Winnebago Industries, Inc. (NYSE:WGO) Q4 2023 Earnings Call Transcript

Winnebago Industries, Inc. (NYSE:WGO) Q4 2023 Earnings Call Transcript October 18, 2023

Winnebago Industries, Inc. beats earnings expectations. Reported EPS is $1.59, expectations were $1.32.

Operator: Good day and welcome to the Q4 Fiscal 2023 Winnebago Industries’ Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Ray Posadas, Vice President of Investor Relations and Market Intelligence. You may begin.

Ray Posadas: Good morning, everyone and thank you for joining us today to discuss our fiscal 2023 fourth quarter earnings results. I am joined on the call today by Michael Happe, President and Chief Executive Officer; and Bryan Hughes, Senior Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net and a replay of the call will be available on our website later today. The news release with our fourth quarter results was issued and posted to our website earlier this morning. Before we start, I’d like to remind you that certain statements made during today’s conference call regarding Winnebago Industries and its operations maybe considered forward-looking statements under securities laws.

The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain and a number of factors, many of which are beyond the company’s control, could cause actual results to differ materially from these statements. These factors are identified in our SEC filings, which I encourage you to read. With that, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?

Michael Happe: Thanks, Ray. Good morning and as always, thanks for your interest in Winnebago Industries and for taking the time to discuss our fiscal 2023 full year and fourth quarter results. I will provide an overview of performance during the quarter and the full year, then pass the call to Bryan Hughes to cover our financial results in more detail. Following Bryan’s comments, I will return and offer some closing thoughts before the Q&A portion of the call. The tumultuous consumer outdoor market, which characterized fiscal year 2023 for our company, continued as expected into the fourth quarter as lower dealer deliveries and modest retail demand persisted across the RV and marine industries. Our dealer networks continue to demonstrate discipline as it relates to inventory levels given the current demand environment and an industry-wide focus on selling down prior year model product.

Despite these challenges, our teams have remained intently focused on rationalizing our own and channel inventory levels, optimizing our supply chain network and appropriately managing capacity, output and cost in a strategic manner, sometimes at the expense of short-term market share. Those efforts, combined with a disciplined approach to capital allocation, have enabled us to drive meaningful profitability in our consolidated results, particularly in our Towable and Marine segments supported by our diverse portfolio of premium brands and have allowed us to continue investing in our growth initiatives while creating meaningful value for our shareholders. Overall, for our fiscal fourth quarter, we achieved $771 million in net revenues, consolidated gross margin of 16.5% and adjusted earnings per diluted share of $1.59.

Our results reflect a resilient profitability of our diversified business model in a challenging demand environment. Despite a softening in unit sales, the Towable RV and Marine segments, in particular, continued their track record of profitability and margin performance. Furthermore, as inventories across most categories within the RV segments continue to normalize and marine inventories find their own equilibrium, we will remain focused in future quarters on managing our production output accordingly, while maintaining our preparedness and ability to respond quickly and appropriately to evolving market demand conditions for better or worse. RV retail market share performance declined slightly in our fourth quarter, given OEM and dealer focus on reducing prior year model product, where Winnebago Industries brands have been consistently more favorably positioned relative to the industry.

This trend has been anticipated. And we were recently pleased to see August RV market share results from SSIB much steadier than in past months, a good sign of things to come. Grand Design, Winnebago Towables and Newmar, all gained share in the standalone August month. We are being increasingly mindful of providing improved value and affordability within our RV brands with the intent to appeal to consumers who are seeking premium value without sacrificing quality and access to service when needed. Dealers continue to be very disciplined with the wholesale product they are bringing on to their lots and are intentional with their order positions as reflected in our fiscal year-end 2023 backlogs. As we enter and proceed through fiscal 2024, we anticipate gradual easing of pressure on these fronts and expect dealer orders to improve as they prepare for the spring 2024 retail season.

We are already seeing a monthly sequential increase in order backlog by our dealers in the Towables RV segment from June through September. For the marine market, dealers similarly started to pullback on orders to OEMs as they began to work more earnestly on rightsizing the age and mix of their current inventory with retail support. At the same time, the strength of our Barletta brand continues to show through as it continues to garner excitement amongst dealers and demonstrate market share stability and even further growth in some months. Among Barletta’s latest releases for model year 2024 is the industry’s first pontoon boat with twin engines mounted in the center of the boats transom, available on the L25 ultra lounge and meridian floor plants.

And the new Reserve LeSharo, a simplified decontented offering of the ultrahigh-end reserve. Both offerings will begin shipments in December of this calendar 2023 year. We are incredibly proud of the portfolio of premium businesses and the family of products we have in the market today and innovation remains a core pillar of our strategy as we continue to invest in new products, including Grand Design’s new Serenova, an upscale, modern single-axle travel trailer designed for towing by SUVs and available in three differentiated floor plans with distinct and unique attributes, along with the new Reflection 100 affordably priced below our current Reflection fifth wheel model line while maintaining the key attributes, quality and eye appeal of the existing lineup.

The new Winnebago Access stick and tin product marks Winnebago Towables entrance into the conventional travel trailer market with an MSRP starting below $30,000. The access emphasizes premium features such as an enclosed and heated underbelly with a 12-volt take pad heater, power stabillation jacks and factory supplied solar and prep for WiFi. As we have shared in the past, a core tenet to our business is expanding our capabilities and innovation drivers. In Q3 of this year, we announced the acquisition of Lithionics Battery, a leading provider of lithium-ion battery solutions with best-in-class performance, quality and safety. The acquisition of Lithionics Battery has bolstered our house battery solutions differentiation, energized our electrical supply ecosystem and positioned Winnebago Industries as a future leader in electrification.

