BRP - Earnings Call - Q1 2026
May 29, 2025
Transcript
Operator (participant)
Good morning, ladies and gentlemen. Welcome to the BRP Inc FY26 First Quarter Results Conference Call. For participants who use the telephone lines, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes.
Philippe Deschênes (Director of Investor Relations)
Thank you, Joelle. Good morning and welcome to BRP's Conference Call for the First Quarter of Fiscal Year 2026. Joining me this morning are José Boisjoli, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer. Before we 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. The forward-looking information is based on certain assumptions and is subject to risk and uncertainty, and I invite you to consult BRP's MD&A for a complete list of these. Also, during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section. With that, I'll turn the call over to José. Thank you, Philippe.
José Boisjoli (President and CEO)
Good morning, everyone, and thank you for joining us. We've delivered a sound performance in our first quarter, which resulted in line with expectations as we continue to right-size network inventory level in seasonal products and execute on elements within our control. The operating environment remained challenging, with significant macroeconomic uncertainty and a volatile tariff situation affecting consumer confidence. Still, driven by very solid snowmobile sales, we slightly outperformed the powersports North American industry at retail. Looking at the sales of our marine group, we made progress by announcing a definitive agreement for the sale of Telwater and closing the sale of Alumacraft. The process for Manitou is following its course. Now, let's turn to slide four for key financial highlights. We ended the first quarter with revenue of CAD 1.8 billion, normalized EBITDA of CAD 201 million, normalized EPS of CAD 0.47, and strong free cash flow generation of CAD 162 million.
As for retail, let's look at global trends on slide five. In North America, our powersports retail held steady, reflecting a growth of 21% in Canada, fueled by a strong end of season for snowmobile, offset by a decline of 6% in the United States as we continue to see generally weaker industry trends. From an international perspective, demand remained soft in EMEA and Asia-Pacific, with retail down 22% and 13%, respectively. Once again, Latin America outperformed other regions, with retail up 18%, driven by sustained momentum in ORV and personal watercraft. On a global scale, demand remained strong for high-end products compared to entry-level. We also outperformed in current units and underperformed in non-current units due to our leaner inventory position. Turning to slide six for a look at our retail performance by product line in North America.
As anticipated, our powersports retail held relatively steady compared to last year, surpassing the industry, which was down low single digits. Snowmobile retail was strong, up over 80%, driven by favorable snow conditions late in the winter. As for three-wheel vehicles, personal watercraft, and Sea-Doo pontoons, retail was down early in the season due to the combination of softer industry trends and a late spring. Now, let's turn to slide seven for a more detailed look at year-round products. Revenue were down 4% to CAD 1.1 billion, probably driven by softer industry trends and higher sales programs given the ongoing market dynamics. At retail, Can-Am Side-by-Side was down about 10% compared to the industry, which was down mid-single digit. We underperformed in non-current units given our healthier inventory position compared to other OEMs.
However, we continued to outperform in current units, gaining four percentage points of market share in the quarter, driven by the sustained momentum of our newly introduced model. As for ATV, retail was down low single digit in line with the industry, but we had strong gain in the high CC segment fueled by our new Outlander platform. Looking at three-wheel vehicles, we are very early in the season, and retail was down high 20% in the quarter, reflecting industry softness in the late spring. A few words on two-wheel. As planned, we had our first shipment of Can-Am Pulse and Origin motorcycle to North America and Europe in the first quarter, continuing in the second quarter. We are organizing tours to get the media and consumer excited, and our dealers are also actively preparing demo rides.
Turning to seasonal product on slide eight, revenue were down 22% to CAD 419 million, firmly reflecting reduced shipments as we continue focusing on right-sizing network inventory level. Looking at our retail performance, we closed the North American snowmobile season down 18%, slightly lagging the industry. As I said earlier, favorable snow conditions late in the winter in North America stimulated demand. With our solid lineup and retail promotion, we outperformed the industry during the quarter, partially catching up on our plan for the season. In Scandinavia, it was a more difficult season, and our retail was in line with the industry. More importantly, we remain by far number one worldwide with Ski-Doo and Lynx. The strong end of season in North America allowed us to achieve a year-over-year network inventory reduction of 15%. Healthier inventory level, combined with our solid lineup, resulted in strong spring preorders compared to last year.
