Q1 2025 Polaris Inc Earnings Call
Good day and welcome to the Polaris first quarter 2025 earnings 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 Allison and good morning, or afternoon, everyone I'm J C Weigelt Vice President of Investor Relations at Polaris. Thank you for joining us for our 2025 first quarter earnings call. We will reference a slide presentation today, which is accessible on our website at IR Polaris Dot Com joining me on the call today are Mike seats in our Chief Executive.
Speaker Change: Bob and Bob Mack, our Chief Financial Officer, both have prepared remarks, summarizing that 2025 first quarter as well as our expectations for 2025, then we'll take your questions.
Speaker Change: During the call, we'll be discussing various topics, which should be considered forward looking for the purpose of the private Securities Litigation Reform Act of 1995, and actual results could differ materially from those projections in the forward looking statements you can refer to our 2024 10-K for additional details regarding the risks and uncertainties.
Speaker Change: All references to 2025 first quarter actual results in future periods 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.
Mike Seats: Now I will turn the call over to Mike speeds go ahead, Mike.
Mike Seats: Thanks, Stacy and good morning, everyone. Thanks for joining US today 2025 has continued to be a dynamic period for our industry. These are certainly challenging times, but we're managing that situation thoughtfully.
Mike Seats: And as I mentioned in our last earnings call has become increasingly evident over the last several months that Wanna Polaris is greatest strengths continues to be our determined and unrelenting team one that is willing and able to conquer any challenge.
Mike Seats: Today, Bob and I will walk through how the business performed in the first quarter share more on our strategic approach to mitigating the impact from tariffs and discuss how we intend to emerge stronger to deliver sales growth stronger earnings power and higher returns.
Mike Seats: In Q1, we continued to focus on managing what is within our control as expected sales were down 12% driven by our decision to continue reducing shipments to manage dealer inventory amidst a prolonged downturn in power sports and a higher promotional environment.
Mike Seats: Margins were slightly below our expectations due to elevated promotions in the industry.
Mike Seats: Terrorists did not materially impact our first quarter results due to timing and the deferral of related costs, we partially offset these headwinds through our ongoing operational savings, including lower manufacturing spend and favorable material and logistics costs during the quarter.
Mike Seats: Adjusted EPS of negative <unk> 90, <unk> came in at the midpoint of the guidance range. We provided in January.
Mike Seats: North American retail was down 7% with relatively better performance in our utility business versus recreational products on our prior earnings call. We highlighted the positive indicators around ridership pent up demand and continued interest in the power sports category.
Mike Seats: This point was reinforced this last quarter and our snowmobile business as late season snow in the flatlands resulted in strong retail growth of approximately 50% in the quarter.
Mike Seats: Additionally, in our razor consumer study, we recently conducted that looked at vehicle usage and owner repurchase rates raise of ridership and engagement within the category remains strong in fact over 90% of razor riders in our study say they were planning to ride the same or more than last year.
Mike Seats: However, more than 40% of those we surveyed acknowledged that they are holding onto their vehicles longer than they typically would given factors like interest rates and economic uncertainty.
Mike Seats: The share story was mixed this quarter as we gained share in motorcycles and pontoons, but lost modest share in a worthy.
Mike Seats: Remember that we were among the first to execute a dealer inventory reduction strategy, demonstrating our commitment to a strong partnership with our dealers, we continue to see or be sure being impacted by elevated promotions from some of the Japanese Oems that continue to lag clearer some reducing dealer inventory.
Mike Seats: In our view this as a short term issue and we believe that we remain well positioned to gain back share with our innovative product line across atvs and side by sides once inventory levels normalize and industry retail stabilizes.
Mike Seats: The uncertainty in today's market reminds me of 2018, when we were dealing with the initial wave of tariffs that were placed on China. The environment is fluid and changes daily My goals, then as CFO and now as CEO are consistent successfully navigate this situation with the best team in power sports by staying close to our dealers preserving cash.
Mike Seats: Cash and positioning this great American company to emerge stronger than ever and further cementing Polaris is the leader in power sports.
Mike Seats: We've decided to withdraw our full year guidance that we provided in January this was not an easy decision. However, given the fluidity of the tariff environment, including the frequency of new tariffs changing tariff rates and the temporary suspension of certain tariffs coupled with the potential impact consumer spending we have determined that withdrawing our full year guidance is the most prudent course of <unk>.
Mike Seats: Action.
Mike Seats: We're actively monitoring developments and we'll reevaluate our decision on guidance once we have greater clarity our commitment remains to stay focused on navigating these challenges and positioning players for sustained long term success.
Mike Seats: Retail trends in the quarter were similar to what we've seen in recent quarters within off road. Our utility retail was down high single digits led by double digit declines in Atvs recreation was down high teens, driven by greater than 20% declines in razor and used vehicles.
Mike Seats: Volatility a month amongst intra quarter months was elevated with double digit swings month to month with February being down roughly 20%.
Mike Seats: It's worthwhile, calling out our premium products such as players expedition Ranger XD and Ranger XP Northstar as these products had positive retail in the quarter the sustained demand for our premium feature rich product products highlight strength among cash buyers.
Mike Seats: Within on road motorcycle market continues to be pressured both domestically and internationally do it's discretionary nature. However, Indian motorcycles outperformed the industry and gained share in North America, driven by the new power plus lineup in our heavyweight portfolio of bikes.
Mike Seats: In Marine the boat show season is behind Us and retail at those shows was flat to slightly down against last year.
Mike Seats: During a recent dealer visits there was a lot of excitement from dealers regarding the new boats, we launched and while we expect sales pressure remained in the marine industry due to high costs and the discretionary nature of the product. We believe we can win share with our innovative portfolio of boats.
Mike Seats: As previously mentioned, we also continue to see Oems in the marine space impacting share with aggressive promotions to help dealers move non current inventory while this negatively impacts us in the short term we do not believe this is a long term strategy to move share.
Mike Seats: In the first quarter of 2000, and twenty-five Bob and I spent time meeting with some of our off road and Marine dealers. This is an important part of the job and I always walk away from those meetings impressed with the partnership we have with our dealers and their commitment to Polaris might.
Mike Seats: My takeaway from those meetings are that partnership matters. They feel like we're listening and are making appropriate adjustments and they were appreciative of us meeting our commitment to reduce inventory last year and into this year innovation.
Mike Seats: Innovation matters dealers feel we're listening to our customers and it can be seen in the futures, we added to our model year 'twenty five lineup.
Innovation also includes quality, where we've seen significant improvements in model year 'twenty five warranty claims and dealers confirm that Polaris is among the best in this regard.
Mike Seats: Lastly, dealers voice concern and uncertainty for the remainder of the year, we assured them that we would've remained close and make the appropriate adjustments to help ensure their businesses are protected.