The integration of Lithionics into the Winnebago Industries family is proceeding as planned. And we are continuing to develop exciting new power generation solutions and winning business with organic and new customers within the outdoor mobility space. Our Lithionics team recently showcased several of its capabilities and new products at the IBEX Marine Show earlier this month in Tampa, signaling a strong intent to offer its innovation to the rest of the marine industry. Complementing this acquisition, the Winnebago brand recently announced the release of the Winnebago Solis Pocket 36B van, which features our exclusive Winnebago plus EcoFlow Power Kit Pro. This power management controller optimizes energy efficiency, reduces weight and simplifies vehicle operations by replacing five essential power components, the inverter, shore power converter, battery energy converter, solar energy converter and alternator energy optimizer, all into a single lightweight system.

Even further, this groundbreaking integrated 48-volt solution reduces charging time, improves battery recovery and introduces a simplified and more intuitive user interface. The new sustainability-focused Solis Pocket 36B packs more into a compact size product than any other RV, providing customers with many of the features and conveniences of a full-size RV. Now turning to the full year. Overall, for our fiscal 2023 full year, we achieved $3.5 billion in net revenues, consolidated gross margin of 16.8%, and adjusted earnings per diluted share of $7.67. While our results are down from the historic year ago period, we maintained strong profitability due to the strength of our evolving and diversified portfolio of premium outdoor recreation brands.

I am incredibly pleased that the foundation of the transformed company we have built over the last 7 years can produce the results we just completed in a difficult market environment. We remain committed to the continuous improvement of our bottom line with a focus on operational excellence, further work on productivity, cost containment and fixed overhead rationalization along with collaboration with our dealer partners to maintain an appropriate and balanced product mix in the field. We are also continuing to look ahead to further developments and investments in innovation to ensure our diverse portfolio of premium brands continues to resonate with consumers and grow our market share. Our new advanced technology center opens this fall. All of these efforts and investments will be greatly beneficial to scaling the business successfully when headwinds turn back around to tailwinds in the future.

I will now turn the call over to our Chief Financial Officer, Bryan Hughes, to review our fiscal 2023 full year and fourth quarter financial results in more detail. Bryan?

Bryan Hughes: Thanks, Mike and good morning everyone. Fourth quarter consolidated revenues were $771 million, 34.6% lower than the $1.2 billion recorded during the fourth quarter of fiscal 2022, driven by lower unit sales related to current market conditions, dealer efforts to reduce inventories with a focus on prior year model product and higher discounts and allowances compared to prior year, partially offset by carryover price increases. As we navigate a challenging environment, we continue to demonstrate resilient profitability and strong margins in the Towable RV and Marine segments. Gross profit was $127.5 million, a decrease of 39.4% compared to $210.4 million for the fiscal 2022 period. Gross profit margin decreased 130 basis points in the quarter to 16.5%.

These declines were driven by volume deleverage and higher discounts and allowances compared to prior year. Fourth quarter operating income was $57.5 million, a decrease of 53.4% compared to $123.6 million for the fourth quarter of last year. Fourth quarter net income was $43.8 million compared to $82.6 million in the prior year quarter. Reported earnings per diluted share, was $1.28 compared to reported earnings per diluted share of $2.61 in the same period last year. Adjusted earnings per diluted share, was $1.59 compared to adjusted earnings per diluted share of $3.02 in the same period last year. Consolidated adjusted EBITDA was $72.9 million for the quarter compared to $139.2 million last year. Turning now to the fiscal 2023 annual results.

Fiscal 2023 revenues were $3.5 billion, gross profit margin was 16.8%, and adjusted earnings per diluted share, was $7.67. Adjusted EBITDA was $355 million or 10.2% of sales. Free cash flow was $211 million. I will now cover our performance by segment. Revenues for the Towable RV segment were $341.4 million for the quarter, down 30.9% compared to the fourth quarter of 2022. This was primarily driven by a decline in unit volume associated with retail market conditions and a cautious dealer network that remains reluctant to add inventory and has prioritized the selling down of prior year model product, as well as higher levels of discounts and allowances compared to prior year. Looking ahead, we will continue to be responsive to evolving market conditions, manage discounts and pricing accordingly and introduce new models to confront competition and meet the shifting needs of our customers.

Towable RV segment adjusted EBITDA margin was 12.5%, up 170 basis points year-over-year, reflecting cost reduction efforts and favorable warranty experience, which overcame volume deleverage and higher levels of discounting and allowances. Towable RV segment profitability continues to demonstrate resiliency despite current retail dynamics. Backlog decreased to $208.1 million, down 63.9% from the prior year due to continued softness in retail conditions and a cautious dealer network. On an annual basis, revenues for the Towable RV segment were $1.4 billion, down 45.5% versus fiscal 2022, driven by a decline in unit volume associated with retail market conditions, a reduction in dealer inventories and higher levels of discounts and allowances compared to prior year, partially offset by carryover price increases.

A motorhome parked in view of a mountain range, reflecting the joy of the open road.

Segment adjusted EBITDA margin of 12.2% decreased 260 basis points for the full year versus fiscal 2022 primarily due to volume deleverage and higher discounts and allowances partially offset by successful cost reduction initiatives and favorable warranty experience. Turning to our Motorhome RV segment. Revenues were $317.7 million for the fourth quarter, down 42.8% from the prior year, driven by lower unit sales associated with retail market conditions and higher discounts and allowances compared to prior year, partially offset by price increases related to higher chassis costs. As a reminder, our motorhome dealer inventory was notably below desired levels throughout the selling season in the spring and summer of 2022. And as a result, there was an intentional build of dealer inventory in the prior year’s Q4 and therefore, a tough comp this year.