Preorders are now back to a normal rate of approximately 30% of production already sold. All these elements put us in a better position for season 2026. As for Ski-Doo products, retail was in line with our expectations in the first quarter, with personal watercraft down mid-single digit and the Switch down low 20%. We also continue to grow in Latin America, with retail up mid-10%. The objective for this season is to right-size network inventory level, and so far, we are on plan. Moving on to slide nine with powersports parts, accessories, and apparel, and OEM engine. Revenue were up 5% to CAD 322 million, driven by a higher volume of snowmobile parts following the strong end of season, as well as the ongoing usage of our growing fleet of vehicles. Meanwhile, accessory sales have been softer, in line with retail trends.
As with units, the inventory of P&A at dealer is getting back to more reasonable level. With that, I turn the call over to Sébastien.
Sébastien Martel (CFO)
Thank you, José, and good morning, everyone. This quarter was another demonstration of our team's ability to execute with discipline in a dynamic environment, putting us in a good position early in fiscal 2026, with results in line with our expectations: solid free cash flow generation and continued improvement on the network inventory front. Before getting into the numbers, please note that as part of the marine sales process, we decided to keep the legacy Alborne engine parts business. Consequently, we have reclassified our fiscal 2025 numbers to reflect this decision. Now, looking at the numbers, revenues were down 8% to CAD 1.8 billion, primarily due to lower shipments and higher sales program.
We generated CAD 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. These were partly offset by cost inefficiencies across our manufacturing operations and favorable pricing. Note that through the first quarter, we saw limited impact from tariffs across our cost structure. Our normalized EBITDA ended at CAD 201 million and our normalized earnings per share at CAD 0.47. We generated CAD 162 million of free cash flow from continued operations and ended the quarter with over CAD 300 million of cash, further reinforcing our solid balance sheet and financial flexibility.
Turning to slide 12 for an update on our network inventory, we continued making progress on right-sizing our network inventory, which is down 21% compared to last year, with double-digit decline in all product lines. Our dealer's credit line usage is now just above 70%, the lowest level in over two years, and below pre-COVID utilization rates. This should alleviate some of the inventory impact on our dealer's finances, all the while providing available capacity to be able to rapidly react when our industry rebounds. 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 fiscal 2026, starting with tariffs. As you know, 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 remain tariff-free, given that all our vehicles produced in Canada and Mexico are USMCA compliant and consequently are currently 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 is impacting us.
Factoring in these elements based on the current environment, we now estimate that the total gross tariff impact for our business for fiscal 2026 to be between CAD 60 million and CAD 70 million. We expect this impact to be manageable, as we should be able to offset most of the incremental costs using different levers across our value chain. Now, looking at the rest of the year, with Q1 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. 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. As for the back half of the year, things remain more difficult to forecast.
As you know, the evolving tariff environment continues to create uncertainty and is weighing on consumer confidence. Furthermore, its full impact on the global economy is still unfolding and difficult to predict. 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 today. Still, there are a few elements that make us optimistic for H2. First, assuming Q2 goes as planned, our network inventory reduction efforts should be mostly completed, positioning us to better align wholesale with retail through H2. Second, we have exciting new products coming up at our club in August, and we are planning for the initial shipments of these new products to happen throughout H2, supporting volume growth and favorable product mix.
In a scenario where the retail environment remains consistent with what we have seen in Q1, these elements could yield double-digit top-line growth, along with strong improvement in normalized EBITDA and EPS compared to the second half of last year. 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, our agile manufacturing footprint, and our solid balance sheet with strong liquidity and long-term debt maturities, we are well equipped to face a wide range of scenarios. Still, we look forward to more stable and predictable operating conditions, allowing us to provide you with a clearer outlook for our business. On that, I'll return the call back to José.
José Boisjoli (President and CEO)
Thank you, Sébastien. As you know, I am always very proud of our product with industry recognition, as it reflects positively on all our teams. I'm even more proud when one of our teams receives an important honor. Last week, our design and innovation team was crowned Red Dot Design Team of the Year 2025, a prestigious international title for design excellence. We have joined the ranks of previous winners that include iconic brands such as Ferrari, Apple, and Porsche. I want to congratulate our entire design team. Together with engineering, they constantly redefine our product to give our customers a memorable experience. Innovation is part of our DNA, and this recognition reflects our ability to develop market-shaping products that fuel our growth. Our results for the quarter were in line with our plan, despite the current context.
Our diversified product portfolio enabled us to outpace the North American powersports industry at retail. We also had our highest retail sales ever for our first quarter in Canada, Brazil, Mexico, and China, as well as in our EMEA distributor markets, reflecting sustained momentum in these regions. Over the short term, as uncertainty is expected to continue impacting consumer confidence, we are planning for demand to remain tough until economic conditions improve. We are looking forward to our dealer event in August to be held in Boston with exciting Model Year 2026 product news that will continue building on the momentum of our successful lineup. You are all welcome to join us. 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.
