BRP Earnings: Appetite for Product Still Exists, but Upside From Dealer Backfill Limited

Narrow-moat BRP’s first-quarter performance was stellar, with total sales rising 34% thanks to year-round (55% of mix) sales that rose 43% and seasonal sales (28%) that grew 69%. However, these figures were lapping a quarter a year ago riddled with supply-chain issues, where the firm delivered a 1% rise in year-round and a 12% decline in seasonal products. Even still, such sales growth allowed BRP to deliver 70 basis points of adjusted operating margin expansion, benefiting from gross margin gains (70 basis points, to 25.7%) thanks to pricing, mix, and lower logistics costs. But the rest of fiscal 2024 is set for a slowdown in both year-round and seasonal sales, which now include low-double-digit growth and low-double-digit declines, respectively. With North American dealer inventory nearly back to optimal levels (4% above fiscal 2021’s first quarter and up 216% from last year), we expect shipments will match demand more closely ahead, normalizing at a low-single-digit rate.