Also in the current year Q4, we experienced a cautious dealer network that was hesitant to place orders given soft and unpredictable retail demand. And we responded by allowing dealer inventory to ease during the quarter as retail for our product outpaced wholesale shipments. Of note and as mentioned during our Q3 earnings call, we experienced some challenges in the implementation of the latest phase of our ERP platform in the Winnebago-branded motorhome business. While the system is functioning as designed, we continue to experience business process adoption and change management challenges during the fourth quarter and used the softer dealer demand environment to continue to constrain production throughput and make the necessary business process improvements to stabilize the environment.

This also reduced shipments into the dealer network compared to what we otherwise could have executed. Our continuous improvement initiatives related to the system implementation continue to this day and our management of capacity and shipments are being thoughtfully metered in the context of a soft retail environment and a hesitant dealer network as we head into calendar Q4, the slow season of RV retail demand. As a result of these actions, our dealer inventory in the motorhome segment as of the end of our fiscal year reflected in retail turns are largely in line with what we are targeting. We anticipate a cautious dealer network prevailing until retail stability materializes and the 2024 selling season demonstrates a more concrete inventory requirement.

Motorhome RV segment adjusted EBITDA margin was 7%, down 690 basis points versus the prior year and 20 basis points sequentially due to volume deleverage, higher discounts and allowance and operational efficiency challenges. Backlog decreased to $688.6 million, down 59.2% from the prior year, driven by continued softness in retail conditions in a cautious dealer network. For the full year, revenues for the Motorhome RV segment were $1.6 billion, down 18.4% from fiscal 2022, driven by unit volume declines related to retail market conditions and higher levels of discounts and allowances compared to prior year, partially offset by price increases related to higher chassis costs. Segment adjusted EBITDA margins were 9.1% for fiscal 2023. Given the current retail landscape, we are targeting a high single-digit adjusted EBITDA margin for the Motorhome RV segment in the near-term, returning to our ongoing double-digit EBITDA margin in the longer term.

Let’s turn to our Marine segment. Revenues were $96.4 million for the fourth quarter, down 21% from the prior year, driven by lower unit sales related to current market conditions and higher discounts and allowances, partially offset by price increases. Marine segment adjusted EBITDA margin of 10.6% decreased 370 basis points versus the prior year due to volume deleverage and higher discounts and allowances. Backlog for the Marine segment was $194.7 million, down 38.1% from the prior year, primarily driven by cautious dealer sentiment related to rising inventories. Consolidated Marine results for the full year fiscal 2023 include revenues of $469.7 million, up 10.5% from fiscal 2022 driven by price increases partially offset by higher discounts and allowances.

For the full fiscal year, Marine comprised 13% of our overall sales mix, reflecting our more balanced portfolio as compared to our historical mix. Segment adjusted EBITDA margins for the full fiscal year were 12.9%, down 140 basis points for the full year versus fiscal 2022 due to higher discounts and allowances compared to prior year. Moving now to the balance sheet. As of the end of the quarter, Winnebago Industries had approximately $592.4 million in outstanding debt, representing a net debt-to-EBITDA ratio of approximately 0.8x, which is just under the low end of our targeted range of 0.9x to 1.5x. Cash flow from operations was a very healthy $294.5 million in fiscal 2023 although a decrease of $106.1 million compared to the record $400.6 million delivered last year, driven by lower profitability adjusted for non-cash items, partially offset by net favorable changes in our working capital.

As I mentioned earlier, the company generated strong free cash flow of $211.3 million in fiscal 2023, including $122.9 million in the fourth quarter, albeit down 32.4% from $312.6 million in full year fiscal 2022. Our balance sheet remains a source of financial strength for us and supports our capital allocation strategy, focused on delivering value through strategic investments in our business to drive growth as evidenced by fiscal 2023’s acquisition of Lithionics Battery. Our strong balance sheet further supports organic growth initiatives, our continuous efforts to improve our operations, increase our capacity where appropriate and return capital to shareholders. During the fourth quarter, we executed share repurchases of $30 million and increased our quarterly cash dividend by 15% to $0.31 per share, reflecting the confidence we have in our ability to profitably grow revenues, capitalize on new opportunities and gain market share in the coming years.

These actions further underscore our commitment to the long-term strength and trajectory of our business. Before I turn things back to Mike, I want to reiterate the strength of our performance despite the challenging market conditions. To illustrate this, bear with me as I once again share our performance for fiscal 2023 relative to the pre-pandemic fiscal year 2019. Wholesale RV industry shipments in our fiscal year just concluded were 317,000. That’s down 23% from the 414,000 industry shipments during our fiscal 2019. Despite that decline in the RV industry, our sales were up 76% in 2023 versus our fiscal year 2019. Our adjusted EBITDA margins are up 120 basis points versus 2019. Our adjusted EBITDA dollars are up 97% versus 2019. Our free cash flow is up 127% versus 2019, and our reported GAAP EPS is up 77% versus 2019, while our adjusted EPS has more than doubled.

These increases are driven by strong organic growth but are also the result of strategic acquisitions we have executed. In summary, we are a much stronger and more diverse company today than we were in 2019 and as a result of our entrance into the pontoon market with the acquisition of Barletta and the electrification opportunity with the acquisition of Lithionics, we have an even larger market opportunity to capitalize on in the years ahead. With that, I will now turn the call back to Mike to provide some closing comments. Mike, back to you.

