Industry overproduction and resultant discounting by competitors to correct motorhome inventory levels cut into Winnebago Industries Inc.’s profits for the company’s fiscal 2005 second quarter, ended Feb. 26.
Shares of Winnebago’s stock ended Thursday down almost 7%, or $2.34, at $32.50.
While Winnebago effectively monitored inventories internally and at the retail level, the pipeline filled up due to a simple matter of supply and demand, according to Bruce Hertzke, chairman, president and CEO for the Forest City, Iowa-based builder.
“I think some of the manufacturers are figuring out that wholesale is outpacing retail,” he said during a conference call today (March 17) with investors following issuance of the company’s earnings, which showed a $1.5 million decline in net income. “That’s fine at certain times, but at some point retail has to catch up. And that’s the situation we’re in now.”
Winnebago’s deliveries were down for the quarter to 2,554 units compared to 3,022 in the previous year.
Despite the “difficult retail environment,” Winnebago still achieved solid profit margins of 13.4% for the quarter and 14% year-to-date, while also sustaining a full work force.
“We’re proud of the fact that we didn’t have any layoffs,” Hertzke said, noting the company was not announcing any shutdown weeks in the third quarter.
Winnebago’s healthy margins were aided by the company’s policy of not discounting products. But that could change if 2005 product hasn’t turned by the time the company begins introducing new models.
“Right now we see the motorhome retail market as relatively flat, or comparable, to last year,” Hertzke said. “If retail sales continue at that rate, we feel we can move our 2005 product out into the system before the end of the third quarter (without discounting).
“But if our 2005 products don’t move in a timely manner, then we may have to offer some discounts. It’s all retail-dependent.”
That retail environment, which Hertzke admitted could be affected by rising gas prices, will also dictate Winnebago’s strategy for the balance of the year with regard to production.
“In our estimation, we did not overproduce in the second quarter,” he said. “We understand that you have to be disciplined and keep inventory levels under control. We continue to believe the market will pick up when the dealers begin ordering 2006 models and we will increase production.”
Winnebago reported that it was currently operating at 70% to 75% production capacity compared to around 82% last year. But Hertzke noted that the “dynamics” are much different, which also made year-to-year earnings comparisons difficult.
“In the summer of 2003, dealers began replenishing their inventories because of pent-up demand that resulted from the war in Iraq,” he said. “I think I can safely say that last (fiscal) year was the first time Winnebago was working overtime all winter.”