BRP - Q4 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the BRP Inc. FY24 fourth quarter results conference call. For participants who use the telephone line, 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 (Head of Investor Relations)

Thank you. Good morning and welcome to BRP's conference call for the fourth quarter of fiscal year 2024. 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 uncertainties, and I invite you to consult BRP's MD&A for a complete list of these. Also, during the call, references 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.

José Boisjoli (CEO)

Thank you, Philippe. Good morning, everyone, and thank you for joining us. Fiscal 2024 was marked by solid market share gain, successful product launches, and continued progress on our key strategic initiatives. From a financial perspective, the year was more challenging than expected due to macroeconomic environment. We adapted to the situation, and as you know, we have proactively reduced our shipment to dealers. Despite unfavorable winter conditions, which impacted our snow-related business, we've delivered EPS within our guidance range. Let's turn to slide 4 for key financial highlights for the year. Revenue increased 3% to reach CAD 10.4 billion, a record high for BRP. Normalized EBITDA was stable at CAD 1.7 billion, and normalized EPS was down 8% at CAD 11.11. Our focus on cash management paid off, as we've delivered a record free cash flow of more than CAD 1 billion for the year.

As for retail, our North American Powersports sales were up 8% for the year compared to an industry of about 1%. The strong Powersports retail performance further strengthened our position as the number one OEM in the industry, as you can see on slide five. With this additional growth in fiscal 2024, our retail now stands 35% higher than pre-COVID levels in an industry that has been flat. We added another 2 percentage points of market share for the year, with gain across almost all product lines. We have continued expanding our leadership position as the number one OEM in Powersports and the only one retailing more units per dealer than during COVID. Our success comes from our ability to constantly innovate by bringing new products to market that drive consumer demand, and we are well positioned to sustain our momentum going forward.

Turning to slide 6 for a closer look at our retail performance in the fourth quarter. Our North American Powersports retail was down 10% as we were facing a tough comp due to late shipment and retail of three-wheel vehicles, personal watercraft, and Sea-Doo pontoons in Q4 last year. Yet, this year's fourth quarter was our second strongest ever, even surpassing the COVID year during which we had significantly depleted network inventory. Our performance was also impacted by unfavorable winter conditions, which led to a snowmobile decline in the high teens. Excluding snowmobile, our retail for the quarter was down only 2%. Still, despite a more challenging dynamic in Q4, we are satisfied with our performance for the year.

When excluding snowmobile, our retail was up 12% compared to the industry, up low single digits, driven by a very strong performance in off-road vehicles and personal watercraft, and market share gain across most product lines. Turning to slide 7 for an update on global retail trends. As mentioned last quarter, we started to see gradual signs that the macroeconomic environment was affecting our industry, leading to softer market conditions, especially in EMEA and Asia-Pacific. The fourth quarter played essentially in line with this view, as we saw softer demand in EMEA and Asia-Pacific, with retail down 5% and 25% respectively. However, we had an excellent performance in Latin America, driven by the Brazilian and Mexican markets. Given these trends, we maintain a cautious approach entering fiscal year 2025. Our priority is to tightly manage network inventory to protect dealer profitability. Now let's turn to slide 8 for year-round product.

Revenue were up 9%, reaching CAD 1.4 billion in Q4, primarily driven by a favorable product mix and a return to normal shipment pattern for three-wheel vehicles. At retail, Can-Am side-by-side had its strongest Q4 ever, being up low 20%, primarily driven by solid growth in the utility category. Our performance is even more impressive as the first shipments of the new Maverick R occur late in the season. This brand new platform already made its mark by winning the King of the Hammers race in California two months ago, which would further stimulate consumer interest. This strong quarter concludes another exceptional year for our side-by-side business, where we grew retail at a high teen percentage base and gained significant market share, especially in the utility segment. Our share reached 30%, achieving this objective a year earlier than our five-year plan.

As for ATV, our retail was down low single digits, as we lapped a very strong Q4 last year. That said, we are pleased with the success of our new Outlander platform, which gained 4 points of market in the mid-60 segment. For the year, we gained almost 2 points, surpassing the 20% mark for the first time ever and getting closer to the number two position in the industry. Looking at three-wheel vehicles, we are in the off-season, and Can-Am three-wheel retail was down high 20%. The decline is primarily due to lapping an unusually strong quarter of retail last year, as we shipped units later than normal in the season. Still, given the interest of new entrants for the category, our strong lineup, and enhancements to our Spyder F3 and RT models, we are well positioned to have a successful season. Turning to seasonal products on slide 9.

Revenue were down 28% from last year to about CAD 950 million, driven by a lower volume of products sold, resulting from a different timing of shipment compared to last year. Looking at our retail performance, for personal watercraft, this was peak retail season in counter-seasonal markets, and Sea-Doo retail decline of mid-single digits in Australia due to market weakness. This was partially offset by impressive growth in the low 30% in Latin America, notably driven by the Brazil market. As for North America, we are in the off-season, and retail was down primarily due to a difficult competitor given late unit shipment last year. However, from a historical perspective, retail is performing well, up double digits from typical fourth quarter pre-COVID levels. This trend also continued in February, which gave us confidence for the upcoming summer season.