Michael Happe: Thanks, Bryan. And now a few final comments before we get to the Q&A session. I am proud of and grateful for the Winnebago Industries’ team as we continue to navigate dynamic market conditions, while maintaining our focus on quality, innovation and service. In addition to doing well, we continue to invest in our high-performing culture and focus on doing good in the communities where our customers and teammates live, work and play. During our fiscal year 2023, we gave away a record-breaking $2 million plus financially from the Winnebago Industries Foundation focusing on community, outdoors and access. This is on top of countless hours of physical volunteerism from our team members. Our organization continues to make meaningful progress on all areas of corporate responsibility, and we look forward to releasing later this calendar year.

Our next-generation corporate responsibility report, outlining our specific progress in inclusion, sustainability, giving employee safety and other dimensions. Today also marks another milestone in our company’s history as we are excited to announce the forthcoming launch of a Grand Design branded motorhome lineup, scheduled for release late in our fiscal year 2024. These new models will represent the inaugural foray into the motorhome market under one of the most successful RV brands created and will be a differentiated and complementary offering to our current Winnebago and Newmar brand motorized businesses. Leveraging Grand Design’s inherent strength and unwavering appeal, along with its dedicated and loyal consumer base, we are poised to make a bold entry into this segment.

The Grand Design team is working diligently to bring this exciting launch to life, and we anticipate showcasing prototype models to select dealers in early calendar 2024 with shipments beginning late in our fiscal 2024 year. As we are currently active in product development, standing up the manufacturing infrastructure and our supply chain network and beginning to engage potential dealers for distribution of this new strategy, we wanted to confirm today the increasing positive chatter and rumors in the marketplace. The bottom-line impact to Winnebago Industries will be meaningfully dilutive in fiscal year 2024 due to sizable start-up costs with limited revenue. But this is an incredibly accretive strategy and financial opportunity for the company in future years.

In the coming months, we look forward to the Grand Design team sharing more details about our premium product offerings from Grand Design Motorhome. The excitement surrounding this brand extension is palpable, and we cannot wait to bring these exceptional motorhomes to market, thereby further enriching our portfolio and delighting our valued customers. It is also important to note that the leader and one of the founding partners of the Grand Design business, Don Clark, has recently agreed to a 5-year employment extension with Winnebago Industries as well. We are thrilled for Don and continue to support and appreciate his contributions to the company. As we enter fiscal year 2024, my confidence in the enduring strength of our diverse portfolio of premium brands within the outdoor recreation industry continues to grow.

This diversity not only bolsters our resilience, but also places Winnebago Industries in an enviable position to harness the upcoming market recovery and drive our results and share gains. Our unwavering commitment remains fixed on two core objectives. First, the preservation of profitability balanced with the reinforcement of our already robust market share positions. Simultaneously and second, we are resolute in our dedication to amplifying investments that nurture the long-term health and vitality of our enterprise. This unwavering focus extends to championing quality and innovation across our extensive brand portfolio. Collaboration with our esteemed dealer partners will also remain a top priority. We recognize the pivotal role they play in maintaining the optimal product mix and actively managing inventory together.

We aim to navigate the dynamic market landscape with precision and agility, together with our dealers. Furthermore, we proudly express our enthusiasm for our recent and forthcoming new product releases, including the new Winnebago access and in-class towable offerings as well as the Grand Design Reflection 100 and influence models. These exciting new offerings, not only epitomize the innovation features our discerning customers have come to expect from our premium brands, but also address vital considerations surrounding affordability and aligning perfectly with our commitment to customer satisfaction and excellence. In addition to our unwavering commitment to our existing portfolio, we remain dedicated to the exploration of exciting innovation and the pursuit of strategic market expansion opportunities.

This commitment is evident through our recently announced endeavors which include the forthcoming launch of Grand Design Motorhome and the strategic acquisition of Lithionics Battery. These and other strategic initiatives and investments under development demonstrate our dedication to anticipating and surpassing customer needs as well as our commitment to reinforcing and growing our market share. Together, they reflect our relentless pursuit of excellence and innovation in the ever-evolving landscape of the outdoor recreation industry. Looking ahead, as we enter fiscal 2024, we expect the continued pressure of current retail market dynamics, coupled with dealer apprehension to take on additional inventory amidst those retail challenges, particularly through the first half of our fiscal year.

Our first and second quarters will be formidable. However, we anticipate that as inventory levels further normalize and consumer demand stabilizes. Dealers will exhibit a growing willingness to rebuild inventories and bring in additional models as we enter the back half of fiscal 2024. As we embark on fiscal year 2024, we do so with a robust balance sheet and an improving inventory and working capital position, showcasing the tangible results of our dedicated team’s tireless efforts, which persistently prioritize the streamlining of inventory, the optimization of the supply chain and the meticulous management of capacity, production and expenses. These efforts, combined with prudent capital allocation and the exceptional talents of our more than 6,250 employees have consistently underpinned our solid performance, resilient profitability and healthy operating cash flow within our overall results.

Our strong balance sheet served as the foundation for returning more than $80 million to our valued shareholders throughout fiscal year 2023, executed through a combination of share repurchases and dividends. Notably, over $38 million of this return occurred during the fourth quarter, which unequivocally underscores our unwavering confidence in the enduring strength and potential of our business in the long-term. As we continue to navigate the ever-evolving dynamics of the market, our commitment to adaptability remains unwavering. We will diligently monitor and adjust in response to shifting market conditions with a steadfast focus on profitability, maintaining competitiveness and securing a preferred market position for our esteemed premium brands through collaborative partnerships with our general associates.

That concludes our prepared remarks for this morning. I will now turn the call back over to the operator, who will open the line to your questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from James Hardiman with Citi. Your line is open.

