Analyst Note| Jaime M. Katz, CFA |
We don’t plan to materially alter our fair value estimate for narrow-moat BRP of CAD 84 ($67) after incorporating robust first-quarter performance into our model. Sales in the period rose 47%, with year-round and seasonal segments rising 44%, parts, accessories, and clothing (PAC) higher by 91%, and marine up 11%. Moreover, this volume drove operating margin to 18%, a high water mark for BRP. Cost leverage was largely captured via adjusted gross margin improvement, which expanded 1,090 basis points to 30%, thanks to the persistence of lower promotional spend, better cost absorption (versus plant closures last year), and mix (higher PAC and no outboard engine sales). For reference, in the five first quarters prior to COVID-19, gross margin averaged around 23% at BRP.