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The malaise hanging over the RV and motorhome market continued into Winnebago's (WGO) fiscal first quarter as revenue declined on a yr/yr basis for the fifth consecutive quarter even as the company ramped up discounts and allowances in an effort to jumpstart sales. While those increased promotional efforts did help WGO to exceed 1Q24 top-line expectations after missing on revenue in back-to-back quarters, they also put more pressure on the company's margins and earnings.

• For the first time in over five years, WGO fell short of EPS expectations as gross margin contracted by 130 bps on a qtr/qtr basis to 15.2%. The EPS miss may also be attributable to a larger-than-expected uptick in expenses. Compared to Q4, SG&A expenses were higher by nearly 11% to $71.1 mln. In comparison, SG&A expenses were lower by 3% on a qtr/qtr basis and down by 21% on a yr/yr basis.
• On the positive side, demand did improve from last quarter, indicating that WGO's discounts and allowances are starting to have a greater impact. Each of the company's businesses once again showed yr/yr sales declines, but the rate of decline significantly improved for two of the businesses.
  • Towable RVs saw revenue fall by less than 5% compared to a 31% plunge in Q4, while motorhome sales were down by 28% compared to a 43% drop last quarter.
  • In a reversal from Q4, the Marine segment was a laggard this time around with sales falling by 34% after posting the smallest decline of 21% last quarter.
  • It's worth noting, though, that Marine lapped a very difficult yr/yr comparison as sales surged by 66% in the year-earlier period. Marine's growth has been fueled by a combination of market share gains for WGO's Barletta pontoon brand, and broader growth in the boating and water sport recreation market in the wake of the pandemic.
• Another rough quarter was widely anticipated, but with interest rates easing significantly over the past few weeks, market participants were especially curious whether WGO's outlook for FY24 would change for the better. While the company doesn't provide formal EPS or revenue guidance, its executives have offered color commentary on their expectations for FY24.
• Recall that last quarter, CEO Michael Happe commented that he expects dealers' inventory levels to further normalize as consumer demand stabilizes in the back half of FY24. Heading into the report, there was some hope that the timeline for an RV recovery might be accelerating due to the steep decrease in rates, but Mr. Happe's comments don't seem to reflect that.
  • In the earnings press release, he reiterated that WGO is optimistic that the current cycle of RV destocking is approaching a conclusion and that market conditions in both retail and wholesale could begin to see improvement in mid-to-late 2024 -- roughly the same timeframe as previously forecasted.

The main takeaway is that a recovery in the RV and motorhome market has yet to come to fruition, but there are some green shoots starting to emerge as sales trends slowly improve. There is some disappointment that WGO didn't take a more bullish tone regarding its FY24 outlook given the steep drop in rates, but the company is likely just managing expectations and taking a cautious approach given that business conditions remain challenging.