Xian Siew: Maybe just another way to think about the revalue. You mentioned approaching typical seasonality, last year, in 2Q, you mentioned ORV retail was up about 13% quarter-on-quarter, and maybe that was still held back by some limited availability — so I guess thinking about this 2Q should — the ramp should be steeper than last year, I guess. Is that kind of how we should think about it?
Bob Mack: The ramp — so last year, Q1 was relatively muted. We had poor — relatively muted from both a retail — retail was okay and shipment was tight. You really got to think about when we say it’s returning to seasonality, it’s not fully back to seasonality. So comparing ’22 to ’21, it doesn’t really tell you very much because it’s purely related to what we shipped kind of in the quarter ahead in the early part of that quarter, and that was all over the map from ’20 through ’22. So normally, Q2 would be significantly higher than Q1 because we’d be shipping rec product and the rec side of ATV, RZR, that stuff into the channel for seasonality and then it would retail in Q2 as the season starts to open. We think that’s going to be a little more muted this year just given the switch between utility and rec given that rec is relatively more pressured with the current macro environment.
So that changes it a little bit. We had good retail as compared to ’19, which would have been kind of a more normal season in Q1. So it’s — we’re being cautious as we look at Q2, just not knowing if that was pull forward or if it’s a sign of a better retail to come. So I think the ramp will not be — I wouldn’t think it would be steeper if that’s how you’re looking at it.
Xian Siew: Okay. Got it. And then maybe on gross margin, if you can think about it by segment, so Off-Road maybe down a bit quarter-on-quarter, but it sounds like either there’s just some of these inefficiencies. So maybe a little bit more muted in Off-Road, meanwhile, On-Road was quite strong. So should we be thinking like On-Road is up and Off-Road maybe flat to down? Or how do we think about the composition of the gross margin guide?
Bob Mack: Yes. I think the one thing to keep in mind when you think about kind of Q1 versus Q4, Q1 was while better — while Q1 ’23 was much better than Q1 ’22, it was also much lower than Q4. So part of the difference in volumes, Q4 to Q1 was really the — just the difference in the size of the quarter. And the mix was a bit different as well. Like we said, it had a bit more snow in it, snow tends to be lower margins. So I think On-Road, Q1, Q2 last year, when we had this black paint problem. So shipments were relatively low. So those shipments will improve in Q2. Those margins, though, are lower than Off-Road. So if you think about that, that’s a negative from an overall standpoint, but those margins will be — the On-Road margins will be better.
And Off-Road, we think will continue to improve through the course of the year. It will just be a little bit lumpy as we work through all the different supply chain challenges and sort of operational inefficiencies caused by those that Mike was talking about.
Operator: The next question is from Scott Stember with ROTH MKM. Please go ahead.
Scott Stember: Just looking at the PG&A business and particularly Off-Road, flat versus up 25% on wholegoods. In the past, a few quarters ago, maybe there were some questions asked about what could be a canary in a coal mine for retail trends and just the consumer not having as much money in their pocket to buy these units. But what do you explain the fall off, does it have anything to do with a shift away from recreation products?
Bob Mack: No, it’s primary. So retail in the quarter — retail in Q1 was below 22%. So that’s part of it. PG&A tends to float with retail as opposed to a wholesale ship. We’re also seeing on the PG&A side, really on the accessory side, we’re seeing a little bit of slowing of inventory shipments as dealers rightsize their inventory. Their DSOs are kind of trending back towards normal. They’ve been a bit elevated as we went through the pandemic just because of the lumpiness of shipments and back orders and dealers wanting to make sure they have the PG&A to attach to the units when they showed up. So as we work through that, our back orders have come down. We’ve seen dealers start to refocus a little bit on their DSO. We think that will — mostly played out through the quarter but probably had a little bit of negative impact on shipments.
What we have seen is retail, the attachment rates to the units that retailed in the quarter were solid and actually trended up a bit. So we’re not seeing what we would think would be sort of a canary in the coal mine, as you said, related to accessories and then parts and related work orders, all those kinds of things were all relatively solid. So not seeing anything there either. So we think that’s a bit of a 1-quarter trend as the dealers sort of rightsized what they had for accessory inventory. And we expect that to return to normal growth and we expect PG&A to actually outgrow wholegoods for the year.
Mike Speetzen: And Scott, obviously, with our RIDE COMMAND penetration, we’re able to get out and at least look at the right activity for those vehicles, which we do know is up year-over-year. And as we’ve talked to dealers, the volume in their service shops has stayed consistent. The difference is they just don’t have the backlog. They were weeks and weeks out from being able to get to somebody’s vehicle. And they’re — again, it’s like everything else, it’s starting to return to a more normal pattern. And I think that’s really probably more reflective of the fact that this whole work-from-home movement has proved to not play out as a lot of people thought 2 years ago, and people are back to work. But I would say the riding activity continues to be good and probably reflects more of a normalized pattern.
Scott Stember: Got it. And then last question on the Marine side. The pontoon industry down high 20s, and you’re talking about how, I guess, the high end that market is performing well. And the first question is, is that segment of the market actually up and the other question is what is the divergence between the low end and the high end? It seems pretty high.
Bob Mack: Yes. I mean we’re not going to get into market share by categories, but we continue to see strong demand and backlog in the higher-end products. As we went through ’22, we were very focused on that. So we really weren’t shipping a lot of our kind of smaller and more entry series boats. We’ve got a lot of those out into the channel in kind of late Q4 and in Q1. So we expect that the season starts to kick off, we’ll see that end of the market pick up. I think Marine is going to have — from a just overall growth of the industry, I don’t know everyone is expecting it to be a bit of a down year but I think we’ve got a good opportunity to take back share in that low end of the — or the kind of more smaller-boat-entry-price-category end of the market where we just weren’t shipping product the last couple of years through the course of the pandemic.
So we don’t view that as a negative. We think that will give us an opportunity to take some share back. And we’ll see how that plays out.
Operator: Your next question is from Brandon Rolle with D.A. Davidson. Please go ahead.
