MRAA/Baird Marine Retailer Pulse Report April 2014

Transcription

1 May 5, 2014 MRAA/Baird April 2014 Craig Kennison, CFA Matt Gruhn President, MRAA PLEASE REFER TO APPENDIX IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION AT END OF DOCUMENT

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3 Overview Robert W. Baird, in partnership with Marine Retailers Association of the Americas (MRAA), is pleased to present the April We recently surveyed 183 marine retailers to assess recent trends in North America. Thank you to each of the retailers who participated in this survey. If you have any questions or comments that you would like to direct to MRAA, please contact Matt Gruhn, President of MRAA at If you have any questions or comments, would like additional research on the marine industry, or are a retailer and would like to participate in our next survey, please Senior Analyst Craig Kennison [ckennison@rwbaird.com]. Note: This is not a scientific survey, rather it is meant to give investors an indication of current industry trends. Some quotes have been edited to protect the anonymity of respondents. 3

4 Table of Contents Retailer Profile 5 Retailer Sentiment 6 Retail Trends 7 9 Comments Inventory 16 Financing 17 Impact of Changes in Tax Policy 18 Comments Additional Comments Key Statistics Macro Overview U.S. Powerboat Retail U.S. Retail By Category Brokerage Trends 31 Disclosures

5 Retailer Profile 183 retailers from the United States and Canada participated in the MRAA/Baird. 5

6 Retailer Sentiment We have established the first Marine Retailer Sentiment Index, capturing both current and longer-term (3-5 year) retailer sentiment. Marine retailer sentiment remains positive though the extended winter and condensed selling season may be putting a strain on some dealers as inventory is slower to turn. Based on current conditions, retailer sentiment stands at 56. Retailers remain more optimistic about the 3-5 year outlook as the cycle unfolds, with sentiment levels at 68. For context, sentiment readings can range from 0-100, with 50 providing a neutral outlook. Net, the MRAA/Baird Marine Retailer Sentiment Index indicates a high level of dealer confidence. 6

7 Retail Results April Retail Growth Estimates Retailers reported improving new boat retail demand particularly in comparison to weak Q1 retail results. 41% of retailers reported that retail was up, while 34% reported that it was flat. Used boat retail improved as well with nearly half (48%) of retailers indicating that retail was up and 33% reporting flat retail trends. Seasonal significance of retail increases meaningfully in April representing 12% of annual sales. 7

8 Retail Results April Retail Growth Estimates New boat retail demand improved across many boat categories. Generally smaller boat categories performed better during the month. Still, demand remained sluggish in the inboard-cruiser and sterndrive categories areas in which Brunswick has disproportionate exposure. Seasonally, April contributes meaningfully to annual retail representing approximately 12% of annual sales. 8

9 Retail Demand Factors April Retail Growth Estimates The extended winter season continues to be at the forefront of retailers minds, as retailers cited weather as the single-largest demand impediment for the fourth consecutive month. Still, retailers highlighted promotions at both the OEM and retailer levels as factors that have successfully stimulated demand. Net, slightly more aggressive promotions appear to be driving improved retail results, possibly at the expense of margin. 9

10 What s Working Comments People seem to be willing to spend "some" money this spring - unlike the last 3 years. Bayliner s new series of deck boats are hot sellers. Sportsman Saltwater fishing boats are hot. Yamaha Jet Boats are really hot once again. Yamaha Jetboats and Waverunners are doing well. Nautique for wake surfing. Surfing is the latest craze is helping sell boats. Boston Whaler - saltwater fishing and cruising. Bennington pontoons. Ranger aluminum jon bass boats and Alumacraft riveted jons. New Cobia line is ok. Being a Cobalt Boats dealer. Pontoons, Cobalt s new boat sales up. Lund. MasterCraft s new Gen II Surf System has created a lot of buzz. Correspondingly, costs associated with this, along with the price of new models, has resulted in a lot of pushback from customers. The new MasterCraft NXT is also generating a lot of traffic and seems to be priced attractively. Monterey is just ok. Reasonably priced new inboards. In our market we will continue to see AXIS boats take market share from the higher (over) priced inboard market. Over 100K for a boat, people are starting to balk at the prices for the perceived value. An AXIS will do ultimately the same thing for approximately 20 to 40K less. Deckboats seem to becoming more popular. I m a Jboat dealer and Jboat introduction of new models like the J/70 and J/88 have certainly helped sales. Jet boats and pontoon boats have great demand. 10

