from a unit perspective will be substantially below where we were in 2019, we will be just north of 100 days of inventory and my confidence level around that is incredibly high. The fact that we pulled guidance down as much as we just did should be a direct reflection of our.
Speaker Change: Our commitment to that.
Speaker Change: It's not that we don't care about meeting our financial commitments, but job number one is protecting dealers because when we get through this cycle, we need to make sure that the dealers are healthy and as the preeminent partner to these dealers, making sure that we live up to that commitment is is key so we've got a we've got a very clear a window into October November and December we.
Speaker Change: No what we have to do as we said we're under shipping retail dramatically in the fourth quarter.
Speaker Change: And we've got a high degree of confidence, we're going to land in that 15% to 20% reduction.
Speaker Change: Okay.
Speaker Change: Got it thanks, Mike.
Speaker Change: Yep.
Speaker Change: And our next question today comes from Robin Farley with UBS. Please go ahead.
Robin Farley: Great. Thanks, I wanted to go back to the cost saves that you talked about I know you said about 25% of it is tied to sort of labor and materials from from Wallace.
Robin Farley: The kind of production, but so the other sort of 200 million or so.
Robin Farley: I'm, assuming that's volume dependent that you wouldn't.
Robin Farley: Get all that back in 2025 bps can you give us a sense of.
Robin Farley: Well first of all I guess, how much is volume dependent is it all volume dependent and then also would volume have to get back to.
Robin Farley: Looking at when you first gave that $150 million target I think your top line.
Robin Farley: Outlook at that point was about 17% higher than where it is now is that were.
Your shipments were your sales would need to be to hit.
Speaker Change: Good to see that cost saves show up in your EPS line.
Robin Farley: <unk>.
Speaker Change: Sure so.
Speaker Change: So of the 280.
Speaker Change: What I, what I meant with what I said about 25%. So 25% of it is you know of the of the cost the true cost savings is volume dependent it's labor, it's direct and indirect labor.
Suitable supplies in the plants that that would likely come back, but as Mike said, maybe more efficiently. So it might not fully come back, but it would it would generally come back.
Speaker Change: If volumes went back to what was in the original 2024 plan.
Speaker Change:
Speaker Change: What would also come back to though is the 140 plus million dollars of absorption, so which would obviously be a benefit I mean really the reason you don't see much of the benefit of the $2 80. This year is.
Speaker Change: 140, plus of it was taken up by absorption. So we netted 140 and that's been offset by negative mix mix then been a challenge all year.
Speaker Change: Last year, if you remember we were filling the channel still with XD is an expeditions.
Speaker Change: Some higher end product and so mix has been a been a headwind so.
Speaker Change: To get at all to see all 280 you'd have to see.
Speaker Change: The volume come back to where it would have been in the in this year, but we're going to continue to make efficiency improvements and investments in and as Mike said, well. We think we can get some of that volume back at a more efficient level than it was taken out at and we'll see how that plays out over the next couple of years.
Speaker Change: Okay.
Speaker Change: So that sort of $210 million, that's that's not mine.
Speaker Change: Not tied directly to always cut.
Speaker Change: It sounds like Youre, saying that would still take a couple of.
Speaker Change: To get volume back to your original guidance to achieve that.
Speaker Change: We should not expect that 210 million in cost saves to show up in 2025 EPS is that is that fair.
Speaker Change: Robin the 210 is already in the 2024 EPS. So not only is the only thing that would carry over as any further improvement from there.
Speaker Change: The 200.
Sure. So it's not going to it's not going to to come back next year, it's already in the current year run rate.
Speaker Change: Okay and then the.
Speaker Change: The other piece for next year, and I know, you're not guiding to it but.
Speaker Change: In a theoretical baseline.
Speaker Change: If retail were flat and I realize that nobody's guiding to that are underwriting the outlook, but just if it were.
Speaker Change: And you are shipping to that retail your shipments could be up because of some of the cuts this year.
Speaker Change: Got it.
Speaker Change: About inventory reduction at dealers is it fair to think that like close to two bucks of EPS would come back if you are shifting to a flat.
Speaker Change: Retail and and getting getting back the shipments that were.
Speaker Change: Inventory reduction this year is that.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Yeah, I mean, it's it's it's tough to comment on.
Speaker Change: And we're obviously still early in the planning process with our teams I mean, obviously this environment has us approaching things a little differently than we have historically, but you know I answered Fred's question by saying flat and I think what you can read into that is if we're talking about shipments being flat that means we anticipate retail could still be challenged through.
Speaker Change: <unk> twenty-five, albeit probably not at the levels, we've seen historically, but we do anticipate that there could continue to be headwinds I mean look.
Speaker Change: We saw it in the third quarter is continuing into the fourth quarter. There isn't a magic switch that comes January one.
Speaker Change: And so we're planning accordingly, and then certainly if if we're in an environment, where we've got the ability to start pushing shipments up and I'm not suggesting that's in 'twenty five but.
Speaker Change: That is going to put us in a position to have much better incremental margins on the upswing. We've done a lot of work to keep those decrementals I mean, our EBITDA decrementals are at just over 20%.
Speaker Change: <unk>, which has taken a lot of hard work from the team and at the same time, we're going to lean out everything we can so that win margin when the revenue comes back.
