MRAA/Baird Marine Retailer Pulse Report October 2015

Transcription

1 November 10, 2015 MRAA/Baird October 2015 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 October We recently surveyed 87 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 13 Financing 14 Interest Rates Additional Comments 18 Key Statistics Macro Overview U.S. Powerboat Retail U.S. Retail By Category Brokerage Trends 28 Stock Seasonality 29 Disclosures

5 Retailer Profile 87 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 declined slightly yearover-year, based on both current conditions (57 vs. 61) and the 3-5 year outlook (63 vs. 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 continued dealer confidence. 6

7 Retail Results October Retail Growth Estimates Our retailer checks indicate that U.S. powerboat retail increased mid-single-digits in October. 37% of retailers indicated that new boat demand increased during the month, compared to 30% of retailers that reported a decrease in retail. Used boat retail was essentially flat, as 34% of retailers tell us used retail increased in October, compared to 31% that reported a YOY decline in used retail. Seasonally, October is not a significant contributor to annual retail (~4%). 7

8 Retail Results October Retail Growth Estimates New boat retail was flattish across most categories in October. However, retailers indicated that the ski/wake market was an area of relative strength during the month, offset by weaker inboard cruiser and sterndrive demand. Seasonally, October contributes just ~4% to annual retail. Retail significance continues to diminish for the remainder of the year. 8

9 Retail Demand Factors October Retail Growth Estimates According to retailers, new products and retailer promotions were the primary drivers of demand in October. While the economy, competition, trade-in activity, regulations, and government action/inaction were all negative demand factors during October, most factors improved relative to the prior year. 9

10 What s Working Comments New surf sterndrives. For us, Sea Ray's new 19 and 21 SPX models were a home run. Mercury's fall repower promotion helped in October. Personnel watercraft is not in the focus of upcoming generations. Surfing and pontoon boats. New models. New products and high-end product. Economy getting little stronger. OEM incentives are a must. Lower gas prices coupled with nice weather. In-house promotions. Great weather in [our area], but no buyers when school starts. October stunk... nothing working. Even lower-than-normal margins. New package bass boats with hot colors. Fall boat shows were better than in the recent past. People seemed to have some money to spend. New technology is selling; fresh designs and styles are driving traffic. TV advertising. Yamaha's six-year warranty. Participation in local events. New models are generating interest and selling well. Small engines and service, repower go for time of the year. Yamaha's 2.99% finance. Crestliner s Silver Tag Sale. 10

11 What s Working Comments Good, clean, aggressively priced, ready to go used. BRP marketing. New and remanufactured engine sales. As for boat sales, not much right now. As for service, winterizing and putting boats into storage has been much easier this year with the weather we are experiencing. All that is working here [are] discounts... Consumers very skittish due to oil industry collapsing. Service, trade-in considerations, club. 11

12 X What s Not Working Comments Same old models with a higher price for this model year. New model availability. 12-month+ order lead times. Advertising. Seasonal purchases such as the impulse buyer that typically purchases in the spring. Some suppliers cannot keep up with demand. Old school is over, people do not want cheap boats they re not selling. Manufacturer s backlog. Older used boats models that haven't been refreshed by manufacturers in a while. Weather. Pontoons sold our last one and we are out of that market segment for good. Lame promotions offered from manufacturers. Internet ads have not seemed to work this fall. Bayliner s promo. Sterndrive boats sitting. Sterndrive, entry-level boats. Gimmicks. Brunswick marketing. 12

13 Inventory New boat inventory appears somewhat elevated, as 46% of retailers consider inventory too high compared to just 7% of retailers who believe inventory is too low. Still, inventory appears roughly in line with October 2014 levels. Used boat inventory remains lean as 36% of retailers report that used inventory is too low versus just 19% that report inventory is too high. We believe limited supply of quality late-model used boats will eventually force consumers to consider new boat purchases. 13

14 Financing Retail and wholesale credit conditions remain favorable, as we continue to believe that credit remains broadly accessible. Indeed, 53% of retailers indicated that they believe retail credit conditions are favorable. Wholesale credit trends continue to be within a normal range as well, as 61% of retailers reported favorable credit conditions. 14

15 Interest Rates We asked retailers whether the Fed should raise interest rates in the next six months. Just 29% of retailers believe that the Fed should raise rates within the next six months, compared to 71% who believe a rate hike should be postponed until at least six months from now. We ve included detailed retailer commentary related to a potential interest rate increase on the following two pages. 15

