Q1 2026 BRP Inc Earnings Call
Good morning, ladies and gentlemen, welcome to the ERP Inc's S. Y 26 first quarter results conference call for participants who is who use the telephone lines. It is recommended to turn off the sound on your device I would now like turn the meeting over to Mr. Philip There Shane. Please go ahead Mr. Chang.
Thank you.
Good morning, and welcome to <unk> conference call for the first quarter of fiscal year 2006.
Speaker Change: Joining me. This morning are so as the board President and Chief Executive Officer, and said about semi third Chief Financial Officer.
Speaker Change: Before I move to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call and that the actual results could differ from those implied in these statements.
Speaker Change: The forward looking information is based on certain assumptions and is subject to risk and uncertainty.
Speaker Change: Invite you to consult the RT them Guinea for a completely.
Speaker Change: I was wondering the call reference will be made to supporting slides and you can find the presentation on our website at <unk> Dot com under the Investor Relations section, so with that I'll turn the call over to shortly thank.
Philip: Thank you Philip and good morning, everyone and thank you for joining us.
Speaker Change: We've delivered a solid performance in our first quarter with results in line with expectation as we continue to rightsize and that's working inventory level in Ts, a little product and execute an element within our control.
Speaker Change: They'll probably remain.
Speaker Change: Remain challenging with significant macroeconomic uncertainty and volatile tariff situation.
Speaker Change: Fixing consumer confidence.
Speaker Change: Sales driven by very solid snowmobile sales, we slightly outperformed the power sport North American industry retail.
Speaker Change: Looking at the sales of our marine Goop, well made progress by announcing a definitive agreement for the sale of tell water and closing the sales of that new mechanism.
Speaker Change: The process for many too is following its course.
Speaker Change: Now, let's turn to slide four for key financial highlights.
Speaker Change: We ended the first quarter with revenue of $1 8 billion normalized EBITDA of 201 million normalized EPS of <unk> 47.
Speaker Change: And strong free cash flow generating generation of 162 million.
Speaker Change: As for retail, let's look at global trends on slide five.
Speaker Change: In North America, our parts sport retail held steady.
Selecting.
Speaker Change: A growth of 21% and Canada fueled by a strong end of season for snowmobile.
Speaker Change: Set by a decline of 6% in the United States as we continue to see generally weaker industry trends.
Speaker Change: From an international perspective.
Speaker Change: Demand remained soft in EMEA, and Asia Pacific with retail down 22, and 13% respectively.
Speaker Change: Once again, Latin America outperformed other regions with retail up 18% driven.
Speaker Change: Driven by sustained momentum in the RV and personal watercraft.
Speaker Change: On a global scale demand remains strong for high end product compared to entry level.
Speaker Change: We also outperformed in current unit and underperformed in non current unit Youtube are leaner inventory position.
Speaker Change: Turning to slide six for a look at our retail performance by product line in North America.
Speaker Change: As anticipated our power sport retail held relatively steady compared to last year, surpassing the industry, which was down low single digits.
Speaker Change: Snowmobile retail was strong up over 80% driven by Saturday, both snow condition late in the winter.
Speaker Change: As for three wheeled vehicle personal watercraft and switched pontoon retail was down early in the season due to the combination of softer industry trends.
Speaker Change: And a late spring.
Speaker Change: Now, let's turn to slide seven for a more detailed look at year round products.
Speaker Change: Revenue were down 4% to $1 1 billion dollar probably driven by softer industry trends turn higher sales program given the ongoing market dynamics.
Speaker Change: At retail can am side by side was down about 10% compared to the industry, which was down mid single digits.
Speaker Change: We underperformed in non current unit, given how healthier inventory position compare to other Oems.
Speaker Change: However, we continue to outperform in current unit, gaining four points of market share in the quarter driven by the sustained momentum of our newly introduced model.
Speaker Change: As for ATV retail was down low single digits in line with the industry, but we had strong gain in the ICC segment.
Speaker Change: By our new offender platform.
Speaker Change: Looking at three wheeled vehicle, we are very early in the season and retail was down high 20% in the quarter, reflecting industry softness in the late spring.
Speaker Change: A few words on two wheel.
Speaker Change: As planned we had our first shipment of 10 am pulse and origin motorcycle to North America and Europe in the first quarter continuing in the second quarter.
Speaker Change: We are organizing tours to get the media and consumer excited and our dealer are also actively preparing them alright.
Speaker Change: Turning to seasonal products on slide eight.
Speaker Change: Revenue were down 22% to $419 million firmly reflecting reduced shipments as we continue focusing on the right sizing network inventory level.
Speaker Change: Looking at our retail performance with flows the North American snowmobile season down high teen percentage slightly lagging the industry.
Speaker Change: As I said earlier, so valuable snow conditions late in the winter in North America stimulated the demand.
Speaker Change: With our solid lineup and retail promotion, we outperformed the industry during the quarter, partially or catching up on our plans for the season.
Speaker Change: In Scandinavia, it was more difficult more difficult season than our retail was in line with the industry.
Speaker Change: More importantly, really gained by we remain by far number one worldwide whiskey to Italy.
Speaker Change: The strong end of season in North America allow us to achieve a year over year network inventory reduction of 15%.
Speaker Change: Healthier inventory level combined with our solid lineup resulted in strong spring preorders compared to last year.
Speaker Change: Now back to a normal rate for proximity of at least 30% of production already sold.
Speaker Change: All of these elements put us in a better position for season 'twenty six.
Speaker Change: As far as CTO products retail it was in line with our expectation in the first quarter with personal watercraft down mid single digit and the switch down low 20%.
Speaker Change: We also continued to grow in Latin America with retail up mid teen percent.
