So they were able to get an advanced view of the bikes, the launch campaign and they were incredibly anxious to get those things out in the marketplace. So as I talked about in my prepared remarks, it brings in new customers to the Indian segment. It’s the largest selling bike we have, and we know that it is a funnel into larger bikes and a lifetime of Indian ownership. So we’re really excited about it. I’m proud of the team. The innovation continues to exceed our expectations and we’ve now got a good solid three years of incredible launches across just about every part of our business, and I think that sets us up well for the long term.
Alexander Perry: Perfect. That’s helpful. And then just my quick follow-up is I wanted to ask what is embedded in terms of the guidance in terms of rate cuts. I think prior year contemplating three rate cuts. Is that still the expectation where are you sort of waiting to see how things play out? Thank you.
Robert Mack: Yes. So we had originally embedded three rate cuts. At this point, we’re down to two, but we’ve got them late in Q4. So there’s no meaningful risk to those rate cuts in terms of actual interest expense for the company or for our share of dealer floor plan. As we said earlier, the real impact is just we have a view that the rate cuts will at least provide some stimulus, maybe not actually financially, but mentally to consumers. And if that doesn’t happen, we’ll be in the environment we’re in, which is what we’ve got contemplated right now. So it won’t be meaningful either way for us.
Alexander Perry: Perfect. That’s helpful. Best of luck going forward.
Robert Mack: Thanks Alex.
Operator: And our next question today comes from David MacGregor with Longbow Research. Please go ahead.
David MacGregor: Yes, good morning everyone. And thanks for taking my questions. I wanted to just ask about the production curtailments. So you talked about taking down Snow RZR, Slingshot, Green. You picked up RANGER. How should we think about the impact of the production curtailments on 2Q as it would relate to or compared to maybe the first quarter?
Robert Mack: Well, in Q2, so we were down nearly $500 million in revenue for the full-year, and most of that was in Q1. So Q2 looking relatively flat in comparison to last year will be a fair amount of volume. We took a lot of marine out of Q1 relative to — particularly relative to the year before, but even relative to a normal year. So marine will be — will start to pick up a little bit as we get into seasonality. And then really, the RANGER — the added RANGER build helps offset a weaker RZR build. So pretty much an even trade-off there. Snow doesn’t really come into play until Q3, Q4. And like we said in our prepared remarks, the Snow build for the year will be down because dealers are still sitting on a fair amount of model year — snow model year ’24 inventory that didn’t sell this season given the lack of Snow.
So I think it will still play out the way we had originally guided, which was quarter-over-quarter revenue year-over-year, 23% versus 24% revenue being relatively flat through the remaining three quarters.
Michael Speetzen: And the only thing I’d add, David, is it sounds relatively simple in terms of, well, we’ll take RANGER up to offset RZR and Snow. The operational teams who are already doing pretty substantial work. I mean, obviously, we don’t make all those products in the same facilities. And so behind the scenes, there’s a lot of work being done to work within the confines of Roseau, Huntsville, and Monterrey to work through how those impacts of rebalancing Snow, Slingshot, RZR, and RANGER are executed. And in light of the improvements that we made starting last year and gain momentum on in the first quarter. I’ve a lot of confidence in the team to be able to execute on that. But it is a change, but it’s the right thing to do because not only does it lean into where we have strong retail, but it also recognizes where retail softer and consistent with what we keep reiterating, it helps us manage that dealer inventory position with our network, and that’s incredibly important to us.
Robert Mack: The other piece of dealer inventory management, we haven’t really talked a lot about, but is kind of reality of the market right now is we are focused on managing trim levels also. And coming out of the pandemic, there’s been a lot of focus for consumers on sort of higher-end trim levels. And so I think really across all products and really across all manufacturers, everybody was leaning into their highest trim level products. I think that was true in auto as well. And as the market started to change, consumers are looking for some more of the entry-level trims that they can do accessorize later after their purchase to keep the initial purchase price a little bit lower. And so starting last year, we started adjusting those trim levels, and we continue to do that.