Mike Seats: From our visits it was clear that those dealers who are focusing on all five profit centers within their dealership are faring better financially given strength in service used vehicles and accessories.
Mike Seats: So while uncertainty remains high I feel our relationship with dealers is healthy and strong we understand each other's priorities and are working hard to ensure we experienced mutual success.
Now shifting gears to tariffs every day seems to bring a new headline or new information. So we're staying focused keeping a level head and being proactive. This includes going to Washington D. C to meet with our elected officials and their staff to reemphasize. The fact that we were the only major U S based power Sports company.
Mike Seats: Our story started more than 70 years ago as a small business founded in Minnesota, and while we have grown to be a global company. We maintained our strong sense of pride being headquartered in the U S. With the most significant U S manufacturing testing and R&D presence in the industry.
Mike Seats: We employ more than 8000 Americans, while supporting approximately 35000 American workers employed by our U S dealers.
Mike Seats: In addition, approximately 65% of our U S production value stems from U S content.
Mike Seats: Unfortunately, the tariff policies as written today have created an environment that disadvantages Polaris for our U S manufacturing footprint.
Mike Seats: As we mentioned at our capital markets day in March we import approximately $250 million of components from China to the U S to be used to assemble vehicles.
Mike Seats: Under the current tariff regime for China, we are forecasting an incremental tariff rate of approximately 145% on our U S imported Chinese components equal equating to approximately $200 million to $240 million in new estimated tariff costs cost this year.
Mike Seats: This 145% tariff rate doesn't apply to competitors, who also source from China, but manufacturer in other countries like Mexico, or Japan, and then ship products to the U S. The same goes for many of the retaliatory tariffs throughout the rest of the world, which equates to a potential gross tariff impact this year of approximately $35 million.
Mike Seats: This current environment puts us at a competitive disadvantage because we have a U S manufacturing footprint.
Mike Seats: All in we expect to incur between approximately $320 million to $370 million of gross tariff costs of which approximately 60 to 70 million was budgeted within our original guidance.
Mike Seats: With costs being capitalized into inventory, we can defer a large portion of these costs into the back half of the year and 2026.
Mike Seats: In response to the tariffs we've launched a tariff mitigation strategy. Following the initial tariff announcements in February we mobilized cross functional teams to evaluate the implications for our supply chain and cost structure.
Mike Seats: These teams meet daily we have war rooms, and have already implemented several actions to help mitigate potential tariff impact to me.
This complexity and reduce our exposure replicating a four pronged mitigation strategy focused on one making adjustments to our supply chain and manufacturing to diversify sourcing and optimize our production footprint second initiating cost control initiatives to offset pressures elsewhere in the business third re prioritizing markets and <unk>.
Mike Seats: <unk>, where appropriate to preserve margin and finally ongoing government affairs and advocacy to ensure our perspective as a U S manufacturer is represented in policy discussions.
Mike Seats: Within our supply chain and manufacturing footprint, our immediate focus has been on our Chinese content given the size of the impact. We've started moving we started moving sourcing out of China and into other countries, including the U S. In 2018.
Mike Seats: By the end of this year, we anticipate we will have reduced our Chinese source parts by approximately 30% with plans in place to make further reductions in 2026.
Mike Seats: Regarding our manufacturing in Mexico, and U S. MCA compliance approximately 95% of our U S imports from Mexico or U S. M. C. A qualified we are working to increase that percentage to further reduce tariff exposure.
Mike Seats: On the cost control front, we acted quickly to reduce discretionary spending including tightening of travel requirements and placing a selective near term pause on hiring.
Mike Seats: As Bob will discuss shortly we're taking a disciplined and proactive approach to managing costs preserving liquidity and ensuring claris remains well positioned in this period of uncertainty.
Mike Seats: In response to retaliatory tariffs, we've taken action to reduce shipments of slingshot and certain motorcycles to Canada and motorcycles to Europe for a short period we.
Mike Seats: We do not fear, losing any material sales and share given current dealer inventory levels in those regions and we can reevaluate this approach mid year.
Mike Seats: We also preposition motorcycles in Europe ahead of the announcement of retaliatory tariffs.
Mike Seats: We're carefully assessing our pricing strategy to ensure we remain competitive while navigating the complexity of the current trade environment.
Mike Seats: We can't we began meeting with congressional members as well as leaders from the administration a couple of weeks ago, and we'll continue to do so.
Mike Seats: Take away from those conversations is there we're approaching this in the right manner in the and the message is resonating that the only U S. Headquartered power Sports company is being impacted the most.
Mike Seats: We believe the Trump administration understands our issues and we remain hopeful that productive negotiations on tariffs between the administration and key countries will progress in the near term.
Mike Seats: As you can see there's a lot going on and we're implementing actions that can reduce our tariff exposure over the short and long term what I just walked through is not an exhaustive list. There are several other actions identified that our teams are working diligently on and will S. Kit execute them. Once we have further clarity on tariff policy.
Mike Seats: Adding together the new net impact from tariffs, our mitigation efforts and the accounting deferral, we estimate the impact from tariffs in 2025 to be less than $225 million. Our teams are working hard on large a large funnel of mitigation actions with the goal of producing the tariff impact even further.
Mike Seats: Well, we manage the immediate challenges of tariff my leadership team and I remain focused on the critical long term initiatives that are expected to drive value for customers dealers and shareholders long into the future.
Mike Seats: Mark Suarez, our V. P of off road operations did an excellent job at our capital markets day in March laying out some of the actions. His team is taking to build a more efficient operating culture and our manufacturing facilities. So far his team has executed their agenda and we're ahead of our plan and our manufacturing facilities.
Mike Seats: We also continue to push the pace on innovation and have some exciting products. Launching later this year that are expected to enhance our industry, leading portfolio of vehicles and boats already in dealer showrooms. Some of you saw the new Bennington digital helm at the Miami boat show and many of our analysts were able to experience the dynamic shocked technology of our snowmobiles in west Yellowstone.
Mike Seats: Turning to working capital we committed to you in January that we were focused on lowering our finished goods inventory and I'm proud to say the team did a great job of that during the first quarter. This effort helped us achieve our highest Q1 operating free cash flow in nine years Theres more work to be done, but the progress is measurable.
Mike Seats: Lastly on dealer health, our broader team and I have met with many dealers. This year I'm encouraged by the feedback I get from dealers in the rankings. Our team receives from dealer surveys were again ranked number one in the categories of sales and service we achieved a net promoter score of over 70, which indicates we're listening and making the right investments in our dealers. This.
Mike Seats: Our ship is vital in both good times and bad and I'm confident that we are a trusted partner to our dealers.
