Several analysts who track the recreational vehicle industry are being cautious concerning spring sales after an inventory build-up during the winter led to discounts and impacted profits, according to Reuters.
“If spring demand is somewhat lackluster, like we’ve been seeing over the past few months at retail, inventories might be a bit of a problem,” said Ed Aaron, an analyst with RBC Capital Markets, who has “market perform” ratings on Winnebago Industries Inc., Monaco Coach Corp. and Thor Industries Inc. “It’s too early to call at this point.”
The head winds facing the industry include higher interest rates and sky-high gas prices, which could slow the economy or dampen consumer confidence. The industry also is up against last year’s record levels, which rose more than 15% to the highest output since 1978.
Reuters said those concerns have sent RV stocks lower in general so far this year, as one manufacturer after another reported disappointing earnings. The shares of Winnebago, Monaco and Fleetwood are trading at levels last seen in the summer of 2003.
The same factors prompted John Diffendal, an analyst with BB&T Capital Markets, to cut his ratings on Winnebago, Monaco Coach and Thor to “hold” from “buy.”
“We just think the potential is there for retail sales to worsen before they improve and would rather stand on the sidelines awaiting clarity that there is some momentum behind the RV buyers,” said Diffendal.
But some bulls on the sector point to 2004’s record shipments and say that, while inventory problems and discounting occurred because the manufacturers overestimated demand, retail sales will continue to be reasonable.
“The industry’s situation is likely to remain healthy,” said Barbara Allen, an analyst of Avondale Partners, who follows Fleetwood Enterprises Inc. “Would we see another 15% this year as we saw last year? I don’t think so, but that’s not normal anyway … I think spring sales will be quite good.”
There are still some strong drivers for the sector, namely demographics, analysts said. Economist Richard Curtin of the University of Michigan in a recent report cited a growing preference for the highly mobile RV lifestyle, as well as rapid increases in the number of consumers entering the key age range when they buy RVs.
Curtin, however, expects RV shipments to fall 2.5% this year, making it the second-best year on record behind 2004.
Some analysts see a consumer spending slowdown later this year if current oil price increases stay in place. Higher gasoline prices at the pump generally do not keep those who own RVs at home, because the incremental cost is so little for most trips. Higher energy prices, however, could make it difficult for the economy to thrive.
“Energy slows the whole economy,” said William Gibson, an analyst with Nollenberger Capital Partners.