BRP is known for its agility, and we are ready to take advantage of a rebound driven by a strong product portfolio, solid dealer network, and leaner inventory position. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunity and sustain profitable growth. Before moving on to the question period, I would like to say a few words. 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. After 36 years at BRP, including 22 as CEO, the time has come for me to hand over the wheel to a new leader. I am grateful that I was selected for this role back in 2003 and so proud of what BRP has become today: a diversified, innovative company that is well positioned for lasting growth.
You can count on me to ensure a seamless transition supported by a seasoned management team dedicated to the success of BRP. Thank you. On that note, I turn the call over to the operator.
Operator (participant)
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, 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. Your first question comes from Sabahat Khan with RBC Capital. Your line is now open.
Sabahat Khan (Managing Director)
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 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.
Sébastien Martel (CFO)
Good morning. As you know, it's been a focus of ours over the last 12 months to right-size network inventory. We started this 12 months ago, actually, and we are quite happy with where we are today. You saw at the end of Q1, inventories were down 21%, and we've seen double-digit inventory declines across all of the product categories. That's another big, big plus. In my prepared remarks, I said we still had a bit of work to do on the seasonal products business. We are entering into personal watercraft season, so the expectation is that we will retail more than we're wholesaling for this season. Also, snowmobile, this is a second year where we've had a below-average season, and we have more inventory to reduce.
The expectation is that all of the work, or most of the work, will be done on the ORV business and the year-round product business at the end of Q2, and a bit more work to be done on the seasonal part. We expect seasonal to be down about 20% at the end of the year versus where we started at the beginning of the year. Really happy with that work that is being done. Actually, we have probably 70% of our dealers' line of credit that are being used, so it gives us a good tailwind when things rebound. As for the competition, some OEMs have been later to react in adjusting production and wholesale.
We saw a competitive dynamic that was still aggressive and very promotional in the first quarter, and we expect it to continue in the second quarter as some OEMs still have a lot of inventory that they need to address. Come Q3, we are hopeful that things are more stable and everyone will be competing on a similar foothold.
Sabahat Khan (Managing Director)
Great. Thanks. Just as my follow-up, I think you indicated that you're actually expecting a better H2. If you can maybe just give a bit more color on the retail uptake environment, what you saw through the quarter sounds like it was flat over here in North America on retail for you. Maybe just talk us through some of the details on what's giving you confidence on the better setup at retail for H2. Thanks.
José Boisjoli (President and CEO)
Like Sébastien just explained, we believe the non-current inventory will be at a more normal level by the end of Q2. I think on the back half of the year, it's all OEM introduced Model Year 2026, and we have a strong lineup to be announced in August. We're confident that with the product news, with the dealer network that is in better shape in terms of inventory, also all the momentum that we had in the last few quarters on the current unit, and the inventory position that is looked, we are in better shape than others, and we're confident for H2.
Sabahat Khan (Managing Director)
Thank you.
Operator (participant)
Your next question comes from James Hardiman with Citi. Your line is now open.
James Hardiman (Director and Travel and Leisure Analyst)
Hey, good morning. Obviously, a lot has changed since we last heard from you, although, I don't know, based on yesterday's announcement, maybe not as much has changed. Maybe walk us through sort of what you were seeing at retail over the course of the quarter, and then specifically, I mean, around Liberation Day, as we think about April, was that the worst of it? What, if anything, can you tell us about trends in May? Obviously, the more current we can get, I think the better as we try to tease out the consumer's response to some of the macro factors, particularly the various tariff announcements. Thanks.
José Boisjoli (President and CEO)
Obviously, the macroeconomic is very volatile and very difficult to predict. But to be honest, we saw lots of ups and downs, but there is no big change in the trend versus the last few quarters. To give you some numbers, the new and trend is still, in Q1, our new and trend purchase product was at 21%, and we're back to pre-COVID numbers. Like we give you, this is basically the same number we gave you in the last few quarters. And we saw the same trend. The premium vehicles selling better than the entry-level product. I'll give you some numbers. In the watercraft category, our entry-level Spark was down 15% when the high-end was about flat-ish. The Switch was down 24%. The Ryker, the entry-level three-wheel vehicle, was down 40%. And on the side-by-side, the premium was up 16% when the value was down 34%.
The utility side-by-side flat-ish, and the REX port down 9%. As you can see, there is no global trend. We believe that the higher-income customer is still interested and is still buying. The lower-income customers, obviously, who finance, it's more difficult, and they are squeezed with the inflation, the interest rate that is still on the high side, and they are on the fence to buy. This is basically what we see, and it's very difficult to predict where all of this is going.