Mike Seats: So while there's a great deal of uncertainty in the market today, we have a plan in place to help mitigate the impact from tariffs.
Mike Seats: Additionally, we are executing our long term strategy to build.
Mike Seats: Built to deliver shareholder value through sales growth strong earnings power and higher returns. The current market conditions will not cause us to deviate from our strategy and I remain confident that players will emerge as a stronger company and will generate above average return for shareholders I'm going to turn it over to Bob to provide you with more details on the financials.
Bob Mack: Thanks, Mike and good morning, or afternoon to everyone on the call today.
Bob Mack: Our first quarter sales met expectations and the decline versus prior year was driven by planned production cuts to help manage dealer inventory promotions were higher than we expected, which was somewhat offset by slightly more volume than we had expected as our clients continue to improve build rates.
Bob Mack: Our international business dropped 16% due to weak markets in off road and on road.
Bob Mack: We believe our international dealer inventory is healthier now.
And now positioned to grow once retail demand returns.
Bob Mack: P J and as sales were flat year over year with strong parts and aftermarket apparel sales offsetting attachments on lower whole good volumes.
Bob Mack: The main challenges to our margins, where volume promotions and FX, partially offset by lower operational and warranty expenses.
Bob Mack: There was no material impact on our results for the tariff cost this quarter with much of the current tariff costs deferred to later periods.
Bob Mack: Turning to off road sales were down 10% due to lower volume and higher promotions somewhat offset by a favorable mix.
Bob Mack: The RV industry in North America continues to be driven by weakness in consumer sentiment and dealer focused on inventory levels.
Bob Mack: While inventory continues to improve for the industry. It seems there is still more work to do before dealers still comfortable with their position in this current environment.
That said, we believe inventory levels of our vehicles and dealerships are healthy both relative to historical norms and in comparison to other Oems.
Bob Mack: While the late snow did not have a material impact on our sales did provide some relief in dealer inventory after two consecutive weeks snow seasons.
Bob Mack: Strong retail in Q1 resulted in sequential dealer inventory coming down over 20% from Q4 of 24 to Q1 'twenty five.
Bob Mack: Gross profit margin was down 147 basis points with much of the drag being driven by promotions and the prolonged downturn in power sports and the macro economy.
Bob Mack: I do want to touch on warranty expense as this was a positive contributor to the quarter. We have invested heavily in quality over the past five plus years and believe we are beginning to see positive results from those investments in our model year 'twenty five vehicles.
Bob Mack: Like our progress with lean and operational efficiencies, we should start to see improvements in warranty positively contribute to our margins in a normalized environment.
Bob Mack: In addition customers are taking notice of these investments as indicated by our NPS scores for product sales and service, which are at five year highs.
Bob Mack: Switching to on road sales during the quarter were down 20% driven by a challenging motorcycle market and the timing of engine deliveries at our axon business in France.
Bob Mack: We expect this issue to be resolved this quarter and to make up lost sales in the back half of the year.
Bob Mack: For motorcycles it was encouraging to see the heavyweight business turnaround in the quarter, but that was not enough to offset the declining market.
Bob Mack: Indian motorcycles gained meaningful market share during the quarter driven by our heavyweight business.
Bob Mack: Adjusted gross profit was down 489 basis points, driven by a year over year mix headwind and elevated promotions.
Bob Mack: Margins were better than we had planned due to operational efficiencies.
Yeah.
Bob Mack: In marine.
Speaker Change: Sales were down 7% in line with our planned reduction in shipments as we continue to take our built to order approach.
Speaker Change: The latest industry data, we have shows the pontoon industry is down 11% year to date, which is a continuation of the prolonged downturn, we've seen in Marines its 2023.
Speaker Change: Within Bennington, we continue to see good traction with our new M series, pontoon, which has a rich mix versus the prior model it replaced.
Speaker Change: Also in Bennington, We started recently started to ship a pontoon standard features at a nationally advertised price, which is being well received by both dealers and consumers.
Speaker Change: Gross profit in marine was down given unfavorable absorption from lower volumes.
Speaker Change: Moving to our financial position, we have instituted a recessionary playbook given the combination of this prolonged downturn and power sports coupled with the uncertainty ahead of us around trade and economic policy.
Speaker Change: We did not make this decision lightly and this operating model could be short lived if we have favorable clarity after the 90 day pause on tariffs.
Speaker Change: However, we thought it was prudent to enact these principles proactively to protect cash and maintain strategic flexibility.
Speaker Change: Our first priority is cash preservation, we made good progress in Q1, reducing working capital and generating stronger than normal free cash flow.
Speaker Change: We have also taken a fresh look at the Capex budget and have identified a list of actions to defer at this time.
Speaker Change: These actions are focused more on maintenance versus growth or innovation.
Speaker Change: Emerging stronger is a key part of this operating model and while you will see modest reductions in R&D. These reductions will not have an impact on product launch timing.
Speaker Change: The last big bucket of actions involves managing costs, we have removed approximately 10% of our salaried workforce last year and have paused spending in some areas to help control cost.
Speaker Change: We are also evaluating a number of opportunities that would be acted on.
Speaker Change: Upon after we have clarity on tariffs and it makes sense, both financially and strategically.
Speaker Change: We intend to be very prudent with capital until we return to a more predictable environment, but just to be clear even as we modeled downside scenarios for Q2, given the current economic landscape, we do not anticipate concerns with liquidity we.
Speaker Change: We are maintaining our regular dialogue with existing lending partners, including evaluating options for additional flexibility.
Speaker Change: Therefore, we plan to remain agile in this environment and expect to have more clarity around tariffs in the coming weeks in the meantime, we are positioning ourselves prudently to withstand the turbulence and come out stronger for our employees dealers customers shareholders.
Speaker Change: Given that we have withdrawn full year guidance, we thought it would be helpful to provide more information on our second quarter assumptions with the caveat that these do not incorporate any change in the current global tariff policy as it stands today.
Speaker Change: We also do not know what the impact of the current environment will have on retail demand and that's our assumptions today assume retail remains modestly lower year over year.
Speaker Change: Okay.
Speaker Change: First we expect second quarter sales to be between one six and $1 $8 billion, we intend on shipping fewer units than we retailed due to softer retail environment and our desire to hold dealer inventory close to current levels, coupled with our decision to delay some shipments to Canada and Europe.
Speaker Change: We are also assuming the current elevated promotional environment continues.
Speaker Change: We estimate incremental tariffs will impact the P&L between $10 million to $20 million for the quarter.
Speaker Change: Within our tariff mitigation strategy, we think it's important to know we have three buckets of action items first.
Speaker Change: First our live actions we are already executing.
Speaker Change: Second includes actions, we are reviewing and likely to execute soon.