16 Interest Rates Comments They should do what is good for the economy without regard to the stock market. And keep their mouths shut about [what] each individual is going to do before they are going to do it. They have not for a long time why bother. We finally have some momentum in the economy. Raising rates will diminish this trend. Depends on conditions. Need to help savers. No need to. Not enough consecutive factors. If the Fed raises rates, the fragile economy will tank. People are buying houses again because rates are low. If housing stops so will the rest of the economy. Need some bullets in the gun for when (not if) the economy begins to head south again. The marine industry already pays too high of interest on wholesale flooring. Perhaps it's the lack of competition in the field or perhaps it's just simply greedy wholesale finance companies. Compared to the auto industry we pay two to three times the rate that your local car dealer pays. I can understand that our slow turns and seasonal trends make it more difficult for those companies providing inventory financing, but it shouldn't cause that large of a difference in rates. If the Fed increases rates, undoubtedly it will give the companies providing wholesale financing to us marine dealers just one more reason to raise rates even further. I find it ironic that one of the largest sponsors of MDCE is GE Capital. MDCE is where boat dealers go to learn how to make their businesses more profitable and healthier. We, the boat dealers, would be more profitable and healthier if it wasn't for GE charging interests comparable to a credit card. Economy is not ready for this shock. Get it over with and move on. Uncertainty is causing problems with Wall Street. Our total economy is based on a house of cards at this point. With low interest rates, we have kicked the can further than it was ever meant to be kicked. I would rather swallow the bitter pill now and deal with a hopefully mild correction rather than persist to where they may even take rates negative. If you read most any financial commentary, largely the financial policies enacted during the recession have largely failed. If we continue to wait for employment or housing or target inflation rates to come up to where the analysts want them to be, we may put ourselves into financial peril that no one could imagine. Raise rates now so we can get back to a normal healthy economy which isn't what we have now. 16

17 Interest Rates Comments Not until after the political storm of I don't see how we cannot raise them sooner or later. I don't think the economy is good enough for a rate increase. Realistically, they have to be raised at some point. Our industry, as well as others, are going to have to make other changes in order to grow. Very low interest rates are not making it happen. It would show an indication of an improving economy and reduce the anticipation of speculation. Why mess with what s working? The Fed should leave good enough alone right now. Higher interest rates are not going to help our industry, especially. Boat sales still weaker than could be. Low interest will help next year. Undecided. Same song, next Obama verse with his Demos, Libs and Rhinos. [Talk] from DC only hurts peoples attitudes and confidence in future. Yes, the sooner the better. 17

18 Additional Comments Comments Aging marina infrastructure is being flipped for waterfront residential redevelopment. Hard to find available space in modern, clean facilities for high-end boaters. Need for marine techs is acute. Dealers should be cautious about "new boat" inventory levels. Unless their turns are strong, I would watch closely aged inventory across the industry. Manufacturers have ramped up hard they will be pushing product. Winterizations are going strong. We will see how long it lasts. US/Canadian exchange [rate] will impact Canadian sales tremendously. The industry has changed and we are out. Fresh innovation is what s hot in every segment. We need to help the bottom 50% brands in our industry exit the business. Price increases from the manufacturer keep reducing the number of buyers available as consumers with lower incomes cannot afford to purchase. Until the government can get middle class America back making money, we are doomed to just plugging along. The passing of a longer-term federal budget can give a local economy that is dependent on military spending a confidence in expectations/planning. Sterndrives, new boat pricing. 18

19 Consumer Recovery 19

20 Wealth Effect 20

21 Percent of Peak 21

22 U.S. Powerboat Retail Dollar Sales 22

23 U.S. Powerboat Retail 23

24 U.S. Powerboat Retail 24

25 U.S. Retail by Category 25

26 U.S. Retail by Category 26

27 U.S. Retail by Category 27

28 Brokerage Trends 28

29 Stock Seasonality Brunswick Monthly Excess Return versus S&P 500 assumes reinvested dividends Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec % 4% % 4% -2% 0% -5% -7% -12% -5% 6% -2% 3% -3% % -2% -3% -1% 2% -3% -11% -11% -13% -4% -1% -16% % 17% -1% 0% -19% -14% 23% 6% 2% -56% -13% 55% % 22% 3% 64% -28% -7% 59% 26% 25% -19% 1% 25% % 5% 33% 29% -8% -23% 29% -20% 11% 0% 1% 11% % 12% 11% -11% -6% -4% 9% -22% -4% 15% 6% -4% % 14% 5% 3% -10% -2% -2% 6% -7% 6% 9% 12% % 0% -10% -9% 4% -3% 13% -1% 7% 9% -1% -2% % 4% 0% -12% 5% -4% -3% 3% 0% 9% 4% 4% % -5% -3% -4% 1% 2% 2% 0% -1% 4% 10-Year Average % of Years Outperformed 1% 7% 3% 6% -6% -7% 11% -2% 3% -4% 1% 9% 60% 70% 50% 30% 40% 10% 60% 50% 50% 60% 70% 60% Source: FactSet, Baird research 29

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