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Winnebago (WGO +4%) travels higher today as its Q2 (Feb) results were sufficient to spark a modest relief rally. Shares of the RV maker have been in the pits lately, trading near April 2020 levels as market participants steer clear of the highly discretionary industry. Interest rates, inflation, and tariffs are swirling together to create a dominating headwind within the RV market, recently prompting rival Thor Industries (THO) to slice its FY25 (Jul) guidance. However, with its back against the wall, WGO delivered enough silver linings from Q2 to help investors breathe a little more easily today.

• Among the highlights were WGO's headline results in Q2. The company posted adjusted EPS of $0.19, marking a long-awaited return to delivering bottom-line upside following three consecutive quarters of earnings misses. Margins expanded across each of WGO's segments, culminating in gross margins of 13.4% and adjusted EBITDA margins of 3.7%. Still, as a reflection of the challenged market, both figures represented noticeable yr/yr compression, with gross margins sliding by 160 bps and adjusted EBITDA margins down by 340 bps.
• Revenue fell less than analysts anticipated, contracting by 11.9% yr/yr to $620.2 mln, representing WGO's tenth straight quarter that revenue failed to grow yr/yr. The constantly suppressed sales growth can be attributed to weak Motorhome RV demand, with net revs tumbling by 30.4% yr/yr in the quarter, seriously dragging EBITDA margins. Conversely, Towable RV sales ticked 1.2% higher. However, EBITDA margins still plummeted as consumers gravitated toward lower price-point models.
• A positive standout among the muck was WGO's Marine division, which tacked on 17.1% additional revenue yr/yr and expanded EBITDA margins by 310 bps. Marine revenue finally turned positive by 3.6% last quarter. Seeing the trend accelerate in Q2 was encouraging, potentially signaling that the worst is over in this segment.
  • WGO's Marine growth was a pleasant surprise, given the bearish commentary surrounding the industry over the past month. For instance, in February, marine component supplier LCI Industries (LCII) stated that its Marine segment remained weak in Q4 (Dec) as dealers continued optimizing inventory levels. Similarly, boat dealer MarineMax (HZO) remarked that DecQ revenue was strained as it endured soft retail demand, and potential new boat buyers have stayed on the sidelines amid mixed economic data and inflationary pressures.
• Demand trends are not materially improving over the next few months. WGO cut its FY25 (Aug) outlook, projecting adjusted EPS of $2.75-3.75, down from $3.10-3.40, and revs of $2.8-3.0 bln, down from $2.9-3.2 bln. Without conditions turning around, WGO is working to control what it can, repurchasing its stock (bought back $100 mln during Q2) and reducing its higher-cost debt.

WGO's Q2 results were decent, given the bearish sentiment leading up to the report. However, the overall downward trend has not changed. While we like what WGO is doing while it waits for interest rates to fall, consumer confidence to rebound, and further tariff uncertainty to pass, there remains no clear timeline for when these items will finally materialize, which could hinder WGO's stock price in the meantime.