Joseph Altobello

Joseph Altobello inquired about Polaris's tariff mitigation strategy, specifically the potential for price increases in Off-Road, and the competitive landscape regarding inventory cleanup and market share recapture.

Answer

CEO Mike Speetzen stated that pricing is not an immediate relief valve due to the inelastic buyer and recessionary powersports environment. He emphasized internal mitigation through supply chain adjustments, noting a plan to increase non-Chinese sourced parts from 15% to 30% in 2025. Speetzen believes the inventory cleanup is in the "later innings," with some competitors still holding 2x Polaris's days sales outstanding (DSO). He expressed confidence in regaining share once inventory normalizes, citing strong new products and customer loyalty, though repurchase is currently deferred due to economic uncertainty.

Joseph Altobello of Raymond James questioned the 2025 powersports industry outlook, asking about expectations for the second half of the year, and inquired about the potential incremental financial impact from new tariffs.

Answer

CEO Mike Speetzen stated that Polaris expects the overall industry to be down low-single digits in 2025, driven by weakness in motorcycles, marine, and snow, with hopes for improvement in the back half. Regarding tariffs, he noted the current impact is $60-$70 million and detailed the company's exposure and ongoing supply chain diversification efforts away from China, while avoiding speculation on future policy changes.

Joseph Altobello expressed surprise that Polaris didn't gain Off-Road share despite new product launches and asked if buyers were trading down or just chasing promotions. He also asked why gross margin guidance was maintained while sales guidance was lowered.

Answer

CEO Mike Speetzen confirmed that market share was impacted by competitors, primarily Japanese OEMs, offering deep discounts (up to $5,000) to clear aged, noncurrent inventory, a promotional level Polaris chose not to match. CFO Robert Mack explained that Q4 gross margin is supported by a favorable product mix, including snowmobiles and higher-optioned boats, and a significant year-over-year benefit from a non-repeating $20+ million warranty expense that occurred in Q4 2023.

Joseph Altobello sought clarification on the initial 2026 outlook, asking how much of the mid to high single-digit revenue growth potential is attributable to lapping de-stocking versus actual restock.

Answer

CFO Ryan Gwillim explained that the lapping of de-stocking would likely be a small part, primarily a first-quarter or first four-to-five-month phenomenon. He attributed the mid to high single-digit growth to a combination of market improvement (a point or two), pricing actions, continued share gains across Mercury, boat, and Navico Group, and a betterment in the discounting environment, with P&A remaining a stable contributor.

Joseph Altobello from Raymond James asked if the 15% tariff on Japanese engine imports was already influencing OEM orders and if any potential benefit was included in the company's outlook. He also requested more details on the mentioned rationalization and manufacturing capacity optimization efforts.

Answer

CEO David Foulkes stated that the impact from tariffs on Japanese engines is not yet showing up in orders, as competitors likely pre-shipped inventory, and any potential uplift is not explicitly baked into Brunswick's forecast. Regarding rationalization, he confirmed that work is ongoing to align capacity with market expectations and that more specific details on these actions would be shared at a later date, likely during the Q3 call.

Joseph Altobello asked about the assumptions behind the $0.75 EPS reduction from softer volumes and whether the company might increase its share repurchase plans.

Answer

Ryan Gwillim (executive) explained the $0.75 EPS cut reflects an assumed 5% sales decline from original projections due to the tariff environment. David Foulkes (executive) clarified this is a revenue figure, and unit sales could fall more. Regarding buybacks, Gwillim highlighted the very strong Q1 cash flow, which provides flexibility to be aggressive on repurchases or further debt reduction while balancing the overall capital strategy.

Joseph Altobello questioned the interest rate assumptions behind the flattish industry outlook and asked if the volume component of the EPS bridge includes market share gains.

Answer

CEO David Foulkes clarified that retail boat loan rates have materially decreased from ~9.5% to ~7.5-8.0%, providing a tailwind. CFO Ryan Gwillim confirmed that the volume assumption in the guidance bridge does anticipate continued market share gains for Mercury engines and premium boat brands.

Joseph Altobello asked if Brunswick is facing dealer pressure to adopt a more efficient, lower-inventory model and questioned the rationale for pulling back on Q4 promotions.

Answer

CEO David Foulkes responded that at current low absolute inventory levels, the number of boats per dealer is a more critical metric than weeks on hand, and he does not anticipate a major shift away from dealers holding physical inventory. On promotions, he stated the goal is to avoid pushing product on dealers and to break the habit of dealers waiting for promotions to place orders, preferring to sell into natural pull-through demand.

Joseph Altobello inquired about the visibility into cost improvements driving the expected motorhome margin increase for fiscal year 2026 and whether pricing, particularly related to tariffs, contributes to this. He also asked for an updated perspective on the mid-cycle volume estimate for the RV industry.