James Hardiman: Hey, good morning. And thanks for taking – I have two questions here. I guess I’ll start with the Grand Design news. I guess, first, congratulations on getting that news out there. Maybe quantify what that does or that means to margins in 2024? I’m assuming that’s going to be coming out of the motorized segment EBITDA. But then earlier in the prepared remarks, I think you talked about high single-digit motorized EBITDA margin in the near-term. Is that inclusive of the dilution from the Grand Design start-up costs? And I’m assuming that dilution will intensify as we make our way through the year?

Bryan Hughes: Hey, good morning, James, this is Bryan. I’ll take that one. Our investment in total is dilutive to pretax income by $10 million to $15 million in fiscal 2024. It ramps up from $1 million to $2 million in Q1 to $4 million to $5 million by Q4. We expect that investment to be accretive, of course, to our fiscal 2025. This will initially be a corporate investment, James, that is reported in corporate other and will, therefore, not be dilutive to our Motorhome RV segment until such time as we become operational. We will keep you all posted in the forthcoming quarters as to which segment that investment is reported. But that’s our intent sitting here today.

James Hardiman: Got it. That makes a lot of sense. And then maybe we could just dig in. There is a lot of questions around ASPs. Your biggest competitor talked about a high single-digit decline or I guess call it, a 10% decline in towables, a little bit less in motorized. How would you – obviously, you guys don’t give guidance, but how do you characterize the ASP outlook? How should we think about phasing? And then maybe you could speak to affordability for the consumer, right? I mean there is pricing into the channel and then there is pricing out of the channel. There is a decent amount of discounting last year. But if we think about the next 12 months, it seems like pricing is probably going to be coming down. Interest rates, at least in the first half of the year are up. Net-net, how is the consumer going to interpret all of this. And do you think that some of the actions being taken by you guys and the rest of the industry will help spur demand?

Bryan Hughes: James, I’ll start with that, and then I’ll turn it to Mike for some commentary as well because there is a lot there in your question, starting with ASP specifically in the discounting and allowance that we’re witnessing in the marketplace today. In Q4, we talked about elevated discounts and allowances. That was against, as you know, a prior year where it was a pretty robust market still. So while we talk about elevated discounts and allowances, I’d say that they are not out of line with where they have been historically, thinking of it as a percent to grow sales, okay? So they have – I’d say they have normalized. I wouldn’t say that they have – or characterized them as having spiked relative to prior years, okay?

So, having said that, ASPs are also certainly a function not just of the competitive marketplace, but also of the inflationary environment. For the motor home space, I’ll go segment by segment here just briefly. The motorhome space, we continue to see price pressure specifically on our motorhome chassis. And because of that, we expect modest ASP increases still absent mix impacts, okay? But on a unit-by-unit basis, modest ASP increase in the low single to mid-single-digit range. That’s what we’re currently expecting now. We will see what happens to the ongoing pressures we see on the motorized chassis. On the towable space, we are, in fact, seeing some deflationary impacts across the components, the commodity inputs I would, sitting here today, expect deflationary impacts in the mid to high single-digit range on ASPs as we seek to pass along some of those deflationary impacts to our dealers and our end consumers.

Marine is more in the neighborhood of motorized RV in that we’re still seeing some price pressure, inflationary pressures from the propulsion or the motors within marine. I’d say everything else is pretty stable. I’d characterize it as stable, but the motors and the marine cause us to see some mild increases to ASP as we sit here today looking forward into our fiscal 2024. So that’s how I’d characterize some of the ASP moves, the discounting allowances. You have some other questions. I’ll ask Mike to take it from here and to add any other color that he sees as it relates to your question.

Michael Happe: Good morning, James. Say, I’ll address the affordability question in this way. We have decided to attack affordability through the introduction of new models that get our brands to potentially new and different price points or fill some gaps in our product lineups that we think are important from an affordability standpoint. And I’ll point to four quick examples. In fiscal ‘23, in the pontoon market under the Barletta brand, we introduced the Aria product, which expanded our total addressable market price point-wise from 40% to 70% of the market. So the Aria is the opening price point brand for the Barletta business. We showed at Open House the Winnebago branded access which is that particular brand’s entrance into the conventional travel trailer market with MSRP targets at $30,000 or below.

And then the Grand Design business has introduced two new brands, the influence, which is an affordable Fifth Wheel between our Reflection and Solitude models. And we’ve also introduced the Reflection 100, which is affordably priced below the traditional reflection Fifth Wheel line. And so as opposed to decontenting and dropping margin on existing SKUs, we’ve really chosen to go after affordability with our business through the introduction of new products. And we anticipate that we will be successful here as we go through our fiscal ‘24 year.

James Hardiman: That is extremely helpful. I’ve taken up a lot of your time, but I just wanted to clarify, Brian, it seems like the way that you’re talking about cost pressures and what that’s ultimately going to do to ASP. It seems like the goal through all of this is to ultimately hold margin as I think about the year rather than sort of giving up a little margin in an effort to spur demand? Is that accurate?

Bryan Hughes: Yes, I think that’s fair to characterize our efforts around profitability and margin are certainly in focus we will continue to react as we always do in-line with what Mike just said as well as it relates to that balance between margin profitability, performance and market share. And so that’s – that would be our intent and how I’d like to characterize it, James.

James Hardiman: Got it. Appreciate it guys.

Operator: Thank you. Our next question comes from Scott Stember with ROTH MKM. Your line is open.

Scott Stember: Good morning, guys. And thanks for taking my questions.

Bryan Hughes: Good morning, Scott.