Looking at snowmobile, as previously mentioned, fourth quarter retail was impacted by unfavorable winter conditions in North America, leading to a decline in the high teen percentage range. I have been in the business for a long time and saw several challenging seasons, but it's the first time that I see such difficult conditions across North America. That said, looking at historical trends, we know that the snowmobile industry is very resilient and typically bounces back following weaker seasons. We have a loyal and passionate customer base. Our Sea-Doo and Lynx brands are very strong and continue to outperform the industry, with retail down low single digits for the season. Reflecting our commitment to bring innovation to market, we are strengthening our offering for model year 2025 by introducing new features and technologies across the lineup.

Furthermore, we have launched 2 new Sea-Doo and Lynx electric models designed for multi-use applications, such as ski center and recreational resorts. These models will also be available to consumers. With the strength of our lineup and recent additions, we expect to remain the number one industry player. Moving on to slide 10, with Powersports parts, accessories, and apparel, and OEM engine revenues were down 23% to CAD 291 million due to lower product shipments to reduce network inventory levels and lower demand for snow-related replacement parts. Moving on to marine, revenues were down 32% to CAD 84 million due to lower volume of boat shipments, as dealers continue to be cautious about taking on inventory given weaker demand trends. Looking at retail sales, we are in the off-season in North America, and Alumacraft retail was down about 20%, while Manitou retail was about flat.

As for Quintrex, retail was down about 10% in line with the industry. Looking ahead, with softer demand in the boating sector, we are seeing more promotion across the industry. For this reason, we decided to be more conservative with our plan for fiscal year 2025 in order to manage network inventory and preserve the value of our newly introduced boats. As such, we expect marine revenue to remain about flat for the year. We are pleased with the consumer reception of the new Manitou boat and remain confident about the potential of our marine business for the coming years. With that, I turn the call over to Sébastien.

Sébastien Martel (CFO)

Thank you, José, and good morning, everyone. Our fourth quarter played out in a difficult context marked by an unfavorable winter, which impacted our snow-related products and softened consumer demand in international markets. Still, through it all, the team executed well to tightly manage shipments and network inventory levels, sustained solid market share gains in side-by-side, and delivered bottom-line results that ended within our guidance range. Looking at the numbers, revenue stood at CAD 2.7 billion, representing a decrease of 12%, primarily due to lower shipments and higher sales programs, notably as adverse winter conditions affected our snow-related business and led to higher levels of promotions. We generated CAD 653 million of gross profit, with a margin of 24.3%, down 130 basis points from last year.

This decline was primarily due to lower shipment volumes and higher sales programs, partly offset by a richer mix of products, favorable pricing, and improved production costs. Moving further down the P&L, we generated normalized EBITDA for the quarter of CAD 405 million and normalized earnings per share of $2.46. For the year, we delivered normalized EBITDA of CAD 1.7 billion, roughly flat to last year, and normalized earnings per share of $11.11, a decline of 8% from fiscal 2023, resulting from higher depreciation and financing costs. Success in our industry comes from innovation, solid cash generation, and diligent allocation of capital, and we strongly believe this is a core strength of BRP. In that vein, as you can see on slide 13, fiscal 2024 was the strongest year ever, with over CAD 1 billion of free cash flow generation, representing a solid conversion ratio of over 60%.

Furthermore, we continued to prioritize investments in the business by deploying over CAD 580 million in CapEx. These investments primarily focused on high-return growth projects aimed at sustaining our market share growth momentum and expanding our addressable markets. Our solid ROIC of 30% for the year reflects our unique ability to innovate and deliver industry-leading results on projects. Given our solid cash generation, we also returned over CAD 500 million to our shareholders through a 13% increase in the dividend and by capitalizing on the dislocation in the value of our stock to repurchase about 6% of the shares outstanding. As our business is geared to generate solid free cash flow, we remain well positioned to continue investing in the business, all the while sustaining strong returns of capital to our shareholders. Moving to an overview of our network inventory on slide 14.

Our dealers' inventory for the fourth quarter was up 36% from last year and up 30% from pre-COVID levels. As we mentioned last quarter, despite that we diligently improved our inventory turns over the years, our dealers are currently facing elevated inventory financing costs due to the increased dollar value of units and higher interest rates. To protect our dealer value proposition, we have decided to support them by aiming to reduce our network inventory levels by 10%-15% this year. While there are opportunities for improvements across all product lines, the more pronounced decreases are expected to come from seasonal products and three-wheel as they ended the respective seasons with higher levels of inventory than initially planned.

