Malibu Faces Significant Transitory Profit Compression as It Faces Channel Inventory Downsizing

Malibu is a long-established name in performance sport boats, venturing into the sterndrive and saltwater segments via acquisitions in recent years. We believe that its brand, innovative products, and consistent pricing power contribute to a brand intangible asset, which underpins our narrow moat rating. Supporting its market leadership, it’s demonstrated an ability to meet evolving customer preferences, bringing new products to market quickly, with new models and numerous new features rolled out annually across all of its segments. And it has capitalized on its brand strength by expanding into adjacent categories, such as trailers and accessories, which we expect to continue. However, Malibu hasn’t rested only on innovation to grow profits, also curating savings through streamlined production and rising efficiencies through vertical integration. As evidence, efforts at Pursuit’s new plant had increased the EBT margin at the brand to 13% in 2022 (from 9% in 2020), even with the acquisition of Maverick. With continuous improvements to the manufacturing process, Malibu should be able to limit expense growth over time.