Scott Stember: In talking about the reluctance of dealers to take inventory outside of price, are there any other economic factors that the dealers are facing like floor plan costs, which are keeping them from ordering? Are they asking you guys to participate in some of that during the slower months?

Michael Happe: Scott, good morning. This is Mike. I think the dimension you touched on is probably one of the bigger elements as I think most of us in the industry know the dealers are facing higher floor plan costs due to higher interest rates, and that is certainly factoring into their attention to aging models, but also certainly the total amount of product that they are willing to carry. I do want to state, though, that on the RV side of our business, specifically, where we see this element most in play. We are pleased with where we stand with our inventory position as of today. And in fact, since the end of our fourth quarter, our RV field inventory is down probably another 1,500 units in gross between the end of August and this call this morning.

And so we believe our inventory is fresh as fresh as it can be. We believe that the inventory volume in total is appropriate. And we will continue to partner with our dealers to make sure that they are comfortable with the inventory they are carrying. But we anticipate any further destocking on our brands of RVs to be lightly incremental going forward. We don’t anticipate any significant further drops. And retail volume and optimism will really be, we think, the determining factor for dealers to begin taking more inventory onto their lots in the months to come

Scott Stember: Got it. And then last question. Looking at Motorized, your backlog was down a bunch but dealer inventories were up. How much of that was related to the ERP issue? And I remember at your open house meeting, Mike, you did talk about maybe on the Class Bs that some of the inventory was getting a little bit rich. Is it a combination of both of those items?

Michael Happe: Our Class B inventory in the field is probably in the neighborhood of 15% to 20% lower today than it was a year ago. So any previous comments about tightness probably were specific to potentially certain SKUs. Again, we’re – the motorized business has been a little bit different from the towables business in terms of inventory comps year-over-year. The towables business was probably the part of the industry that a year or so ago was more rich in terms of the volume of inventory, but also probably more challenged in terms of the mix with prior model years and lower-tier brands whereas the Motorized segment fell to low levels in those – that 2021 and the beginning of calendar 2022 period, but because of supply chain challenges around chassis, we really haven’t had the need to correct field inventory levels in the motorized segment to the degree that we’ve had to on the towable side.

So again, I am comfortable with where our motorized field inventory stands today. I’m comfortable with where our towables field inventory stands today. And again, we look forward to earning the business of the dealers going forward to increase lot share. We have run some selective promotions around floor plan inventory rate support here as we ran into Open House. But we don’t anticipate having the need to do that extensively throughout the ‘24 year.

Scott Stember: Got it. That’s all I have. Thank you.

Operator: Thank you. Our next question comes from Craig Kennison with Baird. Your line is open. Craig Kennison, your line is open.

Bryan Hughes: So, let’s come back to Craig. Let’s move to the next one. We will come back to Craig later on in the call.

Operator: Our next question comes from Joe Altobello with Raymond James. Your line is open.

Joe Altobello: Thanks guys. Good morning. I guess first question on the lending side. Are you seeing or hearing of any lenders becoming more cautious from a retail perspective?

Michael Happe: Joe, good morning, this is Mike. We are not hearing material weakening of retail financing in our business at this time. I would say the headwind that probably is most prevalent at retail for our dealers, especially with existing customers is some of the challenges around what to do with that existing unit that an existing customer has that they would like to trade in. In some cases, depending on when they bought it, they are in a negative equity situation and may have to write a sizable check to get out of that current product and upgrade or get into a new product. And so I would say the trade-in headwind is probably a much bigger factor than any retail financing challenges that we are seeing at the present time.

Bryan Hughes: And the availability is there, just to echo what Mike said. The availability is there, but the cost is certainly up, as you can imagine, right, Joe. So, we are seeing retail lending rates now with eight, nine handles and even some with lower credit ratings getting into double digits. So, that higher cost is certainly a factor.

Joe Altobello: You read my mind with respect to my next question. So, with a follow-up to that, maybe some thoughts on the relationship that you have got now with Camping World and perhaps opening additional stores like the new Grand Design stores that you have now in Green Bay.

Michael Happe: Yes. Let me start with more of the historical relationship with Camping World that we have had in our Winnebago-branded business. We have done business with Camping World through the Winnebago brand for many years. Mostly on the motorized side, but off and on, on Winnebago Towables as well. And we continue to do business on the Winnebago side in dozens of different locations and have a healthy relationship with Camping World there. Not all of those locations are full-line locations. They carry select models of the Winnebago Motorized line. And we have had some productive conversations with Camping World around the Winnebago Towables line as of recently at the Open House event in Indiana a few weeks ago. You did reference the Grand Design Camping World store.

We recently co-opened an exclusive Grand Design store with Camping World in the Green Bay, Wisconsin market, looks fantastic. I think the grand opening was this past weekend, and that is an opportunity for us to influence more of the customer experience in an exclusive store format working with the Camping World team. Admittedly, this is Grand Design’s first location with Camping World since the inception of that brand. And we are having some discussions about possible other markets. But we will be very selective in our conversations with Camping World and really kind of take it in a crawl-before-we-walk style to make sure that this is a productive relationship. Just so you know, but also any stakeholders listening to this call know, our relationships with our dealers are not focused solely on sales.

They are also focused on the complete experience for our customers and especially how our customers are cared for in the aftermarket. So, any expansion with any dealer includes a conversation on the service side as well, where we need to get comfortable with both the OEM and the dealer taking care of the customer at a high level. And so that conversation is definitely a part of any Grand Design expansion discussions with any of their retailers, including Camping World.

Joe Altobello: Got it. Thank you, guys.

Operator: Thank you. Our next question comes from Tristan Thomas-Martin with BMO. Your line is open.