From a cadence perspective, Q1 network inventory is expected to remain higher than last year as it comps overall leaner inventory levels and will be impacted by snowmobile given weather-induced softer retail trends. From there, we expect a gradual improvement until year-end. Now moving to the guidance for fiscal 2025 on slide 15. We are entering fiscal 2025 with a solid lineup and an exciting pipeline of product introductions that are positioning us well to sustain our market share momentum in RRV and maintain our leadership position in seasonal products. From an operational standpoint, our manufacturing sites are running smoothly, the supply chain environment has normalized, and we expect to continue benefiting from our lean initiatives and the expansion of our modular design across our lineup.

From a financial standpoint, our guidance essentially incorporates the global trends that have developed during the second half of fiscal 2024 and that we have shared with you during our last earnings call, notably softer consumer demand in certain international markets, weaker industry trends in marine, limiting dealers' appetite to take on inventory, and a more elevated promotional environment. As previously mentioned, in this context, and in order to protect our dealer value proposition, we have decided to adopt a more cautious stance in our planning to reduce our shipments in fiscal 2025. Additionally, given the impact of unfavorable winter on our snowmobile retail, we are planning to reduce our snowmobile production by about 30% for next season. Accounting for all these elements, we expect our revenues for the year to be down from last year and end between CAD 9.1 billion and CAD 9.5 billion.

In terms of profitability, we expect the headwinds from the reduction in volume to be partly offset by our richer product mix, favorable net pricing, and the aforementioned benefits of our cost improvement initiatives. Furthermore, we are taking the necessary actions to right-size our operating structure in line with the expected revenue generation, limiting the pressure on our margin profile. As a result, we expect our normalized EBITDA to end between CAD 1.37 billion-CAD 1.47 billion and our normalized diluted earnings per share to end between CAD 7.25-CAD 8.25, including a headwind of about CAD 0.90 coming from higher depreciation and financing costs, as well as a higher tax rate.

Note that we are providing a wider than usual guidance range to account for the more than uncertain market environment, both in terms of consumer demand and promotional intensity, especially in the context of our aim of reducing network inventory levels. From a cash perspective, based on the above and following a prioritization exercise of our project portfolio, which led to CapEx optimization, we expect to generate in excess of CAD 750 million of free cash flow for next year. As such, we expect to have the financial flexibility to continue providing strong return of capital to shareholders, notably as we have announced a 17% increase of our dividend for fiscal 2025. To conclude, we have provided a summary of the key drivers bridging our fiscal 2024 results to the midpoint of our fiscal 2025 guidance.

As you can see, most of the decline in earnings is expected to come from volume in mix as a result of our objective of improving network inventory turn, driving a net negative impact of CAD 2.50, and from a reduction in the shipments of snow-related products following a difficult season representing an impact of CAD 1.25. Note that we expect most of the net reduction in volume and consequently, most of the decline in normalized EBITDA to happen in the first half of the year, with Q1 normalized EBITDA down 35%. While fiscal 2025 is expected to be a transition year from a financial standpoint, at the midpoint of the guidance range, our normalized diluted EPS is expected to end above our original FY25 target that we had launched in the fall of 2019 of CAD 7.50.

Additionally, fiscal 2025 is planned to be another year of exciting product introductions and continued progress and efficiency gains throughout the business. We strongly believe that the actions we are taking will position BRP for continued long-term success, and on that, I will turn the call over to José.

José Boisjoli (CEO)

Thank you, Sébastien. While market conditions have softened in the second half of fiscal 2024, we were proactive and quickly adapted to the new reality. As mentioned in November, we have reduced our production volume in order to lower network inventory, and now, in light of our Q4 results, we are adjusting snowmobile production for next year and taking a more cautious approach for marine. We are known to be agile, and we never hesitate to reprioritize our investments to find the right balance between the short, mid, and long-term growth perspective. Looking at our EV plan, we have just launched two new electric snowmobile models, and we are looking forward to the upcoming launch of the Can-Am electric motorcycle at our dealer event in August.

We remain committed to electrifying our product lines, but we have decided to delay some of our EV introduction and will provide an update in due time. In closing, I remain confident in our future. What we have in the pipeline is very exciting. As you know, the best part of my job is riding our product. I was at our test center in Florida two weeks ago and had the chance to try many future off-road personal watercraft and boat products, including some of our electric models. Again, I'm very impressed with the ability of our design and engineering team to come up with market-shaping products, and I look forward to introducing them to consumers. Innovation is at the core of our DNA and will continue to position the company for long-term success by pushing the boundaries of technology.

Our diversified product portfolio is a significant advantage, while our agile manufacturing network allows us to respond quickly to evolving market conditions and still generate solid profitability. I want to thank our strong and resilient team for their hard work and dedication throughout the year. I also acknowledge our dealer for their support in making us the number one OEM in the industry, and we will continue to work in collaboration with them to further expand our leading position. On that note, I turn the call over to the operator for questions.

Operator (participant)

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by 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 two. If you're using a speakerphone, you will need to lift the handset first before pressing any keys. Out of consideration to other callers on the line today, we ask that you please limit yourself to one question. Thank you. Your first question will be from Sabahat Khan at RBC Capital Markets. Please go ahead.

