Winnebago Industries, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 Fiscal 2022 Winnebago Industries Financial Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to turn the conference over to your speaker for today, Steve Stuber, Vice President, Investor Relations. You may begin.

Thank you, Tawanda. And good morning, everyone, and thank you for joining us today to discuss fiscal 2022 second quarter earnings results. I am joined on the call today by Michael Happe, President and Chief Executive Officer, and Brian Hughes, Senior Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news released with our second quarter results, along with the second quarter earnings supplement, were issued and posted to our website earlier this morning. Before we start, I'd like to remind you that certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws. The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain in a number of factors, many of which are beyond the company's control, could cause actual results to differ materially from these statements. These factors are identified in our SEC filings, which I encourage you to read. With that, I would now like to turn the call over to our President and CEO, Michael Happi. Mike?

thanks steve good morning everyone and thanks again for joining the call today as always we appreciate your interest in winnebago industries and taking the time to discuss our fiscal 22 second quarter results i'll start the call with an overview of our performance during the second quarter and what factors are driving those results then i will pass it over to brian hughes who will walk through our financial results in more detail before I make some closing remarks and we turn to your questions. Winnebago Industries built on our strong momentum and delivered robust results in the second quarter of fiscal 2022, capitalizing on sustained and elevated demand for our portfolio of premium products. We grew revenues by 39% year over year to $1.2 billion, matching the previous sales record set last quarter. Overall, our results were shaped by two key dynamics. First, sustained and powerful consumer demand drove higher unit sales compared to the prior year. And second, Winnebago Industries' successful execution of pricing actions to offset higher material and component costs. Also, the Barletta pontoon boat business, recently acquired this past August, contributed nine percentage points of growth and continues to exceed our expectations and gain market share in the pontoon boat market. I want to spend a minute talking about these drivers in more detail. It all begins with the consumer's continued strong affinity for the outdoor lifestyle, and in particular, Winnebago Industries premium brands. Through our interactions with our consumers and feedback we receive from our dealers, consumers clearly recognize our products as being differentiated. This differentiation is a result of our relentless focus on our golden threads of quality, service, and innovation. Robust consumer demand is a powerful undercurrent that we believe will continue to propel our company's growth through the current fiscal year and beyond. A recent RV industry association study confirmed that 51% of new RVers in the 2020 and 2021 time periods suggested that reasons surrounding COVID were certainly the impetus for purchasing an RV. We are confident, though, that many of these interest trends have become ingrained and that consumers will continue to invest in products that enable them to pursue their love for the outdoors. Compelling data supports our thesis. Our friends at the Campgrounds of America cited a 16% projected increase in households camping through November of 2021 versus the same period in 2020. Here are some other nuggets from the previously noted and recently released new RV owner survey conducted by the RVIA. Contrary to some theories speculating on possibly low retention of 2020 and 2021 first-time RV buyers, new purchasers are most likely to keep and use their current RV into 2022 and beyond, with 50% already seeking an upgrade via new parts or a different RV altogether. Six in 10 new millennial RVs, those who bought an RV for the first time in 2020 and 2021, already say they are likely to purchase another RV in the future. As it relates to the growing popularity of flexible work, amongst new RVers, 25% of millennials and 27% of Gen Xers stated that they used an RV for a place to stay while working as a reason for purchasing the RV. Importantly, Winnebago Industries is already capitalizing on these sustained demand drivers. Our second quarter total unit sales grew year over year, despite a tough comparison to the second quarter of fiscal 2021, which was nearing the height of the COVID-19 driven demand spike. Strong attendance at the recent Tampa RV show and the Miami Boat Show resulted in retail sales that exceeded our expectations. In fact, most of our retail shows this spring are seeing record sales for our brands. This foreshadows a solid spring selling season that is historically reflected in our second half results. The combined tailwinds of societal trends, Winnebago Industries' proven portfolio brand strength, and sharp execution spells great opportunity in the future for our business. We remain confident that there remains strong engagement in the outdoors by consumers, and Winnebago Industries is positioned to continue growing market share in both the RV and marine industries. On a trailing three-month basis through January, our RV market share was 14.3%, up a full 100 basis points from 13.3% for the same period in 2021. And in our marine segment, Barletta has now grown to be the fifth largest pontoon boat company by market share at 4.6% on a trailing three-month basis through December. And recent retail results show them approaching and breaking the 5% barrier. This is a meaningful improvement from just seven months ago when we completed the Barletta acquisition. Speaking of Barletta, I am pleased to report that its differentiated pontoon portfolio has continued to perform above our expectations and exceeded the calendar 2021 performance targets we set when we announced the acquisition. We see tremendous opportunity for Barletta in the pontoon market, which is one of the fastest growing boating segments, and we look forward to further leveraging their unique product innovation acknowledge quality, strong dealer network, and focus on service to sustain retail market share growth. The second major driver of our revenue results was pricing actions. The positive demand environment and the unique strength of our brands positioned Winnebago Industries well to take continued pricing actions to offset component and material cost inflation and preserve margin performance across our segments. Thanks to our sophisticated, strategic approach to sourcing, Winnebago Industries has been anticipating and preparing for the inflationary environment that we are experiencing today. We began taking pricing actions ahead of inflation in the second quarter of last year. As the spring selling season gets underway, we will continue to evaluate our pricing power as needed as a lever to offset higher materials and component costs. while still balancing and driving market share gains. This is a testament to the resiliency of the demand environment and the clear quality of our expanded product portfolio. Our strong top line performance was coupled with excellent operational efficiency internally. I tip my cap to the entire Winnebago Industries team for another quarter of net strong execution. which is especially appreciated these days as the supply chain remains volatile. We continue to work collaboratively with our suppliers to get materials on time so we can get products out the door as efficiently as possible for our customers and dealer partners, while not sacrificing quality and service. Our motorhome business this past quarter probably faced the most significant supply chain constraints, holding that segment back from optimal performance in this period. Our teammates' efforts, though, enabled us at a consolidated level to power through the supply chain constraints and inflationary pressures that we continue to experience at levels comparable to the first quarter. With our strong execution and pricing actions, Winnebago Industries delivered gross margin of 18.6% during the second quarter, equal to the great results last year. A focus on operational excellence will continue to be a critical component of our strategy going forward, creating organic and flexible capacity, driving productivity and margin improvement opportunities, and ensuring industry-leading product quality. Winnebago Industries' robust backlogs have increased versus last year and are significantly higher than the second quarter 2020 period due to continued strong in-consumer demand Keeping dealer inventories in all of our segments at acceptable levels throughout the fiscal 2022 year for our dealer partners is a key focus area for all of our teams. And I am fully confident they will continue to rise to the challenge to meet the high retail and wholesale demand levels in a disciplined manner. We are fortunate to have a world-class team of Winnebago Industries employees and strategic partners. Working together, we remain uniquely well-positioned to continue capturing outsized growth and delivering value to all our stakeholders as more families take to the great outdoors. With that, I will now turn the call over to our Chief Financial Officer, Brian Hughes, to review our fiscal 2022 second quarter financials in more detail. Brian?