Answer

Senior Vice President and CFO Bryan Hughes stated that many cost actions, including those related to cost of goods and SG&A, were already taken in Q4, and the product lineup requires fewer incentives, providing good visibility into improvements. He clarified that pricing primarily offsets tariff-related cost increases rather than driving margin improvement. President and CEO Michael Happe indicated that the company is updating its mid-cycle RV volume model, expecting a lower estimate of around 400,000-425,000 units, reflecting a longer trough and potentially lower next peak. He expressed optimism about the Winnebago Industries portfolio's potential in a future mid-cycle environment.

Joseph Altobello of Raymond James Financial sought to clarify the strategy for the Winnebago Motorhome segment, asking if the focus is shifting to innovation at lower price points rather than discounting. He also inquired about June retail demand trends following a challenging April and May.

Answer

CEO Michael Happe confirmed that improving the product value proposition is a key long-term goal for the Winnebago Motorhome brand, though he noted that competitive discounting remains necessary in the current market. Regarding recent demand, Happe stated that while June retail sales were still down year-over-year, the trend was stable to slightly better than what the company experienced in May.

Joseph Altobello inquired about the specific financial impact of tariffs on the revised fiscal 2025 EPS guidance and what level of price increases the company might implement to counteract them.

Answer

President and CEO Michael Happe explained that the potential impact of tariffs is already incorporated into the new guidance range. He noted that the effect in fiscal 2025 would be relatively limited due to timing, existing inventory, and ongoing supplier negotiations. Happe declined to specify future pricing actions for competitive reasons, stating they would be handled on a brand-by-brand basis.

Joseph Altobello asked about consumer affordability, specifically the borrowing rates buyers are facing and whether customers being "upside down" on trade-ins from 2021-2022 remains a significant issue.

Answer

CFO Bryan Hughes acknowledged that retail lending rates have not yet declined but noted that recent positive retail trends are occurring within this environment. He confirmed hearing anecdotal evidence of negative equity on trade-ins but stated that dealers and OEMs are finding ways to help facilitate those transactions, so it is not a prohibitive factor.

Joseph Altobello asked about the rationale for initiating annual guidance, its general philosophy, and the scenarios that would lead to the high or low end of the wide fiscal 2025 EPS range, including assumptions on volume, margin, and market share.

Answer

President and CEO Michael Happe explained the decision to provide guidance was a deliberate move to offer investors better clarity. SVP and CFO Bryan Hughes detailed that the EPS range is primarily driven by the RV wholesale shipment forecast ($320k at the low end, $350k at the high end) and incorporates various scenarios for margin, inflation, and market share, including the new Grand Design motorhome.

Joseph Altobello of Raymond James asked for a breakdown of the strong second-half revenue guidance, seeking to understand the split between lapping last year's undershipping versus the impact of new product innovation like the Defender. He also requested the net impact of tariffs after mitigation efforts.

Answer

CFO Sébastien Martel confirmed that H2 of last year was an easy comparison due to significant inventory reduction efforts, particularly in seasonal products. He stated the H2 guidance reflects a more normalized shipping cadence, favorable product mix, and lower sales programs. Regarding tariffs, Martel estimated the net P&L impact would be a negative $0.25 to $0.30 per share, with mitigation coming primarily from higher pricing on parts and accessories.

Joseph Altobello inquired about the plan for channel inventory reduction by product line in fiscal 2026 and sought clarification on the now-withdrawn $4.50-$5.00 EPS outlook.

Answer

CEO Jose Boisjoli confirmed that ORV inventory is at a comfortable level, while Watercraft is on plan. Snowmobile inventory remains too high, and production will be managed cautiously to correct it. CFO Sebastien Martel clarified that the initial $4.50-$5.00 EPS outlook did not include the subsequent $40 million tariff headwind or the recent softening in consumer demand.

Joseph Altobello of Raymond James asked if BRP's North American powersports industry retail outlook had changed from the prior forecast of down low-single-digits. He also sought to understand if the increased promotional support was broad-based or concentrated in specific categories and how it compares to competitors.

Answer

CFO Sebastien Martel stated that the overall retail outlook was largely unchanged, with tweaks primarily on the seasonal side (Sea-Doo), and noted the P&A guidance remains the same, which is tied to retail. He confirmed promotional activity is up across the industry, including for snowmobiles and ORVs, and highlighted that some OEMs have also introduced new models with price reductions. He characterized the traditional marine business as significantly more promotional than powersports.

Joseph Altobello of Raymond James Financial inquired about the retail sales cadence in Q4 and early Q1, and its alignment with the full-year forecast of a 5-10% decline. He also asked for an update on dealer inventory turns following a 900-unit channel reduction.

Answer

CFO Scott Kent confirmed that Q4 retail was strong for the MasterCraft brand but weaker for pontoons, and the 5-10% decline for FY26 remains a reasonable projection. CEO Brad Nelson added that wholesale growth is still possible due to proactive inventory management in FY25. Regarding inventory, Kent stated that dealer health has improved but declined to give specific turn metrics, noting that any further destocking in FY26 would be modest and dependent on retail performance.