Sabahat Khan (Managing Director of Global Equity Research)

Great. Thanks and good morning. I guess I think, José, you made a comment about sort of managing the business for short, medium, and long run. We obviously have the guidance here for the upcoming 12 months, but a lot of the questions we've been getting have been around kind of the medium-term outlook for BRP and the industry. Can you maybe help us think through how you view, call it, calendar 2025 playing out and just your view of how the industry evolves beyond this year and maybe address some of the questions that people have had around how are the current year sales and earnings compared to what might be the new run rate for the company? So maybe just some perspective on your forward-looking views of BRP and the industry.

José Boisjoli (CEO)

Yeah. Good morning. Then just to give you a sense about the retail trend in February and March so far, and I will give you the number in North America without snowmobile. Then retail is up mid-single digit. Very good growth still in ORV. Three-wheel is doing well. Watercraft and Switch is down, but we know it's lapping abnormal quarter last year. And just to give you a sense of our retail momentum in the beginning of the year, our retail is about 50% above pre-COVID level. Then very happy with the retail trend. This is for North America. International, basically no change, soft in EMEA and APAC and very strong in LATAM. Then this is the trend so far in February and March. And as you remember, in 2024 overall, the North America industry was resilient with ORV in North America.

We saw softer international, and marine overall is softer. For fiscal year 2025, we're planning this overall trend to continue. We're planning North America to be down low single digit, positive momentum for ORV and three-wheel who will outperform snowmobile, obviously, watercraft and marine. And at international, we're lagging North America. Basically, we continue the trend that we saw in Q4, and what we see in February and March is continuing for the remaining of fiscal year 2025 with a downward of down low single digit in North America. Now, that being said, we have gained significant market share in the last few years, and our goal is still to continue to gain market share in the ORV business and maintain our solid leadership position on snowmobile and watercraft and continue to enter a new market segment. That's overall what I would say for retail trend.

Sébastien Martel (CFO)

Yeah, maybe it's still early to call out what fiscal year 2026 could be. Obviously, as José said, we've got great momentum, and I mean, we've had peak retail for Q4 and side by side, and so that obviously is exciting. But for me, fiscal 2025 is a correction year. If you look at slide 16 that we have in the deck that we shared with you today, I mean, there's two elements that are for me are one-time elements that are hurting fiscal year 2025, which is the adjustment of inventory for CAD 2.50 and also the impact of snowmobiles. So obviously, we're disappointed with the guidance that we have. We'd like to come up with a higher guidance.

And if you take the midpoint of the range of CAD 7.75, if you add these two one-time items, for me, fiscal 2025 is almost more an CAD 11.50 year than a CAD 7.75. We'll work. We're doing what's right for the business, what's right for the industry, what's right for the dealers. But obviously, in the midterm, we anticipate that we will be producing results significantly higher than what we've announced today.

Sabahat Khan (Managing Director of Global Equity Research)

Great. Thanks so much for that.

Operator (participant)

Thank you. Next question will be from James Hardiman at Citi. Please go ahead.

James Hardiman (Director of Equity Research)

Hey, good morning. I really like sort of the layout of that slide 16. I think it tells us a lot. So maybe using that, is it three months ago, you guys gave us your initial view on fiscal 2025, and I think most people landed on about a CAD 9 earnings per share number. Is it as simple as to say that since then, that CAD 1.25 is really what's incremental in terms of the impact from the snowmobile-related products? And then you talked about that CAD 2.50 also being one-time-ish. Is the entirety of that just inventory drawdown, or wouldn't there also be some sort of market-related demand weakness that ultimately gets worked into that CAD 2.50 number as well? Just trying to make sure I understand how I should think about more of a normalized earnings number in a year where there isn't significant inventory drawdown. Thanks.

Sébastien Martel (CFO)

Yeah. Well, on your first question, yes, you're correct. What's changed versus when we talked last November is the snow season, and so that's the added headwind that we're seeing of CAD 1.25. So I would say '25, aside from snowmobile, is in line with what our views that we had a few months ago. And obviously, in the CAD 2.50, there's a combination of inventory, which is the big one. Makes us favorable, that's going to help. Obviously, market share gains as well. But the bulk of the CAD 2.50 is us being proactive and managing network inventory and protecting the DVP.

José Boisjoli (CEO)

Maybe I would like to add. When we had the call in November, we were ahead of our planning for the snowmobile retail, and the momentum was good till Christmas time. Really, the retail fell off about mid-January, and it never really caught up. This is the main reason of our adjustment.

James Hardiman (Director of Equity Research)

Got it. That's really helpful. Thanks, guys.

Operator (participant)

Thank you. Next question will be from Martin Landry at Stifel. Please go ahead.