Speaker Change: The last bucket of actions requires more clarity on trade policies before we can act as.
Speaker Change: As Mike noted if the current tariff levels do not change, particularly for China, We estimate the fiscal year 2025, net new tariff impact to our P&L after mitigation and deferral will be less than $225 million.
Speaker Change: We are in the early stages of these efforts and the goal is to significantly reduce this burden.
Speaker Change: This does not include the original $60 million to $70 million of Terra cost, we budgeted for at the section 301 tariffs.
Speaker Change: We have strong relationships with our dealers our innovation is winning in the market and we continue to realize operational efficiencies.
Speaker Change: We do not see anything in this current environment that derails, our long term strategy to make Polaris a company with strong earnings power and greater returns.
Speaker Change: Yes. These are certainly interesting times, but it sounds strategy has us aligned so we can manage through this dynamic environment with the goal of emerging stronger.
Mike Seats: With that I'll turn it back over to Mike to wrap up the call go ahead Mike.
Mike Seats: Thanks, Bob I'll wrap up with a few comments first we have a plan in place to mitigate a portion of the tariff costs impacting our business. We are positioned to execute additional mitigation strategies as we gain clarity on tariff policy, including being prepared for the end of the 90 day reciprocal tariff pause on most countries.
Mike Seats: We've implemented our recession playbook focused on cash preservation and liquidity, we decided to implement this operating model as our industry has been in a prolonged downturn, coupled with uncertainty around tariffs and consumer health will continue to monitor the evolving environment adapt our approach accordingly.
Mike Seats: Lastly, we haven't lost sight of our long term strategy I've been talking about since 2022, we strongly believe in our position as the global leader in power sports.
Mike Seats: We have a clear long term financial targets that can unlock value for our shareholders. This is taking longer than we expected due to macroeconomic factors, but trust that we can measure meaningful changes happening within our operations and dealer partnerships that give me great confidence that we're making significant progress.
Mike Seats: We're focused on the items within our control and I believe with a little clarity it will become more evident that all the work. We've done is positioned players to emerge stronger from this we appreciate your continued support and with that I'll turn it over to Allison to open the line up for questions.
Allison: And we will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone Chad.
Allison: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question.
Allison: Please press Star then two.
Speaker Change: At this time, we will pause for a moment some of our roster.
Allison: Yeah.
Allison: Yeah.
Speaker Change: And our first question today will come from Joe I'll propeller with Raymond James. Please go ahead.
Allison: Thanks, Hey, guys. Good morning, just wanted to circle back on the tariff mitigation efforts that you guys are undertaking here you did allude to.
Allison: <unk> pricing strategies and I'm, just curious how much pricing might play a role, particularly in off road I would think that you guys would be kind of a first mover.
Allison: There and so I'm curious how much are we thinking about and when might you need to make that call.
Allison: Yeah, we are providing clarity to our dealers late last week that you know pricing is going to remain as is through the end of may.
Allison: I mean look the reality is we're gonna be bearing significantly more costs in many of our competitors, but you know we're also dealing with an industry that has a I would say a fairly inelastic buyer you know we've got retail rates that are continuing to be down we've clearly been in a recession.
Allison: From a power sports perspective.
Allison: And so you know, adding adding price at this point.
Allison: It becomes a very difficult proposition.
Allison: Proposition.
Allison: So what I've done is I've told the team we're not looking at that as a relief valve. We've gotta look inside our it's why we're moving so aggressive around the supply chain.
Allison: The team is making really good progress I mean, the fact that we had moved 15% of the content from China out.
Allison: Prior to 'twenty five and in 2025, we're going to get that number up to 30% and quite frankly, we've got the team out investigating it they can go even further or faster.
Allison: And I'm I'm not ready to throw in the tower on the negotiations with the administration I was encouraged with the news that came out last night, whether it's substantiated or not it's tough to know around you know relief for the automotive sector I think the administration has a.
Allison: Far greater appreciation for some of the you know.
Allison: Very detailed dynamics that we and others, who manufacture in the United States and employee labor that works on high margin vehicles.
Vehicles, and the fact that we're relying on less than 9% of our total cost of goods sold coming in from from China. So it's it's very low and I think there is an appreciation for that and I think we can find a way to work.
Allison: It worked through that so we've got a lot of different avenues, and we're not viewing prices. Some very easily movable item. We obviously will take a look at it it'll probably be very detailed segment by segment.
Allison: Country by country, and there'll be more to come on that down the road.
Allison: Very helpful and just to kind of follow up on that in terms of off road you talked about the elevated promotional levels and a lot of your competitors does that need to clean up some aged inventory where are we in terms of.
Allison: If you look at it as a baseball game what inning are we in in terms of that cleanup process and when do you think you guys might be able to start regaining market share again.
Allison: Yeah, you know I think as it relates to off road I would say, we're probably getting into the later innings of the game.
Allison: The the good news is is that everybody has improved from where they were last year.
Allison: But we still have some competitors that have dsos that are two X, where we're at now granted they're much smaller player than us, but the days sales that they have sitting at the dealer or two acts and other competitors are 20, maybe 30% above where we're at.
Allison: And their non current mix is unfavorable.
Allison: Relative to us.
Allison: At the dealer level and you know I think that the concern is that we continue to see that non current discounting that's got a heavy impact and we're just not going to participate in that those are likely not buyers of our product anyway. You know many of these products are being offered it you know 510.
Allison: Dollars off to clear out inventory, that's two maybe three years old So you know.
I think.
Allison: Theres definitely been progress made and it's really going to depend on when retail starts to stabilize because as you know the tours are heavily correlated.
Allison: But we're confident that once we get into an environment that the inventory is much cleaner throughout the network are there is some progress against that.
Allison: And the consumer starts to stabilize we're gonna be in a great spot to when I talked about it you know the the new products that we've been coming out with as well as what we have less left to come out this year.
Allison: We know from talking with our dealers are resonating with our customer set and you know I mentioned, the razor survey well, we're doing a lot of work behind the scenes to understand the dynamics with our customers and the great News is they're sticking with Polaris. The great News is they are still using their product. The bad news is they are deferring repurchase and trade.
Allison: And because of the current market conditions. So I think getting market condition clarity is gonna be good on many levels and I think we're well positioned to take advantage of that.
Mike Seats: Got it thank you Mike.
Allison: But.
Speaker Change: Question today will come from Megan Clap of Morgan Stanley. Please go ahead.
Megan Clap: Hey, good morning.
Speaker Change: Unsurprisingly wanted to follow up on tariffs, obviously, you know a lot of helpful detail on that in the slides I appreciate that.
Speaker Change: You're saying less than 225 million of net new post mitigation tariff impact this year most of that in the back half.