So it’s not just having the right number of units, but it’s having the right trim level of units in the field, and we think we’ve made a lot of progress on that. And it plays to our strength because we’ve got the biggest accessory business in the industry. And so if a consumer buys a vehicle that doesn’t have as many accessories on it. We’ve got the most likely opportunity to sell them those accessories later at good margins. So it’s a good switch for us.
David MacGregor: That make sense. The second question I had was just regarding your cost savings program, the $150 million that you’ve talked about. How should we think about how much of that makes it to the bottom line in your guidance versus maybe being channeled into other investments?
Robert Mack: So the $150 million is embedded in the guidance as falling to the bottom line as cost improvement. I mean, obviously, there’ll be puts and takes on other operational things like warranty and absorption with volumes as volumes move around. But the whole $150 million is true cost savings. And like we said, it’s — it builds through the year, so it will have a bigger impact later in the year, but you’ll see margins improve sequentially through the quarters.
Michael Speetzen: Yes. I mean I think when you look at the fact that we’re talking about the year being down from a revenue standpoint, but pushing margins up, we’re doing everything we can. We’re being prudent from an operating expense standpoint. But when we look at our manufacturing facilities and baseline back to 2019, and I’m not necessarily suggesting 2019 is the hallmark for us, but it’s a good comparison point. There’s a lot that we have to get out of those businesses. Some of that is tougher because things like commodities are — while coming down sequentially or still elevated from where they were labor rates are elevated, but there’s a lot of other inefficiencies that crept into the facilities that we’ve got to get back to. And we’re not saying that 2019 is the benchmark. We think we can be better than that, but that’s the focus, which means we have to get all that to the bottom line.
David MacGregor: Thanks very much. Good luck.
Michael Speetzen: Yep. Sure. Thanks.
Robert Mack: Thanks.
Operator: And the next question comes from James Hardiman with Citi. Please go ahead.
James Hardiman: Hey, good morning guys. I just wanted to ask one more question on the inventory front. So you’ve given us a lot of bread crumbs, I think you said inventory was flat sequentially, three turns for RANGER and for Indian. Is there any way to just give us an aggregate where inventory is year-over-year or versus 2019? I can’t believe we’re still comparing things to 2019, but it’s at least some reference point. Any way to think about where we are in aggregate?
Robert Mack: Yes. I mean, so like we said, we’re flat. If you exclude youth and the new products, we’re down two. If you think about RZR, we’re down high-single digits quarter-over-quarter from Q4 total rec same way. I think I commented earlier, Marine is flat. And normally, we would have built a lot of Boats going into seasonality. So we feel good about where that is. RZR, we would have built kind of 15% to 20% going normally coming out of Q4 into Q1 headed into Q2 into seasonality. And even RANGER rec is not up significantly. So we didn’t — it’s not like we built tons of inventory there either and a lot of it is in the new products. So overall, we feel pretty good about where we are. And hopefully, that’s enough to get you to.
James Hardiman: But just to clarify, those are all sequential numbers, right, which I think a lot of us sort of — we don’t normally think about it that way. So is there any way to put that in the context of last year?
Michael Speetzen: Well, I mean the problem, James, is when you look at Q1 of last year, we’re up 29%. But Q1 of last year, on average, the network had 80 days or less of inventory, which is well below where the industry has ever been. We were still in a restocking position. And so I think until we get ourselves work through the year, the year-over-year comparisons, while they’re interesting, they don’t necessarily tell you a lot. I mean what we’re spending time on is the absolute levels of inventory by product across the network by region, by dealer. And we’re looking at the measures that really matter in terms of how quickly is that inventory turning, what’s the retail trend that we’re seeing on it, what’s the current, noncurrent mix so that we can adjust?
And that’s what’s really driving us to make the corrections that we do. And frankly, the challenge for us is 2x everybody else, just given the size and complexity of our business. But like I said, when we look at the data that comes through CDK and we can see our performance relative to the other OEMs we are outperforming the group. And I’ll continue to reemphasize that, because we have talked about this for the last couple of years. We don’t just talk about it. We’re actually acting on it. A lot of folks are talking about it, but when we look at the data, they aren’t acting on it. And we take it seriously. We know that we’re a big part of the dealers business. And so it really is up to us to take the lead. And hopefully, they’ll continue to put the pressure on the other guys or work them out of their dealerships.