Speaker Change: The objective for this season is to rightsize network inventory level and so far we are on the planet.
Speaker Change: Moving on to slide nine with bar sports part accessories, and apparel and the OEM engine.
Speaker Change: Revenue were up 5% to $322 million driven by a higher volume of snowmobile part following the strong end of season as well as the ongoing usage of our growing fleet of vehicles.
Speaker Change: Meanwhile, accessory sales have been softer in line with retail trend.
Speaker Change: As with units the inventory of PP&E at dealer is getting back to more reasonable level.
Speaker Change: With that I'll turn the call over to Sebastien. Thank you Jose and good morning, everyone. This quarter was another demonstration of our team's ability to execute with discipline and a dynamic environment, putting us in a good position early in fiscal 2006 with results in line with our expectations.
Speaker Change: Solid free cash flow generation, and then continued improvement on the network and the inventory front.
Speaker Change: Before getting into the numbers. Please note that as part of the sales process. The marine sales process, we decided to keep the legacy outboard engine parts business. Consequently, we have reclassified our fiscal 'twenty five numbers to reflect.
Speaker Change: This decision.
Speaker Change: Now looking at the numbers revenues were down 8% to $1 8 billion, primarily due to lower shipments and higher sales program.
Speaker Change: We generated $395 million in gross profit representing a margin of 21, 4% down from last year, primarily due to the less efficient use of our assets given the lower production volumes higher sales programs unfavorable model mix and foreign exchange headwinds.
Speaker Change: Were partly offset by cost efficiencies across our manufacturing operations and favorable pricing.
Speaker Change: Through the first quarter, we saw limited impact from tariffs across our cost structure, our normalized EBITDA ended at $201 million and our normalized earnings per share at <unk> 47.
Speaker Change: We generated $162 million of free cash flow from continue operations and ended the quarter with over $300 million of cash further reinforcing our solid balance sheet and financial flexibility.
Speaker Change: Turning to slide 12 for an update on our network inventory.
Speaker Change: We continued making progress on right sizing our network inventory, which was down 21% compared to last year with double digit declines in all product lines are dealers credit line usage is now just above 70% the lowest level in over two years and below pre COVID-19 utilization rates.
Speaker Change: This should alleviate some of the inventory impact on our dealers finances, all the while providing available capacity to be able to rapidly react when our industry rebounds.
Speaker Change: Looking ahead, while there is still some work to be done reducing dealer inventory on the seasonal product side, we expect that most of the heavy lifting across the portfolio will be done by the end of the summer positioning us to better align wholesale with retail in the back half of the year with this let's turn to slide 13 for an update on <unk>.
Speaker Change: Fiscal 'twenty six starting with tariffs as you know.
Speaker Change: There have been a lot of movements on the tariff front since our last update at the end of March but so far the impact remains manageable on the finished vehicle side. Most of them remained tariff free given that all of the vehicles produced in Canada, and Mexico are U S MCA compliant and consequently, our.
Speaker Change: Exempt from the 25% tariffs levied on these countries. However, we have seen incremental tariffs stemming from the U S tariff rate increase on China. The new tariffs on other countries. These are primarily impacting our P&A business and some of our U S suppliers, which in turn isn't.
Speaker Change: Packaging us.
Speaker Change: Factoring in these elements based on the current environment.
Speaker Change: We now estimate that the total gross tariff impact for our business for fiscal 'twenty six to be between 60 and $70 million.
Speaker Change: We expect this impact to be manageable as we should be able to offset most of the incremental an incremental cost using different levers across our value chain.
Speaker Change: Now looking at the rest of the year with Q4, one unfolding essentially in line with expectations. We are well positioned entering Q2, which we expect to be our last quarter of significant network inventory reduction.
Speaker Change: We have aligned our production and shipment plan in line with this objective and we expect our financial performance for the quarter to be similar to what we delivered in Q1.
Speaker Change: As for the back half of the year things remain more difficult to forecast.
Speaker Change: As you know the evolving tariff environment continues to create uncertainty and its weighing on consumer confidence.
Speaker Change: More its full impact on the global economy is still unfolding and difficult to predict.
Speaker Change: In this context, it remains very difficult for us to properly forecast, our industry and the demand for our products and consequently, we still lack sufficient visibility to issue guidance to date.
Speaker Change: Still there are a few elements that make us optimistic for <unk> II first assuming Q2 goes as planned our network inventory reduction efforts should be mostly completed positioning us to better align wholesale with retail through age two and second we have exciting new products coming up at our club in August and we were.
Speaker Change: Planning for the initial shipments of these new products to happen throughout <unk>.
Speaker Change: Supporting volume growth and favorable product mix, so in a scenario where the retail environment remains consistent with what we have seen in Q1. These elements could yield double digit topline growth along with strong improvement in normalized EBITDA and EPS compared to the second half of last year.
Speaker Change: And while the environment is difficult to predict we believe that with our healthy network inventory levels, the strength of our lineups, especially with upcoming key product launches are agile manufacturing footprint and our solid balance sheet with strong liquidity and long term debt maturities that we are well equipped to face a wide range of scenarios.
Speaker Change: So we look forward to a more stable and predicting operating conditions.
Jose: Allowing us to provide you with a clearer outlook for our business on that I'll return the call back to Jose.
Jose: Thank you Sebastien.
Jose: As you know I am always very proud of our product with industry recognition as it reflects positively on all our teams.
Jose: I'm, even more proud of when one of our team received an important holler.
Jose: Last week, our design and innovation team was crowned Red Dot design team of the year 2025.
Jose: A prestigious international title for design excellence.
Jose: We have joined the ranks of previous winners that include iconic brands, such as Harare, Apple and Porsche.
Jose: I want to congratulate our entire design team.