Thanks, Mike, and good morning, everyone. As Mike mentioned, second quarter revenues, including results for Barletta, were $1.2 billion. reflecting an increase of 39% compared to $839.9 million for the fiscal 2021 period. Excluding Barletta, our organic growth for second quarter was 29%. We were pleased to see that revenue growth was achieved in all three segments against a very robust 2021 comparison period. Growth in total was driven by a combination of pricing actions and unit shipments. We delivered another period of very strong profitability in the quarter, evidenced by meaningful growth despite a steep year-over-year comparison. Gross profit was $216.6 million, representing an increase of 38% compared to $156.6 million for the fiscal 2021 period. Gross profit margin of 18.6% was equal to last year, driven by operating leverage and pricing, offset by higher material and component costs, as well as some operating inefficiencies caused by supply chain constraints and the associated inconsistencies in the deliveries of parts and subcomponents. Operating income was $136.8 million for the quarter, an increase of 37% compared to $100 million for the second quarter of last year. Our second quarter operating income includes $0.5 million in acquisition related costs and $4.6 million of incremental amortization of intangible assets related to the Barletta acquisition. Fiscal 2022 second quarter net income was $91.2 million, an increase of 32% compared to $69.1 million in the prior year quarter. Note that fiscal 2022 net income includes $6.5 million of contingent consideration fair value adjustment, which is included in non-operating income, related to the earn-out included in the deal structure associated with the BARletta acquisition. You will note that we are removing this deal consideration in the calculation of adjusted EPS. We are pleased to note that BARletta performance through the end of calendar 2021 as specified by the July 2021 purchase agreement, will result in the full dispensation of $15 million, which is the maximum payout for the first earn-out period tied to calendar year 2021 performance. As stated previously, recall that we structured the earn-out in such a manner that the multiple on this deal is further reduced as the earn-out that is paid increases. Reported earnings per diluted share was $2.69 compared to reported earnings per diluted share of $2.04 in the same period last year. Adjusted earnings per diluted share was $3.14, which represents an increase of 42% compared to adjusted earnings per diluted share of $2.21 in the same period last year. Now I'll turn to our segment performance, starting with our towable segment. Total segment revenues were 646.6 million for the second quarter, up 47% over the prior year, primarily driven by pricing increases across the segment and unit growth of 13%. Unit growth of 13% is especially strong given last year's 55% growth versus fiscal year 2020 for the same time period. Segment adjusted EBITDA was 100.6 million, up 61% over the prior year period. Adjusted EBITDA margin of 15.6% increased 140 basis points over the prior year, driven by operating leverage and pricing, partially offset by cost input inflation. Next, let's turn to our motorhome segment. In the second quarter, revenues for the motorhome segment were $417.6 million, up 9% from the prior year, driven by pricing increases across the segment. Segment adjusted EBITDA was 46.1 million, representing a decrease of 10% from the prior year. Adjusted EBITDA margin was a strong 11.0%, while a decrease of 230 basis points from the prior year. In the current quarter, we experienced ongoing supply chain inconsistencies in the delivery of chassis and other key components that were disruptive to our operational flow and introduced inefficiencies into the environment as compared to very high productivity across our operations in the prior year. While we expect such inefficiencies to be remedied in the longer term, they did impact the current quarter. It should be noted that the pricing actions taken to date in the motorhome segment continue to outpace the inflationary impacts on our products. and the pricing versus inflation equation is not a driver of the margin reduction versus last year. Finally, let's turn to our marine segment. In the second quarter, revenues for the marine segment were $97.3 million. The retail trends for the Barletta and Chris Craft businesses remain strong and dealer inventories remain low. Marine segment adjusted EBITDA of $13.0 million was $11.9 million higher than the same period last year, and adjusted EBITDA margin was 13.3%, 620 basis points higher than last year, reflecting the addition of the Barletta business. Turning now to the balance sheet. We continue to maintain a healthy liquidity position with approximately $327 million available, including an untapped ABL of $192.5 million. Our leverage ratio is currently at 0.8 times. From a capital allocation perspective, we continue to prioritize investment in our businesses to fuel organic growth. On a fiscal year-to-date basis, CapEx spending is $43.4 million, which is three times higher than last year's year-to-date CapEx. We continue to carry elevated inventory as a means of mitigating some of the supply inconsistencies that we encounter on a daily basis. While this is a detraction from generating high cash flow in the near term, we continue to view this as a prudent action to support our operations and believe that this cash investment will liquidate in the longer term and be available for other capital allocation priorities as the eventual drawdown in working capital occurs. During the quarter, share buybacks totaled $40 million, and on a year-to-date basis, we have bought back $59.6 million worth of shares. As discussed previously, our dividend this year is running at a clip 50% higher than it was last year. Combining share buybacks with dividends, we have returned a robust $115 million to shareholders on a trailing 12-month basis through the second quarter of fiscal 2022. This is approximately four times the prior year's trailing 12-month period. That concludes my review of our quarterly financials. With that, I will now turn the call back to Mike to provide some closing comments. Mike, back to you.