Joseph Altobello of Raymond James inquired about MasterCraft's progress on channel inventory reduction against its yearly targets and sought clarification on the significant decrease in average selling prices (ASPs) for the MasterCraft brand in Q2.

Answer

Executive Timothy Oxley confirmed that while channel inventory saw a modest seasonal increase in Q2, it was the smallest in the company's public history, keeping them on track for their full-year reduction goals. He attributed the lower ASPs to a product mix shift toward lower-priced NXT and XT models as dealers awaited the new premium XStar. CEO Bradley Nelson added that previous price adjustments on those models to address affordability also contributed, and the mix will normalize in the second half with the XStar launch.

Joseph Altobello of Raymond James inquired about the drivers behind the better-than-expected retail performance, questioning whether it was due to market share gains or underlying demand improvements, and asked about the impact from the Tommys Boats liquidation.

Answer

Executive Timothy Oxley responded that it is difficult to attribute the positive retail results specifically to share gains at this point, partly due to the inclusion of Tommys Boats sales in the data. He noted the company was pleasantly surprised that the liquidation has not been more disruptive to the MasterCraft brand, which he credited to strong brand and dealer loyalty. Oxley expects the remaining Tommys inventory to be sold before the upcoming boat show season.

Joseph Altobello questioned the status and timeline of the Franchise Disclosure Document (FDD) renewal process and sought the company's outlook for its remaining non-core brands, specifically Lindora and BFT.

Answer

CFO John Meloun stated that amending FDDs is a required step due to the CEO change but expects to regain momentum in license sales in the second half. He confirmed BFT remains a key part of the international growth strategy and that Lindora, like all brands, is continually evaluated for its ROI, with the current focus on growing the existing portfolio.

Joseph Altobello inquired about the drivers behind the increased studio closure forecast for 2025, asking which brands were most affected, and how to model the ramp-up of franchise license sales.

Answer

CFO John Meloun stated that the elevated closures were primarily concentrated in the CycleBar and StretchLab brands, with some BFT closures internationally, a trend expected to persist through the year. For license sales, Meloun projected a target of approximately 100 sales per quarter going forward, with a significant concentration in Club Pilates.

Joseph Altobello questioned whether the 2025 gross studio opening forecast of 375 is a sustainable run-rate and inquired about the health and behavior of the member base.

Answer

CFO John Meloun characterized the 375 gross opening figure as specific to 2025, noting that momentum was temporarily slowed by a pause in Franchise Disclosure Document (FDD) filings which impacted new license sales. He also confirmed that member count and visitation are up year-over-year, with no signs of weakening consumer trends.

Joseph Altobello questioned whether building out infrastructure would require significant spending and if the 45% adjusted EBITDA margin target for 2026 is still intact. He also requested a brand breakdown for the year's new studio openings.

Answer

CEO Mark King stated that infrastructure improvements are about discipline and process, not significant capital. CFO John Meloun added that while the 45% margin target for 2026 is 'very doable,' he is not fully committing until the annual operating plan is complete. Meloun also confirmed that Club Pilates and StretchLab constitute about two-thirds of new openings, with BFT and YogaSix comprising most of the remainder.

Joseph Altobello of Raymond James Financial asked for context on sales momentum entering Q3, particularly if international business has rebounded, and whether weakness in the 'Other' revenue category is a concern for brand engagement.

Answer

CFO Mike McMullen confirmed encouraging Q3-to-date trends and stated that holding the 15-20% full-year international growth outlook implies a return to strong growth rates. He dismissed concerns about the 'Other' category, explaining that its fluctuations are due to minor factors like merchandising and freight accounting, not a reflection of overall brand health or engagement.

Joseph Altobello sought to understand how much of the reduced EPS guidance was due to a softer consumer outlook versus supply chain issues, and asked for an assessment of YETI's tariff positioning relative to competitors.

Answer

CFO Michael McMullen attributed a 300 basis point impact on growth directly to supply disruption, with the guidance range accounting for potential consumer softness. Executive Matthew Reintjes did not comment on competitors but stressed that YETI's multi-year supply chain diversification project, initiated in 2018, positions the company strongly for 2026 and beyond.

Joseph Altobello asked about the long-term steady-state EBITDA margin for the legacy Callaway business post-separation. He also sought clarification on whether the Topgolf CEO's departure makes a spin-off less likely and what the post-spin balance sheet might look like.

Answer

President & CEO Chip Brewer declined to provide new long-range margin guidance for the legacy business but emphasized its strong track record and recent margin initiatives. He clarified that the CEO's departure delays a potential spin-off, making it impractical for 2025, but does not make it less likely as a strategic option. He deferred updating on the potential post-spin balance sheet due to the timing shift.

Joseph Altobello questioned how the company is balancing cost reductions at Topgolf with the potential need to build infrastructure for a spin-off. He also sought clarification on whether the full $25 million tariff impact is mitigated in the guidance.