James Hardiman (Director and Travel and Leisure Analyst)
Got it. Obviously, everything's difficult to predict. As I think about the tariff environment, obviously, most of your production is Canada and Mexico, at least up through yesterday. China was getting penalized significantly more. You talked about a gross tariff headwind that you think you'll be able to offset. I guess my question is on the competitive environment. Your biggest competitor has a much higher tariff burden as we think about what they're getting directly from China into the United States, 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 that creates that you're in a relatively favorable tariff environment going forward? Thank you.
José Boisjoli (President and CEO)
It's a long question. Let's say that, obviously, every OEM faces different situations, and I believe that with time, every OEM will find a way to mitigate the tariff or reduce the impact of the tariff. If I'm talking by ourselves, you know when we had our call in March, the situation was more difficult. Now, Sébastien mentioned growth of 60-70, which is less than 1% of our revenue, which is manageable. We are working right now with tier-one supplier, tier-two supplier to change the origin of some component, sometimes to change the location of assembly to avoid the tariff. So far, we've been quite successful to reduce the existing tariff for our vehicle. As you know, all our vehicles made in Canada and Mexico are USMCA compliant.
I think if you look at the big picture, every OEM has its own reality, but I believe that every OEM will find ways 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 creates into the customer confidence, and many are on the fence, and they're waiting to have a better visibility before they will buy our product that are discretionary. That's, in a nutshell, our view on the overall situation. Like we said in March, and we're repeating, this changes day by day.
Sabahat Khan (Managing Director)
Very helpful. Thank you.
Operator (participant)
Your next question comes from Benoît Poirier with Desjardins Capital Markets. Your line is now open.
Benoît Poirier (VP and Industrial Products Analyst)
Yes. Thank you very much, and congrats, José, on a well-deserved retirement after 22 successful years. Sébastien, you mentioned about the potential to reach top-line growth, double-digit in the second half. Obviously, in this powersports, volume matters. How should we be thinking in terms of EBITDA margin? Should we expect EBITDA to grow even further than double-digit? What type of kind of EBITDA margin should we be looking for given this potential tailwind in the second half?
José Boisjoli (President and CEO)
The tailwind, Benoît, comes from, obviously, the product launches that we're doing, also the fact that retail is going to be matching wholesale. When I look at where the market is in terms of consensus, it's certainly something that I'm comfortable with. Generally, yes, the EBITDA margin is going to improve, but we're going to be away from what we are targeting in terms of overall EBITDA margin in the long term. Overall, we're still going to be underutilizing our assets. There's going to be more programs, so there's going to be some compression there. Obviously, with the added volume, it's certainly going to bring some tailwind on the margin side.
Benoît Poirier (VP and Industrial Products Analyst)
Okay. Perfect. Now when we look at the free cash flow generation, working cap, you've done a good job. What should we be looking for in terms of working cap for the full year and how would you characterize the best opportunities in terms of capital deployment right now?
José Boisjoli (President and CEO)
Again, we're not providing guidance this morning, but in a context where we're expecting a good second half of the year that is going to drive good free cash flow generation as well, provide us with, obviously, some flexibility. In the short term, with the uncertain context that every company is facing today, we prefer to be prudent before committing to any capital deployment. The 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. In terms of buybacks, we're probably going to be on the sideline for the foreseeable future until we get a better view as to where all of this is going to end and how the economy is going to bounce back.
Benoît Poirier (VP and Industrial Products Analyst)
Okay. Perfect. Thank you very much for the time.
José Boisjoli (President and CEO)
Merci.
Operator (participant)
Your next question comes from Craig Kenison with Baird. Your line is now open.
Craig Kennison (Director of Research Operations and Senior Research Analyst)
Hey, good morning. Thanks for taking my question. Seb, you described a $60 million-$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.
Sébastien Martel (CFO)
Yeah. As I mentioned, the impact in the first quarter was minimal because all the costs that we've incurred, most of them were inventoried as that raw material is going to be used in the second and third quarter. The full-year impact is, as I mentioned, CAD 60 million-CAD 70 million on a gross basis. Full year, you're probably going to add an extra, call it, CAD 30 million on a full-year basis. As José mentioned, we're working very closely with our suppliers to mitigate that impact. About half of the impact comes from our P&A business. Probably, let's say, half of that is the China impact tariffs that are being imposed on China. Obviously, we're running our numbers with the current assumptions, which is the relief that was given a few weeks ago on the China tariffs.