Jose: Together with engineering, the constantly redefine our product to give our customers.
Jose: <unk> experience.
Jose: Aviation is part of our DNA and this recognition reflects our ability to develop market shaping product that fuel our growth.
Jose: Our results for the quarter were in line with our plan. Despite the current context.
Jose: Our diversified product portfolio enable us to outpace the north American power sports industry at retail.
Jose: We also had our highest retail sales however, our first quarter in Canada, Brazil, Mexico, and China as well as in our EMEA distributor markets.
Jose: <unk> sustained momentum in these regions.
Jose: Over the short term.
Jose: As uncertainty is expected to continue impacting consumer confidence we are planning for demand to remain tough until economic conditions improve.
Jose: We are looking forward to our dealer event in August to be held in Boston with exciting model year 'twenty six product news that will continue building on the momentum of our successful lineup.
Jose: You are all welcome to join Us.
Jose: In addition, we expect inventory depletion to be mostly completed by the end of next quarter. In this context, we anticipate a stronger second half.
Jose: The ERP is known for its agility and we are ready to take advantage of a rebound given by a stronger product portfolio solid dealer network and leaner inventory position.
Jose: Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunity and sustained profitable growth.
Jose: Before moving on to the question period, I would like to say a few words.
Speaker Change: As you probably saw this morning, I am announcing today my intention to retire by the end of the fiscal year. After the appointment of a successor.
Jose: After 36 years at ERP, including 22 as CEO.
Jose: As come from me to hand over the wheel to a new leader.
Jose: I am grateful that that was selected for this role back in 2003.
Jose: And so proud of what the ERP has become to the the diversified innovative company that is well positioned for lasting growth.
Jose: You can count on me to ensure a seamless transition supported by a seasoned management team mitigated to the success of PRP. Thank you on that.
Jose: <unk> I turn the call over to the operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: You have a question. Please press star followed by the one on your Touchtone phone.
Speaker Change: Here proppant. Your hand has been raised should you wish to decline from the polling process. Please press star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any keys, we request that our callers limit their questions to one main question and one follow up one moment. Please for your first question.
Khan: Your first question comes from <unk> Khan with RBC capital. Your line is now open.
<unk> Khan: Great. Thanks, and good morning, hoping you could just give us a little bit more color on the inventory situation in the channel you indicated that by the end of this next quarter you expect to be in good shape, maybe just talk us through.
Jose: What's left to sort of right size, how much more inventory reduction that entails and maybe just a bit of an update on the competitive inventory situation. Thanks.
Jose: Good morning, while as you know it's been a focus of ours over the last 12 months to right size network inventory and we started this 12 months ago actually and so we're quite happy with where we are today you saw at the end of Q1 inventories were down 21%.
Jose: And we've seen double digit inventory declines across all other product categories. So that's another big Big plus.
Jose: In my prepared remarks, I said, we still had a bit of work to do on the seasonal products business.
Jose: We are entering into personal watercraft season. So the expectation is that we will retail more than we're wholesaling for this season.
Jose: And also snowmobile.
Jose: This is a second year, where we've had a.
Jose: A below average season, and so we have more inventory to reduce and so the expectation is that.
Jose: All of the work for most of the work will be done on the <unk> business in the year round product business at the end of Q2 and a bit more work to be done on the seasonal part and we expect seasonal to be down.
Jose: About 20% at the end of the year versus where we started the beginning of the year. So.
Jose: Really happy with what that work.
Jose: It is being done and actually.
Jose: We have probably 70% of our dealers line of credit that are being used so it gives us a good tailwind when things rebound.
Jose: As for the competition, we are some Oems have been later to react and adjusting production in wholesale and so we saw a competitive dynamic that was still.
Jose: And very promotional in the first quarter, we expect it to continue in the second quarter as some Oems still have a lot of inventory that they need to to address but coming in Q3. We are hopeful that things are more stable and everyone will be competing on a similar.
Jose: Foothold.
Speaker Change: Great. Thanks, and just as my follow up I think you indicated that youre contractually expecting a better rates too if you can maybe just.
Speaker Change: Give a bit more color on the retail uptake environment, what you saw through the quarter sounds like it was flat year over year North American retail for you maybe just talk us through some of the details on what's giving you confidence on the better set up at retail for us too.
Jose: But firstly likes the best Deangelis explained we believe the non current inventory will be at a more normal level by the end of Q2.
Jose: And I think on the back half of the year, It's always all OEM introduce model year 2006, and we have strong lineup to be announced in August.
Jose: We are confident that the.
Jose: With the product news with the dealer network that is in better shape in terms of inventory also.
Jose: The ALDA.
Jose: The momentum that we had in the last few quarters the current unit.
Jose: And the inventory position that is look we are in better shape than others and with confidence for <unk>.
Jose: Thank you.
Jose: Yes.
Speaker Change: Your next question comes from James Hardiman with Citi. Your line is now open.
James Hardiman: Hey, good morning.
James Hardiman: So.
James Hardiman: Obviously, a lot has changed since.
James Hardiman: We last heard from new although.
James Hardiman: I don't know based on yesterday's announcement, and maybe not as much has changed but maybe walk us through sort of what you were seeing at retail over the course of the quarter.
James Hardiman: And then specifically.
James Hardiman: Liberation day sort of as we think about April was that sort of the worst of it.
James Hardiman: And what if anything can you tell us about trends and obviously the more current we can get I think the better as we try to tease out.
James Hardiman: The consumers' response to some of the macro factors, particularly.
James Hardiman: Sure. Thanks.
James Hardiman: Thanks.
James Hardiman: Then maybe obviously the macroeconomic is very volatile and it's very difficult to predict but to be honest, we saw lots of a lot of ups and down but there is no big change in the trend versus the last few quarters.