Answer

CFO Brian Lynch explained that significant incremental costs are not anticipated for a standalone Topgolf, allowing cost reductions to proceed. President and CEO Chip Brewer clarified that the company's guidance includes the net impact of tariffs but does not specify the exact portion that is mitigated versus absorbed.

Joseph Altobello questioned the structural profitability of the core business, noting that 2025 EBITDA guidance is below 2019 levels despite significantly higher revenue. He also asked for Topgolf's specific free cash flow guidance for 2025.

Answer

Oliver Brewer, President and CEO, responded that there have been no negative structural changes to the core business's profitability. He identified foreign exchange as the primary driver of the variance compared to 2019, stating that on an organic basis, excluding FX and other one-time headwinds, EBITDA margin is forecast to improve. He also clarified that while specific cash flow guidance was not provided by segment, the key components were available in the earnings presentation.

Joseph Altobello questioned the wide guidance range for Q4 Topgolf same-venue sales (-10% to -15%), asking if it was due to weather-related caution or a lack of visibility. He also requested an update on the potential separation of Topgolf, including the target date and level of interest.

Answer

President and CEO Chip Brewer stated the wide Q4 guidance range is primarily due to the potential for adverse weather in December, a critical month for the business. Regarding the separation, he confirmed the company is 'fully engaged' in evaluating both a spin and a sale, with a potential spin targeted for mid-next year as the earliest possible date.

Joseph Altobello requested data on how quickly cancellation rates typically normalize after implementing 'click to cancel' and asked when the same-club sales composition might return to a 50/50 split between member growth and rate growth.

Answer

CEO Colleen Keating explained that churn generally moderates around 12 weeks post-rollout, but noted this was a unique nationwide launch. CFO Jay Stasz stated the Q2 comp was 70% rate-driven and would likely remain skewed toward rate in Q3, with long-term guidance to be provided at the upcoming Investor Day.

Joseph Altobello questioned why new franchisee openings for 2025 appear flat to slightly up, despite the new growth model incentives, and asked for the percentage of franchisees not on track with their development obligations.

Answer

CFO Jay Stasz responded that development doesn't turn 'on a dime' but franchisees are engaged with the new model. He explained the delta between total openings and franchisee placements is partly due to corporate-funded builds in Spain, which are not counted as placements. He also stated the vast majority of franchisees are on track with build obligations. CEO Colleen Keating added that tight real estate availability remains a factor, and the company is partnering with franchisees to find sites.

Joseph Altobello asked about potential additional changes to the franchisee economic model, specifically regarding further reductions in club build-out costs. He also requested insight into the performance of the October promotional sale.

Answer

CEO Colleen Keating noted that the new growth model and equipment mix shift have already reduced costs, and they continue to seek further savings, such as a smaller front desk design, without degrading the member experience. CFO Tom Fitzgerald added that the model's strength is evidenced by outside capital investing in the system. He declined to comment on the specific performance of the intra-quarter October sale.

Joseph Altobello of Raymond James Financial asked for the primary driver behind the increased tariff impact estimate (from 180 to 290 basis points) and questioned if the earlier RV model year changeover affected Q2 or Q3 sales.

Answer

EVP & CFO Lillian Etzkorn stated the main reason for the increased tariff impact was the U.S. government finalizing China tariffs at 30%, higher than the 20% previously assumed. She affirmed that annualizing the current impact is a fair go-forward estimate and expressed confidence in mitigation plans. President and CEO Jason Lippert confirmed there was no material sales impact from the timing of the model year changeover in the quarter.

Joseph Altobello asked for clarification on the potential 180 basis point margin impact from tariffs, questioning if it was a partial-year figure, and inquired about the magnitude of price increases being implemented to offset these costs.

Answer

Executive Lillian Etzkorn confirmed the 180 basis point impact is a partial-year figure and represents a scenario with no mitigation, meaning a full-year impact would be higher. CEO Jason Lippert added that the company believes it has already addressed most of this initial impact through mitigation efforts. He suggested that price increases passed to consumers could be in the 3% to 9% range, though this could be offset by OEM decontenting and other levers.

Joseph Altobello of Raymond James sought to clarify the key drivers for the 2025 operating margin, including incremental margins, overhead savings, and tariff impacts. He also asked management to reconcile their upbeat commentary with a seemingly flattish retail outlook for the year.

Answer

CFO Lillian Etzkorn confirmed the margin drivers are 25% incremental margins on revenue and targeted cost reductions, while stating the team is working to mitigate the potential 50 basis point headwind from China tariffs. CEO Jason Lippert addressed the retail outlook, stating that while they have been conservative, they can make a case for the higher end of their guidance range ($3.45 to $3.60 million units) and feel bullish about landing in the mid-to-high end of that spectrum.

Joseph Altobello inquired about the differing second-half shipment outlooks for the RV and Marine segments and sought clarification on the reason for the reduced cash flow guidance.

