BRP Earnings: Slower Near-Term Marine Demand, but Key Segment Share Gains Shows Brand Durability

We were struck by the deceleration in wide-moat BRP’s DOO marine business in fiscal 2024′s second quarter. Marine segment sales of CAD 127 million fell 5%, and the company materially reduced its full-year outlook, with expected wholesale growth of just 5%-10% versus 35%-40% previously. This adjustment was likely in response to marine retail sales, which fell 44% as a result of weaker consumer interest—a theme across marine companies recently—and lower product availability. But marine represented just 5% of BRP’s sales in fiscal 2023, and demand across the important year-round and seasonal segments (more than 80% of sales) remains unfettered. In fact, BRP maintained its full-year outlook for sales growth of 16%-19% in year-round and roughly flat performance in seasonal, with recent market share gains—reaching highs in personal watercraft, ATVs, and side-by-sides—indicating continued interest in the brand. As a result, we don’t plan to alter our CAD 135/$106 fair value estimate, and we view the shares as undervalued.

BRP posted a banner second quarter overall, with total sales up 14% to CAD 2.8 billion, helped by strong powersports growth (wholesale rose 15%) but weighed down by a 5% decline in marine shipments. Year-round wholesale sales rose 8% as volume and pricing increased, while seasonal climbed 30%, lapping easy comparisons and benefiting from pricing gains. We don’t expect an excess inventory position at retail, however, as retail sales grew above 20% for year-round and above 70% for seasonal, leaving quarter-end dealer inventory up 24% over prepandemic levels (retail volume was up 49% over the same time frame). Adjusted EBITDA margin remained around 17%, as a gross margin improvement of 40 basis points to 25.1% was offset by a modest creep up in operating expense items. This is in line with our forecast for 17% average EBITDA margin over the next five years.