BRP Earnings: Cautious Consumers and Dealers Drive Dismal Near-Term Demand, but Brand Remains Intact

We don’t believe wide-moat BRP’s sales are suffering from missteps at the enterprise, but rather from widespread malaise across the powersports landscape. To start, the firm continues to take share in key categories, with first quarter retail sales rising at a low-teen clip in side by sides and at a high-single-digit rate in ATVs, handily outpacing industry results. But BRP is also facing an abysmal marine demand environment, evidenced by a seasonal business that is set to take a massive reduction, with sales expected to decline 40%-50% (significantly lower than the down 5% to up 5% prognosticated in March). We surmise the velocity of waning demand is a function of higher financing rates for dealers, lower accessible savings from consumers, and consumer exhaustion from higher prices in recent years. In our opinion, the steps BRP is taking now to prune shipments will position the firm to exit the lull in demand with clean inventory, preventing discounting over the long term. Most other large manufacturers are following suit with this prudent behavior.