Speaker Change: So if we just say, let's say 200, the simple math of just doubling that would suggest it could be 426, but I guess, presumably some of your mitigation strategies also might ramp over the year.
Speaker Change: So any possibility just to help us with how we should be thinking about at current rates, what the annualized impact from tariffs would be and Tony <unk>.
Speaker Change: Yeah, we intentionally Megan steer away from that because of what you mentioned as you were asking the question I mean with the the team is working the mitigation I mean, a lot of it is really coming down to resourcing components out of China.
Speaker Change: And so it's difficult to get at a run rate you know your math the simple math works, but I would argue.
Speaker Change: Ignores the fact that we will have taken 30% of the China purchase content out as we go through the course of 'twenty five and so you'd have to annualize that and then obviously, we're looking to accelerate and do more than 25, we don't have a number on that yet but the teams are working on it and then obviously we have plans around 26, which would then make further.
Speaker Change: <unk> as we layer those resourcing opportunities and through the course of the year. So.
Speaker Change: A lot of detailed math I mean to be honest with you. We're just spending our time trying to get our arms around the current year as you can imagine it's a highly complex environment and as you've seen just in the course of the last few days it it tends to change pretty rapidly.
Speaker Change: And so we're really focused on just understanding the current impact where do we think that's going and.
Speaker Change: I'll have more to say as we get later in the year and have more clarity around tariffs as well as the.
Speaker Change: Output from our sourcing initiatives.
Madigan: The other thing to think about Madigan is.
Speaker Change: You know the bulk of our tariff pressures coming from the.
Speaker Change: <unk> increased reciprocal and I E. The tariffs on China.
Speaker Change: You know theres been discussion yesterday about potential relief from friendly for the autos because they have the same tariff stacking challenge we do.
Speaker Change: That's obviously a conversation we're having with the administration as well.
Speaker Change: And you know that of all the tariffs that are out there I think for the one that's likely to come under the most pressure is the 100.
Speaker Change: For us as a total of about 175% when you stack it all on China, because that's creating a lot of pressure on the overall economy and you know the retail Ceos in the rest of the folks had been up in D. C last week, or so and I'm talking to the administration about what that's going to mean that at retail level in places like <unk>.
Speaker Change: And Walmart and best buy in and how that's going to impact the consumer and so.
Speaker Change: I think we will see action on that probably ahead of many of the others. So that's the biggest impact for us and look I'll I'll give the administration of a lot of credit I mean, you know Bob alluded to it. They we attended a dinner last week here in Minneapolis and had a chance to talk to the CFO of target, obviously, Brian Cornell who run.
Speaker Change: <unk> target was up with the home depot and Wal Mart.
Speaker Change: We were in Washington last week at the White House, we had the opportunity to sit down with.
Speaker Change: The director of the economic adviser to Trump we're.
We're gonna be talking to the Commerce Secretary. This week. So they they are asking a lot of questions to really understand how this is all embedded in the economy.
Speaker Change: And so things are developing fast and furious and we're trying to stay close to it and make sure that.
Speaker Change: We have a voice that they understand how it works. So the nice part is we're able to draft somewhat with auto because it's a very similar.
Speaker Change: Operating model and so we'll obviously have more to say, but I I would steer you away from trying to just annualize what we've got in front of us because there are a lot of moving parts.
Speaker Change: Okay. That's really helpful. Thank you.
Speaker Change: And as a follow up I just wanted to ask about the balance sheet and liquidity. Bob you did mention like even modeling downside scenarios you don't anticipate any concerns with liquidity I guess I'd just be curious whether those downside scenarios that you're modeling would contemplate any additional actions to preserve cash whether it be you know.
Speaker Change: Maybe cutting the dividend or taking actions to raise equity and I guess the reason I ask is even in a base case scenario I guess, assuming that just put that tariff impact into our model. It does seem like leverage could be hitting six seven times at some point. This year, obviously a lot of assumptions have to go into that but would just be curious.
Speaker Change: And those downside scenarios, you know, how how you'd think about additional actions to preserve cash.
Speaker Change: Yep Yep.
Bob Mack: Let me start and then I'll flip it over to Bob.
Bob Mack: First and foremost I mean, we've been a dividend player payer for 29 years as a dividend aristocrat that's important.
Bob Mack: This company is sustain that through a lot of challenging times.
Bob Mack: That said liquidity is more important.
Bob Mack: So that will factor in heavily in our calculus.
Bob Mack: We're early days, we're not going to jump to a decision.
Bob Mack: I said earlier I mean, I was preparing for this call and saw the Wall Street Journal article pipe across the screen that Trump was contemplating relief for the autos.
Bob Mack: I would hate to make a.
Bob Mack: The decision that takes away 29 years' worth of history.
Bob Mack: Without having all the facts so.
Bob Mack: It is a it is an item that is on the list. It's something that we will talk like we do with our board at every board meeting, but our immediate focus is going to be around things like working with our lending group to see what kind of.
Bob Mack: Flexibility, we have around covenants and and we're doing everything we can to preserve liquidity.
Bob Mack: And trying to work to stave off those things that could take the liquidity way primarily around tariffs.
Bob Mack: Bob anything you'd add yeah. So you know at the end of the quarter, we had one.
Bob Mack: 1 billion one available on a revolver plus another 300 million in cash so effectively a 1 billion four of available liquidity.
Bob Mack: You know we have been making progress on working capital we had good strong cash generation for the quarter. So we're very focused on that as a first level just because its fairly immediate.
Bob Mack: Capex were reviewing as we said we.
Bob Mack: We started the year with a plan of about 215 right. Now we are targeting about 200, I think theres more opportunity there as we continue to go through that.
Bob Mack: As Mike said, it's early innings here, so we're continuing to scrub that and make sure that we keep it focused on innovation and growth, but look to defer things that aren't critical for this year.
Bob Mack: We've been focusing on unprofitable business lines as you've seen we discontinued production of the FTR.
And timber sled as those were I'm not profitable businesses for us. So was that one those up and you know we're just going to we will continue to look at all the other options that are out there as Mike talked about but.
Bob Mack: We're also gonna be conservative to not make any long term decisions that that really deal with a short term problem. If we can avoid it we do have a great Bank group, it's been our bank group for many many years they've been supportive historically.
Bob Mack: In these type of situations they were extremely supportive of us during COVID-19, a we've had a lot of discussions with them. They are aware of our.
Bob Mack: Our projections as we look out through the year.
Bob Mack: And so we'll continue to discuss with them as we need it a covenant holidays things like that.
Bob Mack: And likely an extension of the $400 million term loan that comes up in July. So we're actively looking at those issues and working through how how we'll deal with them, but like I said, we have a very supportive bank group and I don't foresee that being a problem.