Thanks very much, Brian. In addition to delivering strong financial results and market share growth, Winnebago Industries continued our deep commitment to our corporate responsibility in our communities and for our shareholders. At the January RV Consumer Show in Tampa, we revealed the ERV, the first all-electric, zero-emission motorhome concept from a major RV manufacturer. The ERV concept vehicle is an entirely new, all-electric, zero-emission RV that incorporates an advanced drivetrain and battery package that also powers all the living area systems of the coach. Designed by our advanced technology group for a new generation of RVers who want to preserve the natural world as much as they want to enjoy it, the ERV combines all-electric operation with sustainable and innovative materials. We look forward to talking more about the ERV as we move closer to commercialization. Our go-to-market version is sure to bring significantly enhanced features and capabilities than the concept model shown. In addition to the exciting ERV, our advanced technology group is also actively engaged on electrification relevant to marine and RV towable products as we continue our legacy of innovation and explore new frontiers in outdoor lifestyle products for the benefit of our customers, investors, and communities. Now turning to our outlook for the remainder of 2022, I want to reiterate my confidence that the demand for outdoor lifestyle products and particularly Winnebago Industries brands, will continue to be very robust. Looking at the RV industry at a macro level, we believe wholesale shipments for the calendar year could be down low to mid-single digits percentage-wise as compared to the record 600,000 units shipped in calendar 2021. Backlogs remain elevated as supply chain constraints persist, which we expect to be an ongoing reality throughout 2022. We will continue to work closely with our suppliers to mitigate issues as much as possible and provide our dealer partners with quality units to replenish their inventories. We anticipate Industry towable inventories to recover to a new normal first in mid-2022, followed by motorized later this calendar year, and for some brands into 2023, especially our Numar brand. Marine inventories will be the last to recover, and it could be well into 2023 or beyond for that to happen. From an RV retail sales perspective, we have mentioned previously and still maintain that we expect industry RV retail sales in calendar 2022 will likely be the second highest on record. More specifically, we believe retail sales will be down mid to high single digits percentage-wise. This level of retail sales, combined with the wholesale shipment perspective mentioned earlier, will bring total dealer inventories back to reasonable levels and reflect dealer turns that we believe are sustainable into the foreseeable future. We also believe that dealers will be targeting inventory levels that will generate elevated turns versus historical times and higher operating profits. As always, in this very dynamic industry, our enterprise will responsibly produce and ship product. While we anticipate the supply chain constraints and inflation to continue, we will work closely with our suppliers to mitigate the impact of those forces as much as possible. Most importantly, we will continue to match our production levels with confirmed dealer orders. This enterprise-wide mandate at Winnebago Industries is imperative within our business model and is especially important as the industry works to replenish but not overdrive dealer inventory levels. In short, we are continuing to focus on executing our proven strategies and building on our strong momentum. We are investing in the future of our business as well, with significant capital projects especially related to new product line expansion, future innovation, and stronger customer intimacy tools. The unique strength of Winnebago Industries brands will position us to keep winning in the positive demand environment. And our employees' relentless hard work and dedication will allow us to deliver superior execution despite supply chain constraints and inflation, which we are constantly monitoring. We have much to navigate and continued room for improvement. I'd like to remind our investors of the significant progress we've made in the last five to six years. Our trailing 12-month sales of $4.3 billion compares to $976 million at the end of fiscal 2015. Our fiscal year to date 19.2% gross margin compares to 10.7% in fiscal 2015. Our current three-month trailing RV share of 14.3% compares to 2.9% at the end of 2015. Our approximate working capital of 11% in this fiscal year compares favorably to 20% in 2015. Our leverage ratio is under one times for each of the last four fiscal quarters. And in the last 12 months, we have returned more than $100 million of cash to shareholders. We are proud of our team's hard work, but we recognize the bar is high in the short term and in the long term, both in the marketplace, but with our shareholders. We are confident that Winnebago Industries has significant headroom for sustained profitable growth across our portfolio and enhanced value creation for our end consumers, dealers, employees, and shareholders. Before we open it up to questions, I would be remiss not to acknowledge the devastating situation in Ukraine. While we do not have any physical operations in the region, and feel that we can manage any indirect supply chain implications. Our thoughts are with the Ukrainian people and everyone affected by this tragic situation. As part of our commitment to corporate citizenship and to our values, Winnebago Industries has made a grant to the Center for Disaster Philanthropy and joined in support with the National Association of Manufacturers' recent resolution condemning Russian aggression. Like all of you, we sincerely hope for a peaceful resolution. That concludes our prepared remarks this morning, and I will now turn it back over to the operator for the Q&A session. Thank you again for your time.

Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Garrett Johnson with BMO Capital Markets. Your line is open.

Hey, good morning. Thank you. I have two questions. First, on the ASP growth, can you talk about that a little bit? Where are you driving the highest level of price increases, say, different classes or models? Where would you be having less pricing power, and what gives you confidence going forward on having pricing power in this environment?

Good morning, Garrett. This is Brian. We're seeing it pretty balanced and consistent across the brands. You know, we're doing our best to match the pricing towards the inflation that we've already seen come through on our products, as well as the inflation that we're anticipating, of course, and I think that's how we've characterized it historically. as trying to get ahead of inflationary pressures. If you look at it by brand, it varies quite significantly. And so I hesitate to give you any kind of specific numbers, but suffice it to say it is material, the inflationary pressures, that is. It is certainly in the double-digit range and in some cases higher. And to date, as we've stated, we are keeping pace with our pricing. As it relates to a go-forward view, we will continue to monitor the inflationary pressure. Certainly, the current environment and our expectations going forward is for continued inflation. That is a change from our historical position where we have thought that in the back half of the year, we would see some easing of inflationary pressures. I think, as everybody understands with the current situation and the geopolitical unrest in the Ukraine, that we will now see some sustained inflationary pressures into the back half of 2022. So we will continue to monitor that. We believe that we do have pricing power in the marketplace. We'll seek first to offset inflationary pressures with cost savings initiatives. or cost avoidance initiatives. And we will continue to price to the extent that we need to with the goal to maintain margin, not just the dollar per unit, but the margin per unit. That has been our stance historically, and it will continue to be.

Okay, thanks. And can I ask you, you mentioned record sales results at RV and marine shows. How are you measuring those results? Are those deposits? orders placed or actually units going out the door changing hands. Thank you.