Tristan Thomas-Martin: Hi. You gave us some kind of guidance for motorhome EBITDA margin short-term. How should we think about towable margins and then kind of by extension of that, the ASP decline down mid to high-single digits? Could you quantify what type of headwind that is on your margin profile?

Bryan Hughes: Yes. We think we will be able to – even with that kind of a reduction to ASP, Tristan. It’s really tied to, in many regards our ability to manage the cost equation as well, including the cost inputs or the deflation. So, I don’t want to convey that we are anticipating giving up margin as we ease some of those ASPs. I think with the initiatives we have in place, including the product initiatives that Mike already alluded to that we are introducing great new products and continue to expect those to be differentiated versus competition as well as the other cost initiatives that we have on an ongoing basis that we will be able to continue to see towables margins in the range that we saw here for Q4, plus or minus a reasonable amount here, you keep them in double-digit as we look forward, both in the near-term and long-term as well as the volume starts to recover and the leverage impact of higher volume should provide that tailwind as well that will help us continue to generate really strong margins in the towables business.

Tristan Thomas-Martin: Okay. Got it. And then are you – what are you getting – are you seeing anything in terms of supply or support as you are trying to address affordability and bring down pricing?

Michael Happe: Tristan, we are having productive conversations with most of our key suppliers about the need for them to pass on the reductions they are seeing in cost on their raw materials or from their suppliers to us. And in many cases, that is happening. In some situations, we have an index-based relationship with certain suppliers that just follows the curve of those indexes. But we are having good productive conversations with our larger suppliers on cost management. I would say where those discussions are the most challenging and where we continue to see headwinds concerning cost is in the motorized chassis category. Those suppliers are a little less agile in changing cost and in some cases, are still experiencing some cost increases that they are needing to pass on to OEMs like us. So net, we are getting good responses from our suppliers on continuing to manage, in some cases, lower the cost of our bill of materials.

Tristan Thomas-Martin: Got it. Thank you.

Operator: Thank you. Our next question comes from Fred Wightman with Wolfe Research. Your line is open.

Fred Wightman: Hey guys. Good morning. I wanted to come back to the Grand Design Motorized launch. I mean if we just go back to when you guys acquired that brand back in 2016, you have seen a meaningful increase in sort of the consolidated market share stats for the company. And you have also talked about getting to something over 20% longer term. So, can you just frame sort of what you think the aspiration or contribution from that could be from a market share perspective or how you are sizing the potential contribution down the road?

Michael Happe: Fred, today, between our two existing brands, Winnebago and Newmar, we run somewhere between, and it varies by quarter and by year, but we have run somewhere between 18% to 20% total market share in the Motorized segment between those two brands. We absolutely believe that the addition of Grand Design Motorized into our business strategy will be net incremental to that market share. I am not going to share a specific target at this time. But we would not be funding from a capital standpoint, the investment in this business strategy if it didn’t, a, have a standalone ROI that was projected to be positive. But b, it was meaningfully accretive to our overall share. We have been very intentional with internal conversations about minimizing cannibalization of our existing motorized revenue and share to the best of our ability as the Grand Design team rolls out this lineup over the course of the next several years.

And this will be a graduated rollout of product over probably the next 2 years to 3 years beginning in probably our fourth quarter of fiscal ‘24. So, we anticipate that this will be – that, that target will be 20% plus. And I guess as we are ready to unveil some further details, we can potentially get more specific on what those aspirations are. But just know that for us, it has to be and will be incremental. And that will mean that the product will be important from a differentiation standpoint. But the way we attack the market from a dealer standpoint will also be important. We will be crafting a new Grand Design Motorhome dealer network that will consist of some of our existing Grand Design Towables dealers, but it will potentially consist of some dealers who do not carry the Grand Design Towables line today.

And some of these dealers may or may not carry some of our existing motorized brands, Winnebago or Newmar. So, more details to come.

Fred Wightman: That’s helpful. And then, Mike, in the past you have given some high-level commentary on industry retail and sort of the wholesale outlook. So, I didn’t hear that in your prepared remarks today. Is there anything that you could sort of share there or maybe why you decided to stop commenting on that, if that’s the case?

Michael Happe: Fred, thanks for the question. We really didn’t plan to not comment. We just did not include that topic specifically in our script. Our position really hasn’t probably materially changed since our last earnings call, and I will explain what I mean by that. As we look at calendar 2024, there are many retail estimates out in the marketplace. Our latest on record comment was around 350,000 units of retail in calendar 2024, which would be roughly flat to where we think calendar 2023 will end. And so we continue to believe that, that is an appropriate target for calendar 2024. We do believe in calendar 2024, that by the end of that period, that wholesale shipments could approach a one-to-one total with that retail number.

And so wholesale shipments could also equal 350,000 in calendar 2024, sands any unexpected macroeconomic developments or other issues. And so that’s our current position, which I don’t believe is meaningfully changed from the prior quarter. That’s where we stand.

Fred Wightman: Perfect. Thank you.

Operator: Thank you. Our next question comes from Bret Jordan with Jefferies. Your line is open.

Bret Jordan: Hi. Good morning guys. In total ASP expectations for mid-single digit to high-single digit decrease, could you talk about what you see being mix, the opening price point offerings that you are rolling out versus deflation just passing through lower same SKU prices?

Bryan Hughes: Yes. We introduced the – as you know, Bret, I think from our Open House, we introduced the Winnebago Access, which might have some mix impacts to a much smaller part of our portfolio in the Winnebago brand versus the larger portfolio of Grand Design. The intended message there of to 8%, say, down is more on a mix neutral basis. But I don’t – sitting here today, I don’t expect mix to play a really significant role in that ASP calculation. That might change as time progresses through calendar ‘24, but that’s how we see it sitting here today.

