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Baird & Co.: ‘Spring Season off to a Mixed Start’

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April 6, 2011 by   Leave a Comment

Baird logoEditor’s Note: Robert W. Baird & Co. issued a client newsletter this week based on its first quarter survey of 117 RV dealers. Excerpts from the newsletter follow.

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Spring season off to mixed start. We contacted 117 RV dealers to assess retail trends. Dealers reported mixed traffic in the January-March quarter citing weather, gas prices and a cautious consumer (confidence dropped 9 points in March). Still, retail improved in motorhomes (+5%) and towables (+10-15%) as the economy recovers. We continue to monitor gas prices, but see good value heading into the prime selling season – especially in Thor as discounting pressure abates.

Summary

Retail solid, not spectacular. Dealers report better retail results for the January-March quarter, but the pace of growth has slowed. Many dealers cited poor weather, higher gas prices and the broader drop in consumer confidence to explain weaker traffic. Still, towable sales improved (+10%-15%), in keeping with our outlook. Motorhome sales also improved (+5%), but at a slower pace than we had anticipated. Keep in mind that Winnebago already reported retail results through February (+22%) and appears to be taking share. Seasonally, retail trends become more important in the Apr-Jun quarter.

Inventory stable and lean. Dealers remain comfortable with inventory ahead of the spring selling season. Roughly 20% of dealers consider inventory “too high,” a healthy sign. Inventory turns remain solid for motorhomes (115 days) and towables (107 days).

Orders support our outlook. With lean inventory and better retail, dealers plan to order 15-20% more RVs in the next six months (versus last year), supporting our shipment outlook through the summer. Beyond that, retail trends hold the key to further growth.

Sentiment deteriorating on higher gas prices. Dealer sentiment fell in Q1, driven by higher gas prices, lower consumer confidence and international turmoil (tension in the Middle East and North Africa and tragedy in Japan). Big picture, we see risk in higher gas prices and home values remain underwater – but see upside as wealth recovers, unemployment drops and credit eases.

Discounting is abating. Dealers report that promotional activity has slowed, consistent with our outlook for Thor Industries Inc. We hosted management from the company this week. Unexpectedly weak margins have created an opportunity in Thor shares, in our view, setting up a favorable catalyst as margin improves. Although some margin pressure likely leaked into Thor’s April quarter, we are confident the recent 3% price increase has held.

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