Yeah, Garrick, this is Mike. Each of our brands tracks retail sales at the various retail shows throughout the spring. Usually product is not shipped off of the lots at those retail shows, so product is usually not transacted physically, but there is a deposit physically taken in most cases, and a financing agreement often consummated as well. So this is something we've been doing for years, And we've been pleased to see, you know, decent foot traffic at the retail shows. But more importantly, the close rates at the retail shows this spring for our brands have been, you know, very positive. And, again, setting records versus, you know, especially the last two or three years.

Okay, great. Thank you, Mike. Thanks. Thank you.

Thank you. Our next question comes from the line of Scott Stember with CL King. Your line is open.

Good morning, guys. Thanks for taking my questions.

Good morning, Scott.

Can we just go back to the pricing environment? I guess before we had this recent skyrocketing of fuel costs and some other commodities, I guess there was a belief that at some point pricing would start to moderate. The dealers were on the front end of that, and they would have to absorb that. But Has that narrative changed in the last month since we've seen fuel prices and everything else starting to skyrocket?

Yeah, Scott, good morning. This is Mike. We had the opportunity last week to host a national dealer sales meetings for one of our brands, the flagship Winnebago brand in Georgia. And we had the opportunity at that meeting to talk to hundreds of dealers in attendance about the dynamics that they're seeing in their business. A couple notable things. One is, as I mentioned in our prepared comments, most dealers are very determined to run their business at higher turn levels and at higher levels of profitability in 2022 and beyond versus what they were doing pre-COVID. They are beginning to see a retail environment where maximum pricing power at retail is probably not able to be sustained in the way that it was throughout the last nine to 12 months. And so you are seeing retail pricing become a little bit sharper in the market, and the dealers have margin room versus what they deem as acceptable to be able to react to the consumer's pricing preferences. Our pricing power is really specific to the brands that we have and the appeal those brands have with consumers, and particularly our ability to innovate around new products. when we can get new products to market efficiently and effectively that's where we can we can work with the dealer to find that optimal pricing position in the market if those new products are delayed to the market as they were to some degree in our motorhome business this quarter that pricing power is a little bit delayed until we get that that stream of new products going to

Got it. And then maybe just talking about inventory once again, lots of concerns in the investment community that the refilling of the pipeline will go well past equilibrium like what happened back in 2018. But it seems as if everybody's being a lot more judicious. Obviously, you guys and your competitors in the dealer body. Can you maybe just talk about anything that you can share to allay any fears that people have that we could be seeing a repeat of 2018?

Yeah, Scott, as you can imagine, we can't speak for our competitors. We can only reflect what's happening in the marketplace today. We are not hearing yet any significant signs of extreme discounting of open stock inventory by OEMs to the dealers. We are seeing dealers take a fresh look at their orders to OEMs and review those orders and in some cases refine those orders to OEMs within the industry to make sure that the manufacturers know exactly what products the dealer wants and when they want them. So we have been hearing of some order refreshing going on by many of the major dealers in the industry, but we are not hearing any irrational loading of inventory into the market at this time. We will take care of our own house and continue to make sure that every unit of production has either a retail customer's name on it or a dealer customer's name on it and continue to only make to what we believe are confirmed orders in our system. But as of this time, we think the marketplace is rational. And we'll continue to see if the return to a new normal of inventory can land in an appropriate manner.

Got it. That's all I have right now. Thank you. Thank you.

Thank you. Our next question comes from the line of Craig Kenison with Baird. Your line is open.

Hey, good morning. Thanks for taking my questions as well. Mike, you mentioned the situation in Ukraine. and we also have rising oil prices and potentially higher interest rates. So lots of sort of economic concerns out there. How is Winnebago preparing for the next recession? And maybe how does this upcoming recession, if one happens, how might that be different than what we've seen in the past, given the situation with your brand, with, um, inventory in the channel and other dynamics.

Yeah, thanks, Craig, and good morning. You know, specific to Winnebago Industries, you know, our company has looked different probably in each of the past, you know, down cycles in the outdoor industry. and any, I guess, what people may call recessionary environments. I want to be clear, we are not predicting, you know, a recession, you know, economically, and we are not in this call foreshadowing a significant, you know, collapse of retail or wholesale demand in the industry. But our company does look different in 2022 than we did in 2018, than we did in 2008 and 2009, based on the portfolio of products we have, based on the profitability of the lines of business we have, based on our knowledge and commitment and playbook to manage a highly variable cost structure within the company. With Brian Hughes's leadership, our balance sheet, and access to liquidity is in strong condition. And our business processes, candidly, both because of systems and access to information, but also just higher levels of discipline, we think are in an elevated position. So a long answer to a short question, but we believe we have the wherewithal to ride through any significant economic downturn or industry downturn and still have a healthy business in the midst of that, and one that candidly can be selective in continuing to invest in its future, whether that's new products or new systems as we go forward. As you know, most of the market downturns in the RV industry you know, have ranged in severity, but generally they have been relatively brief, you know, anywhere from six to 24 months in its tenure. And in almost all cases, the industry, you know, returns to a new record high you know, coming out of that. So we will be prepared to ride through any difficult times. And as importantly, we will be prepared to continue to invest in a disciplined way so that coming out of any future difficult times, our business should have some momentum going forward.