James Hardiman: To give you some numbers.
James Hardiman: The new on trend.
James Hardiman: We in Q1, our new on trend with purchase product was up 21% and were back to pre Covid numbers like we gave you.
James Hardiman: This is basically the same number we gave you in the last few quarters and.
James Hardiman: And we saw the same trend the premium vehicle is selling better than the entry level product I gave you some numbers.
James Hardiman: In watercraft category, our entry level spark was down 15% when the high end was about flattish the switch was down 24% of the ryker the entry level three wheeled vehicle was down 40%.
James Hardiman: And on the side by side, the premium was up 16% loan to value was down 34%.
James Hardiman: Utility side by side flattish in their export down. The line then as you can see there is no global trend.
James Hardiman: And we believe that the higher income customer.
James Hardiman: Still interested in is still buying the.
James Hardiman: The lower income customers, obviously will finance.
James Hardiman: It's more difficult and they are squeezed with deep.
James Hardiman: The inflation the interest rate that is still on the high side and they are on defense to buy this is basically what we see and this is very difficult to predict where all of this is going.
James Hardiman: Okay.
James Hardiman: Got it and then.
James Hardiman: Obviously.
James Hardiman: Everything is difficult to predict but as I think about.
James Hardiman: The tariff environment.
James Hardiman: So we most of your production is Canada and Mexico.
James Hardiman: At least.
James Hardiman: Through yesterday, China was getting getting penalized significantly more and so.
Speaker Change: You talked about a gross tariff Henry headwind, you think you'll be able to offset I guess my question is on the competitive <unk>.
James Hardiman: <unk>.
James Hardiman: Your biggest competitor has.
James Hardiman: Much higher tariff burden as we think about.
James Hardiman: What theyre getting directly from China into the United States.
James Hardiman: Assuming that this is the tariff scheme right, 30% on China, 10% on the rest of the World can you talk about what potential if any competitive advantage that creates.
James Hardiman: Relatively favorable tariff environment.
James Hardiman: Going forward. Thank you.
James Hardiman: It's a long question.
James Hardiman: Let's say that.
James Hardiman: Obviously every OEM phase different situation and I believe that with time.
James Hardiman: M was final ways to mitigate that.
James Hardiman: The tariff or reduce the impact of the tariffs.
James Hardiman: If im talking by Ourself, you know when we had our call in March situation was more difficult.
James Hardiman: Now it's.
Speaker Change: Sebastian mentioned growth of 60 to 70, and we which is less than 1% of our revenue which is manageable.
Speaker Change: But we are working right now with tier one supplier to supplier to change the origin of some components.
Speaker Change: Some time to change the location of assembly to avoid the driver if.
So far we've been quite successful to reduce the existing tariff for our vehicle and as you know all our vehicle made in Canada, and Mexico are Usmc compliance.
Speaker Change: And then I think if you look at the Big picture everyone. Every OEM has its own reality, but they have believed that every OEM will find ways to.
Speaker Change: To mitigate those additional costs that being said I think the biggest risk for all of us in the industry is the uncertainty that it create into the customer confidence and many are on defense in the waiting to have a better visibility before.
Speaker Change: By our product that are discretionary.
Speaker Change: And that's in a nutshell our view on the overall situation, but like we've said in March and we are repeating this change day by day.
Speaker Change: Very helpful. Thank you.
Speaker Change: Your next question comes from Panama, <unk> with <unk> capital markets. Your line is now open.
Speaker Change: Yes, thank you very much.
Speaker Change: Congrats <unk> and well deserved retirement after 'twenty two successful years.
Speaker Change: It's the best thing you mentioned about the potential to reach top line grow double digit in the second half.
Speaker Change: So obviously in this power sport volume matters, how should we be thinking in terms of EBITDA margins should we expect.
Speaker Change: EBITDA to grow even further than the double digit and what type of kind of EBITDA margins should we be looking for given this potential tailwind in the second us.
Speaker Change: Well.
Speaker Change: The tailwind.
Speaker Change: But when it comes from.
Speaker Change: You'll see the product launches that we're doing also the fact that retail is going to be matching wholesale.
Speaker Change: And so when I look at where the market is in terms of consensus it's certainly something that I'm I'm comfortable.
Speaker Change: Comfortable with.
Speaker Change: And so generally yes, EBIT margin is going to improve but we're going to we're.
Speaker Change: We're going to be away from what we are targeting in terms of overall EBITDA margin in the long term.
Speaker Change: But overall, we're still going to be under utilizing our assets theres going to be more programs. So theres going to be some compression there, but obviously with the added volume is certainly going to bring some some tailwind on the margin side.
Speaker Change: Okay, perfect and now when we look at the free cash flow generation working cap you've done a good job. So what should be looking for in terms of working cap for the full year and how you would characterize the the best opportunities in terms of capital deployment right now.
Speaker Change: Again, we're not providing guidance this morning.
Speaker Change: But in a context, where we are expecting a good second half of the year that is going to drive good free cash flow generation as well provide us with some obviously some flexibility but in the short term with the.
Speaker Change: Uncertain context that every company is facing today, we prefer to be prudent.
Speaker Change: Before committing to any.
Speaker Change: Capital deployment priority is going to be focusing on organic growth of the business. Obviously, we've increased our dividend back in Q1, and we're going to continue paying the dividend.
Speaker Change: But in terms of buybacks.
Speaker Change: We're probably going to be on the sidelines for.
Speaker Change: The foreseeable future until we get a better a better view as to where.
Speaker Change: All of this is going to end.
Speaker Change: And and how the economy is going to bounce back.
Speaker Change: Okay perfect. Thank you very much for at a time.
Speaker Change: Yes.
