Malibu Earnings: Skies Clouded by Consumer Weakness, but We Think It Can Weather the Storm

Echoing commentary of other recreational product companies recently, narrow-moat Malibu has experienced a rapid drop-off of retail demand, as more consumers are hindered by higher interest rates and economic uncertainty. As a result, the firm saw unit shipments decline 24% in its first quarter, below the 22% decline we'd forecast, although average selling prices, or ASP, still rose 11.5%, helped by higher-ticket saltwater comprising a larger part of the mix. Higher floorplan financing and input costs sent the gross margin down 250 basis points, to 22.2%, and operating expense ratios rose due to higher compensation costs, leading to 370 basis points of adjusted EBITDA compression (15.2%). In response to eroding conditions, Malibu lowered its 2024 sales outlook to include a high teen to low 20% decline (from mid to high teen decline prior) and nudged EBITDA contraction lower, to 350-450 basis points (from 300-400 basis points), a bit below our outlook before the earnings call, which included a fiscal 2024 sales drop of 15% and EBITDA contraction of 320 basis points. As such, we plan to lower our $87 fair value estimate by a mid-single-digit rate, but view shares as undervalued.