Speaker Change: Okay, Thanks, Mike and Bob.
Bob Mack: Thank you.
Speaker Change: And our next question today will come from Atlas with Glenn of Baird. Please go ahead.
Glenn: Yeah. Good morning, Thanks for all that helpful color on Paris.
Speaker Change: So you're dealing with a lot, but maybe just switching gears I wanted to just dig in on retail a little bit more I mean, you talked about some pretty wild swings month to month in the quarter.
Speaker Change: Maybe hear a little more detail on that what you think is driving that and is there any color you can share on what you've seen so far in April.
Speaker Change: Yeah, you know, it's really tough to draw any conclusions I mean, the problem is there was so much noise.
Speaker Change: Weather wasn't great.
Speaker Change: The fits and starts around tariffs economic data.
Speaker Change: I think when we step back it's a I think it's gonna be chalked up to a lot of the same attributes that we've been speaking to in terms of.
Speaker Change: Persistently high I'm unemployed inflation.
Interest rates, obviously remaining high but I think what's getting added to that is the uncertainty index has gone through the roof and you can see that showing up in things like the consumer confidence index, which is now I think at a 12 or a 14 year low you know I think people are just nervous and they're seeing you know there's a good portion.
Speaker Change: Of of our customer base that is invested in the stock market 401k, et cetera, and they're seeing these wild swings and when they look at you know products like ours of which about 40% are highly discretionary things like razors snowmobiles.
Speaker Change: Spending a lot of money when you're worried about the you know could there be higher inflation in the economy is there a risk to your job I think those things are all playing in and we're seeing that volatility.
Speaker Change: I would tell you April really we haven't seen anything much different than what we saw in March.
Speaker Change: You know the good news is we haven't seen it gets significantly weak relative to where we were expecting but at the same time, we were hoping to start to see some some positive green shoots and I think just the the overhang created from tariffs as well as just the uncertainty that that drives into the broader economic equation is probably causing a fair amount of consumer real.
Speaker Change: <unk> just spent on very large items purchase items.
Speaker Change: Mike talked about promo and obviously, we've seen promo in the market to move us or older units.
Speaker Change: The prior model year units with some of the Japanese as they look to clean up that inventory, but the other the other piece of promo that's come in has been a fair amount of interest rate buy down in.
Speaker Change: That has been relatively effective at getting retail moving I think all the manufacturers put more interest rate promo in the market in March and that sort of turned the tide a bit from February we continue to see that in April. So you know what what that shows is that part of the consumer reluctant.
Speaker Change: Lectins Dubai is driven by you know interest rates and I think now people are pretty convinced that we're not gonna see interest rates come down in the near term. So that type of promo has been effective unfortunately, it's kind of expensive.
Speaker Change: Well that's helpful color. Thank you and then just on.
On the warranty side it sounds like you know great improvements there, obviously a lot of moving pieces, but as you look out over the next year or maybe even if you think about a more normalized environment what type of impact could that have on your margin.
Alright, well I look I think the bottom line is it's going to be it's gonna be a tailwind.
Speaker Change: You know, it's not going to move as fast as we would like because you still are dealing with you know older product that was manufactured.
Speaker Change: 100 different standards and what we've got in place today in terms of design and lean principles. So it it will help us improve.
Speaker Change: Improved margins I don't know that it's going to be the largest AD or I think all the work that.
Speaker Change: Mark and team are doing around lean and factory efficiency, coupled with the work we're doing around sourcing are going to be the primary drivers.
Speaker Change: More important is it's a huge driver of customer satisfaction, we heard that played back in spades from.
Speaker Change: From our from our dealer Council.
Speaker Change: They're seeing it show up and you know many years ago, we were probably right at the bottom of the pack and now we're being told by dealers that were top tier if not top.
Speaker Change: In this regard and we want a great customer experience. So we need to do it for the right reasons and it will have a secondary benefit of the benefiting the margins.
Speaker Change: Thanks, that's it for me.
Speaker Change: Thank you.
Speaker Change: Our next question today will come from now is that skin of Keybanc capital markets. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions I guess first I think you mentioned, you're kind of thinking about retail down modestly. This year. So I'm wondering how you're planning shipment levels and relatedly, what you're targeting for inventory levels to end the year. Thanks.
Speaker Change: Yeah.
Speaker Change: Yeah. So you know where we're planning to ship lower than retail to continue to bring a dealer inventory down I would say you know right now our targets are for <unk> to be down you know me.
Speaker Change: To mid to high single digits.
Speaker Change: Motorcycles to be down low single digits and marine to be down.
Speaker Change: Mid to high single digits to low double digits, depending on how they're how.
Speaker Change: How their season goes but.
Speaker Change: But obviously you know it's a it's a moving target depending on what we see as future retail strength I mean, if if the back half of the year were stronger than what we're thinking we'd probably bring dealer inventory down less obviously, they get the reverse is true bring.
Speaker Change: Bring it down more we are committed Mike and I have been out with dealers a lot as we talked about during the earlier part of the call.
Speaker Change: And the feedback has been really positive you know dealers feel like we've done a great job of getting dealer inventory in line with where it needs to be get there. They feel good about where their profiles are it was much less of a discussion in our meetings than it had been the last six months. So that tells me, where we're pretty close to the mark.
Speaker Change: But we were committed to keeping it there and so we'll continue to adjust as this year plays out and I mean look I'll reiterate.
Speaker Change: Reiterate there's a reason we withdrew our guidance. It was two things. One is you know trying to get our arms around where tariffs are headed and things could change by the time, we get off this call.
Speaker Change: The second is the top line of the business and that's going to have a direct correlation to what ends up happening with tariffs.
Speaker Change: And so you know at the end of the day the commitment we have with our dealers is if we see retail softening further from what we expect we're gonna be making adjustments to shipments and so you know I think the key for you. All is to just know that you know the progress we've made with the dealer network the shipment levels.
Speaker Change: Are the dealer inventory levels that they have recognized.
Speaker Change: And we need to make sure that we protect them in volatile times and if we see things get worse and we're obviously going to take the right action if things improve with greater clarity around tariffs, we will obviously be able to ramp our factories and in support improved retail.
Speaker Change: Really helpful. Maybe just one more you mentioned implementing the recession playbook and maybe some of this is obvious but just hoping you could kind of help put a finer point on some of the ways that differs from normal operations and how quickly you'd be able to kind of pivot back towards normal operations, if circumstances were to change.
Speaker Change: Thanks.
Speaker Change: Yeah, I mean, you know obviously when you're in the challenging times. The first thing to focus on is cash and liquidity and so you know that gets to working capital and Capex. We've been working capital we were being pretty aggressive on anyway. So that's not a huge change we needed to improve our working capital performance coming out of Covid.