11 What s Working Comments Aluminum fish boats. Brokerage boats seem to be moving. Priced right, quality units have been in demand. Used boats are hot now and the market has been washed of them so there are not many out there and they are hard to get but they are bringing top dollar when you can get your hands on them. Clean late model used boats, 17-28'. Consumers continue to favor new and used outboard powered boats. Give me a canoe with an outboard on it and I can sell it. Aluminum fish, used fish, center consoles. Center & dual consoles with 4-stroke outboards. New changes, graphics, upholstery and higher hp ratings on the pontoon boats. Small, local boat shows. Boat show. Cold, wet winter has encouraged pent-up demand in boating activities. The economy is gradually improving but very, very slowly. The manufacturers boat show promos worked well for us also. Yamaha jet boats and Waverunner promotions have been effective. Robalo 'reel deal' promotion. Manufacturer promotions. Price. I had 3 trailers, a year old, advertised at $699 all year, similar to my competition. Drop [the price] to $599, gone in a weekend. Our in-house April "Great Garmin Giveaway Promo" helped take sales from our competitors. You don't have to sell the Garmin brand. Consumers instantly do the Garmin Price + Quality math in their heads. OEM and credit promotions. Access to retail credit. Actively marketing new areas. 11

12 What s Working Comments Advertising to our customers. Having events every week. Grassroots marketing. Follow up calls appear to be working the best. Weather is a very large factor. Electronic media (website, social media, on-line advertising) seems to be generating qualified phone and in-person sales opportunities, although precise measurement of ROI is tricky. We are doing weekly s helping a bunch. Internet marketing. Internet sales. Social media. Demo Days. 60 % of the country. Staffing improving. Value added customer care. Customer service. Honesty. Nothing... Too cold! High water! 12

13 X What s Not Working Comments The outboard industry both Mercury and Yamaha extended warranty does nothing to increase sales. I/O runabout boats we have been researching adding a line but this segment seems pretty dead across the board so we can't justify adding a line at this time. Bayliner runabouts and deck boats. All Bayliner products. Wrong product, wrong price, lack of affordable cruisers 23-28'. 25' to 30' midsize fiberglass stern drive. Sterndrive boat sales continue [to be] soft. Year over year national sterndrive sales -20% off of already low previous year's sales figures. Note MarineMax s (HZO) big miss reported earnings Jan/Feb/Mar 2014 quarter. Same Store Sales -16%; Revenue -$24 million; a loss of $2 million versus +$344,000 last year. Yes, weather a big factor but a weak, getting weaker sterndrive market can't be ignored. Note Marine Products (MPX), owners of Chaparral Boats (sterndrive powered) and Robalo (outboard powered), just reported unit sales -5.4% for Jan/Feb/Mar '14 quarter. More than likely strong outboard powered sales growth (Robalo) was more than offset by weaker sterndrive sales (Chaparral). Richard A. Hubbell, Marine Products' Chief Executive Officer stated, "Our financial results for the first quarter reflect continued growth in the sales of our Robalo (outboard powered) sport fishing boats. Major sterndrive brands: Sea Ray(BC); Monterey; Chaparral(MPX); Rinker; Regal; Four Winns; Crownline; Cruisers Inc. Trying to sell cruisers. 26' to 39' Sport Cruisers. Yamaha outboards are hot on promos but manufactures of boats mostly weak...no reason customer to pull trigger. Aluminum fish is down. Entry level customers are not coming in therefore those sales are down. Having new product that sells under 40K. It seems that there is no market for this price range of boat [our] market. Used fiberglass bass boats. Smaller hp motors on smaller fishing boats. New boat sales are slow doesn't matter what the price or promotion. Our pontoon brand comes standard with a Murphy electronic dash with a lot of capability that appears at first look to be a good idea. We learned, after selling a very nicely equipped boat to a long time customer, the chip to allow this technological marvel to display speed, is $341 at dealer cost! This is just one current example of where manufacturers seem to oblivious to cost challenges and are just ensuring their profits on proprietary items. 13