Thanks. And just as a follow-up to that, I think one of the changes was structural improvement in your motorhome margin. Wondering, you know, whether you think those gains which have been substantial are sustainable and whether they're volume dependent or if you think you've made significant change to that business. I'd say even in a recessionary scenario, you can hang on to better margins.

Yeah, Craig, our belief is that we've made some structural stair-step changes in the profitability of our motorhome business that should, to a large degree, be sustainable. Now, I don't want to get into a hypothetical discussion on what a worst-case scenario could look like and what our profitability would be, but the margins in our motorhome business are roughly double today what they were six years ago, our gross profitability. And we believe a high majority of that is at a level now where it is sustainable. based on the way we run our business, what we bring to market. Certainly there can be factors that would test that if you got into certain worst case scenarios. But we strongly believe that the profitability changes in the motorhome business to now a double digit plus adjusted EBITDA yield area is something that we have a good shot at sustaining in the future.

Craig, just the only thing I'd add to that is a reminder of our variable cost structure. You asked the question in a way, hey, what happens to your profitability with volume? We continue to maintain very intentionally a highly variable cost structure at 85% to 90% in that range, depending on which business you're talking about. And so that is still the right assumption. And it's very intentional on our part to maintain that variable cost structure.

Great. Thank you.

Thank you. Our next question comes from the line of Mike Swartz with Truist. Your line is open.

Hey, guys. Just to continue along the lines of the pricing discussion, maybe just in the quarter, I'm just trying to understand some of the puts and takes. In the towable business, there was a a step back sequentially in pricing, and we've seen pretty consistent increases there over the past couple of years, obviously, with the price increases being put through. But could you maybe help us understand why we saw that quarter-over-quarter pullback in ASPs and TOEBL?

Yeah, you know, Mike, thanks for the question. The 17%, a little over 17% that we saw in the TOEBL segment in Q1 that I think you're referencing is was certainly an outlier of sorts. It was very high relative to the 14 to 15%. At that time, we acknowledged it as such and mentioned that in some cases, the timing of the pricing increases don't necessarily match up perfectly with when the inflationary pressures are realized in the P&L. So in other words, you price ahead of inflation in some cases. And so that was certainly part of the answer there. We also had in the second quarter some disruptions as well to the productivity. We had some weather events. We did have some acute supply chain challenges that affected our productivity a bit. So it was a couple of things, but I think the big takeaway there is we still feel very good about the margins we realized in Q2 for the towables business and for the motorized business for that matter. Um, but yeah, sequentially we did see a little bit of a, a step down from the really strong Q1 margins we realized.

Okay. And maybe just clarification. I, I, I'm sorry. I didn't mean margins. I was talking about just the ASPs in the, in the, in the total business. Was there a mix change between the first quarter and the second quarter? Um, that, that was significant.

Yeah. I think that it's more tilted towards the travel trailers. Um, they are growing much faster than the fifth wheels, and so you do see an ASP impact from that in exchange.

Okay, perfect. And then maybe switching over to Barletta and just trying to better understand maybe the share growth opportunity there. I know they've been constrained somewhat with dealer expansion, just given everything that's been going on with trying to rebuild inventory at existing dealers. So maybe give us a sense of when we should see some of those future opportunities start to come to fruition. Sure.

Yeah, Mike, Barletta continues to experience both organic growth through its existing dealer network and, as you stated, have future opportunity to add new dealers to its network. And, oh, by the way, additionally, their product line expansion ideas are multiple, and you'll see some of that in the future as well. So we believe that that business can grow candidly in three ways market share with its existing product line and dealers new dealer penetration and Additional new products to the catalog and I think you'll see that over the course of the next several years the primary Factor to not being able to expand the dealer channel in the Barletta business as quickly as that team would like has almost solely and exclusively been the supply chain constraints and We feel an obligation and a loyalty to the Barletta dealers that do carry the product today to make sure that we can deliver the orders that they've committed to us before we go and set up new dealers across the country. We are getting to a point with the production output at Barletta and some supply chain stability that I think the team can begin to entertain that as we turn the corner into our fiscal 23 year this fall and probably more so into calendar year 2023. We won't share any specific details yet, but we also have plans within that business for product line expansion as well. So as I referenced in my comments, market share at Barletta is around 5% as we sit here today. And we've continued to maintain that their potential is a top three pontoon brand in the North American industry. with potentially market share that is in the double-digit percentage range someday. And we are still convicted around that and very pleased with the first six months of performance from the Barletta business to date.