Speaker Change: Your next question comes from Craig Kennison with Baird. Your line is now open.
Speaker Change: Hey, good morning, Thanks for taking my question Savi, you described to $60 million to $70 million gross tariff impact I'm wondering if you can help us unpack that and give us a sense of what it would look like mitigated and then what it might look like on an annualized basis. Since you haven't faced all of these tariffs all year.
Speaker Change: As I mentioned.
Speaker Change: The impact.
Speaker Change: The impact in the first quarter was minimal because all the costs that we've incurred were most of them were inventoried.
Speaker Change: As that raw material is going to be used in the second and third quarter.
Speaker Change: And so the full year impact is as I mentioned $60 million to $70 million on a gross basis full year, youre, probably going to add an extra call. It $30 million on a full year basis as long as I mentioned, we're working very closely with our suppliers to mitigate that impact and about half of the impact comes.
Speaker Change: From our P&A business.
Speaker Change: And probably let's say half of that is the China impact.
Speaker Change: The tariffs that are being imposed on China.
Speaker Change: Obviously, we're running our numbers with the.
Speaker Change: The current assumptions, which is the relief that was given a few weeks ago on the China tariffs and so thats why when we reporting our numbers today, it's significantly lower than what our competitors reported a month ago.
Speaker Change: And how do we alleviate so as I mentioned, obviously suppliers is one strategy relocation driving efficiency in the organization and as we do every year, we do price increase.
Speaker Change: And so we will be revisiting our pricing for the new model year, 2006, which we'll be announcing in August.
Speaker Change: That's going to help alleviate some of the.
Speaker Change: The headwinds that we're seeing.
Speaker Change: Yes.
Speaker Change: Thanks, and maybe as my follow up I'll, just ask Joe Jay.
Speaker Change: Congratulations on a just an extraordinary career I'm wondering if you could just reflect on what maybe it gives you the most prior satisfaction during your tenure.
Joe Jay: First I'm not gon, yet then we can discuss later, but for me with I'm. The most proud of is what the ERP has become.
Joe Jay: We had.
Joe Jay: Two product line profitable tour not profitable in 2003 to deal we have.
Joe Jay: Seven profitable product line.
Joe Jay: And we are a diversified obviously product portfolio international manufacturing footprint and very happy of where we are.
Joe Jay: Thank you.
Joe Jay: Thank you.
Joe Jay: Your next question comes from Robin Farley.
Joe Jay: Farley with UBS. Your line is now open.
Robin Farley: Great. Thank you and congratulations on a fantastic run.
Speaker Change: My question.
Joe Jay: Yes.
Joe Jay: Going back to your expectations that it will only take maybe one more quarter for it.
Joe Jay: Retail.
Joe Jay: To kind of be aligned.
Joe Jay: It seems like there is.
Joe Jay: And then that's it.
Joe Jay: Taylor assumption, there and just sort of are you assuming that the demand sort of recovers to flat or is it up slightly or just maybe help us think about what your retail assumption is fair and kind of what underpins that thank you.
Robert: Yes, good morning, Robert.
Robert: When we talked back in March I referred back to the assumption that we had in January.
Robert: We were assuming a flat industry.
Robert: When you look at the Q1 retail in the industry numbers, we reported that industry being flat, but a lot of that was driven by the snowmobile very strong snow season, especially in February and March drove good retail, but when you exclude snowmobile the overall industry is down 5%.
Robert: And so obviously with the ongoing threat of tariffs the volatile environment that we are seeing consumers hesitant to purchase.
Robert: And retail has continued to be choppy the month of April in the month of May and it's obviously, depending on whether the latest news and also how people are feeling about where the economy is going ahead.
Robert: And so it's difficult to forecast.
Robert: Industry demand.
Robert: And for me, where we're seeing continued trends or with or the.
Robert: Some Oems being aggressive on promotions.
Robert: In the RV industry being down year over year in May.
Robert: Seasonal business as well as a personal watercraft the weather hasn't been great in the last few in the last month and so we're seeing softer retail, but even in a context, where retail is declining.
Robert: We expect to have a good second half of the year, because the inventories already corrected and we will have retail match in wholesale in the back half of the year.
Robert: Because we also have a great new product launches that will be announced.
Robert: In the next month or so.
Robert: Where the dealers and consumers will certainly be interested in receiving them.
Robert: Okay, Great that's very helpful. Thanks.
Robert: And just as my follow up it sounded like you to comment a moment ago that you would revisit price increases to think about helping alleviate tariffs and.
Robert: I know you'll have more to say on that.
Robert: Yes.
Robert: If you can just give us what your thought is on.
Robert: The retail environment is challenging.
Robert: Current prices, which are also being impacted further by promotions right. So the average price even lower given the promotional environment.
Robert: Is there really the opportunity to increase price without.
Robert: Further impacting demand.
Robert: But for sure we're sensitive to price increase in this global macroeconomic situation.
Robert: And like we've just said gross impact of tariffs as of now at $60 million to $70 million, we will continue to work.
Robert: Again with our suppliers to reduce it we have already announced our network that there will be no price increase on every model year 'twenty five that is selling at the moment.
Robert: There will be some price increase on peony.
Robert: That will happen in June P&A is more difficult to avoid because it's 60000 different SKU about.
Robert: 16000 are affected by.
Robert: The tariffs then there will be some price increase on peony.
Robin Farley: Another year 26, Robin is too early to see.
Robert: Again, we don't want to.
Robert: Charged more for Terry has done what it cost us but at the end of the day, we will continue to work on the mitigation plan plus the rules can change any days like it did yesterday.
Robert: Don't know yet the consequence, but we will.
Robert: <unk>.
Robert: Price increase because of tariff.
Robert: And our model year 2016, obviously.