That is why when we are reporting our numbers today, it is significantly lower than what our competitors reported a month ago. How do we alleviate? As I mentioned, obviously, suppliers is one strategy: relocation, driving efficiency in the organization. As we do every year, we do price increase. We will be revisiting our pricing for the new model year 2026, which we will be announcing in August. That is going to help alleviate some of the headwinds that we are seeing.
Craig Kennison (Director of Research Operations and Senior Research Analyst)
Thanks. Maybe as my follow-up, I'll just ask José, congratulations on just an extraordinary career. I'm wondering if you would just reflect on what maybe gives you the most pride or satisfaction during your tenure.
José Boisjoli (President and CEO)
First, I'm not gone yet. We can discuss later. For me, what I'm the most proud of is what BRP has become. You know we had two product lines profitable, two were not profitable in 2003. Today, we have seven profitable product lines. We have a diversified, obviously, product portfolio, international manufacturing footprint, and very happy with where we are.
Craig Kennison (Director of Research Operations and Senior Research Analyst)
Thank you.
José Boisjoli (President and CEO)
Thank you.
Operator (participant)
Your next question comes from Robin Farley with UBS. Your line is now open.
Robin Farley (Managing Director and Leisure Analyst)
Great. Thank you. José, congratulations on a fantastic run. My question is going back to your expectations that it will only take maybe one more quarter for retail and shipments to kind of be aligned. It seems like there's an implicit retail assumption there. Are you assuming that the demand sort of recovers to flat, or is it up slightly? Maybe help us think about what your retail assumption is there and what underpins that. Thank you.
Sébastien Martel (CFO)
Yeah. Good morning, Robin, it's Seb. When we talked back in March, I referred back to the assumption that we had in January where we were assuming a flat industry. When you look at the Q1 retail and industry numbers, we reported that industry being flat, but a lot of that was driven by the snowmobile. A very strong snow season, especially in February and March, drove good retail. When you exclude snowmobile, the overall industry is down 5%. Obviously, with the ongoing threat of tariffs, the volatile environment, we are seeing consumers hesitant to purchase. Retail has continued to be choppy in the month of April, in the month of May. It is obviously depending on weather, the latest news, and also how people are feeling about where the economy is going to head. It is difficult to forecast any industry demand.
For May, we're seeing the continued trends there with ORV, some OEMs being aggressive on promotions, and the ORV industry being down year over year in May. Seasonal business as well, personal watercraft. The weather hasn't been great in the last few, in the last month. We're seeing softer retail. Even in a context where retail is declining, we expect to have a good second half of the year because the inventory is already corrected and we'll have retail matching wholesale in the back half of the year. We also have great new product launches that will be announced in the next month or so where the dealers and consumers will certainly be interested in receiving them.
Robin Farley (Managing Director and Leisure Analyst)
Okay. Great. That's very helpful. Thanks. Just as my follow-up, it sounded like the comment a moment ago that you would revisit price increases to think about helping alleviate tariffs. I know you'll have more to say on that in August. Maybe if you can just give us what your thought is on if the retail environment is challenging at current prices, which are also being impacted further by promotions, right? The average price is even lower given the promotional environment. Is there really the opportunity to increase price without kind of further impacting demand? Thanks.
José Boisjoli (President and CEO)
For sure, we're sensitive to price increase and this global macroeconomic situation. Like we've just said, the gross impact of tariff as of now is CAD 60 million-CAD 70 million. We will continue to work again with our supplier to reduce it. We have already announced to our network that there will be no price increase on every model year 2025 that is selling at the moment. There will be some price increase on P&A that will happen in June. P&A is more difficult to avoid because it's 60,000 different SKU. About 16,000 are affected by the tariff. There will be some price increase on P&A. On model year 2026, Robin, it's too early to say. Again, we don't want to charge more for the tariff than what it costs us. At the end of the day, we will continue to work on the mitigation plan.
Plus, the rules can change any day like it did yesterday. Don't know yet the consequence, but we will minimize the price increase because of tariff on our model year 2026, obviously.
Robin Farley (Managing Director and Leisure Analyst)
Great. Thanks very much.
Operator (participant)
Your next question comes from Xiang Su with BNP Paribas. Your line is now open.
Xiang Su (Analyst)
Thanks. Congrats, José, and best of luck in the next chapter.
José Boisjoli (President and CEO)
Thank you.
Xiang Su (Analyst)
Maybe on the current versus non-current, you kind of mentioned how current is doing better. Maybe you can give us an update of what 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?
