Baird: ‘The (RV) Inventory Bubble is Behind Us’
Editor’s Note: Robert W. Baird & Co. has released its quarterly survey of RV dealers. Excerpts from that report follow.
Better than feared. We contacted 104 RV dealers to assess recent trends. After a tenuous summer, the season ended well. Dealers reported better demand, implying potential upside to our models. We see a short-term opportunity ahead of the election and potential changes to tax policy – especially given our checks. Longer term, we remain concerned as consumers reduce debt, unemployment festers and budget deficits drive higher interest rates, slower growth and higher taxes on discretionary wealth.
Retail. Dealers report better retail results than we assume in our models. Motorhome sales perked up 8-10% while towable sales jumped 16-18%, according to dealers. For perspective, the trend suggests Winnebago Industries Inc. dealers may have sold 50-100 RVs more than we had modeled on a base of over 4,200 annually – helpful, but not enough to declare victory. Dealers expect Thor Industries Inc. and Winnebago to take share, implying above-trend results.
Traffic. Consumer traffic on dealer lots improved in July and August after a sluggish June, then slowed again in September (seasonally less relevant). For our money, it is hard to see a trend in the YTD traffic pattern – but with RV buying interest tied to the wealth effect (home prices and stock values) and consumer sentiment (unemployment and political uncertainty) – the choppy results make sense. Like everything else – it’s the macro, stupid.
Inventory/Orders. As the inventory replenishment rate returns to parity, dealers plan to order 19% more motorhomes and 23% more towables in the next six months – better growth than we include in our models. Dealers are comfortable with inventory levels today. Big picture, it appears the inventory bubble and the corrective bullwhip effect are behind us.
Credit markets. Access to wholesale and retail credit improved. Last quarter, dealers complained that wholesale credit was too tight.
Thor acquisition of Heartland. As expected, dealers were mixed on the Thor acquisition of Heartland RV. Dealers expect both to gain share and some see opportunity to upgrade Heartland parts and service, but some saw parallels to the Fleetwood that dominated the market in the past.
Outlook. We maintain a cautious consumer outlook as confidence stalls, unemployment festers, consumers reduce debt and tax policy targets discretionary wealth. However, our checks seem to take the most dire predictions off the table for now. With the election cycle and the potential for a change in tax policy, we believe recent momentum could persist, providing a better exit point for cautious investors.
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