Fred Wightman: That makes sense.
Dave Foulkes: What maybe one of our considerations here is obviously in the back half of ’23, that was a tough half of the fourth quarter, particularly when we were de-stocking heavily in the face of reduced orders from OEMs, provides us with a better competition.
Fred Wightman: That’s fair. And if we just shift to Freedom, is there — we’ve covered this sort of new boat retail environment handful of ways so far this call. But if you think about Freedom, it doesn’t sound like you’re seeing any signs of churn or unusual cancellations. Is there any thing that you can just sort of share as far as stickiness or maybe how that could potentially be an offset to some of these people who are delaying or deferring purchases in near term?
Dave Foulkes: Yes, I don’t know about the very last part about. It could be, I suppose, an offset that’s definitely possible. Churn is still in the 10% range, which is where it’s been in recent history. I would say, obviously, Freedom continues to benefit from not having been subject to the cumulative inflation impact that boats certainly have from a purchase perspective, and also not really subject to the higher interest rate environment. Because nobody, as far as we know, a few people are kind of financing their entry fee. So it’s — we think it’s overall just a bit more kind of immune to the broader macroeconomic stuff that’s impacting durable goods purchases. Freedom continues to expand, and we were very pleased to see increases in year-over-year, Same Club sales. That’s very satisfying. So the model is working very well and certainly helps our boat business pulling through additional units.
Fred Wightman: Thanks a lot.
Operator: The next question is from the line of Jamie Katz with Morningstar. Please proceed with your questions.
Jamie Katz: Hi, thanks for taking my question. And I want to focus on Freedom Boat Club. I think the statement on the call was that same-store sales or whatever metric was used, was at mid-single digits. And I’m curious if there’s been a shift that you’ve seen from what would traditionally be buyers to maybe members in the club, and whether there’s any way to discern that. And then after that, is FEC still sort of slated to run at that mid-single digit rate growth over the rest of the year? Thanks.
Dave Foulkes: Yes, thank you. We’re delighted with the performance of Freedom, not just in the domestic market, but also now in the European market, where there’s a heavy presence on the Australian market. And you should expect to see us expanding to other region, other geographies as well, since the model seems to be very robust in those areas. I can tell you, we may have the data to track if recent members are kind of trading off buying a boat to going into Freedom. I don’t have that data, but we could take a look at it to see if there’s any particular trend in that regard. I go back to the original data that we got when we were contemplating the acquisition of Freedom, and that was that very few Freedom members were contemplating buying a new boat.
But one of the things that we do benefit from now is that Freedom has a concierge service so that anybody who’s in Freedom and wants to buy a new boat is directed to one of our brands. So that’s extremely helpful. Freedom continues to grow and we anticipate solid growth through the balance of the year. I can’t remember the growth rate exactly that we’re anticipating. I don’t know, did we publish it? No. We didn’t publish a growth rate, but I think we expect solid growth through the balance of the year.
Jamie Katz: Okay. And then I know this was touched on earlier, but I’m assuming that the flattish market outlook is contingent on some internal look for interest rates. So, do you care to share with us what your internal expectations for rate movements are over the remainder of the year? Thank you.
Dave Foulkes: Yes, I think just like everybody else is that changing with time. So I don’t think we have any specific insights.
Ryan Gwillim: No, and our call for a flattish market did not anticipate multiple interests. I think it is separate from the overall interest rate environment. So we would not tie those two together on a one-for-one basis.
Dave Foulkes: Maybe one thing to consider as well is that because of, I mean, some of the promotional activity is dealers buying down interest rates or offering promotional rates. So there are many people who are financing their purchases and not financing at the base rate. They may be financing it at $4.99 or $5.99 with a promotional financing rate.
Jamie Katz: Right. Thank you.
Operator: Our next question is from the line of Xian Siew with BNP Paribas. Please proceed with your question.
Xian Siew: Hi guys, thanks for the question. There’s been some questions about, I guess, new boat sales, but I wanted to ask about engine retail, which was down looks like 9% per the slides, and you gained some shares. So maybe let’s say you were down, I don’t know, 6% or 7% . Its like, how does that track versus your expectations going into the year?