Answer

President - RV, Jeffrey Rodino, explained the RV shipment slowdown is a typical seasonal pattern, whereas Marine has upside potential due to significant inventory destocking in the first half. CFO Andrew Roeder confirmed the operating cash flow guidance reduction was solely due to the legal settlement payment.

Joseph Altobello of Raymond James sought clarification on the updated operating margin guidance, asking if the reduction was solely due to lower end-market volumes or if it included an incremental impact from tariffs. He also questioned if the Q1 RV shipment increase was merely dealer restocking rather than a sign of improving retail optimism.

Answer

CFO Andy Roeder confirmed the operating margin guidance change was primarily driven by reduced volume assumptions, particularly the removal of 30,000 RV units and 17,000 marine units from the forecast, with tariff impacts already baked in. CEO Andy L. Nemeth and President, RV, Jeff Rodino added that the Q1 RV inventory build was a modest and disciplined seasonal restock, with OEMs carefully managing production to align with retail trends.

Joseph Altobello sought more detail on the Q4 cash flow, specifically the raw material procurement, and asked about the RV product mix assumptions for 2025.

Answer

CEO Andy L. Nemeth explained that the company intentionally carried more inventory, primarily liquid raw materials in the RV sector, into Q1 as a slight pull-forward to support anticipated demand. President, RV, Jeffrey Rodino added that the RV mix in Q1 is expected to be similar to Q4, with potential for a shift back to higher-end products later in the year depending on retail trends.

Joseph Altobello of Raymond James inquired about the drivers behind HDFS's better-than-expected underlying profitability and the expected normalized profitability for the business post-transaction, for example in 2026.

Answer

CFO Jonathan Root attributed the improved HDFS profitability to stabilized used vehicle values, strong dealer auction participation, and favorable repossession rates. CEO Jochen Zeitz added that growth in the used motorcycle business was also a factor. Root projected normalized annual HDFS operating income to be approximately $240 million to $250 million.

Joseph Altobello of Raymond James inquired about the drivers behind HDFS's better-than-expected underlying profitability and its normalized profitability post-transaction.

Answer

CFO & President - Commercial, Jonathan Root, attributed the improved profitability to stabilizing used vehicle values, strong dealer auction participation, and better repossession rates. Chairman, President & CEO, Jochen Zeitz, added that growth in the used motorcycle business also contributed. Root projected normalized HDFS operating income to be around $240 million to $250 million annually.

Joseph Altobello of Raymond James Financial inquired about the drivers behind HDFS's better-than-expected underlying profitability and asked for the expected normalized profitability post-transaction.

Answer

CFO Jonathan Root attributed the improved profitability to stabilized used vehicle values, strong dealer auction participation, and higher repossession success rates. CEO Jochen Zeitz added that the used motorcycle business grew in Q2. Root projected normalized annual operating income for HDFS to be approximately $240 million to $250 million.

Joseph Altobello of Raymond James sought clarification on the potential HDFS transaction, asking if the primary motivation was unlocking value for the stock rather than a strategic benefit for the motorcycle business. He also inquired about the timing of CEO Jochen Zeitz's retirement and whether his successor would influence the HDFS decision.

Answer

CFO Jonathan Root agreed that unlocking shareholder value is a fair assessment of the motivation. CEO Jochen Zeitz added that evaluating HDFS has been part of the Hardwire strategy for years and is not a new initiative. Regarding his retirement, Zeitz stated the process is ongoing but could not provide a specific timeline, as it is at the discretion of the Board.

Joseph Altobello sought confirmation that the potential HDFS transaction is primarily motivated by a belief that the market undervalues the unit, rather than an expected operational benefit for the motorcycle segment. He also asked for an update on the CEO succession timing.

Answer

Jonathan Root, CFO and President of Commercial, affirmed that the primary driver is to demonstrate the significant value of HDFS, which they believe is not fully reflected in the stock price. Regarding his succession, he stated the evaluation of HDFS is part of the long-term Hardwire strategy and not a new initiative. He noted the search process is continuing at pace but could not provide a specific timeline, as it is at the discretion of the Board.

Joseph Altobello of Raymond James asked about the primary drivers of the significant Q4 operating margin miss and the rationale behind the flat retail sales outlook for 2025, considering the company is lapping a major touring motorcycle refresh.

Answer

CFO Jonathan Root attributed the Q4 margin pressure to production downtime used to manage inventory, costs for retooling the new Softail line, and volume deleverage. CEO Jochen Zeitz addressed the retail outlook, stating that while the first half will have tough comps, the new touring platform still has significant runway with 95% of the existing owner base yet to upgrade. He also highlighted that new product innovation beyond touring will support performance, expecting a stronger second half as macroeconomic conditions potentially improve.

Joseph Altobello of Raymond James asked for clarification on two points: the primary cause of the significant Q4 operating margin miss despite in-line revenue, and the rationale behind the flat retail sales outlook for 2025 given the tough comparison against the successful 2024 Touring model refresh.

