Baird logoEditor’s Note: R.W. Baird & Co. met with Winnebago Industries Inc.’s management during this week’s dealer days in Las Vegas. The following is a synopsis of those discussions.

Dealer meetings. Winnebago Management is optimistic about new product introductions and related opportunities to gain share through improved distribution infrastructure – but expects growth to be driven by retail sell-through given that the industry is in the latter stages of the restocking effect. We remain convinced that a wealth effect is releasing pent-up demand for RVs, supporting our favorable fundamental outlook – biased toward later-cycle exposure (motorhomes).

New products. Winnebago introduced a number of new products, including the Brave and Tribute models, in an ode to the iconic “eyebrow” design. Management sees opportunity to leverage new products to gain floor space among existing dealers and to opportunistically add distribution points. We like the refined distribution model and see a meaningful opportunity to introduce new product while still keeping inventory fresh.

Rental strategy. Conversations with management indicate a willingness to pursue future rental business, though the viability of the strategy hinges on Winnebago’s success reselling the rental units. We are optimistic about the resale prospects, particularly since the rental units are considered used – and thus the company does not have an obligation to sell these units back to a Winnebago-branded dealer, widening the resale market. While the strategy is dilutive to gross margin, it is accretive to gross profit dollars – and we see the potential for rental to contribute more meaningfully to the business going forward.

Bus segment. Management provided more color on the decision to enter the transit bus market, seeing an opportunity to provide a differentiated product in an otherwise commoditized market. Management believes the business provides a compelling incremental margin opportunity since Winnebago already has the necessary infrastructure in place – with incremental margins comparable to those of the Class C product. Net, if executed correctly, the bus strategy can complement the core business and provide a counter-weight to the more cyclical RV business, but earning margins commensurate with differentiated products is the key, in our view.

Restocking cycle maturing. A robust inventory restocking cycle has fueled a significant portion of the RV industry recovery, though management believes this effect has largely played out. Net, we believe Winnebago will ship closer to parity with retail – so retail trends are critical.