Speaker Change: A lot of things got built up there was a lot of stuff in the system and I think we've made really good strides in that market as team.
Speaker Change: The <unk>.
Speaker Change: One of the disappointing things with all this noise in the environment is that what you're not seeing is the great work of the operations team and what they've been able to do around the efficiency of our plants our.
Speaker Change: Attainment of our build schedules and that allows us to better align working capital. So we'll continue to make progress there.
Speaker Change: Focus on Capex.
Speaker Change: And making sure we're only spending money, where we absolutely need to we deferred a couple of projects that can go into next year, we'll continue to look to do that.
Speaker Change: On the operation side, you know last year as I said we.
Speaker Change: We had about a 10% salaried head count reduction we've been very disciplined about adding.
<unk> I say, we're not adding people after that reduction, but we've been disciplined about backfill.
Speaker Change: But it kind of targeting 50% backfill levels last year, and we're continuing to look at that this year, so prudently managing our head count.
Speaker Change: And then looking at investments you know on the innovation side, but as Mike said.
We're not going to cut things now in the short term that will help us continue to drive market leadership in the long term.
Speaker Change: Really good place from a product standpoint, we've got.
Speaker Change: Products out there that our competitors don't have we've got some of the most current product portfolio in the in the industry and you know we're not going to we we had lost that kind of innovation edge several years ago, and I think we've done a nice job of getting it back and we're not going to back off of that so none of the things. We're doing are things we can't reverse fairly quickly it's really.
Speaker Change: Just just like you would do in your own personal budget right being prudent in.
Speaker Change: In challenging times.
Speaker Change: Very helpful. Thanks.
Alex Perry: Our next question today will come from Alex Perry of Bank of America. Please go ahead.
Alex Perry: Hi, Thanks for taking my questions here I guess first just another follow up on tariffs it looks like through mitigation actions and deferrals, there could be a $55 million offset to tariffs. This year at current rates sort of at the midpoint of your tariff guide is there a chance that the offset could go.
Alex Perry: Higher and what would drive that or is it that the supply shifts take a lot of time, which seem to be the primary mitigating factor in these have pretty long lead times, but you know how sort of sticky is that offset number that that you provided.
Alex Perry: Yeah I think.
Alex Perry: That's as we talked about it's difficult to give you don't want to take the guidance and assume that you know that that translates into a full year run rate. We did take a we have a plan to take 30% of our China sourcing out this year that I plan to take it out this year so it'll be.
Alex Perry: Some of some of that inventory that's tariff wood wood, if the tariffs stay in place would carryover into 'twenty six.
Alex Perry: Some of it you'd be able to enact sooner. So it's just going to dependent when it happens in the year. We're looking at options to go faster than that and and make more progress before the end of the year as Mike talked about there's a little bit of drag from non U S. M. C. A stuff that we bring up from our plant and other suppliers and <unk>.
Alex Perry: <unk>, we're working on are.
Alex Perry: Correcting that to make sure we can.
Alex Perry: To reduce that tariff.
Alex Perry: And then obviously, there's the what happens with the all the other countries and then there's the deferral, which is part of what you're seeing and the impact of full year versus what's going to actually hit the financials. It's about 20% of that of what we'd probably this year will get deferred into next year. So you know with all of those things plus a.
Alex Perry: You know what's happening in terms of the.
Alex Perry: Discussions with the administration and what Theyre going to do it's just very hard to really forecast a full year run rate right now.
Alex Perry: Perfect really helpful. And then my follow up is I guess higher level. If you look at the three segments.
Alex Perry: Which segments has your view changed the most in terms of top line versus the prior expectations. When you provided.
Alex Perry: <unk> segment guide are there any areas, where maybe you feel a bit better than when you guided last quarter versus somewhere you think may be more pressured. Thanks.
Alex Perry: Yeah, it's tough to tough to answer I nothing stands out.
Alex Perry: Relative to each other and you know I think for the most part our retail guide is not too dramatically different than what we were thinking and I think it's early days I think I think there's a lot that has to get sorted out from a broader economic perspective before we're going to have a good view as to.
Alex Perry: What the trajectory is likely to be.
Alex Perry: Like I said earlier, we saw a lot of choppiness in the quarter and so it's really difficult to.
Alex Perry: To take that data to come up with you know what a what a trend is and that's been really true I would say the last five quarters, where you know it's the.
Alex Perry: The months are tend to be somewhat dramatically different some of it weather driven some of it just economic news driven and.
Alex Perry: And so a little bit tough to say, but.
Speaker Change: Mike I don't see anything that's dramatic at any particular product I would say a.
Speaker Change: Good good retail it would be tough industry, but good retail it heavyweight motorcycles.
Speaker Change: We took a bunch of share in the quarter. It's good to see those new products are.
Speaker Change: Performing well we've invested teams did a nice job of building that portfolio over the last few years and so it's good to see that start to pay off again.
Speaker Change: Perfect. That's very helpful best of luck going forward.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question today will come from Tristan Thomas Martin of BMO capital markets. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: Question the alternative non Chinese sourcing if we were to kind of remove tariffs and look at it on a like for like basis, how does that compare pricewise.
Speaker Change: Sourcing that product comparable product to China versus somewhere else in the world.
Speaker Change: Yeah, we're not going to get into that level of detail.
Speaker Change: The reality is.
Speaker Change: There's probably a top 20 or 30 supplier list and the answer to that question is different for each and every one of them.
Speaker Change: Okay.
Speaker Change: Obviously getting greater clarity on where the China Chinese tariff ultimately is going to end is going to be important to this discussion.
Speaker Change: There are some areas that were already underway that.
Speaker Change: We're obviously beneficial at the old tariff regime.
Speaker Change: I I'm, we're not banking on it going back to the old level of 25%, but you know those those areas are being aggressively prioritize and worked and then when the when the tariff situation settles down and we know where we're contending with that'll help us with where we draw the line and and work it from there.
Speaker Change: I think the point I would make is this isn't just as easy as finding a new supplier I mean in many instances we have to cultivate a new supplier.
Speaker Change: And in many instances we have to go through a re qualification of retesting of the components.
Speaker Change: Many of these components are in critical areas like wheels tires engine components electrical components.
Speaker Change: And so the switching cost of this is not to be taken lightly.
Speaker Change: But at the current tariff regime. It would say we've got to get everything out.
Speaker Change: And you'll be able to find alternative supply I think the reality of when this settles out there'll still be some level that will make.
Speaker Change: Economic sense, but it's early days and too soon to to get any more specific around numbers.
Speaker Change: Okay, and then just real quick have you noticed any changes in kind of.
Speaker Change: Utility or V demand, given China is paused, Florida have U S agricultural products.
