Joe Altobello

Joe Altobello asked about the drivers behind the meaningful increases in content per unit with new model year changeovers, inquiring if it reflects larger units, more content, or largely share gains. He also asked for more color on the 70-90 basis points operating margin expansion outlook, specifically regarding contributions from volumes, pricing, and mix.

Answer

Jeff Rodino, President, explained that content per unit growth is a combination of both, with content pickups in composites, electronics, and core products, along with a favorable mix from larger, higher-contented RV units. Andy Nemeth, CEO, added that the operating margin expansion is driven by volume leverage due to a well-positioned cost structure, content gains, and the ability to offer low-cost alternatives through full solutions.

Joe Altobello asked about the drivers behind the meaningful increases in content per unit with new model year changeovers, specifically whether it reflects larger units, more content, or share gains. He also inquired about the factors contributing to the projected 70-90 basis points expansion in operating margin, such as volumes, pricing, or mix.

Answer

President Jeff Rodino explained that content per unit growth is a combination of both new content in composites, electronics, and core products, along with a favorable mix from larger, higher-contented RV units in Q3 and Q4. CEO Andy Nemeth attributed the operating margin expansion primarily to volume leverage, noting the company's well-positioned cost structure to support significant volume increases without substantial overhead, complemented by content gains and solutions offering low-cost alternatives.

Joe Altobello questioned the apparent contradiction between BRP's press release mentioning favorable variations in sales programs and the ongoing elevated promotional environment in the industry, asking if BRP's sales programs were lower than last year. He also asked for confirmation on the CAD 400 million-CAD 500 million revenue tailwind from aligning wholesale with retail in Fiscal 2027 and if this serves as a base for further assumptions.

Answer

CFO Sébastien Martel clarified that BRP's retail promotion spending is trending 70-80 basis points lower this year compared to last year, when significant investments were made to clear inventory, despite continued high promotional levels in the broader market. He confirmed the CAD 400 million-CAD 500 million revenue tailwind (and approximately $1.25 EPS impact) from right-sizing inventory for Fiscal 2027. Mr. Martel also outlined headwinds for FY27, including reduced Ryker deliveries due to production transition to Vietnam, a ~$30 million increase in depreciation expense, and a tax rate returning to 25-26%, leading to a base case of mid-to-high teens EPS growth and roughly 14% margin.

Martin Mitela, on behalf of Joe Altobello, asked about a proposed U.S. bill that would allow interest write-offs for products with final assembly in the U.S. and whether it would create a disadvantage for BRP.

Answer

CFO Sebastien Martel acknowledged the company is monitoring the bill, which has not yet been enacted. He pointed out potential limitations, such as income caps and usage of itemized deductions, that might reduce its impact. He also suggested that such a provision could be viewed as a subsidy and become a point of discussion in broader trade negotiations like the USMCA review.

Speaking on behalf of Joe Altobello, an analyst asked if BRP expects wholesale and retail to align next year or if further destocking is anticipated. He also inquired about the market impact from a competitor's early launch of model year '25 vehicles.

Answer

CEO Jose Boisjoli stated it is too early to predict wholesale and retail alignment for next year due to market volatility, but confirmed the focus for H2 remains on inventory reduction. He noted that while a competitor's early launch and discounting affected retail, BRP will not follow their MSRP reduction, viewing it as a poor long-term strategy for the brand.

Joe Altobello asked if the successful Factory Authorized Clearance (FAC) program might have pulled demand forward and what current retail trends are in October/Q4, also inquiring about the incremental net tariff impact and incremental margin expectations for 2026.

Answer

CEO Mike Speetzen clarified that FAC generated excitement and foot traffic without significant incremental spend, primarily moving non-current inventory. He noted strong October results in RANGER XD, XPEDITION, and ATV, but youth will be a Q4 headwind due to production shifts, expecting Q4 ORV retail (excluding youth) to be up low single digits. CFO Bob Mack stated that the incremental tariff impact for 2026 is over $100 million versus 2025, with total tariffs expected to be just north of $200 million, declining to provide 2026 incremental margin guidance due to pending data and the Indian Motorcycle divestiture.

Representing Joe Altobello of Raymond James, an analyst asked for the same-store sales figure excluding the impact of Florida and for a breakdown of the comp between unit sales and average selling price (ASP).

Answer

CFO Jack Ezzell stated that excluding Florida, which was impacted by hurricanes, same-store sales growth would have been in the 6% to 7% range. He further clarified that the overall comp growth was driven by a double-digit increase in unit sales, specifically in the 12% to 13% range, which was offset by lower average unit prices.

An analyst on behalf of Joe Altobello asked for the rationale behind the Q4 guidance implying flat EPS growth after a strong Q3 and requested an update on the competitive landscape.

Answer

CFO Mike McMullen attributed the Q4 outlook to the macroeconomic environment, specific gross margin dynamics like lapping price decreases, and continued strategic investments, emphasizing the strong full-year performance. CEO Matt Reintjes added that there have been no significant changes in the competitive landscape and that YETI's brand strength and portfolio diversification continue to drive results.