> SUBSCRIBE FOR FREE! 

On the heels of the company’s 2Q financial report, which was highlighted by modest declines offset by market gains, Winnebago Industries Inc. President and CEO Michael Happe said he remains optimistic that the three-way intersection of retail demand, dealer inventory correction and manufacturer production would intersect sometime in late spring or early summer.

 

Issued Monday (March 25), Winnebago’s financial report indicated revenues for the fiscal 2019 second quarter, ended Feb. 23, 2019, were $432.7 million, a decrease of 7.6% compared to $468.4 million for the fiscal 2018 period. Gross profit was $66.4 million, a decrease of 1.8% compared to $67.7 million for the fiscal 2018 period.

Second-quarter revenues for the motorhome segment were $164.7 million, down 17.3% from the prior year driven primarily by a decrease in Class A and Class C unit sales, partially offset by an increase in Class B unit sales.

Revenues for the towable segment were $250.7 million for the second quarter, down 5.9% from the prior year, driven by dealer network efforts to reduce inventory levels and comparing against very strong shipments in the prior year, partially offset by pricing.

Backlog levels stood at more than 8,000 units but declined 5.7%, in dollars, versus the prior year, reflecting the positive impact of utilizing additional capacity added during calendar 2018 and dealers continuing to right-size inventory levels.

In a conference call following the report, Happe told investment analysts that while Winnebago — the Forest City, Iowa-based RV and marine manufacturer whose products include the Winnebago, Grand Design, and Chris-Craft brands — was pleased overall with the strong start in the first six months of fiscal 2019, “wholesale market conditions, especially in our RV segments are even tougher than we had originally planned.”

In the face of a North American RV industry that is “experiencing some challenging wholesale headwinds,” Happe said what he was most pleased with is “our growing RV retail market share.” He pointed to Statistical Survey Inc. reports that indicated Winnebago’s retail in the standalone month of January 2019 showed the company with a market share position of 10% in RVs. “This is significant progress, in fact, three times greater from a position of under 3% just three years ago,” Happe noted.

Happe also touched on other specific topics during the conference all with investors, including:

On the opportunity for gains in the Class B market due to the suspended business operations of Erwin Hymer Group North America (EHGNA):

“We are certainly aware of some of the developments specific to the Roadtrek business in Canada. We are fortunate that Winnebago Industries and our motorhome business have a significant share position currently in Class B’s. Depending on the share reports on a monthly basis you look at it somewhere in the neighborhood of 40%. Roadtrek, I believe, has been consistently No. 2 in those same share reports. So the disruption to their business, at least in the short term, and the unknown long-term future of their business certainly has many end customers and dealers asking questions in our industry. And we believe our brand Winnebago and our current line of Class B products — and some new products that we have in our pipeline — are well-positioned to compete for any shifts and share organically that could happen in the future as well.”

On the market challenges facing the RV industry and its retail prospects for the remainder of 2019:

“We’ve been, over the last six months, relatively consistent that we had been hopeful that the shipments in retail levels would achieve some new normal and equilibrium in the late spring early summer of 2019. I think, specifically, we have talked about April, May. Candidly, it’s really anybody’s guess.

“I know different public companies in our sector have offered their own thoughts on this. But we’re still hopeful that, especially for our business but increasingly so for the industry, that you’ll start to see that equilibrium happen again late in our Q3. Could it spill over into early Q4? It probably could as well.

“I am personally pleased with the way spring is starting to break weatherwise in certain parts of the country. We have seen some seasonally good retail in some of the warmer weather states, and we’re waiting for that retail season to truly kick off in the northern part of the country.”

On Winnebago allowing Grand Design to remain committed to its business plan of not offering wholesale discounts:

“We are very pleased with the performance of our Grand Design business. They continue to do very positive things. And as we’ve stated since we’ve owned them that we remain committed to the business model that made them successful in their early years and attractive as an acquisition target to us more than two years ago. And we are pleased to report today that the business model is still in its entirety in place as they operate. And that includes the discipline of not discounting on a quarterly basis as some other companies in the industry do and, in fact, some of our own Winnebago-branded products still had to do.

“So the strength of the Grand Design product line and their relationships with the dealers allow them to run a good, clean and pure business there. And we are working very intently to move our Winnebago-branded motorhome and Winnebago-branded towables businesses there in the future as well. That will take some time. But we should be able to do that over time as our product lines get stronger there and as our positions on those dealer lots improve as well.”

On how much winter weather played a factor in company performance:

“So I’ll give you some numbers here, but I do want to make sure everybody takes them with a grain of salt, because it is hard to sometimes go back and calculate exactly what could or should have happened had you had a stable operating environment. But we’ve roughly calculated that in the second quarter.

“We lost approximately 10 production days across our various facilities. Now, that’s not 10 whole days calendarwise, but several facilities were down for the same day and other facilities were down just by themselves. But it was 10 production days, and several hundreds of units, and we believe that had a potential value of $20 million in terms of possible shipments to the market.

“You’ll notice here I’m just a bit tentative in stressing that because, by no means, are we going to use that as a crutch or an excuse, because the rest of the industry saw some of that as well in Northern Indiana.”

On whether the worst of the year-over-year declines in wholesale shipments have passed:

“Yes, I would hope that would certainly be the case. Now, I don’t think they’ll turn positive here anytime in the next couple months at an industry level. But I would think that our chances for seeing better negative shipment conditions will improve here over the next several months, but we’ll have to see. We are still only 10% of the North American RV industry, 90% of the RV history is in the hands of some other players. We will work to make our number larger and their number smaller, but the rest of the industry is really still driving a lot of the shipment and the inventory pacing.”

On the company’s pursuit to becoming a “trusted outdoor lifestyle:

“Our internal transformation efforts around talent, process, portfolio, and capital allocation have not only advanced our competitive position in the industry, but they have also made our company more resilient, hopefully more consistent, and able to better navigate the headwinds affecting the RV industry without surprising or dire consequences.

“It is always two steps forward and one step back during these early stages, and we aspire to much more in the future. This resiliency is due in large part to our new enterprise platform approach, which is more diversified than ever before with active full line RV, luxury marine and specialty vehicle operations. Just three short years ago, we were largely a one-division organization with motorhomes representing 93% of our overall sales. We are confident that over the next five to 10 years, there will be significant opportunities for organic share expansion and inorganic investment in each of those global markets.

“And as we said last quarter, we continue to search for premium companies with strong brands, great talent, value channel partnerships that deliver on the product and service promises they make to further leverage our strengths and expand our business.”