Ryan Gwillim: Yes, hi Xian. That’s kind of in line with our initial expectations for the quarter. We are very confident in our ability to continue to outperform the market and take share, certainly in the 150 horsepower in greater categories. So we don’t see that stopping. Retail obviously is going to be a function, as Dave said earlier, on OEM production schedules and also a little bit of the repower channel, which continues to be strong, where we also take share. So we’re kind of performing as anticipated right now. And again, subject a bit to the OEM production schedule of our core consumers continue to take more share, even if the industry as a whole is slightly more sluggish.
Xian Siew: Okay, got it. And maybe also following up on that in propulsion, I think mix was a benefit last year as you were kind of restocking from the higher horsepower engines. It sounds like maybe that continues a bit because you’re kind of mentioning the higher horsepower again, or do you kind of see a more normalization of that mix effect?
Ryan Gwillim: Yes, so there’s two components to mix, right? There’s the product component and the customer component. I would say the product component continues to be a positive, as again, market share gains and high horsepower continue, and that premium product continues to be quite strong. And then consumer mix changes from quarter-to-quarter, depending on who is buying it and wholesale. And in Q1, it was pretty neutral.
Xian Siew: Okay. Thank you.
Operator: Thank you. Our next question is from the line of Joe Altobello with Raymond James. Please proceed with your questions.
Joseph Altobello: Thanks. Hey guys, good morning. So first question maybe big picture. You mentioned fattish U.S. marine industry this year, Q1’s down 10%. And I know the months do start to get more important over the spring and summer, but what’s going to get retail to turn positive? And does pricing need to adjust to start to see unit growth again?
Dave Foulkes: Hi, Joe. I think does pricing need to adjust? I mean, I think at the moment, obviously, the transaction prices are quite different from whether it might be an MSRP or kind of recent historical pricing because of the promotion and discounting environment, particularly on value product lines. So, one of the things that we do have now that is an increasingly used capability is the ability to do AV testing in pretty localized portions of the market to see whether incremental promotional discounting activity will drive additional sales. So, some places we see it will, some places not necessarily so much. So, I think that I don’t think at the moment, transaction prices are broadly a big level. But they are certainly, the transaction prices are certainly improved by the discounting and promotion levels.
In terms of what will drive the consumer some more, in addition to what we can offer, I think obviously a good weather in the season will be really helpful. It always is. But then a little bit more clarity in the macro environment, obviously, it would be helpful too.
Joseph Altobello: Got it. Okay. And just to follow up on that, you said you anticipate shipping model-year ’25 a little earlier than normal. Any sense for when we might see competitive product in the channel? And could you guys have a bit of an advantage for a few weeks?
Dave Foulkes: I think most people will be implementing model change-over relatively early this year. So, I don’t know that we’ll get an advantage or not. I would say, though, that we continue to gain market share on the boat side. We talk a lot about the engine side, but just based on SSI, you know, we’re up 50 basis points so far this year. So, I think our new product investment, it is flowing through to a lot of really nice contemporary designs, with a lot of really strong and unique and differentiated technology is really helping us overall. And that’s what we will continue to do across our product lines is make sure we have the most contemporary looking and best featured bugs. So, I think that is probably a bigger source of competitive advantage for us.
Joseph Altobello: Okay. Great. Thank you.
Operator: Thank you. At this time, we’ve reached the end of our question and answer session. I’ll hand the floor back to Dave for closing remarks.
Dave Foulkes: All right. Thank you all very much for joining us and for the great questions. As you saw, despite the challenges, retail is currently proceeding more or less in line with our expectations. And we delivered a very solid quarter. I think the resilience of our portfolio is very much on display. Gross margins held up really well. And our cost control discipline is on display as well. I think we did a really nice job in the quarter and we’ll continue to do that. Field inventory levels remain extremely well balanced. So, we don’t have excess inventory and we think we’re really set up well for the balance of the year. Our free cash flow continues to be strong. And obviously, we did a really timely debt issuance. So, that allows us to increase share repurchases at a time when today I’m pleased that we’re going to be in the market with more share repurchases early in the year.
We’re going to bias that obviously to the first half of the year. So, overall, I think a solid quarter and a very balanced view of the year ahead. Thank you.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation. Have a wonderful day.