Robert: Great. Thank you very much.
Jan Sue: Your next question comes from Jan Sue with BNP Paribas. Your line is now open.
Jan Sue: Thanks, Congrats and best of luck in the next chapter.
Jan Sue: Thank you maybe on the current versus non current you kind of mentioned how currency is doing better, but maybe you can give us an update of what.
Jan Sue: The mix is of non current inventory for you and maybe versus the rest of the industry and how that maybe evolved in the last 90 days.
Jan Sue: But it's a it's.
Jan Sue: It's a bit difficult because the industry <unk> for current and non current and then depending of the country, where you are but that would just give you. Some some number to give you a sense.
Jan Sue: The U S CTV.
Jan Sue: In Q1, the industry was down 26% versus last quarter, which is an improvement significant improvement.
Jan Sue: The side by side it was down.
Jan Sue: 15% in Q1 versus last quarter, although RV, we are down 21%.
Jan Sue: I think.
Jan Sue: This is off road vehicle.
Jan Sue: On the snowmobile basically for the upcoming season we.
Jan Sue: We will have about a third of the non current inventory when we have about two third of the market share then we're well positioned.
Jan Sue: On the snowmobile.
Jan Sue: <unk>.
Speaker Change: And on watercraft. The goal is to deplete significantly the inventory this summer with tracking on our plan.
Speaker Change: But it is a very.
Speaker Change: Moving on then.
Speaker Change: With different product line and different competition.
Speaker Change: OEM in each product line, but I think the industry is definitely getting into better position overall.
Speaker Change: We said.
Speaker Change: B B.
Speaker Change: Back to normal level at the end of Q2 and we.
Speaker Change: That's why we're confident to regain momentum in Egypt.
Speaker Change: Got it that's helpful and maybe following up on that your current inventory is doing well and like.
Speaker Change: Like you said Youre one of the first to kind of start the destocking.
Speaker Change: Dealer feedback.
Speaker Change: Inventories are kind of clean going into the back half are they kind of thing like.
Speaker Change: We want to maybe expand in bed by more or gained share with the ERP or I guess like how are you thinking about market share gains in that environment.
Robert: But I think right now you know we will switch from mother to year 'twenty fives season to model year 2006, and in the few months that depending of the product line.
Robert: And I think right now the dealer are in the mindset.
Robert: Reduce their inventory of any OEM as fast as possible, we call that the create pressure.
Robert: But I think like I said is the inventory of non current is the level of non current inventory is back to a normal level for this time of the year.
Robert: This is where we bet with our product line existing product line and the new product line will introduce in August plus.
Robert: The strength of our dealer value proposition better margin that are profitable for the dealers and.
Robert: Obviously, our inventory level that is lower than the competition. We believe we are in the best position in the industry to bonds back quickly in HD.
Robert: Great Thanks, and good luck.
Robert: Thank you.
Speaker Change: Your next question comes from Martin Landry with Stifel. Your line is now open.
Martin Landry: Hi, Good morning, guys and congrats on an exceptional quarter and good luck on the next steps.
Speaker Change: Thank you.
Speaker Change: I would like to talk about.
Speaker Change: New product introductions.
Speaker Change: Call this up to a.
Speaker Change: A couple of times.
Speaker Change: During the call what can you see I know youre, there youre going to be introduced in August so.
Speaker Change: I don't expect youre going to reveal too much but.
Speaker Change: How would you characterize this year is it a strong innovation year.
Speaker Change: Do you have more models that are being introduced more skus.
Speaker Change: What are the price points looking at our U skewed towards higher price points or price points or anything you can give us in terms of color on the new product lineup and new product introduced would be great.
Speaker Change: As you can imagine we cannot disclose much on the Westwood will introduce this would be two interesting for our competition.
Speaker Change: The only again I can see.
Robert: <unk>.
Speaker Change: We obviously every year, we look at our lineup and we try to be as.
Robert: Competitive.
Robert: Possibility in each product category.
Robert: And there is some platform some models that are older than.
Robert: And then the others and this fall is strong.
Robert: It's a strong product and <unk>.
Robert: But also watercraft.
Robert: Have a very strong rely up on watercraft 60.
Robert: 65, plus percent market share worldwide.
Robert: Obviously, we feel good about what we will introduce to the dealers.
Robert: And that's why the combination of the product introduction.
Robert: <unk>.
Robert: The value proposition for the dealer, where they have better margin extending our product and then other OEM plus our inventory.
Robert: That is in good shape, we are.
Robert: We are well positioned to.
Robert: To gain in each deal.
Robert: I cannot tell you more.
Robert: Okay.
Robert: Okay. Okay. That's helpful.
Speaker Change: And Chelsea I mean, you've been through several industry cycles.
Speaker Change: And what.
Speaker Change: So wondering how do you see the cycle, how does it compare and how does it differ from previous cycles, how can that inform.
Speaker Change: You on the length of this cycle and the timing of demand stabilization and recovery.
Speaker Change: I think like like you say some of the cycle and over my career, but every crisis or slowdown is different from one to the others.
Speaker Change: What is a bit unique in this one.
Speaker Change: We had the high inflation in the last few years high interest rate.
Speaker Change: And then <unk>.
Speaker Change: One was expecting the inflation to go down now, it's not going down as fast as we were hoping for the.
Speaker Change: <unk> rates are.
Speaker Change: Somewhat higher than what everyone was anticipated.
Speaker Change: This tariff.
Speaker Change: <unk> created a lot of uncertainty.
Speaker Change: And slowdown everything in affecting consumer confidence.
Speaker Change: And I believe that to be honest.
Speaker Change: Customer are interested to buy our product into.
Robert: To enjoy life, but I think at the minute that we see some clarity on the tariff in term of the impact but also in term of stability.