Martin Landry (Managing Director of Equity Research)

Hi. Good morning, guys. I would like to touch on the snowmobile inventory in the channel. What's the retail increase in inventory for snowmobile year over year, and how long do you think it's going to take to flush out this excess inventory?

José Boisjoli (CEO)

Yeah. Good morning, Martin. Just maybe to give you some highlight on the snowmobile season. If you look at the data of the last 15 years, basically, we saw a few bad winters in those 15 years. We estimate about three bad winters. And what is interesting is the snowmobile is very resilient. Customers are passionate about it. They accept now to trailer more to go to find snow. And Canada is about stable, maybe less retail in the east but more in the west. United States is slightly down, but if you look at the snowmobile business over the last 15 years, it varied between 95,000 units and 105,000 units per year. In Scandinavia, in Europe, and in Europe, and Europe is mainly commercial, it's about stable in the last 20 years at about 20,000 units.

Then the point is, after a bad year, the industry typically remains quite stable because there is a lot of non-current into the pipeline, and there are customers that are happy to buy a new snowmobile at a discount. Then it's sad to have this bad winter. It didn't affect us on the wholesale but obviously affected our sales program and our parts and accessories and apparel. But we are confident that next year, the industry will remain quite stable.

Martin Landry (Managing Director of Equity Research)

Okay. Thank you.

José Boisjoli (CEO)

Thank you.

Operator (participant)

Next question will be from Joseph Altobello at Raymond James. Please go ahead.

Speaker 18

Good morning. This is Martin on for Joe. Quick question about the revenue decline year guidance. It's a little bit steeper than you implied three months ago. Was that primarily Delta? I'm sorry. Was that primarily the snowmobiles? And can you remind us of how big, as a % of sales, is your snowmobile business?

Sébastien Martel (CFO)

Well, yes, you're right. When we look at the seasonal products business, obviously impacted by snowmobile, the impact of the production adjustment that we're doing, the 30% that we talked, is going to be about a CAD 350 million impact on our top line next year. When you look at the other elements of that guidance, where we missed the P&A business was off-guidance. That's driven by the softer snow season where we sold less accessories, less parts as well because people were riding less. And oddly enough as well, we sold less winter accessories for our ORV business such as track kits and plows that go in front of the ORV. And the other business where we missed the guidance was the marine business where we are still seeing softness in the marine market as we've seen in the last, say, 12 months.

Dealers finish the season with more inventory, and therefore, they are more hesitant, especially early in the season, to take on additional inventory. And so that's why the volume impact resulted in a shortfall on the guidance.

Speaker 18

Got it. Thank you.

Operator (participant)

Thank you. Next question will be from Robin Farley at UBS. Please go ahead.

Robin Farley (Managing Director)

Great. Thank you. Just circling back to your inventory goals, you mentioned you want to reduce it by 10%-15%. It sounds like that was mostly in the snow and three-wheel. I don't know if you clarified what you hope to do with side-by-side and ATV dealer inventory. And then also on the retail side, just specifically for the side-by-side and ATV, what assumption are you working on for kind of industry retail as you're trying to manage whatever inventory target you're about to tell us for ORV? Thank you.

Sébastien Martel (CFO)

Well, the bulk of the decrease in the inventory is going to come from seasonal business, so personal watercraft, Sea-Doo pontoon, and also snowmobile. We will also be making greater adjustments on three-wheel. And on the ORV side, obviously, we have a very good momentum on ORV. As you saw, our retail performance in the fourth quarter was quite amazing. And so yes, we will adjust the inventory downward but not as meaningful. It'll be probably in the low single-digit adjustments for ORV. In terms of industry, José, give a bit of color as well. The industry is in good shape for side-by-side. Obviously, there's been a lot of product innovation, and that's driving good retail. But we are expecting a softer industry this year than we had. But obviously, market share gains will compensate, and we expect retail to be up for side-by-side this year.

Robin Farley (Managing Director)

So you're saying industry, ORV, retail has been good so far in the year, but you expect the full year to come in down year over year?

Sébastien Martel (CFO)

To be softer than what we had in the last year, yes.

Robin Farley (Managing Director)

Okay. Thank you very much. Thanks.

Operator (participant)

Thank you. Next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.

Cameron Doerksen (Director of Equity Research)

Yeah. Thanks very much. I guess my question's on capital allocation. So I just want to confirm that you'd sort of indicated that you expect to generate something like CAD 750 million in free cash flow in the year. So just want to confirm that number. And assuming that's the case, just wondering about capital deployment decisions here. Obviously, if you've redone your debt, just thoughts about NCIB, substantial issuer bid. It would seem to me that you would have some excess capital if you do indeed generate CAD 750 million in free cash.

Sébastien Martel (CFO)

Yeah. Yes. So for the record, I confirm that I did say CAD 750 million this morning. Obviously, we'll be generating strong EBITDA, CapEx in the range of CAD 500 million. So obviously, that will allow us to generate solid free cash flow. I'm not expecting any headwind or tailwind from working cap. There are still some opportunities, but with the management of the network inventory, we'll probably see a bit more volatility on the working cap. So no tailwind there. But nonetheless, solid cash generation, which allows us to continue providing good returns to shareholders. As we have announced this morning, the dividend is increasing by 17%. And we will certainly be active on the NCIB. That's our intention. We still got over 2 million shares that we can buy under the NCIB.

