BRP Earnings: Recent Demand Deceleration Portends Cautious Consumer Heading Into Fiscal 2025

The previously resilient consumer appears to have hit a roadblock in October, as evidenced by BRP’s retail sales declining across all geographies after capturing positive sales growth in the August and September period. We contend that caution around the discretionary spending environment was the primary factor in BRP’s reduced outlook for fiscal 2024, including sales growth of 4%-5% (versus 7%-10% prior) and EPS of CAD 11.10-CAD 11.35 (versus CAD 12.35-CAD 12.85 prior), sending shares down 10% on the print. We expect cautious rhetoric will persist into next year as dealers face higher floorplan financing costs and a higher promotional cadence becomes more pervasive industrywide. As such we plan to lower our CAD 135 ($99) fair value estimate by a mid-single-digit rate. This change stems from the inclusion of third-quarter results and a softer fourth quarter (CAD 6 impact), time value (CAD 3 benefit), and a proactive reduction to our fiscal 2025 outlook (about CAD 6 impact). Still, this leave shares very undervalued.