Robert: The industry will bounce back.
Robert: Quickly and I feel we are in a very good position to be.
Robert: The best OEM to bounce back quickly.
Speaker Change: Okay. That's helpful Best of luck.
Robert: You.
Speaker Change: Your next question comes from Mark Petrie with CIBC. Your line is now open.
Mark Petrie: Hey, good morning, Thanks, and I'll Echo my congratulations to you today on your leadership and track record of growth.
Robert: It's been a pleasure to interact with you over these years and we certainly wish you all the best in <unk>.
Speaker Change: Your next chapter.
Speaker Change: Thank you many of my questions have been asked I did want to ask I guess I know it wasn't hormel guidance previously, but would you say that the dynamics around competitor inventory and competitive dynamics or consumer demand has changed materially your view from the $4 50 to $5 range.
Robert: Is what you were sort of thinking about coming into the year.
Robert: Have any of the assumptions around that sort of changed materially up or down.
Robert: Well versus the $4 50, yes, there has been some change in the two changes are one tariffs because of the $4 50 tariffs were not there is without the impact of tariffs certainly one element and the other one is the industries as I've mentioned earlier.
Robert: If you exclude snowmobile industries are down 5% in Q1.
Robert: We are seeing that softness continuing in may.
Robert: So that would be the.
Robert: The other big driver of.
Robert: US holding back before issuing any guidance until we get clarity on these two elements.
Robert: Okay. So first is the $4 50 to $5.
Robert: The consumer demand environment is softer.
Robert: Yes.
Robert: And there were no tariff impact on the $4 50 to five.
Robert: Understood. Okay. That's all I had thanks very much.
Mark: Thanks Mark.
Joe Jay: Your next question comes from Joe <unk> with Raymond James Your line is now open.
Joe Jay: Good morning. This is Martin on for Joe I was wondering really quickly touch on the big Beautiful Bill there is a position there, which essentially allows buyers to write off interest on products, where the final assembly is in the United States.
Joe Jay: So compared to your some of your competitors was that puts you at a disadvantage or is there any kind of read through we can get from this bill.
Joe Jay: Well, all youll see it as a bill.
Joe Jay: Bill that has yet to be enacted and there was a lot of provisions in that bill that may or may not go through.
Joe Jay: It's certainly something that we are.
Joe Jay: <unk>.
Joe Jay: A close look at obviously there are some caps that are being put in there in terms of.
Joe Jay: Total deductibility in a year.
Joe Jay: Income levels as well, so not necessarily addressable to all income levels and we tend to attract people that have higher levels of income and so even though.
Joe Jay: It might apply to some of our products it might not apply to these individuals.
Joe Jay: And also do people will people use the itemized deduction or the available deductions that.
Joe Jay: Our available to anyone when they filed their tax returns to be seen but certainly something we are paying close attention to and obviously in India.
Joe Jay: It will certainly.
Joe Jay: B part of discussions when Canada, Mexico, and U S sit down and talk about tariffs and subsidize and subsidies that are provided to industries by the local government either directly and indirectly and you could almost qualify this as a subsidy.
Joe Jay: And so still early I think we are in the first inning of this.
Joe Jay: This big beautiful Bill and we'll see where things end, but as usual, we will be responsive and adapt our business accordingly.
Speaker Change: Great. Thank you and congratulations on your retirement.
Speaker Change: Thank you.
Kamran Jackson: Your next question comes from Kamran Jackson with National Bank Financial Your line is now open.
Speaker Change: Yes, Thanks, good morning, and congratulations from me as well just on that I mean, just.
Speaker Change: Anything you can provide as far as a timeline or I guess the search process for a for a new CEO candidate.
Speaker Change: Wondering.
Speaker Change: What kind of timeline, we should expect and whether the whether the board is looking better.
Speaker Change: Internal versus external candidates just any color you can provide there would be great.
Speaker Change: I mean, obviously I was discussing with the board twice a year about the mine plan.
Speaker Change: We came in.
Speaker Change: In the last few weeks to.
Speaker Change: In agreement that it was time for me to move on.
Speaker Change: The board and you know we have a very exciting in long time board members that know the business very well.
Speaker Change: <unk>.
Speaker Change: <unk> already started this morning the process.
Speaker Change: With had done through it will be obviously, a global search considering.
Speaker Change: Considering external internal and external candidate.
Speaker Change: It could take anywhere between three to nine months that would be the normal timeline and.
Speaker Change: Obviously committed to see and to ensure a good transition till the new CEO is home.
Speaker Change: Okay. That's helpful.
Speaker Change: And maybe just a quick follow on for <unk>, just on the I guess the decision to keep the marine.
Speaker Change: Like its accessories business, our parts and accessories business. So just wondering why that was why that was decided then is that business profitable.
Speaker Change: Well as part of the.
Speaker Change: The decision to exit the marine business, obviously, we've put all of the assets.
Speaker Change: <unk> up for sale.
Speaker Change: It is a good business because it's part of the legacy <unk> business, we generated last year over $70 million of revenue almost a 25% EBITDA margin from this business because its captive parts.
Speaker Change: But we were not able to get the an acceptable price for this business and so we decided to keep it that's.
Speaker Change: It's more maintenance.
Speaker Change: Internally not not very disruptive.
Speaker Change: And.
Speaker Change: It's generating free cash flow. So that's what drove the decision to keep it.
Speaker Change: Okay, no that makes sense I appreciate that and thanks very much.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Tristan Thomas Martin with BMO capital markets. Your line is now open.
Speaker Change: Hey, good morning, and.
Speaker Change: At another congrats Jose to the Vitale.
Speaker Change: Thank you.
Speaker Change: Had a question you kind of called out right dealers are at 70% credit line usage.