José Boisjoli (President and CEO)
It is a bit difficult because the industry data for current, non-current, and depending on the country where you are. I would just give you some number to give you a sense. On the U.S. CTV in Q1, the industry was down 26% versus last quarter, which is an improvement, significant improvement. Side by side, it was down 15% in Q1 versus last quarter. On ORV, we are down 21%. I think this is off-road vehicle. On snowmobile, basically for the upcoming season, we will have about a third of the non-current inventory when we have about two-thirds of the market share. We are well positioned on the snowmobile front. On watercraft, the goal is to deplete significantly the inventory this summer. We are tracking on our plan. It is a very moving environment with different product lines and different competition, different OEMs in each product line.
I think the industry is definitely getting in a better position overall. Like we said, it should be back to normal level at the end of Q2. That is why we are confident to regain momentum in H2.
Xiang Su (Analyst)
Got it. That's helpful. Maybe following up on that, your current inventory is doing well. Like you said, you're one of the first to kind of start the destocking. How is dealer feedback? If inventories are kind of clean going into the back half, are they kind of saying, "We want to maybe expand and then buy more or gain share with BRP?" I guess how are you thinking about market share gains into that environment?
José Boisjoli (President and CEO)
I think right now, we will switch from model year 2025 season to model year 2026 in a few months, depending on the product line. I think right now the dealers are in a mindset to reduce their inventory of any OEM as fast as possible. We call that the crate pressure. I think, like I said, if the inventory of non-current, if the level of non-current inventory is back to a normal level for this time of the year, this is where we bet with our product line, existing product line, and the new product line we'll introduce in August, plus the strength of our dealer value proposition, better margin, better profitable for the dealers, and obviously our inventory level that is lower than the competition. We believe we are in the best position in the industry to bounce back quickly in H2.
Xiang Su (Analyst)
Great. Thanks and good luck.
José Boisjoli (President and CEO)
Thank you.
Operator (participant)
Your next question comes from Martin Landry with Stifel. Your line is now open.
Martin Landry (Managing Director)
Hi, good morning, guys. José, congrats on an exceptional quarter and good luck on the next steps.
José Boisjoli (President and CEO)
Thank you.
Martin Landry (Managing Director)
I would like to talk about new product introductions. You've called this up a couple of times during the call. What can you say? I know they're going to be introduced in August, so I don't expect you're going to reveal too much. How would you characterize this year? Is it a strong innovation year? Do you have more models that are being introduced, more SKUs? What are the price points looking at? Are you skewed towards higher price points, lower price points? Anything you can give us in terms of color on the new product lineup and new product introduced would be great.
José Boisjoli (President and CEO)
As you can imagine, we cannot disclose much on what we will introduce. This would be too interesting for our competition. The only thing I can say, obviously, every year we look at our lineup and we try to be as competitive as possible in each product category. There are some platforms, some models that are older than the others. This fall is a strong product intro for Can-Am. Also, watercraft, we have a very strong lineup on watercraft with 65+% market share worldwide. Obviously, we feel good about what we will introduce to the dealers. That is why the combination of the product introduction, the value proposition for the dealer where they have better margin selling our product than other OEMs, plus our inventory that is in good shape, we are well positioned to gain in H2. I cannot tell you more.
Martin Landry (Managing Director)
I see. Okay. Okay. That's helpful. José, I mean, you've been through several industry cycles. I was wondering, how do you see this cycle? How does it compare? How does it differ from previous cycles? How can that inform you on the length of the cycle and the timing of demand stabilization and recovery?
José Boisjoli (President and CEO)
I think, like you said, so many cycles over my career, but every crisis or slowdown is different from one to the others. I think what is a bit unique in this one is we had high inflation in the last few years, high interest rate. Everyone was expecting the inflation to go down. Now it is not going down as fast as we were hoping for. The interest rates are somewhat higher than what everyone was anticipating. This tariff war, I mean, created a lot of uncertainty and slowed down everything and affected consumer confidence. I believe that, to be honest, a lot of customers are interested to buy our product and to enjoy life. I think at the minute that we see some clarity on the tariff in terms of the impact, but also in terms of stability, the industry will bounce back quickly.
I feel we are in a very good position to be the best OEM to bounce back quickly.
Martin Landry (Managing Director)
Okay. That's helpful. Best of luck.
José Boisjoli (President and CEO)
Thank you.
Operator (participant)
Your next question comes from Mark Petrie with CIBC. Your line is now open.
Mark Petrie (Equity Research Analyst)
Hey, good morning. Thanks. I will echo my congratulations to you, José, on your leadership and track record of growth. It's been a pleasure to interact with you over these years and certainly wish you all the best in your next chapter.