14 X What s Not Working Comments Great products with no advertising, branding. Need some level of spring OEM retail promotions. Should have something going on every month. Obviously more in winter tapering to less in summer, but something. Not enough marketing on the part of manufacturers. Manufacturers advertising pricing totally cuts out profit for the dealers. Manufacturers' inventories are far too low to support the present sales spurt and it is costing us sales. We cannot get resupplied in time for the spring season demand and I fear we will end up losing sales that "will not wait". There are other places to spend your money than on the boat! Manufactures not having inventory for several months at a time. Retail credit is either easy or tough. Large, expensive off season boat shows. Boat shows are not too many of them. Boat shows in the cold and rain. Lack of sun and warmth a direct bearing on boat shopping and purchases. We don't seem to be getting many inquiries from the manufacturer or Discover Boating. Service is way off due to weather. New boats in the Midwest seem quiet surely weather is a factor. Weather. Weather is killing us, cannot create any urgency. The poor weather in the Northeast is holding back the season. Weather has been a very large negative this year. No rain. Economy. I don't care what they say, the working man is not gaining any ground and is not spending anything he doesn't have to. 40% of the country. 14

15 X What s Not Working Comments Print, radio & TV advertising. Does not matter what we do nothing improves. Indifference. Dishonest competition. 15

16 Inventory New boat inventory appears elevated for this time of year likely due to the prolonged winter that slowed inventory turns at the retailer level. 45% of retailers indicated that inventory levels are too high for this time of year though retailer commentary suggests that new boat inventory lead times are elevated, which has prompted some retailers to stock at higher levels. Used boat inventory appears lean for this time of year, as the majority of dealers (66%) report that used inventory is too low versus too high (9%). At the margin, retailers continue to prefer used boat inventory over new boat inventory. 16

17 Financing Access to both retail and wholesale credit remains healthy. While 33% of retailers reported that retail credit availability was about the same compared to three months ago, 56% indicated that they believe it is favorable. Wholesale credit trends continue to appear favorable as well, as 55% of retailers reported favorable credit conditions, suggesting that over half of retailers feel that credit is easing versus tightening. 17

18 Impact of Changes in Tax Policy We asked retailers to quantify the expected impact changes in tax policy will have on new boat demand. While 43% of retailers believe that tax policy will have some impact on new boat demand, roughly one-third of retailers (35%) believe that tax policy will have littleto-no impact. Commentary suggests that while many retailers are concerned about the negative impact of incremental taxes on consumer discretionary dollars, some states have enacted favorable tax policies that retailers believe could drive demand, at the margin. 18

19 Impact of Changes in Tax Policy Comments The current administration is taxing successful professionals. This slowly killing their real purchasing power. We have just finished our 2013 taxes. Both myself and my accountant agreed we spent considerably more time and money just to comply with the tax code! Then my tax rate went up for our federal, state, and local returns! It is getting harder to work those 60 hour weeks when my government takes half of my income! Just another expense added to the cost of boating in which is leaving a generation out of the market. Any increase associated with recreational boating is detrimental, and to some customers/potential customers, could be the straw that broke the camel s back. Increase in taxes obviously leads to a decrease in available funds for that new boat purchase. Could impact cost of ownership negatively. The increased taxes people have had to pay have negatively impacted their ability to buy consumer goods, especially discretionary purchases. Decreased after-tax disposable income can only hurt demand for boats. Also, general uncertainty of any rule or law changes will usually have a halting effect on economic euphoria. I m like my customers in this respect GIANT sticker shock when I learned what the governments wanted from me April 15. Taxes are too high now. If taxes go down we will sell more. If they go up we will sell much less! Increased taxes and healthcare expenses will affect business in a negative way. Lower taxes equals more sales. Hard to pinpoint a direct impact, but whenever people are uneasy about how much money they have and how much they have to pay in taxes, or whatever, they tend to tighten up. Tighten up means no boat buying. Obamacare increase in health care costs will adversely affect disposable income for those who are self-employed and small business owners. Less money to purchase toys. Higher taxes leave less discretionary income. Reduces discretionary spending. We have had very few customers come in to spend their tax returns towards a purchase or pay for service work like in the past. Sales tax increases will slow demand. 19

