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Economic Moat

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Capital Allocation

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Supply Chain Constraints Stall BRP’s Near-Term Potential, but Demand Indicates Brand Intact

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Narrow-moat BRP printed a robust second quarter, including sales growth of 54%, with better-than-expected revenue across all segments relative to our forecast, and 980 basis points of gross margin expansion (to 29.9%). Seasonal sales were the best performer in the period, up 78%, while year-round products grew 54%, marine rose 56%, and parts & accessories jumped 19%. Admittedly, BRP was lapping the initial onset of COVID-19 last year, but we note total sales were still 30% higher than in second-quarter 2019. Its apparent that supply chain constraints will bound BRP’s upside over the near term, as limited inventory in the dealer network is limiting retail sales gains. Dealer inventory levels are down 76% versus second-quarter 2019, leading to 26 days of inventory in the dealer network versus 170 days in fiscal 2020 (and 80 days in the high-demand fiscal 2021). In our opinion, this was the key issue leading second-quarter retail sales to decline 30%.

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Company Profile

Business Description

BRP designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft under the Ski-Doo, Sea-Doo, Can-Am, and Lynx brand names. It also builds engines under the Rotax brand (after discontinuing the Evinrude outboard engine business in 2020) and offers parts, accessories, and clothing that cater to its core consumers. In 2018, BRP created a marine group, acquiring boat manufacturers Alumacraft, Triton (which makes Manitou pontoon boats) and Telwater (in Australia). At the end of fiscal 2021, the company marketed its products through a network of more than 3,500 independent dealers and 190 distributors in about 130 countries.

Contact
726 Saint-Joseph Street
Valcourt, QC, J0E 2L0, Canada
T +1 450 532-6154
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Jul 31, 2021
Fiscal Year End Jan 31, 2022
Stock Type
Employees 14,500

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