José Boisjoli (President and CEO)
Thank you.
Mark Petrie (Equity Research Analyst)
Many of my questions have been asked. I did want to ask, I guess, I know it was not formal guidance previously, but would you say that the dynamics around competitor inventory and competitive dynamics or consumer demand have changed materially your view from the $4.50-$5 range as what you were sort of thinking about coming into the year? Have any of the assumptions around that sort of changed materially, up or down?
Sébastien Martel (CFO)
Versus the $4.50, yes, there's been some change. The two changes are, one, tariff, because the $4.50 tariffs were not there. That impact of tariffs is certainly one element. The other one is the industries. As I've mentioned earlier, if you exclude snowmobile, industries are down 5% in Q1. We are seeing that softness continuing in May. That would be the other big driver of us holding back before issuing any guidance until we get clarity on these two elements.
Mark Petrie (Equity Research Analyst)
Okay. So first is the $4.50-$5. The consumer demand environment is softer.
Sébastien Martel (CFO)
Yes.
And.
There were no tariff impacts on the $4.50-$5.
Mark Petrie (Equity Research Analyst)
Yeah. Understood. Okay. That's all I had. Thanks very much.
Sébastien Martel (CFO)
Thanks, Mark. You.
Operator (participant)
Your next question comes from Joe at Tobello with Raymond James. Your line is now open.
Martin (Analyst)
Good morning. This is Martin on for Joe. I just wanted to really quickly touch on the big beautiful bill. There is a provision there which essentially allows buyers to write off interest on products where the final assembly is in the United States. Compared to your competitors, would that put you at a disadvantage or is there any kind of read-through we can get from this bill?
Sébastien Martel (CFO)
Obviously, it is a bill that has yet to be enacted, and there is a lot of provisions in that bill that may or may not go through. It is certainly something that we are taking a close look at. Obviously, there are some caps that are being put in there in terms of total deductibility in a year, income levels as well. Not necessarily addressable to all income levels. We tend to attract people that have higher levels of income. Even though it might apply to some of our products, it might not apply to these individuals. Also, will people use the itemized deduction or the available deductions that are available to anyone when they file their tax returns remains to be seen. It is certainly something we are paying close attention to.
Obviously, in the end, it will certainly be part of discussions when Canada, Mexico, and the U.S. sit down and talk about tariffs and subsidies that are provided to industries by local governments, either directly or indirectly. You could almost qualify this as a subsidy. It is still early. I think we are in the first inning of this big beautiful bill, and we will see where things end. As usual, we will be responsive and adapt our business accordingly.
Martin (Analyst)
Great. Thank you. Congratulations on your retirement.
Sébastien Martel (CFO)
Thank you.
Operator (participant)
Your next question comes from Cameron Dirksen with National Bank Financial. Your line is now open.
Cameron Dirksen (Analyst)
Yeah. Thanks. Good morning. Congratulations from me as well, José. Just on that, I mean, just anything you can provide as far as a timeline or, I guess, the search process for a new CEO candidate, just sort of what kind of, I guess, timeline we should expect and whether the board is looking at internal versus external candidates. Just any color you can provide, that would be great.
José Boisjoli (President and CEO)
I mean, obviously, I was discussing with the board twice a year about my plan, and we came in the last few weeks to an agreement that it was time for me to move on. The board, you know, we have very experienced long-time board members that know the business very well. They have already started this morning the process with headhunter. It will be obviously a global search considering internal and external candidates. It could take anywhere between three to nine months. That would be the normal timeline. I obviously committed to stay and to ensure a good transition till the new CEO is found.
Cameron Dirksen (Analyst)
Okay. No, that's helpful. Maybe just a quick follow-on for Seb, just on the, I guess, the decision to keep the marine, I guess, accessories business, parts and accessories business. Just wondering why that was decided and is that business profitable?
Sébastien Martel (CFO)
As part of the decision to exit the marine business, obviously, we've put all the assets up for sale. It is a good business because it's part of the legacy of Enroute business. We generated last year over CAD 70 million of revenue, almost a 25% EBITDA margin from this business because it's captive parts. We were not able to get an acceptable price for this business, and we decided to keep it. It's low maintenance internally, not very disruptive, and it's generating free cash flow. That is what drove the decision to keep it.
Cameron Dirksen (Analyst)
Okay. No, that makes sense. Appreciate the time. Thanks very much.
Sébastien Martel (CFO)
Thank you.
Operator (participant)
Your next question comes from Tristan Thomas Martin with BMO Capital Markets. Your line is now open.