Answer

Chief Financial Officer Jonathan Root attributed the Q4 margin pressure to production down days for inventory management, retooling costs for the new Softail models, and volume deleverage. Chief Executive Officer Jochen Zeitz addressed the retail outlook, explaining that the market slowdown in H2 2024 is expected to create a more favorable comparison in H2 2025. He also emphasized the multi-year sales potential of the new Touring platform, noting that 95% of the existing Touring customer base has yet to upgrade.

Joseph Altobello of Raymond James inquired about the primary driver of the Q4 margin miss and the rationale behind the flat retail sales outlook for 2025, considering the company is lapping a major touring motorcycle refresh.

Answer

CFO Jonathan Root attributed the Q4 margin pressure to production downtime to manage inventory, costs for retooling the new Softail line, and volume deleverage. CEO Jochen Zeitz addressed the retail outlook, stating that while the first half will have tougher comps, the new touring platform still has significant runway with 95% of the existing owner base yet to upgrade. He also noted that the benefit from major launches historically spans several years, not just one.

Joseph Altobello from Raymond James & Associates, Inc. followed up on inventory, asking how to reconcile ending 2024 with the same inventory as 2023 despite lower retail sales. He also asked about any retail pickup in October.

Answer

CFO Jonathan Root confirmed the plan to align retail and wholesale units for the year but deferred detailed 2025 guidance. CEO Jochen Zeitz declined to comment on the current quarter's retail but added a key point: the quality of the year-end inventory is much higher, as it consists of the new Touring platform, unlike the previous year, which carried over an older platform.

Joseph Altobello from Raymond James followed up on inventory, asking how to reconcile ending 2024 with flat year-over-year inventory despite lower retail sales, and also inquired about any retail pickup in October.

Answer

CFO Jonathan Root reiterated the goal of aligning full-year wholesale and retail units to position dealers for 2025. CEO Jochen Zeitz provided a key clarification, noting that the quality of the year-end inventory is much higher as it features the new touring platform, unlike the prior year which carried over an older platform. He declined to comment on October's intra-quarter performance.

Joseph Altobello of Raymond James & Associates, Inc. followed up on inventory, questioning the logic of ending 2024 with flat year-over-year inventory levels despite lower retail sales. He also asked about October retail trends.

Answer

CEO Jochen Zeitz declined to comment on intra-quarter retail but clarified the inventory position by highlighting its quality. He explained that the carryover inventory is composed of the new, highly desirable Touring platform, making it more valuable than the older platform inventory carried over in the previous year.

Joseph Altobello of Raymond James inquired about the weakness in new vehicle Average Selling Prices (ASPs), the competitive promotional landscape, and the sustainability of used vehicle gross margins remaining above 20%.

Answer

Chairman & CEO Marcus Lemonis explained that lower ASPs are viewed as an opportunity to grow the customer file, not a problem. He stated the company focuses on its own margin growth, which surpassed 30%, rather than competitor pricing. For used margins, he affirmed the annual guidepost of 18.5% to 19.5%, noting they are testing pricing strategies to optimize turns, which may slightly lower margin percentage but increase total gross profit dollars. President Matthew Wagner added that they strategically accelerate used sales post-season to convert assets to cash for fall buying opportunities.

Joseph Altobello of Raymond James Financial inquired about the weakness in new vehicle Average Selling Prices (ASPs), the competitive promotional landscape, and the sustainability of gross profit margins for used vehicles.

Answer

Chairman & CEO Marcus Lemonis stated that the company views lower ASPs as an opportunity to grow its customer file and is focused on its own margin growth, not competitor pricing. He affirmed the annual used margin guidance of 18.5% to 19.5%, noting they are testing pricing strategies to increase inventory turns, which may yield more gross profit dollars even with a slightly lower margin percentage. President Matthew Wagner added that they strategically accelerate sales of used assets heading into the fall to prepare for prime buying season.

Joseph Altobello inquired about the drivers behind softer-than-expected Average Selling Prices (ASPs), asking if it was due to product mix or promotional activity. He also asked about the level of OEM support and the reasons for the significant sales acceleration in April.

Answer

Chairman and CEO Marcus Lemonis clarified that ASP softness was driven by a strategic mix shift towards entry-level units to attract new customers, not by excessive promotions. He noted that new vehicle margins remain at historical levels. EVP Matt Wagner added that the April sales acceleration was due to easier year-over-year comparisons and strong underlying momentum in March, which continued into April.

Joseph Altobello inquired about the drivers for the constructive outlook on new vehicle Average Selling Prices (ASPs) and the composition of the guided 600-700 basis point improvement in SG&A as a percentage of gross profit.

Answer

CEO Marcus Lemonis explained that new ASPs typically rise through the year as the sales mix shifts from lower-priced family campers to larger, more expensive units in Q2-Q4. He added that a stabilizing 10-year treasury yield reduces retail finance rates, allowing customers to afford higher-priced units for a similar monthly payment. Regarding SG&A, Lemonis stated that while some improvement is mathematical from higher gross profit, a significant portion comes from discrete cost-saving decisions, including headcount reductions made at the start of 2025. He affirmed the company's commitment to hitting the 600-700 bps target, even if it requires further SG&A recalibration during the year.