We obviously want to deploy that capital towards that because we expect a certain dislocation in the share value in the next few quarters.

Cameron Doerksen (Director of Equity Research)

Okay. Thanks very much.

Operator (participant)

Thank you. Next question will be from Craig Kennison at Baird. Please go ahead.

Craig Kennison (Senior Research Analyst)

Hey. Good morning. Thanks for taking my question. Seb, I think you mentioned some actions to address your overall cost structure in light of the difficult year ahead. I'm just wondering if you can help us quantify those actions and then maybe where they're targeted, whether it's in cost of goods sold or in your SG&A line.

José Boisjoli (CEO)

Good morning, Craig. I will take the question. As you know, we said to the investors over the years that when the slowdown happened, we prefer to be ahead of the game and be very agile to readjust. And like I said in my remark, in my script, I mean, we reprioritize many programs into the company. Then basically, we feel that with the softer demand, we're better to be prudent. That being said, I'm very confident that we have everything in line to be able to continue to gain market share in our key product line. But basically, we've done an exercise to reprioritize our project, and that's how we achieve lower OpEx than what was originally planned a few months ago.

Craig Kennison (Senior Research Analyst)

Thank you.

Operator (participant)

Thank you. Next question will be from Xian Siew at BNP Paribas. Please go ahead.

Xian Siew (Director of Equity Research)

Hi, guys. Thanks for the question. Maybe also looking at slide 16, you kind of mentioned pricing net of sales programs, the CAD 0.50 benefit. I guess given a kind of more cautious outlook for the consumer, potentially retail is down, what gives you the confidence on pricing?

Sébastien Martel (CFO)

Well, obviously, the inflation is still part of the business and running the business. And so we're seeing cost inflation happening, so we want to compensate that with some pricing. We will not be as aggressive, and we don't need to be as aggressive on pricing as we've been in the past. The inflation is coming down, but every year, we do adjust pricing upward. We do expect the promotional environment to be more competitive this year. And so we factored this in the guidance. This year, we had a tailwind of about 200, headwind of about 200 basis points coming from promotion. We expect another 50 basis points next year. So that's the net pricing and promotion. But again, we're not thinking that the environment is going to be like fiscal 2024.

We're expecting it more competitive, and there's more non-current inventory in the network that needs to be addressed as well.

Xian Siew (Director of Equity Research)

Got it. Thanks. And maybe just one quick one. Just on gross margin versus SG&A, how are you thinking about within the guidance, the EBITDA margin? It sounds like it's mostly expense leverage. Is that how we should think about it?

Sébastien Martel (CFO)

There's some expense leverage planned, but if I look at the lower end of the guidance range, you're probably going to lose 100 basis points of gross margin, probably coming from a bit more promotional and obviously the volume impact. And at the higher end of the guidance range, I'd say gross margin flat-ish to what we had in fiscal year 2024.

Xian Siew (Director of Equity Research)

Great. Thanks.

Operator (participant)

Thank you. Next question will be from Tristan Thomas-Martin at BMO Capital Markets. Please go ahead.

Tristan Thomas-Martin (Director of Equity Research)

Good morning. A lot of talk about the snow headwinds. Is the potential of maybe less snow, warmer weather, an early start to the season, a tailwind for some of your businesses?

José Boisjoli (CEO)

I mean, I think obviously, we're not the expert in weather, and it's not our job. But like I said in my answer a few minutes ago, when you look at the snowmobile industry, it's quite stable. If you look at the last 15 years, there were three bad snow seasons, and the industry was quite stable between 95,000 and 105,000 units in North America and very flat in Scandinavia and in Europe at about 20,000 units. Then for us, it's a bad winter. Typically, the following year, because of the non-current ratio available for consumer, the industry is quite stable. But it remains that we're happy to be more diversified than 20 years ago because obviously, we have more product line. But snowmobile remains a very good business for us and our dealers, and we'll go through a bad season, and we'll bounce back after.

Sébastien Martel (CFO)

Just to add on José's point, and as he mentioned, the beauty of our business is, yes, we are diversified. And so if a product is not going as good, we are seeing an uptick in other products. And anecdotally, we've had some dealers say, "You know what? My snowmobile business has slowed down significantly in February, March, but consumers are walking in and buying ORV product instead." So yes, we've seen some of that. And again, the beauty of being diversified.

Tristan Thomas-Martin (Director of Equity Research)

Got it. Thank you.

Operator (participant)

Thank you. Next question will be from Fred Wightman at Wolfe Research. Please go ahead.