Tristan Thomas Martin (Analyst)
Hey, good morning. Another congrats, José, to the tally.
José Boisjoli (President and CEO)
Thank you.
Tristan Thomas Martin (Analyst)
Had a question. You kind of called out, right, dealers are at 70% credit line usage. What signs do you think they're looking for to maybe order ahead of any retail inflection, or do you think they're just going to wait till they begin to see retail improvements to begin ordering in kind of more volume?
Sébastien Martel (CFO)
There is still, again, we were one of the OEMs that reacted quickly. And based on the experience that we have in the business, we knew that when you see a potential slowdown happen, might as well react quicker. It will be more beneficial in the long term for everyone, which was the right decision to do. We have some OEMs that have more inventory out there. I think dealers need to get that inventory out, liquidate that inventory, see where the consumer is, see where the whole economy is going to land, where the tariff situation is going to land as well before we see some confidence. Obviously, they will want to order the new products, the latest innovation. That is why we are excited about the second half of the year.
Before we see a strong inflection in demand, I think dealers are going to want to see more door swings and continuous door swings as well before stepping on the gas and ready for the next wave of growth.
Tristan Thomas Martin (Analyst)
Okay. That makes sense. Just one more. Are you seeing any changes in buyer credit approvals or credit scores or credit availability, anything?
Sébastien Martel (CFO)
In terms of the people applying for credit, we have not seen any changes in terms of FICO scores. People who are granted credit as well, we have not seen big changes. Where we have seen is the, I guess, the lower-tier financiers that are more selective in providing credit to lower credit scores. Entry-level products like the Ryker is suffering a bit from a lower acceptance rate. This is something that we have seen in the last quarter.
Got it. Thank you.
Operator (participant)
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 (Analyst)
Thanks very much. Seb, I appreciate the color on the second-half outlook. I want to understand it a little bit better. This quarter, you've got sales down CAD 150 million, EBIT and EBITDA down about CAD 100 million. There's a 70% decline in the sales change. That's far greater than decrement. It's telling me that promo and mix played a very big role. I think decrements are typically 35%. Can you just confirm that? Then break down the components of this decline because I want to know as inventory improves, what gets alleviated so I understand the back half outlook better.
Sébastien Martel (CFO)
Okay. That's a big question for the final one of the day. If I look at the margin in Q1, obviously, gross margin was hit pretty hard in Q1 by almost 500 basis points. The drivers of that are mix were significant. Sales programs were significant as well. Mix was about 170 basis points down. Program 120 basis points down. Fixed cost absorption also 190 basis points as well impact. Quite a big impact on the profitability and offset by a bit of efficiency and pricing as well that we were able to build in the overall plan. When I end, obviously, retail higher than wholesale in this quarter. That's obviously a big impact. Looking at the back half of the year, as I've mentioned earlier, for sure, the new product introductions is going to be a big element.
The other thing we have as well is wholesale matching retail, which I've already covered. The big drivers of the second half, if I look Q3 to Q4, Q3 potentially could be flattish year over year. Yes, there's going to be some, obviously, some top-line growth. I'm still expecting a bit of programs, but certainly a margin improvement in Q3. The big margin improvement is going to be happening in Q4, where we could expect volumes up significantly, almost easily a more than a 5% increase in volume, probably in the range of $300 million-$400 million of volume increase in Q4. Margin improvement because the mix is going to be rich as well. That's certainly going to be a big uptick. That's how we see the back half of the year.
Certainly less programs, certainly better volume, and also better mix with asset utilization.
Brian Morrison (Analyst)
That's largely the new product introduction, correct?
Sébastien Martel (CFO)
Largely to new product introduction and also largely to wholesale equal retail. Last year, we were reducing side-by-side and ORV inventory. And so we were wholesaling less than we were retailing.
Brian Morrison (Analyst)
Okay. And then just on that last question, ORV 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. Should we expect it to soften more with just current priced inventory or assume that that is offset with the new product introduction?
Sébastien Martel (CFO)
In the back half of the year, you could expect that you'll have an offset with the new product introduction. Do not forget you will be transitioning into a non-current season in Q3 and Q4. The model year 2025s will become non-current. OEMs should have discounts on these. That should help sustain a certain level of demand also in the back half of the year.
Brian Morrison (Analyst)
Thank you very much.
Operator (participant)
There are no further questions at this time. I will now turn the call over to Mr. Deschênes for closing remarks.
Philippe Deschênes (Director of Investor Relations)
Great. Thank you, Joelle. Thank you, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our second quarter conference call planned for August 29. Thank you again, everyone, and have a good day.
Operator (participant)
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.