Speaker Change: What signs do you think they're looking for to maybe order a head of any retail inflection or do you think they're just going to wait until they begin to see retail improvements to begin ordering and kind of more volume.
Speaker Change: Well.
Speaker Change: There is still.
Speaker Change: Again, we were one of the Oems reacted quickly and based on the experience that we have in the business. We knew that when you see a potential slowdown happened might as well react quicker.
Speaker Change: It'll be more beneficial in the long term for everyone.
Speaker Change: Which was the right decision to do but we have some Oems that have more inventory out there and so I think dealers nida.
Speaker Change: That inventory out liquidate that inventory.
Speaker Change: See where the consumer is see where their whole economy is is going to land more of the tariff situation is going to land as well before we'd see some confidence obviously they'll want to order the new products.
Speaker Change: The latest innovation, that's why we're excited about the second half of the year, but before we see a strong inflection in demand.
Speaker Change: I think dealers are going to want to see more door swings.
Speaker Change: And continuous door swings as well.
Speaker Change: Before stepping stepping on the gas and.
Speaker Change: And ready for the next wave of growth.
Speaker Change: Okay that makes sense just one more.
Speaker Change: One are you seeing any changes in.
Speaker Change: Buyer credit approvals, our credit scores or credit availability anything.
Speaker Change: In terms of.
Speaker Change: The.
Speaker Change: People applying for credit and we haven't seen any changes in terms of FICO scores people, who are granted credits as well we haven't seen big changes, where we've seen is the I guess the lower tier finance years that are more selective in providing credit to lower credit scores so entry level products like the <unk>.
Speaker Change: Kurt.
Speaker Change: Is suffering a bit from a lower acceptance rate. This is something that we've seen in the last.
Speaker Change: In the last quarter.
Speaker Change: Got it thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star One. Your next question comes from Brian Morrison with TD Cowen. Your line is now open.
Brian Morrison: Thanks, very much I wanted to I appreciate the color on the second half outlook I want to understand it a little bit better.
Speaker Change: So this quarter you have got sales down $150 million EBIT and EBITDA down about $100 million. So there was a 70% decline in the sales change that's far greater than decrements. So it's telling me that promo and mix played a very big role.
Speaker Change: I think detriments are typically 35% can you just confirm that and then breakdown the components of this decline because I want to know as inventory improves what gets alleviated. So I understand the back half I would look better.
Speaker Change: Okay.
Speaker Change: That's a big question for the final one other day, but if I look at.
Speaker Change: If I look at the margin.
Speaker Change: In Q1 again, obviously gross margin was hit pretty hard in Q1 by almost 500 basis points.
Speaker Change: And the drivers of that are mix were significant sales programs were significant as well and mix was about 170 EBIT basis points down program of 120 basis points down fixed cost absorption also 190 basis points as well impact so quite a big impact on the profitability and offset by a.
Speaker Change: A bit of efficiency and pricing as well that we were able to build in and.
Speaker Change: And the overall and the overall plan.
Speaker Change: When I and obviously.
Speaker Change: Retail higher than wholesale in this quarter and so thats obvious.
Speaker Change: A big.
Speaker Change: A big impact looking at the back half of the year as I've mentioned earlier.
Speaker Change: For sure the new product introductions is going to be a.
Speaker Change: A big element and the other thing we have as well is.
Speaker Change: Wholesale.
Speaker Change: Matching retail, which I have already.
Speaker Change: He covered.
Speaker Change: So the big drivers of Av.
Speaker Change: Of the second half if I look Q3 to Q4.
Speaker Change: Q3's, potentially could be flattish year over year, yes, there is going to be some.
Speaker Change: Obviously, some topline growth I'm still expecting a better programs, but certainly a margin improvement in the.
Speaker Change: In Q3.
Speaker Change: And the big margin improvement is going to be happening in Q4.
Speaker Change: Where we could expect volumes up significantly.
Speaker Change: Almost.
Speaker Change: Almost.
Speaker Change: Okay.
Speaker Change: He's really a 5% increase.
Speaker Change: More than a 5% increase in volume probably in the.
Speaker Change: The range of $3 $400 million of volume increase in Q4.
Speaker Change: Margin improvement because the mix is going to be rich as well.
Speaker Change: That's certainly going to be a big big uptick and so thats, how we see the back half of the year certainly less programs certainly better volume and also.
Speaker Change: A better mix driven with asset asset utilization.
Speaker Change: And that's largely to new product introduction correct.
Speaker Change: Largely to new product introduction and also a large lead to.
Speaker Change: Wholesale.
Speaker Change: Equal retail last year, we were reducing our side by side and or the inventory and so we were wholesaling less than we were re daily.
Speaker Change: Okay, and then just on that last question or RV sales I think you said you maintain the path of this mid single digit decline for the industry, but that has been helped with heavy promo on aged inventory. So should we expect it to soften more was just current priced inventory or assume that that's offset with the new product introduction.
Speaker Change: In the back half of the year that you could you can expect that.
Speaker Change: You will have.
Speaker Change: Youll have an offset with the new product introductions don't forget the.
Speaker Change: We'll be transitioning into a non current season in Q3, and Q4 and so the model year 'twenty fives will become non current Oems should have discounts on these and so that should help sustain a certain level of demand.
Speaker Change: Also in the back half of the year.
Speaker Change: Thank you very much.
Speaker Change: There are no further questions at this time I will now turn the call over to Mr de <unk> for closing remarks.
Speaker Change: Great. Thank you joelle and thanks, everyone for joining us this morning and for your interest in the ERP. We look forward to speaking with you again for our second quarter Conference call planned for August 2019, Thanks, again, everyone and have a good bit.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask you. Please disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.