Joseph Altobello inquired about Camping World's 2025 outlook for new RV unit growth, asking if it assumes further market share gains or acquisitions. He also asked about the expected trend for used inventory levels and procurement strategies.

Answer

CEO Marcus Lemonis and executive Matt Wagner clarified that the modest new unit growth forecast is based on organic, same-store performance, with acquisitions viewed as an additional layer of growth. Regarding used inventory, Wagner stated they are thoughtfully increasing procurement to follow seasonal trends, targeting a 3.5x turn. Lemonis added that the goal is to return used gross margins to the 19-19.5% range by the end of 2024 and over 20% in early 2025.

Joseph Altobello inquired about the promotional environment in July, asking how much of the sales improvement was driven by deals and what factors need to change for the intense promotional landscape to ease.

Answer

CEO Brett McGill and CFO Mike McLamb stated that while they are actively promotional, there was no material increase in promotions in July that would account for the sales improvement. McGill explained that the current environment is a 'buyer's market' driven by broad economic uncertainty affecting customers, which makes promotional activity necessary to motivate purchases.

Joseph Altobello asked about the promotional environment, the industry's progress on clearing aged inventory ahead of the model year changeover, and the nature of consumer traffic in April.

Answer

Executive Michael McLamb noted that the industry is making progress on aged inventory due to reduced builder production and expects levels to normalize by summer. Executive William McGill added that future promotions will aim to stimulate demand amid uncertainty. Regarding April, McGill described a consumer pause early in the month due to tariff news, with a slight pickup in traffic later. McLamb highlighted that online engagement remains very high.

Joseph Altobello of Raymond James inquired about the full-year outlook for SG&A expenses, the state of the insurance market in Florida for both boats and marinas, and the expected full-year tax rate following a one-time benefit in Q1.

Answer

Executive Michael McLamb stated that the company still aims for SG&A as a percentage of revenue to approximate 2023 levels, despite inflationary pressures. He noted that while they are mindful of potential future insurance rate hikes due to recent storms, they have not yet seen material increases for boat purchasers or the company's own properties. McLamb also confirmed the full-year tax rate guidance remains at 26.5%, as the Q1 benefit of approximately $0.12 per share was not deemed material enough to adjust the annual outlook at this time.

Joseph Altobello asked if sluggish demand is consistent across all product segments, how boat margins are expected to trend in fiscal 2025, and whether inventory levels would end fiscal 2025 higher or lower with flattish comps.

Answer

CEO Bill McGill and CFO Michael McLamb confirmed that while all segments are under pressure, new products and premium brands are performing better. McLamb projected consolidated margins in the low 30s for fiscal 2025, potentially slightly below 2024, with pressure lasting through the winter. He also stated that with flattish comps, inventory dollars are expected to be lower year-over-year by the end of fiscal 2025.

Joseph Altobello of Raymond James asked for the potential impact on the $75 million tariff estimate if the China tariff rate were reduced to 50% from 145%. He also requested more detail on the performance of the Asian markets, particularly the weakness and subsequent recovery in apparel in Korea and Japan.

Answer

CFO Sean Sullivan explained that since over 70% of the $75 million tariff impact is from China, a rate reduction to 50% would decrease that portion to roughly one-third of its current estimate. President and CEO David Maher added that the slow start in Asia was weather-related, with a recovery in March and April. He noted the ongoing, expected correction in Korea's 'super-premium' apparel market, while equipment and gear trends remain positive.

Joseph Altobello asked about the drivers for the Q4 gross margin improvement beyond the one-time PTO benefit and inquired about the quantifiable impact and duration of the strategic investments planned for 2025.

Answer

CEO David Maher and CFO Sean Sullivan explained that the margin improvement was driven by strong performance in the Golf Equipment segment and a more normalized supply chain. Regarding 2025 investments, they noted some are outsized for the year, like the multi-year global ERP implementation and the build-out of the digital and fitting networks, which should normalize in future years. They expect these investments to lead to expanding gross margins in 2025.

Joseph Altobello asked why the full-year sales guidance remained unchanged despite a newly implemented price increase that is expected to provide a modest tailwind to revenue in the second half of the year.

Answer

CFO Steve Kadenacy explained that there are various 'puts and takes' throughout the year. He noted that a potential price increase was always contemplated within the existing guidance range and that the company is also taking potential volume elasticity into account.

Joseph Altobello of Raymond James asked about the assumed initial trade load for energy drinks in the Q4 guidance and requested directional insight into 2025 EBITDA margins given expected headwinds.

Answer

CFO Stephen Kadenacy stated that any Q4 trade load for energy drinks would be immaterial. For 2025, he advised not to expect significant EBITDA margin percentage growth, citing headwinds from higher trade and slotting fees for the energy launch, increased coffee prices, and initial energy product margins being below the company's 40% target.

