Malibu Earnings: Despite Shipment Declines Ahead, Profits Hold Up Thanks to Variable Cost Structure

We plan to lower our $96 fair value estimate for narrow-moat Malibu Boats MBUU by a high-single-digit rate, fully attributable to a weak sales outlook for fiscal 2024. While we assumed top-line growth would continue, the firm now expects net sales to decline at a mid- to high-teens clip, as the backlog at dealers has largely been remedied and the firm is taking a defensive stance on shipments, given consumer uncertainty. As consumers continue to shift spending to services over goods, we think this is prudent; it ensures that the dealer base doesn’t wind up with stale inventory, and Malibu avoids the risk of higher floorplan financing costs, which it generally shares over part of the year. But even with the expected massive sales decline, fiscal 2024′s adjusted EBITDA margin is set to be around 17%, not far from the 18% we had incorporated into our previous outlook. Transitory softness in consumer demand fails to derail our long-term outlook for 4% unit growth and 3% price growth on average (including acquisitions) as well as high-teens adjusted EBITDA margin. We view the shares as attractive.

Despite the dimmer outlook, recent results indicate that Malibu’s offerings continue to resonate with consumers. Although Malibu and Axis unit shipments contracted 15% in fiscal 2023′s fourth quarter as ski/wake boats fell out of favor with consumers, the average selling price rose 7%, leading to continued share gains (up 320 basis points year to date through July). Saltwater demand has proved resilient, signaled by shipments that rose 37% in the quarter with just a 2.5% ASP decline. Boat purchasers are still upgrading and adding on extras, indicating interest in the newest offerings. Adjusted EBITDA margin of 24.2% represented a high-water mark, up a whopping 330 basis points. This was due largely to a 210-basis-point increase in gross margin to 27.5%, thanks to fixed-cost leverage, some of which will recede in the year ahead.