Sean Wagner

Sean Wagner inquired about the breakdown of same-store sales growth, unit volume decline, and average unit selling price (ASP) increase, and why a mixed benefit on the top line did not translate into better gross margins, specifically regarding the contribution of higher-margin businesses.

Answer

CFO Michael McLamb confirmed the 11% same-store sales growth was driven by a significant increase in ASP, largely due to the Fort Lauderdale Boat Show's focus on larger products. He clarified that increased sales of lower-margin boat products negatively impacted consolidated gross margins, despite higher-margin businesses like marinas and superyacht services contributing favorably.

Sean Wagner with Citigroup sought clarification on the reported 11% same-store sales growth, unit volume decline, and average unit selling price increase, questioning why a positive mix benefit didn't translate into better gross margins.

Answer

CFO Michael McLamb confirmed the significant increase in average unit selling prices, driven by larger products from the Fort Lauderdale Boat Show. He clarified that while higher-margin businesses contributed favorably, the substantial increase in lower-margin boat sales revenue adversely impacted the consolidated gross margin percentage.

Sean Wagner asked about BRP's ORV market share performance in Q3, specifically how current versus non-current inventory contributed to gains despite high industry promotions, and the outlook for Q4 and potential normalization next year. He also inquired if the strong start for Model Year 2026 ORVs changes BRP's Fiscal 2028 target for low single-digit side-by-side growth.

Answer

President and CEO José Boisjoli highlighted strong retail momentum for new ORV models like the Can-Am Defender HD11 and ETV backcountry series, leading to record October retail for side-by-side and ETV, with gains in current units as planned. CFO Sébastien Martel added that Q4 is expected to remain a non-current market with promotional activity potentially continuing for a few more quarters. Mr. Boisjoli reiterated the M28 plan to regain 30% market share by the end of fiscal year 2028, acknowledging recent share loss due to inventory reduction and fewer new products.

Sean Wagner, on for James Hardiman, asked for an update on March retail trends and whether, excluding tariffs, previous targets for OpEx improvement were still valid.

Answer

CFO Sebastien Martel described March retail trends as soft, similar to February, attributing it to consumer uncertainty around tariffs. Regarding OpEx, Martel noted the situation is too fluid to confirm targets, explaining that while a worst-case tariff scenario would be disruptive, he believes a transition period for any trade rule changes is more likely, allowing BRP time to adapt.

Sean Wagner asked about any shift in earnings power between Q3 and Q4 2025, given initial expectations for Q4 to be stronger, and inquired about fundamental changes or big lessons learned in 2025 outside of tariffs, now that the full-year guidance (excluding tariffs) has been round-tripped.

Answer

CFO Bob Mack explained Q4 impacts include 25% from gross profit (incremental tariffs, negative mix from seasonal products like youth, snow, marine) and the rest from OpEx (highest year-over-year incentive compensation impact, higher engineering, legal, and IT spend). CEO Mike Speetzen clarified that Polaris did not guide Q4, and current expectations align with initial full-year guidance excluding tariffs. Bob Mack noted that promo was heavier than expected, mix was better due to strong performance in high-end categories, and plants outperformed their targets, exceeding the $40 million operational efficiency goal. Mike Speetzen emphasized impressive operational execution and acceleration of improvements despite challenges.

Sean Wagner inquired about the initial expectation for Q4 earnings relative to Q3 and if there was any shift in earnings power between the two quarters. He also asked if anything fundamental had changed in 2025, excluding tariffs, or if there were any significant lessons learned from the year now that the full-year guidance had been re-introduced.

Answer

CFO Bob Mack explained that Q4 earnings would be lower due to several factors: higher incremental tariffs ($5M), negative mix from seasonal products (youth, snow, marine), and increased OpEx from incentive compensation, engineering, legal, and IT spend. CEO Mike Speetzen clarified that Polaris had not guided Q4 previously, and current expectations align with their initial full-year outlook before tariff impacts. Mack added that, excluding tariffs, promo was heavier than expected, mix was better due to high-end product outperformance, and plant operational performance exceeded targets. Speetzen emphasized the impressive operational execution and acceleration of lean improvements despite tariff-related transitions.

Sean Wagner, on for James Hardiman, requested a bridge for the year-over-year EPS decline, clarification on Q3 margin expectations, and an outlook on when promotional activity might normalize.

Answer

CFO Robert Mack attributed the Q2 EPS decline to unfavorable mix, higher promotions, incentive compensation, and tariffs, partially offset by operational efficiencies and lower warranty costs. For Q3, he and CEO Michael Speetzen highlighted tariffs and incentive comp as key headwinds. They stated it is too early to predict when promotions will normalize, as it depends heavily on interest rates and consumer demand.

Sean Wagner, on behalf of James Hardiman, inquired about the expected attendance and sales growth for the second quarter relative to the 2% increase in operating days, and asked for quantification of the attendance impact from the Easter and Boysenberry Festival calendar shifts.

Answer

CEO Richard Zimmerman reiterated that the second and third quarters represent the primary opportunity for the combined company, with a focus on higher-margin operating days. CFO Brian Witherow added that while specific quarterly guidance isn't provided, the added days in Q2 are considered higher value. He noted that weather impacted April by approximately 175,000 visits but expects the incremental days in May and June to have greater upside. A final quantification for the Boysenberry Festival shift will be available after the event concludes.

Sean Wagner, on for James Hardiman, asked for an update on the potential 3-5% RV price increase from tariffs and the potential fallout for the industry. He also questioned the durability of the balance sheet and sought assurance regarding financial leverage.

Answer

Chairman and CEO Marcus Lemonis stated that the company is uniquely positioned to handle tariff impacts due to its scale and strong used business, which benefits from higher new prices. He confirmed management's focus on deleveraging, agreeing with investor concerns. CFO Thomas Kirn highlighted the balance sheet's strength, citing cash reserves, owned inventory, and real estate assets.

Sean Wagner requested color on the expected phasing of top-line revenue and margins in the second half of the year and asked about the company's ideal inventory turn target, which is currently around 2x.

Answer

CFO Bryan Hughes indicated that the company expects sequential improvement in both top-line and margins in Q3 and Q4, driven by leverage from higher sales volumes. He explained there is no specific target for inventory turns, as the focus is on partnering with dealers to balance their efficiency needs with having adequate product on hand for customers.

Sean Wagner asked for tangible drivers behind recent retail strength, how that might translate into a second-half recovery, and whether dealer appetite for new orders has increased.

Answer

CEO Michael Happe pointed to several "green shoots," including positive October industry retail, low industry inventory, and improving consumer confidence. He noted Winnebago's internal retail data for November and early December showed continued year-over-year improvement. While dealer ordering is not yet broadly robust, he confirmed the Towables business has seen a recent uptick in its backlog.

Sean Wagner, on for James Hardiman, asked about the expected trajectory of the 2025 booking curve, recent booking trends, and the company's plans for CapEx and excess cash.

Answer

President and CFO Leah Talactac clarified that the booking curve's flattening reflects the sale of remaining, lower-yielding Q4 inventory. She acknowledged a slower February after a record January but expressed confidence due to the long booking window. Regarding capital, she stated priorities are supporting the ship order book, maintaining a large cash reserve for stability and flexibility, and reinvesting in the business for organic growth, while remaining open to strategic acquisitions.