Fred Wightman (Equity Research Analyst)

Hey, guys. Just a quick question on the implied EBITDA margin. I think it looks a little bit lower than what you guys had alluded to last quarter. Is that just a matter of the incremental deleverage from the softer snow and marine performance, or is there something else going on there?

Sébastien Martel (CFO)

It's mainly related to the volume impact and the revenue decline. So yeah, the snow impact is having a ripple effect on the overall margin. But nonetheless, when you look at the guidance range, we're still looking to deliver EBITDA margin in the mid-15 percentage points, which is significantly higher than what we had versus pre-COVID. And so it's still very strong performance financially on our side. And we still see opportunities as we get through these one-time elements to continue improving our EBITDA margin down the road.

Fred Wightman (Equity Research Analyst)

Okay. And then Seb, you talked about just from a cadence perspective, a softer first half with a stronger back half of the year. Are you guys assuming rate cuts in that outlook? And can you maybe talk about how quickly you think potential rate cuts could start to either catalyze consumer demand or dealer orders if floor plan rates come down?

Sébastien Martel (CFO)

We've always said that we're not economists, so we're not predicting any rate cuts in our guidance. We've assumed the current rates as they are today. If they happen, well, that'll be good news for our dealers, good news for our consumers. And hopefully, we'll benefit from it as well with higher wholesale. But currently, no, no rate cuts.

Fred Wightman (Equity Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Next question will be from Benoit Poirier at Desjardins. Please go ahead.

Benoit Poirier (Managing Director)

Yeah. So good morning. Could you maybe provide more color on marine, given the impairment charge that was taken and the adjustment? Just wondering how much of a drive could it be right now, either in terms of EPS or how diluted would it be in terms of EBITDA? And just trying to gauge kind of the rebound we might see in terms of contribution going forward as you continue to grow that business beyond fiscal year 2025.

Sébastien Martel (CFO)

Well, the marine industry has had its struggles in the last year. We've obviously seen softer consumer demand and less demand from the dealer network. That obviously impacted our profitability. And we had our issues as well with the ramp-up in the marine with the new Manitou boats, which obviously impacted profitability. And that is what drove the impairment charge we took this year.

Obviously, our plan is to bring the marine business to a much more profitable level. And so I won't necessarily go into the details of the impact of that, but when we look at how we've designed these boats from a modular point of view and a more industrialized process of making these boats, our expectation is that the marine business should drive similar returns than some of the product lines that we have in the Powersports group.

Benoit Poirier (Managing Director)

Okay. Thank you very much.

Operator (participant)

Thank you. Next question will be from Jamie Katz at Morningstar. Please go ahead.

Jaime Katz (Senior Equity Analyst)

Good morning. I just want to clarify something on that last question. It sounds like the impairment was more focused on the cost structure of the marine business rather than what you guys think about as the long-term revenue opportunity set. Is that right?

Sébastien Martel (CFO)

That's correct. When we look at the overall results that we've delivered in the last few years, the softness in the industry, and the expectation for next year as well, that obviously is below our initial expectation. That's the main driver of the impairment.

Jaime Katz (Senior Equity Analyst)

Okay. And then a lot of the expense leverage that we're seeing this coming year is a function of sales decline. So if we get back to, let's say, a low single-digit top-line growth rate in the following year, there's nothing really holding back expense leverage from accruing. And theoretically, we should go back towards where we were. Is that the right way to think about it?

Sébastien Martel (CFO)

Well, I mean, we're diligent in how we deploy our projects and where we increase our overhead. And so as the volume comes back next year and we increase revenue, obviously, we'll have more flexibility in deciding which projects we do and which projects we don't. We'll increase overhead costs, yes, but we'll be selective in where we decide to increase it.

Jaime Katz (Senior Equity Analyst)

Perfect. Thanks.

Operator (participant)

Thank you. Next question will be from Luke Hannan at Canaccord Genuity. Please go ahead.

Luke Hannan (Director of Equity Research)

Thanks. Good morning, everyone. Maybe just going back to the target to bring down network inventory levels by 10%-15% for the year. Was that a number that you had established internally, what you felt like the dealers would be comfortable with, or was that a back and forth? That's what the dealers felt they'd be more comfortable operating with in the network going forward.

José Boisjoli (CEO)

Yeah. Good morning. When we look at inventory, we look at it internally. We look at it at days of inventory. And we want to have a good turn of inventory at the dealer level. And we believe that we had set a target to ourselves during the COVID time not to go back to the pre-COVID level. And this is why we were proactive. And on top of it, you have the pressure of the high interest rate for the dealers. Then we're working hand in hand with the dealers to try to maximize, obviously, our business but also their business. And this is a decision we've taken, we believe, to protect value proposition of the dealers, the money they're making, the margin they're making with our product.

We believe it's the right thing to do, to continue to work hand in hand with them and continue to grow overall. It's an internal target that we put together because we believe it's healthy for the dealer and us.

Luke Hannan (Director of Equity Research)

Got it. Understood. Maybe sort of a follow-up to that then is, just broadly speaking, how is the, we'll call it, the financial health of the dealer network as we stand today?

