Sébastien Martel: Well, we’ve always said that coming out of the pandemic, we wanted to run our dealer networks with less inventory. We’ve said it, a lot of OEMs have said it as well, and dealers say it as well, and so we’ve been very focused on making sure that we have enough inventory so that the dealers have the right product offering when the consumer walks in, and they can close the sale rapidly and get the unit to the consumer rapidly. We also have flexibility in our ability to quickly deliver units to the dealers if they need them, and so our goal is to make sure that we have that right level. I’m actually happy to see that – again, dealers are saying that they have the right level of inventory, they’re able to meet consumer demand, and we’re managing it diligently.
I mean, we are cognizant as well that interest rates are higher, so why put more inventory in the network? It creates more cost for us, more cost for the dealer network if we don’t need it. Ultimately what we are driving for with the dealer network is not to create a great pressure where they’re focused on our units because they have them in the yard but because they’re making more profit selling our units, and one way of making more profit is by having the right level of inventory so that they don’t pay unnecessary floor cost.
José Boisjoli: Just to maybe to add to Sébastien, I just came back from a club where we had many discussions about this with dealers. For sure, if you survey a dealer, they will tell you they have too much inventory, but they look at it in dollars, and we look at it in units. Again, I said it in the remarks, but our inventory level right now in the network is 24% higher than pre-COVID but our retail is 50% higher than pre-COVID, plus you have higher end product and you had all the price increases that we have done in the last four years. For sure the dealer, when they look at it in dollars, they don’t like it with the interest rate, but if they want to support the growth at retail and be able to supply to the demand, this inventory is needed. We look at it in number of days, and we are below pre-COVID.
James Hardiman: Got it, that’s helpful. Just to clarify, the billion dollar headwind that you’re lapping against in the second half of last year, that’s versus a zero this year’s second half, presumably, or I guess maybe put a better way, the days on hand, you expect to stay pretty constant as we move forward, maybe not quite a one-to-one wholesale to retail because retail is obviously growing, but is there any offset to that billion dollars in the second half of this year versus the second half of last year, or is that–is your retail going to have to grow by that much more just to get to sort of flattish sales?
José Boisjoli: Well, if you look at what the implied growth is for the back half of the year, obviously there is that inventory replenishment that we did last year. About 60% of that was for seasonal product because of timing of shipments for personal watercraft and Switch, but when you look at the implied growth for year-round products based on the guidance, you’re talking about a growth of 11% to 16% growth – that obviously comes from the market share gains we’ve experienced over the last few years, the recently introduced products that we’ve done at the Club, obviously better pricing, better mix as well, and also by strong deliveries of ATVs as we’ve launched a brand-new platform. But I’ll remind you that in the last three years, we’ve gained three points of market share in side-by-side, and obviously that momentum is fueling wholesale deliveries and retail deliveries as well.
James Hardiman: That’s really helpful, thank you.
Operator: Your next question comes from Xian Siew from BNP Paribas. Please go ahead.
Xian Siew: Hi guys, thanks for the question. Maybe first on the $0.80 better than 90 days ago in terms of the raise to guidance, can you maybe disaggregate between mix, turbulence costs and operating expenses? Then maybe within that mix improvement, what do you think is driving that and how much do you think that continues until, let’s say, next year? Does mix continue to be a positive driver for the next couple of years? Thanks.
Sébastien Martel: Yes, well about 40% of the $0.80 adjustment comes from mix. As José alluded to in his prepared remarks, we are seeing a healthy–a financially healthier customer buying our product. These customers are looking for high end product. We’ve recently launched the Maverick R – we’ll call it the next level in technology for the sport side-by-side, and that obviously is driving very strong margins. But from a utility point of view as well, the customers are asking for fully enclosed side-by-side with HVAC, and we’ve made adjustments in our production capacity in order to be able to deliver these units and meet customer demand, and that obviously is helping the mix favorably.
Xian Siew: Okay, got it. Then maybe on seasonal, you did better than the street expectation, but guidance was kind of held for the year. Were there any shifts to consider, and are there any kind of margin impacts we should think about?
Sébastien Martel: No, we were expecting a very strong second quarter for seasonal products due to better deliveries of personal watercraft and Sea-Doo Switch. Again last year, because of supply chain it was a tough quarter, and so now things are back to normal seasonal patterns. That’s obviously a big plus. The implied revenue decline in the back half of the year is really mainly related to timing of deliveries compared to last year, but all in all, we’re very happy with the season we had on seasonal. Sea-Doo Switch was our first real year of deliveries, obviously the demand was very good, and the performance of the Switch was also strong from a retail point of view and from an industry point of view as well, but nothing to highlight specifically other than that.
Xian Siew: Okay, great. Thank you. Good luck.
Operator: Your next question comes from Fred Wightman with Wolfe Research. Please go ahead.
Fred Wightman: Hey guys, good morning. I just wanted to come back to the dealer inventory number, and I totally get that it’s below the retail share performance, but in the past you guys have given sort of a bridge between seasonal products and then also year-round products. Can you give us an update on sort of where the dealer inventory levels for both of those categories stand today, either on a year-over-year basis or next to ’19, however you want to talk about it?
Sébastien Martel: Well, when I look at the overall inventory position, what I’d say is for year-round products, we are comfortable with the inventory we have for both ATV, as we’ve started shipping the new model. For side-by-side, as I said, we have opportunities to increase deliveries, especially on the utility full enclosure cabin side-by-side. That’s a product that’s in high demand. Spyder, very strong on the traditional Spyder, we’re good there. We have a bit more Rykers, and that obviously will–we’ve put a plan in place to make sure that we get through that inventory in the next quarter. From a seasonal point of view, we finished the season. With personal watercraft, it’s going to finish in a month, very happy with the season that we had, good levels of inventory coming out of that season.
The Sea-Doo Switch, strong season in some markets. The midwest was a bit softer than what we were expecting, so we have a bit of inventory there that we are working through and we’ve put promotions as well in those regions to make sure we get that model year ’23 retail and get ready for model year ’24.
Fred Wightman: Okay, and then just to follow up on the marine business, you guys are cutting the outlook, you’re delaying or deferring some of the capacity expansions – just a pretty big change versus a couple months ago, so can you just give us maybe an industry lay of the land as far as what changed, and maybe why you think it was so much different than what seems like solid demand for year-round?
José Boisjoli: If you talk about the industry, obviously the weather was not the best. We didn’t have the best summer to start with. After that, many customers financed their boat 15 to 20 years, which is a very long period, and obviously the interest rates that climbed over the last 18 months affected, or people delayed. When you have a combination of interest rates going up in a summer that weather is so-so, some customers preferred to delay their purchase, and this is for the industry. For us, what happened, and you know the story – I mean, I don’t want to talk too much about it, but we had–we were a victim of a cyber attack last fall, the operation in marine was the last to be reintegrated. After that, we had that supplier difficulty, and when we started to really ramp up with good volume the production in May, dealers already had high inventory of other brands, and at the end of the day, we were pushing too much, then we decided to slow down for season ’23 and refocus everything on season ’24.
