Baird: ‘We Expect A Robust Wholesale Recovery’
Editor’s Note: Robert W. Baird & Co. tracks the RV industry for investors and issued this client update following its survey of 100 RV dealers.
Robust orders will shift focus to spring retail season. We contacted nearly 100 RV dealers to assess recent trends. Orders are up significantly now that inventory has bottomed, consistent with recent backlog trends. At some point, retail results must improve to sustain the recovery – but the fact that inventory has bottomed is enough for now. We still prefer Thor to Winnebago on valuation, but the gap is closing.
Traffic/Retail. Motorhome demand fell slightly (down 1-10%), but towable sales improved (up 1-10%. Fortunately, the wholesale recovery does not depend on better retail results, but demand eventually will matter. In 2010, dealers expect retail demand to improve 5-10%. Traffic fell, but seasonal factors limit our concern.
Inventory/Orders. Inventory bottomed in 2009, setting the stage for robust orders in 2010. Dealers report 102 days of motorhome inventory, down from 193 days last year (109 sequentially) and 108 days of towables, down from 150 last year, but up from 90 days sequentially. Dealers plan to order 113% more motorhomes and 51% more towables in the next six months – generally consistent with the increase in RV backlog for Winnebago (+350%) and Thor (+153%). For perspective, we expect Winnebago to ship 5,300 motorhomes in F2010 (+142%), still short of breakeven guidance of 6,800-7,600 motorhomes. Some dealers are concerned that OEMs took larger orders than they can fill after slashing employment levels in the downturn.
Credit markets. Credit conditions have not worsened – but remain problematic for many dealers. Thor’s loan to FreedomRoads has raised eyebrows, but the bigger concern is the lack of competition among wholesale lenders – leaving power in the hands of key lenders (e.g., GE). Consumer credit does not appear to have worsened.
RVIA show. Dealers reported a more optimistic tone to the December RVIA trade show, consistent with our observations. Some noted less innovation and more homogeneity reflecting less investment in product development.
Outlook. We expect a robust wholesale recovery as dealers replenish inventory, which bottomed last year. Soon, the focus will shift to retail, which must improve substantially to sustain the recovery. With an uncertain economy, we prefer less speculative consumer discretionary ideas.