Bret Jordan: Okay. Great. And then a question on the sort of the dealer sentiment at the Open House and the timing of the backlog expectation, I mean you guys were sort of talking about the first half of the fiscal year being a challenge. But are you expecting that they sit on those orders and hope for delivery after the Tampa show? I mean how do we think about the rest of calendar ‘23 from a sort of dealer sentiment production schedule?

Michael Happe: Bret, this is Mike. Good morning, let me comment on that. First, let me talk about what we experienced at Open House with our business. So, at Open House, we had each of our three brands displaying. The Winnebago brand essentially has two sub businesses under it, motorhome and towables. Each of our four businesses at Open House, Newmar, Grand Design, Winnebago Motorized, Winnebago Towables experienced an order increase at Open House 2023 versus the open house in 2022 during that Open House week. So, we were really pleased coming out of Open House 2023 in spite of a very tepid dealer ordering environment to see that increase. And some of that is due to the new products that we have referenced here today. And even some we haven’t mentioned like the echo on a Mercedes Benz chassis underneath the Winnebago Motorhome business.

That also drew a nice amount of orders in Elkhart. We have seen backlog sequentially improve in our largest segment, towables from June through September, which is a nice development. And I think I may have mentioned that in the script comments, but we are seeing that backlog beginning to grow again on the towables side. From a timing standpoint, we think that this will be contingent a bit on the retail pace, obviously, that dealers are experiencing. As I mentioned, minutes ago, we like our inventory position in the field at this time, meaning that we do not believe it’s excessive or old at all. And so our sales personnel are working with the dealers to have them take product as they are comfortable. We will not share production schedule information this morning in terms of this fall.

But we are continuing to turn the dial on production rates based on that short-term backlog that we have. We did mention that the first two quarters of our fiscal 2024 year could be challenging primarily because, again, we think dealers are just going to be very disciplined about when they take the product as it is tied to retail results happening at their locations and/or any optimism they see about the market in the future. So again, we are pleased with our order position and some of the recent trends we have seen coming out of Open House.

Bret Jordan: Great. Thank you.

Operator: Thank you. Our next question comes from Brandon Rolle with D.A. Davidson. Your line is open. Brandon Rolle, your line is open.

Bryan Hughes: Michelle, go ahead and move on to the next.

Operator: Our next question comes from Noah Zatzkin with KeyBanc. Your line is open.

Noah Zatzkin: Hi. Thanks for taking my questions. Hoping you could compare and contrast a bit what you are seeing on the marine side in terms of retail demand, dealer inventory and dealer appetite relative to the RV side and just how you are thinking about the evolution of channel dynamics there moving through fiscal ‘24? Thanks.

Michael Happe: Yes. Good morning Noah, this is Mike. What’s interesting with our marine business and just a reminder that, obviously, we have a fast-growing pontoon brand in Barletta in a major segment of the market. And then we have a luxury brand in Chris-Craft in the very high end of the market. I will speak to the Pontoon segment specifically. We are seeing certainly dealers continuing to destock inventory in the Pontoon segment and work on aging aspects of that inventory mix. But what’s been positive about the pontoon category has been that the retail activity around that segment has been relatively stable especially as compared to some of the retail trends we saw in the RV segment over the last year. In fact, our Barletta retail fiscal year ‘24 to-date, the first six weeks or seven weeks is up meaningfully.

We are up meaningfully at retail on Barletta through the first six weeks or so of our fiscal ‘24 year. But we are seeing the dealers continue to use that to normalize their inventories, but also they are disciplined taking in a product is also contributing to their destocking. So again, similar to my comments about our first and second quarters being challenged on the RV side, we think you will see that on the marine side as well as dealers continue to try to get their inventory in better position before some of the winter and spring marine shows once calendar year 2024 begins. But what I am most pleased about on the pontoon side is that we continue to see good retail for our brand, and we continue to take some share. We are around 7%, 7.1% of aluminum pontoons now with the Barletta brand and continue to be very pleased with that business’ future runway.

Noah Zatzkin: Thank you. Maybe just one quick housekeeping question. Did you mention which class the Grand Design Motorized launch will be focused on?

Michael Happe: We did not mention because we are not sharing specific details at this time. What we wanted to share with you all this morning was that the business strategy is happening and is being developed and worked on. The Grand Design team will choose the time in the future that they are comfortable sharing specific specs publicly about their new lineup that they are working on. And you can probably anticipate hearing or seeing something to that and probably in the early part of calendar year 2024. But again, more details to come in the future to that end.

Noah Zatzkin: Thank you.

Operator: Thank you. Our next [Technical Difficulty]

Bryan Hughes: Michelle, are you there?

Michael Happe: Operator.

Bryan Hughes: Those on the call just give us one minute, while we explore our connection there.

Operator: Our next question comes from Brandon Rolle with D.A. Davidson. Your line is open.

Bryan Hughes: Please check back with Craig Kennison as well, operator. Operator, please check back with Craig Kennison as well.

Operator: Brandon Rolle, your line is open.

Bryan Hughes: Michelle, there seems to be some issues there with Brandon’s line. Can you check with Craig really quick? And if there is no further questions, then we will conclude the call.

Operator: Craig Kennison, your line is open. Craig has left the queue. I am not showing any further questions.

Bryan Hughes: Yes. No further questions, then we can conclude the call.

Operator: Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.

Bryan Hughes: Thank you for joining us everyone, please enjoy the rest of your day.