Story Stocks^®

Following downbeat FY25 guidance, it is clear the journey ahead for RV manufacturer Thor Industries (THO +5%) remains littered with speedbumps. The company that owns Airstream and Jayco projected another year of earnings and sales compression, worse than consensus, which predicted a modest top and bottom-line improvement. Even though THO has been known to surpass estimates frequently, doing so again in Q4 (Jul), its guidance still reflects an industry that is hampered by stubborn macroeconomic headwinds.

• While beginning to ease following the Fed's sizeable cut last week, interest rates remain problematic for the RV industry. Dealers did enjoy increased retail activity during the spring selling season, consistent with the RV Industry Association's ("RVIA") monthly trends data. However, interest rates are elevating floor plan costs, making it challenging for dealers to carry too much inventory, which is still difficult to move in light of expensive financing costs for consumers.
• Prominent RV dealer Camping World Holdings (CWH) was forced to liquidate older model years during Q2, commenting that the data for the overall industry is worsening. The company estimated an excess of 14,000 units on dealer lots from the 2022 and 2023 model years, causing severe distress and leading to CWH taking in certain dealerships to turn around their hemorrhaging cash flows.
• The economic issues plaguing CWH appear in the RVIA's latest CY24 unit shipments forecast, lowering its projection for the year to 311,600-336,600, down from 328,900-359,100. Given the RVIA's history of consistently trimming its projections, it would not be surprising to see these numbers lowered further.
• However, the RVIA's updated projection still translates to yr/yr growth of just under 4%. Likewise, its early 2025 outlook represents a minor acceleration, estimating a roughly 7% improvement yr/yr. Given these figures, investors may have expected THO to, at the very least, project FY25 financial targets near the RVIA's predictions. Unfortunately, a slowdown in retail activity with an unknown recovery timetable led to THO's bearish FY25 guidance, predicting EPS of $4.00-5.00 versus $4.94 in FY24 and revs of $9.0-9.8 bln compared to FY24's $10.04 bln.

It is not entirely doom and gloom for THO. The company did topple Q4 earnings and sales estimates, delivering flat yr/yr earnings growth and a 7.4% drop in revs to $2.53 bln. Meanwhile, market conditions in Europe are more favorable than North America, evidenced by relative strength in retail registrations. Also, THO noted that the recent interest rate cut could spur demand during the 2025 spring selling season.

Cautious ordering patterns may remain the norm for THO and the broader RV industry for the near term, a bearish development ahead of rival Winnebago's (WGO) AugQ report. The industry is entering its lull period ahead of the colder months, so the next few quarters will likely look bleak. However, there could be a resurgence in demand next spring, especially if interest rates continue to come down aggressively. Today's market is looking ahead to the positives lower interest rates can bring, pushing shares mildly higher despite a soft Q4 report.