Okay, great. Thanks for the call.

Thank you. Our next question comes from the line of Brett Andrews with KeyBank. Your line is open. Thank you, Chris.

Hey, good morning guys. I think one thing investors are trying to maybe tease out today is comparing your results to, you know, your peer that had a January quarter end. And I'm not trying to compare the two in this question. I don't necessarily think that's the right approach, but, but what I'm getting at is, is did anything change in February from either a margin supply chain or pricing power standpoint compared to maybe what you saw in the, in the first two months of the quarter?

Brett, this is Mike. I would not say that February was demonstrably different than January within our business. You know, certainly the marketplace is volatile enough today with external factors and noise. And, you know, we all could list, you know, a half dozen of them. But I would say in macro, the industry did not change dramatically overnight between January and February. Again, I think it is important to stay clear at times of some direct comparisons between peer companies. Our complexion portfolio-wise is different. Some companies are more or less vertically integrated. Some companies are more or less geographically diversified. Some companies, candidly, are more or less disciplined on shipment share versus market share and production systems. And so we are pleased with our results, share gains, market margin stability, and we have confidence in the back half of our year as we sit here this morning to continue to produce consistent, healthy results.

Got it. Understood. And then, Mike, I think you answered some of this in Scott's. But historically, you're good at giving us, I think, some real-time retail insights. Is there anything that you're seeing in your dashboard, I think you like to call it, the last week or two or however you want to frame it up as it relates to a lot of the things that have come up on this call, right, around gas rates, consumer sentiment, what have you?

Well, we certainly are tracking all of those factors, several of which you just mentioned there. We don't always believe that any single element, gas prices, interest rates, stock market volatility, we're not a believer that any single element can maybe in and of itself move the needle dramatically in the short term. We do believe that a combination of factors, when put together, can result in a net positive or a net negative impact on consumer demand. We did notice, obviously, the recent drop in consumer confidence, you know, that was released recently. And that's maybe an aggregate metric of how consumers are certainly, you know, feeling. Probably a little bit more nervous today than they have been in you know, in the last year or two for sure. So I will tell you our recent retail results have been in that sweet spot that we've been describing for some time now. You know, not quite as strong as a year ago, but, you know, much stronger than two years ago. So that's how I would describe recent retail results in early March of 2022. And as we stated, we believe that the retail environment for calendar year 2022 in the RV industry can be probably a top two. result, and probably worst case, top three if it were to fall a little lower. But, you know, selling more than a half a million RVs in a calendar year is still, in our opinion, a very healthy consumer demand environment.

Very helpful. I appreciate it.

Thank you. Our next question comes from the line of Fred Whitman with Wolf Research. Your line is open.

Hey, guys, I just wanted to follow up on your wholesale outlook. I think you said down low single digit to mid single digit for the year. That seems to be a little bit below where the RVIA is currently, even at the low end of their range. So could you just sort of walk through how you see the next few months of wholesale trending? Do you think it will be sort of a step function down? Do you think it will be more gradual, understanding that you're not in control of the entire industry but at a high level?

Yeah, that's correct. I mean, we aren't in control ultimately of that entire wholesale number. You know, we contribute to the conversation within the industry around the projection that the RV Industry Association ultimately releases. You know, the 590, I think that's sort of, you know, the midpoint of their forecast is certainly on the higher end of the range that we communicated this morning. So, you could infer that we believe there could be a little bit of downside to that, but this is all relative to the retail environment and our hope slash anticipation that other OEMs will continue to be responsible as well, and that turns in the industry will probably start to normalize around what we hope is around three turns in the RV industry. So I wouldn't say it's dramatically new thinking, but we probably have put a range that extends a wholesale environment downward just slightly today, but still a healthy environment in our opinion.

Makes sense. And then if we just look at your comments last quarter, Mike, you sort of highlighted just how important February, March, and April retail trends would be just for the inventory replenishment horizon. Just could you sort of summarize how that has shaken out to date versus what you would have hoped to see and how that sort of feeds into this towable inventory normalizing in the middle of 22?