Speaker Change: The ability to lever into those those margins I I don't want to get into trying to make a call around twenty-five it's too soon we need to get through the next few months.
Speaker Change: Come back to you guys in January with.
Speaker Change: Our view of where we're at but you know based on what we're seeing today. We're just trying to set some expectations around where we think things are headed in 'twenty five and we'll see how the consumer performs in the fourth quarter.
Speaker Change: Great. Thank you very much.
Thanks.
Speaker Change: And our next question today comes from Alex Perry with Bank of America.
Please go ahead.
Alex Perry: Hi, Thanks for taking my questions here I just wanted to follow up on some of the retail questions that have been asked I guess is it fair to assume that you don't expect any significant deviation in trend from <unk>. So <unk> continuing on that sort of down low single digit trend and then.
Speaker Change: Is there any reason that.
Any of the other segments as we look at marine or motorcycles should have any significantly deviation in trend. Thanks.
Speaker Change: I think that's probably a fair way to.
To think about it.
Speaker Change: I mean, the one unknown at this point, which we haven't spent much time talking about is our snowmobile business.
Speaker Change: Yeah, that's the one outlier, we're coming off of a really bad snow year from last year. It's encouraging that there is some snow in the mountains right now, but we're sitting here in Minnesota and its mid Sixty's and Theres still leaves on the trees. So we're certainly not seeing anything that's got everybody I'll encourage so.
Speaker Change: Outside of the snow business I think those are realistic assumptions.
Speaker Change: Really helpful and then.
Speaker Change: Just on the promotional environment.
Speaker Change: No similar type of question.
Speaker Change: How promotional do you expect you know the fourth quarter to be are you seen any easing in the promo promo environment, that's baked into your guide.
Speaker Change: No no.
Speaker Change: The encouraging thing is from my standpoint is we're in a pretty rough promo environment.
Speaker Change: And we're still we're kind of back to the same percent of revenue. We were in 2019, and if you think about the backdrop, it's not great now certainly its been helpful. I talked about in my prepared remarks, we made some pricing adjustments, where we had products that you know quite frankly were almost always on from a promo standpoint. So.
Speaker Change: It made sense just to adjust the MSRP.
Speaker Change: And essentially eliminate the promo on those products so that when consumers looking at a website. They see the actual pricing other than can expect to pay on that vehicle.
Speaker Change: But outside of those types of adjustments no I don't see promo, having any significant shifts in the fourth quarter.
Speaker Change: Perfect really helpful Best of luck going forward.
Thanks.
Speaker Change: And our final question today comes from Saba Khan with RBC capital markets. Please go ahead.
Speaker Change: Okay, great. Thanks, and good morning, I'm. So I guess, just maybe tying off that entire discussion around promo inventory. So it sounds like you.
Saba Khan: You are pretty confident in getting to that sort of inventory reduction range, you've talked about but maybe more of it comes from reduction of the ship in versus maybe matching some of the competitors on the level of promotional activity. They are undertaking or is that sort of the right way to think about it.
Saba Khan: It's a combination there's areas, where we're gonna be prom promotional to protect us segment.
Saba Khan: But and in the instance that I was highlighting earlier, you know where we've got a competitor is inventory its two or three years old and.
Saba Khan: You know, they're just they're thrown everything at it we just we're not going to go down that path I don't view that as high quality sure and we're just we're not going to we're not going to participate but you know if it if we get to a point, where we feel like interest rate buy down start to move consumers off the sidelines because the gap between the interest rate moves and where we're at you're going to make a difference.
Saba Khan: There's things like that that we will certainly lean into but I'm, we're not going to do anything while we will pull shipments down where we need to.
Saba Khan: And that's why we adjusted our guidance.
Speaker Change: Great and then just a last one on the kind of the <unk> sales.
Speaker Change: Maybe the resiliency of those and what are you expecting sort of in that business line as we work through the macro cycle here. Thanks.
Speaker Change: Yeah, I mean, certainly the accessory side you know, we built that up substantially over the past decade.
Speaker Change: So theres a little bit more volatility there as we pull production down because our substantial amount of the <unk>.
Speaker Change: Product that comes out of our factory is factory installed accessories, but when we look at our parts business that is far more resilient as we see consumers hold onto vehicles longer.
Speaker Change: And look to repair the vehicles or even add accessories to extend the life of them. So you know it is far less.
Speaker Change: Volatile than the rest of the OEM side of the business, which is exactly what we've seen historically.
Operator: Great, thanks so much for the call.
Great. Thanks, so much for the color.
Speaker Change: Thank you.
Speaker Change: Thank you and this concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Operator: This concludes our question-and-answer session.
Operator: I'd like to turn the conference back over to the management team for the final remarks.
JC: Hey, Rocco, this is JC.
Speaker Change: Rocco This is J C. We don't have anything else. Thank you very much everybody.
Operator: We don't have anything up.
Operator: Thank you very much, everybody.
Operator: Thank you, sir.
Speaker Change: Thank you Sir and this does conclude today's conference. We thank you all for attending and everyone for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: And this does conclude today's conference.
Operator: We thank you all for attending, everyone, for attending today's presentation.
Operator: You may now disconnect your minds and have a wonderful day.