Shares of Winnebago (WGO 29.72, +0.60, +2.08%) are trading modestly higher after the company reported 2Q19 (Feb) earnings this morning. EPS came in at
$0.68, which was roughly flat with last year. Revenues fell 7.6% year/year to
$432.7 mln. The EPS result was better than expected, but revenue was light of
Breaking it down by segment, revenue for the Towable segment fell 5.9% yr/yr to $250.7 mln, driven by dealer network efforts to reduce inventory levels. It was also lapping very strong shipments in the prior year. The segment’s adjusted EBITDA margin decreased by 20 basis points to 13.4%, reflecting pricing actions taken during the last 12 months that did not fully recover increases to cost inputs. Revenue for the Motorhome segment fell 17.3% yr/yr to $164.7 mln, driven primarily by a decrease in Class A and Class C unit sales, partially offset by an increase in Class B unit sales. Adjusted EBITDA margin decreased 30 basis points.
Although WGO, as is typical for the company, had not provided guidance for the quarter, , the company did caution last quarter that the February quarter would see the company lapping strong results from last year. The revenue decline in both segments bears this out.
WGO concedes that it has been facing some challenging macro conditions within the RV industry; dealers continued to reduce their overall inventory levels in the quarter. There is a bit of a silver lining as WGO was able to materially outpace the industry and expand margins, primarily due to improved product vitality and profitability in its Motorhome segment and continued strength and momentum in its Towables segment. Also, its Chris-Craft business continues to establish a presence in the growing marine industry.
Furthermore, WGO feels well-positioned to capitalize on the upcoming retail season across all of its brands. On the strength of the launches of various of its new products, including of the new Class B Winnebago Boldt, the Class C Winnebago View, the Grand Design Transcend XPlor travel trailer, and its Winnebago All-Electric Specialty Vehicle at the recent RVX show, WGO continues to expect further share gains.
Investors should understand that FebQ is a seasonally slower period for RV sales. The peak retail selling season in this industry is concentrated in the spring and summer months, when finer weather can encourage customers across more regions to enjoy leisure travel and outdoor recreation vehicles, while winter sees lower sales. Sales can also be affected by the level of dealer inventories. This is not to say that the FebQ results are irrelevant, but the prime selling quarters of MayQ and AugQ are probably better indicators of the health of the RV market.
Overall, there is no doubt that the RV market has been difficult in recent months. However, WGO sounds somewhat optimistic going forward. The company believes that the wholesale shipment and retail sales equation will approach a new equilibrium during MayQ. Our sense is that investors are going to want to see a real improvement in the company’s financials before getting back in the stock. The upcoming spring/summer selling season will be a good test.
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