Speaker Change: Okay.
Nothing substantial.
Speaker Change: I would say anything that would be called the trend probably Mike said earlier the premium products have performed really really well, which is good for us because we are strong in that into the segment.
Speaker Change: And the non premium stuffs been a little bit slower, but it's not any kind of dramatic change.
Speaker Change: What we've been seeing.
Speaker Change: Alright, thank you.
Speaker Change: Thanks, Thank you.
And our next question today will come from James Hardiman of Citi. Please go ahead.
James Hardiman: Hey, good morning, Thanks for taking my call. So.
Speaker Change: How do we think about the the withdrawn guidance.
Speaker Change: I mean, you had $1.10 previously you've given us a repair estimate.
Speaker Change: So $225 million.
Speaker Change: L $3 in earnings.
Speaker Change: So that math seems pretty straightforward and I can appreciate that that is a moving target but.
Speaker Change: But I guess I'm curious about the dollar 10 right.
Speaker Change: The pre tariff or ex tariffs number it sounds like.
Speaker Change:
Speaker Change: You know, where we not be factoring any explicit tariff impact that number would be coming down, but maybe give us an idea of how we should be sort of thinking about the exterran number going forward and again I can appreciate all the uncertainty, but why would that be coming down meaningfully here and I guess what.
Speaker Change: I'll ask my follow up.
Yeah, I mean, James you're you're asking me to provide guidance around our withdrawal of guidance and we're not going to do that.
Speaker Change: And the reason and the reason I can't give you that is because they're interrelated right. If the tariffs remain at the level. They are my opinion. My opinion alone is that I think that has an economic.
Speaker Change: Impact and I think consumers are spending will slow even further.
Speaker Change: And so you can't look at them independently and you know at this stage. It's too early I mean this stuff is developing every single day, we know firsthand from having been.
Speaker Change: In Washington, as well as spending time with our representatives and senators from each of the key districts that we have manufacturing.
Speaker Change: These discussions are rapidly evolving.
Speaker Change: So putting a pin in this I mean, that's why we and I think a lot of others that already have and will withdrew guidance right. Now my focus is not trying to use a crystal ball to get where this thing is going it's to deal with the here and now.
Speaker Change: It's why we're working so hard on the sourcing side of this equation.
Speaker Change: Equation, because we know that it takes time as.
Speaker Change: As well as spending our time, making sure that our representatives who have been.
Speaker Change: Very willing and very open to talk with us listen to us dialog with us that we continue to keep those efforts up. So you know what what I would remind everybody is you know if you look back two or three years ago. Some of the basic operations of this company we were struggling that isn't the case anymore.
Speaker Change: Basic operations are in a great spot innovations in a great spot we've done a lot to get the liquidity and balance sheet of this company in a good spot. So we're in a good position to weather near term storm and that's where we're really focused on is making sure that we navigate this in a very thoughtful manner.
Speaker Change: That's totally fair.
Speaker Change: Maybe as I think about offset.
Speaker Change: Just from a near term perspective, one of the things that I think it's difficult for us to model is the incentive comp piece.
Speaker Change: Right. So you know that was a big.
Speaker Change: Tailwind last year, you talked about it being north of a dollar of a headwind initially this year.
Speaker Change: Just to understand incentive comp based on some of the various scenarios does that does that $1 plus then swing back into your favor.
Speaker Change: And then as we try to put together numbers for next year right and obviously there are a million unknown because we think about next year.
Does that then become another headwind for next year and I guess, that's another way of asking the question of like.
Speaker Change: Is it just based on your initial guide no matter, how low that is or or.
Speaker Change: <unk> term, how should we think about that incentive comp piece.
Speaker Change: Terror situations.
Speaker Change: Proves to be a longer term issue.
Speaker Change: Yeah, I mean look it's a it's a discussion that we have with our with our compensation Committee every quarter in terms of the underlying performance of the company.
Speaker Change: What I would tell you, though is that the vast majority of that I I don't refer to as incentive comp its profit share.
Speaker Change: And it's an important part of the compensation package for our employees and as we've talked about that compensation goes all the way down to the factory floor.
Speaker Change: That completely in every facility, but in most.
Speaker Change: And we got employees that are working incredibly hard right now and everything that we're contending with is outside their control.
Speaker Change: So it would not be my desire to impact that number.
Speaker Change: Negatively, but you know that isn't just my call I've just got to have that discussion with the board.
And again, we're more focused on trying to make sure. The environment. We're working in is managed in and contend with.
Speaker Change: The challenge is right in front of us and those types of decisions will be made on down the road.
Speaker Change: Totally fair.
Speaker Change: Our next question today will come from <unk> Khan of RBC capital markets. Please go ahead.
Speaker Change: Hey, Good morning. This is Arthur on for <unk>.
Speaker Change: Just wanted to touch on our retail sales quickly within or be utility was down more meaningfully than it has been in recent quarters is there anything you would call out across the customer base here. Given this has historically been a more resilient business lines.
Speaker Change: Yeah, I mean, if you look at utility I would say it was.
Speaker Change: Sure.
Speaker Change: If not for February it would've been relatively flat.
Speaker Change: February was a bit of an anomaly there was a lot of new promo came in the market whether it was bad in a lot of key states, where you'd typically have good performance or utility.
Speaker Change: Trend seems to be more normalized as we get into.
Speaker Change: April and you know the weakness was more pronounced in a T V. As Mike said earlier premium Ranger continued and expedition continued to perform really well so.
Speaker Change: Yeah, you know a little bit of a a.
Speaker Change: A little bit more down than it had been but I don't think necessarily a trend and it didn't feel like a one month anomaly well you also have to think through the comps Q1 of last year for RV was still pretty strong we were up three and then the subsequent quarters. We were down so you're you're lagging probably the last strong comp that we really had.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful. And then you mentioned the Japanese Oems are continuing to be aggressive on promotions. How does this dynamic changed at all in the past few months here, especially with the yen strengthening more recently do you still expect this I guess to be a factor for the foreseeable future going forward.
Speaker Change: Hasn't changed.
Speaker Change: I think the only thing that's going to change it as if their inventory practices improve.
Speaker Change: Yeah, I mean there.
Speaker Change: For two of the three Japanese that their inventory levels have come down, but they're still meaningfully higher than the rest of the industry. So.
Speaker Change: So I would say, we've seen a little bit of progress, but not enough to tell us that this this dynamics is going to change in Q2.
Speaker Change: And that's all for me thank you.
Speaker Change: Thanks.
Speaker Change: Ladies and gentlemen, this will conclude our question and answer session.
Speaker Change: And concludes the.
Speaker Change: This conference call.
Speaker Change: We thank you for attending today's presentation and you may now disconnect.
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