Joseph Altobello of Raymond James & Associates, Inc. inquired about consumer demand trends in April following recent tariff announcements and sought clarification on the softer-than-expected gross margins for pre-owned boats during the quarter.

Answer

CEO Philip Singleton noted that April results were positive, with unit and dollar sales up slightly year-over-year, and early May trends were also encouraging. Regarding used boat margins, Singleton and executive Jack Ezzell attributed the softness to a shift in model mix, including more brokerage and consignment sales, and a strategic decision to be more aggressive on pricing to encourage trade-ins, which they view as a positive long-term tailwind.

Joseph Altobello asked for a quantification of the revenue and EBITDA impact from Hurricane Helene in Q4 and inquired about the company's guidance assumptions for recouping those lost sales.

Answer

An executive, Jack Ezzell, estimated the revenue impact was in the "$30 million plus range." He explained that it is difficult to predict the timing of sales recovery, as customers focus on rebuilding homes and businesses first. Ezzell noted that while some recovery is expected in the back half of fiscal 2025, a full rebound can sometimes take up to 18 months post-hurricane.

Joseph Altobello of Raymond James asked for quantification of sales that may have shifted from Q2 into Q3 due to weather and questioned whether the category's price elasticity has fundamentally changed, given the increased reliance on promotions.

Answer

CFO Mark Scheiwer and CEO James Hagedorn responded. They did not quantify the sales shift but noted that with daily shipments of $30-$35 million, a few days of delay can easily move sales between quarters, and emphasized that strong POS momentum continued into Q3. On elasticity, Hagedorn argued that the company is now more effectively driving the category through a rebuilt, more aggressive marketing and promotional model. This strategy, funded by the 'Transformation' cost-out program, makes the business more resilient and better able to stimulate demand than in the past.

Joseph Altobello followed up on margin expansion, asking for clarity on the drivers beyond fiscal 2025, and inquired about the timeline for resuming share repurchase activity.

Answer

CEO James Hagedorn clarified he is not abandoning future pricing as a lever but that it is not viable 'at this time.' CFO Matt Garth detailed the margin recovery path, noting 650 of 900 basis points will be recovered by FY25, with the rest coming from supply chain savings and other optimizations. Regarding capital allocation, he stated that as the company approaches a low-3x leverage ratio, it can pivot from debt paydown to share repurchases, potentially within 18 months.

Joseph Altobello from Raymond James asked if the 2025 guidance assumes an improvement in consumer confidence. He also inquired if channel inventories are now aligned with sell-through and about the overall health of Holley's distributors.

Answer

Executive Jesse Weaver clarified that the guidance assumes consumer confidence does not worsen, with potential improvement leading to the high end of the range. He confirmed that sell-in and sell-through are now much more closely aligned due to better collaboration. Weaver stated that key distribution partners are healthy and investing, and Holley is now building relationships with the next tier of distributors, positioning B2B for future growth.

Joseph Altobello asked about the timeline for distributor inventory normalization, the sales outlook for 2025, and the rationale behind the divestiture of the Detroit Speed brand.

Answer

CEO Matt Stevenson confirmed that the majority of distributor inventory destocking occurred in Q3, with some potential residual impact in Q4, positioning the company for a normalized 2025. While declining to give a full-year guide, he expects organic growth in Q1. He explained that Detroit Speed was sold because its high-end service and build model was not core to Holley's business and that no other divestitures are planned.

Joseph Altobello questioned the company's visibility into its second-half guidance, which implies significant growth, and asked for an explanation of the substantial increase in G&A expenses.

Answer

CFO Bruce Beckman addressed the guidance, noting good visibility for Q3 from existing orders, with H2 growth heavily influenced by easing year-over-year comparisons. CEO Steven Menneto explained the G&A increase was driven by a difficult comparison to a low prior-year quarter, elevated legal fees detailed in SEC filings, and the inclusion of incentive compensation that was absent in the comparison period. He expects these expenses to moderate going forward.

Joseph Altobello inquired about the specific drivers behind the better-than-expected Q1 results and asked if the easing promotional environment was primarily a seasonal trend.

Answer

CEO Steven Menneto credited the strong performance of new, innovative products in the Malibu and Pursuit lines for the positive results. He agreed the easing promotional environment is partly seasonal but also reflects the company's healthy inventory position, while noting they will continue to monitor competitive activity.

Joseph Altobello of Raymond James sought clarity on the fiscal 2025 guidance cadence, asking if the expected return to growth is driven by improving demand or simply easier comparisons. He also inquired about the company's acquisition strategy, particularly its interest in the pontoon segment.

Answer

An executive, likely CFO Bruce Beckman, stated that growth is primarily due to easier comps, with Q1 facing the most difficult comparison. The company is keeping production low to avoid refilling the channel but has reactive capacity. CEO Steve Menneto confirmed the company's interest in the pontoon sector and other categories that fit its portfolio, noting they will entertain opportunities as they arise.