20 Impact of Changes in Tax Policy Comments Texas does not have a sales tax cap. We lose deals to Florida dealers on big boats. Don't think this really makes a difference. At this point, only minor impact. Our state (Kansas) changed its personal property tax rate of boats from a 30% tax rate to 11.5% for 2014 and it will change again in 2015 to 5% and maintain that rate in the future. This has produced a lot of attention to new boat sales. Ct. Marine Trade Assoc. has been committed to fighting state taxes on boat sales, marine labor and storage fees. These actions have been extremely beneficial in helping the industry recover. Michigan now has Tax on the difference. Michigan now has tax on the difference which we did not have in the past. This is certainly a help to take in trades. New sales tax on the difference policy in Michigan has been positive in many cases. We had the Luxury Tax removed in July of '13 and it has helped quite a bit. We sell small sailboats that are below $10,000. Pleasant surprise to new shoppers. Dump all Demo s and Lib s and Rhino s. Let business folks run this country. Comfort level of buyer from uncertainty. Probably mostly psychological. Uncertainty about policy and progress. What changes? Don't know. 20

21 Additional Comments Comments All mfg s seem to have long lead times. That's good for them; tough call for dealers as we move into 2015 models. In stock inventory is key to a successful season this year. Here in the Northeast the winter has been particularly harsh. With that being said customers have postponed purchasing new boats until warmer weather hits. Dealers in turn who have not felt the build-up of potential sales coming this season have failed to stock product. When the customer is ready to purchase, lead times on order product will be longer than the customer will be willing to wait. Thus those dealers who either stocked heavily over winter or least had the insight to stage orders/deliveries throughout the spring and summer months will be in the lead. Manufacturers are slipping back to pushing field inventory and minimum orders. Over extended dealers are what put the industry into such a deep hole 5 years ago. Are their memories that short or are we back to the days of "pump em out at any cost"? The number of boat companies needs to [be] reduce[d]. There are too many to support demand. If you look at unit boat sales it makes no financial sense for many to exist. They are hurting the industry as a whole. The dealers need to look why we are taking on boat lines that have unit sales that have no gain for us. I think manufacturers are going to have to look hard at how they are going to help their dealers. There are some manufacturers who are stepping up to shows and programs and those brands seem to be doing OK. I think the small dealer is in trouble, no support, I get the impression the manufacturers don't think we are worth the effort. Boating is too expensive got to re-think manufacturing processes to open the market. 38 foot power boat $420, Boat prices at over 10, per foot are too high. Need to draw people back to boats. Seems like the larger boat people are still staying away. Ad campaign on HGTV on second home shows showcase buying a boat as second home...it s portable and gives you a home anywhere you want. Use 45' yacht with lifestyle. Sales at the winter boats shows were equal and at some shows better than last year (attended NY, Hartford, and Boston). Sales for 19 to 21 feet have been good this spring but the 24's have been very slow. We will see what happens when the weather breaks. Not sure if the customer is just waiting for warmer weather or will not show up this year for the larger boats. The long Northeast winter has customers really looking forward to boating season. Locally drought is suppressing boating activity [in] all fresh water segments. It better be a [heck] of a summer. At first I did not think gas prices would be a factor this year, but with the prices going through the roof I feel it will have an impact this spring. 21

22 Additional Comments Comments My dealership had the best March sales in our 57 year history. April will be one of the top three April's as well. Some rogue dealers selling significantly below customary margins. When Home Depot/Lowes employees make $8.60/hour = no new boat buyers. We need a change in Washington D.C. badly. [Have to] get this country moving again with a majority of people participating in the process. [Need to] get the middle class and small business some relief from regressive government taxation and regulation. If we can t get a change in the White House and the Congress fairly soon, this country is headed for another tough recession. The lack of leadership, most importantly in the economic sphere, is appalling. Wish there was an easy "recall" policy. The lack of positive leadership at all levels of government is disgraceful and borders on treason. It is not helping people feel good and want to spend money. Dump the bums in DC, abolish IRS and get EPA to leave the country. 22

23 Consumer Recovery 23

24 Wealth Effect 24

25 Percent of Peak 25

26 U.S. Powerboat Retail 26

27 U.S. Powerboat Retail 27

28 U.S. Retail By Category 28

29 U.S. Retail By Category 29

30 U.S. Retail By Category 30

31 Brokerage Trends 31

32 Appendix Important Disclosures and Analyst Certification 1 Robert W. Baird & Co. Incorporated makes a market in the securities of BC. 2 Robert W. Baird & Co. Incorporated and/or its affiliates managed or co-managed a public offering of securities of BRP, Inc. in the past 12 months. 3 Robert W. Baird & Co. Incorporated and/or its affiliates have received investment banking compensation from BRP, Inc. in the past 12 months. 10 Robert W. Baird & Co. Incorporated and/or its affiliates have been compensated by Brunswick Corporation for noninvestment banking-securities related services in the past 12 months. 32

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