James Hardiman: Got it. That make sense. And then I think, Mike, in your prepared remarks, you talked about what dealers are doing in response to some of the pressure you talked about. I think I wrote down, reduced OEMs, fewer shipments and then contributing their own promotional dollars. I guess, first, is there any concern about the health of the dealer base? Could we see a pickup in dealer failures? But then also that reduced OEM seemed like a significant comment that I wanted to circle back on. I’m assuming we’re talking about maybe some of the low-end players, but that feels like that could be a positive to you guys longer term if we’re able to sort of rationalize the OEM space? Thanks.
Michael Speetzen: Yes, we — so a couple of things from a health standpoint, obviously, we are concerned and keep a very close eye on this. Within each of our businesses, we have a dealer management group. We get a lot of good data through the Wells Fargo JV. And if you look at the history of that JV, I mean, even during the ’08, ’09 time period, because of the proactive nature of how we manage that, the dealer failures were pretty small. Quite frankly, what does concern me is the behavior of some of the other OEMs because, obviously, with 70% of our dealer network shared, 100% of our Boat network shared. It isn’t just up to us. Hopefully, because of the behavior we exhibit, it helps the dealers put some of that same pressure.
When we’ve been out with the dealers, like I said in my prepared remarks, one of the things that during the pandemic is they were bringing in any OEM that had availability. Even if those OEMs were delivering in a year, a fraction of anything that we would given delivery constraints, they were bringing that inventory in because people are coming in and whether it’s a rec vehicle or a Pontoon, Boat they wanted something. But now as the market is shaking out, in a lot of instances, those short lines that they brought in did play more to the value lower-end buyer, who has really retreated in this marketplace. They’re highly interest rate sensitive. Discretionary income is much lower and these are highly discretionary purchases. So they’re getting low priority relative to cost of living, increases that they’re continuing with.
So as we’ve talked with dealers, they’ve been pretty straightforward that one of the options that they’re looking at is they’ve got to move the Boats they have or they’ve got to move the vehicles they have, but they don’t plan to continue to carry some of those lines. And so we’re not going to get into names and all that kind of stuff because, quite frankly, it varies by dealer by region. But I think it is reflective of the dealer understanding that moving forward, whether you look at our Pontoon business, our Off-Road business, our Motorcycle business, they are a disproportionate share of the market and we’re the player to really bet on as they go forward.
James Hardiman: That’s good color. Thanks Mike.
Operator: Thank you. And our next question comes from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.
Tristan Thomas-Martin: Hi, good morning. I have one question on pricing. Looking at your RANGER ’25 lineup, base models are — it seems like there’s been price productions on the premium, I think they’re higher year-over-year, but with that adoption. So how should we think about your overall 25% pricing on average across all your products? And then second part of the question, what’s the margin difference between a factory installed accessory relative to one that you ship into the dealer channel?
Robert Mack: I’ll answer the second question first. The margin difference is not significant. The bigger advantage to factory installed is that you don’t — you get more. Typically, people buy more when they’re shown a fully accessorized vehicle. And then also you don’t have to worry about a dealer or the customer selecting a non-Polaris accessory, because it’s already on the vehicle. So that’s the bigger advantage. I think the way to think about pricing. There’s been a lot of price noise in the market coming through the pandemic between MSRP increases, surcharges and now increased promo. And so I think across the OEM space, you’re seeing people as new model years come out, sort of adjust that mix of MSRP, surcharge and promo.
I don’t know that the impact on net price is going to be particularly significant. It’s just where it shows up. That said, I don’t think the industry has got a tremendous amount of pricing power going into model year ’25, given just all the increases that have happened in the current state of the consumer. I think what you’ll see us focus on, you saw it well in RANGER is we try to get the trim levels right so that the customer is comparing vehicles that are spec-ed in the ways they want to buy them. And sometimes that’s taken stuff off on lower trends and adding things on higher trims, but that’s something that we tweak every year to try to get the trim level right for what the consumer is coming into dealership and asking for them.
