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RV maker Winnebago (WGO) is blazing a trail lower as sluggish demand presented another roadblock in 1Q25, causing the company to fall short of EPS expectations for the third consecutive quarter, while revenue dove by 18% to $625.6 mln, also badly missing expectations. The drop in revenue marks the ninth straight yr/yr decline for WGO, illustrating how deep this downturn in the RV industry has been.

On that note, WGO is not alone in its struggles. The company's top and bottom-line miss comes on the heels of Thor Industries' (THO) downside Q1 results on December 1, followed by a mixed earnings report from specialty vehicle maker REV Group (REVG) on December 11 in which the company's RV segment reported a 26.5% plunge in sales.

• The story remained much the same in Q1 as WGO's dealer network kept a tight lid on orders due to soft retail demand. Persistently high interest rates and a cautious consumer that's shying away from big ticket purchases have created strong headwinds for the RV industry. As such, net revenue in the Towable RV segment dove by over 23% to $254.0 mln, driven by lower unit volume and a mix shift towards lower price-point models. Similarly, the Motorhome RV segment experienced a 19% drop in revenue to $271.7 mln, even as WGO ramped up discounts and allowances.
• A more promotional environment, combined with deleverage from lower yr/yr sales, resulted in a 290 bps drop in gross margin to 12.3%. This followed a 340 bps decrease in gross margin last quarter and there is likely little relief on the horizon -- at least in the near-term -- as WGO predicts that 2Q24 will remain challenged.
• With that said, there are some notable silver linings. For instance, the Marine segment stood out with revenue edging higher by about 4% to $90.5 mln, reflecting market share gains for the Barletta and Chris-Craft brands. Additionally, after 40 consecutive months of yr/yr declines for industry-wide RV shipments, October showed an increase of 2.4%, putting an end to a long and ugly losing streak.
• That encouraging data point was backed by some positive remarks from CEO Michael Happe, who stated that the company is seeing early signs of optimism driven by the conclusion of the election, improving inventory levels, and the anticipation of more interest rate cuts. Yesterday, though, those rate cut hopes were dampened a bit after the Fed indicated that it's inclined to hold off on more rate cuts as it assesses inflation trends.

Overall, the story hasn't changed too much for WGO or the broader RV industry as demand remains suppressed amid a persistently high-interest rate environment. From a longer-term perspective, the outlook is brighter since inventory levels across dealers are healthy, positioning WGO to generate stronger margins and earnings once this downturn reverses course.