Sébastien Martel (CFO)

The financial health of the network is very good. The interest cost that they have to bear is an important cost, but it's not the bulk of what's driving their profitability. It's an important component, but not the bulk. For them, it's obviously volume. As you see, the retail is still going strong, especially for their side-by-side and ATVs. During COVID, the dealers made a lot of money. So financially, they're in a good situation. The interest cost is higher because the value of the units are much higher than pre-COVID. The mix of the products is more side-by-side, the Sea-Doo Switch pontoon. So from a dollar value per unit, it's much higher. So they see a much higher interest cost. That's why we want to be diligent.

But we have no concerns, and we work hand in hand with our floor plan partners looking at the dealer health, that there's a high risk in that area.

Luke Hannan (Director of Equity Research)

Okay. Thank you very much.

Operator (participant)

Thank you. Next question will be from Brian Morrison at TD Securities. Please go ahead.

Brian Morrison (Managing Director of Equity Research)

Yes. Good morning. Just, Seb, maybe what are you seeing in terms of pricing from your competitors across your verticals in general? Because dealer inventory in dollars is up 60% since the pandemic. Units, I think you said 30%. So that indicates very strong pricing over that time, which takes inflation into account. But the question is, are competitors remaining disciplined right now? Because within your guidance, I'm just trying to reconcile price increases and market share gains in what's an increasingly competitive environment.

Sébastien Martel (CFO)

Yes, it's competitive. And we've been in this business for well over 50 years, so we know this industry very well. We know how to operate within these dynamics. But I'd say we're still below pre-COVID levels. There is discounting happening on non-current inventory. There's discounting happening on current models. But it's obviously a factor of higher interest rates where, in order to stimulate retail, you want to offer certain promotions to bring the consumer in the store and give them a reason to buy the product. And financing the interest rate by subsidizing it is certainly something that is helping to move the needle. So both us and other OEMs are using this as a tool to stimulate retail, and it's working.

Brian Morrison (Managing Director of Equity Research)

You're not seeing any competitive intensity heating up at this time?

Sébastien Martel (CFO)

Again, it's a healthy battle. There is discounting that's happening, but I think nobody wants to buy market share. And so I think there's a good level of promotional activity happening, but it's nothing crazy.

Brian Morrison (Managing Director of Equity Research)

Okay. Thank you.

Operator (participant)

Thank you. Next question will be from Mark Petrie at CIBC. Please go ahead.

Mark Petrie (Managing Director of Equity Research)

Yeah. Good morning. Thanks for all the comments thus far. I don't know if you're able to or willing to, but could you quantify or give us a sense of the materiality of the revenue contribution of the new product introductions in the second half of fiscal 2025? And just as a related question, I think, José, you mentioned you had planned to delay some of the innovation or introductions you had planned on electric vehicles. I'm just curious, the driver there, is that an internal constraint, or is that a reflection of not wanting to overburden the dealers at this time? Or what was the thought process behind that decision? Thanks.

José Boisjoli (CEO)

Yeah. I think you nailed it in your last part of your question. I mean, right now, obviously, we've looked at all the new products we are introducing. And you need to understand that the dealers right now are focusing on reducing their inventory. But many of them are catching up on the growth of recent years. During COVID, they grew significantly. In some areas, service shops are too crowded for the new reality. And the dealers need to focus on their day-to-day operation. And on our side, obviously, like I said in the previous question, we reprioritize many programs. And at the end of all this, when you look to be successful in a new product launch, the dealer needs to train his salespeople, his service people. He needs some space in the showroom. He needs to invest in a new product line.

When we've looked at the workload of the dealer and what was reasonable, that's why we decided to introduce in August the Can-Am two-wheel. That, I think, will be very successful. We decided to push the Ryker at a further date. Obviously, this morning, we don't want to go into much detail. But basically, this is what we've done. It's a question of balancing the workload of the dealers with making sure that we have a successful intro.

Sébastien Martel (CFO)

On the new product introductions that, well, every year, Mark, as you know, you've been following us for now 10 years, we always have a lot of product news. That's the intention this year. The majority of the new products will be delivered in the fourth quarter. That's why in the gating of the earnings this year, we're seeing a higher back half loaded earnings adjustment and inventory, of course, in H1, but obviously, new product news, especially in the fourth quarter. That will hit the fourth quarter. A lot of exciting stuff to come. As usual, we like to keep our cards close to our chest, and we'll surprise the market in a few quarters.

Mark Petrie (Managing Director of Equity Research)

Thanks for that.

Operator (participant)

Thank you. We have no more questions at this time. I will turn the call to Mr. Deschênes to close the meeting.

Philippe Deschênes (Head of Investor Relations)

Thank you, Sylvie. Thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again on May 31st for our first quarter conference call. Thanks again, everyone, and have a good day.

Operator (participant)

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. We ask that you please disconnect your lines.