Yeah, I think replenishment of the towable segment has gone faster than maybe some of us in the industry would have thought about six months ago. That's probably a credit, candidly, to the supply chain and the key suppliers in the towables category being able to get OEMs enough product to try to work down those backlogs. So I would say that's probably the biggest development in the last three to six months has been the pace of recovery on the towable RV segment. We have not seen that type of pace of recovery on the motorized RV segment nor on, you know, boating field inventory. And so we still believe that the motorized RV category and the two categories that we compete in in the marine segment are both have runway in 2022 into 2023 before field inventories will be normal. So we'll wait to see how the March shipment numbers were in the RV industry to understand what the other OEMs are doing from a production standpoint. But as I said earlier, we are hearing positive things about our competitors and how they're managing their production schedules, and the dealers are not coming back to us with frequent chatter of, unhealthy behavior from an overstocking standpoint. So I think we'll see in the next, you know, three months here how the tollables market sort of settles. And then I think the industry has to go to work continuously on, you know, making sure dealers have enough motorized product in the future.

Perfect. Thanks, guys.

Thank you. Our next question comes from the line of Brett Jordan with Jefferies. The line is open.

Hi, good morning. This is Ethan Huntley on for Brett. Thanks for taking our questions. Maybe can you just talk about cadence of supply chain and whether you've seen things improve, I guess, both one on the marine front with engines and then maybe secondly with motorhomes chassis?

On the marine front, we predominantly use one of the leading brands of engines on both of our marine product brands. And I would say that our primary supplier of engines on the marine side has been very good to work with and has been relatively consistent here in the last three to four months. And so that supply category is stable. We certainly have prospects for growth in both of our marine business, and we'll work with that supplier to earn the right to get more supply from them in the future, which we anticipate will happen. The motorized chassis environment continues to be a bit inconsistent is just the best word I'll continue to use there. There are certain months where one of the motorized chassis suppliers is is giving us some challenges, and then the next month it can be someone else. And so I won't get into details on how the motorized chassis supply sometimes works, but it's not always a sort of constant daily just-in-supply flow as well. especially due to the semiconductor chip challenges that those chassis manufacturers face. We can sometimes see periods of ample chassis inventory that they ask us to obviously take and buy into, or you can see periods of drought where chassis become unavailable for a period of time. And so, again, inconsistent is the best word there. Unfortunately, we don't anticipate motorized chassis supply chain stability for probably, you know, through the rest of 2022. I think we'll continue to fight that inconsistency.

Got it. That's helpful. Thank you. And then maybe just lastly here, you know, we've heard at the retail level some significant emphasis is being placed on the EU side of the business. Can you just sort of walk us through any puts and takes as to how that might affect your business?

Yeah, we certainly are aware of, with our dealer partners, their emphasis on used inventory within their business models. And it does vary a little bit from dealer to dealer. And certainly some of the larger dealers in the industry have been very direct in their plans and intentions around used inventory as well. We believe that a healthy used inventory market is a good thing. It allows for turn of product with the consumers that we believe allows consumers who want to exit the lifestyle to do so efficiently, but also allows people who want to get into the lifestyle to be able to do so often in a more affordable way than buying something new. And, you know, as we continue to work on the secular growth and popularity of the outdoors, we think it's imperative that a healthy used market continue to reemerge here in terms of both supply and stable pricing. And, you know, As an OEM, we are not particularly activating against used product strategies within our business model at this time. And so we just have to work closely with our dealer partners across our businesses to understand if there are any impacts in what they'll take from us on new products. But we do see that market improving and dealers continuing to be creative on how to secure product. Prices are moderating a bit on the used product market, although they're still very elevated, you know, versus a year or two ago. So we anticipate that along with new product field inventory that the used market will heal itself as well.

Great. I appreciate the call here.

Thank you. Our next question comes from the line of David Whiston with Morningstar. Your line is open.

Thanks. Good morning. First, on motorized, the Class B units were up while A and C fell. I'm just curious, is that more favorable demand for the B segment, or is it a result of supply chain problems that were impacting A and C more than B?

Our motorhome segment this past quarter was probably more challenged with supply chain issues in Q2 than we had seen in Q1. And so that will affect both the mix of products that you see shipped, and that consequently will affect some of the ASP and the margin mix as well within that segment. The reasons for, David, those supply chain efficiencies vary across our Numar and Winnebago brands. I would say the only other factor for Winnebago branded motorized is we have a tremendous new product called the Echo that consumers are flocking to. We have a significant amount of orders on that. That's a very hot viral product in the RV marketplace. There's really nothing else like it. And we continue to try to increase our output on that product, and we did run into some challenges around the Echo, which is a Class C product in this past quarter. And those are being resolved, and we anticipate flow of the Echos back to the market in Q3 and Q4 will be better than in Q2. So the reasons vary, but almost all of it is related to supply chain constraints at this point. You know, as, you know, our motorized backlog continues to be very healthy and many months long.

And it seems like you've definitely tried to make it clear that the supply chain issues are impacting motorized more than other parts of the company. Is that mostly chassis? Is it chassis and like one or two other key areas? Yes.

Chassis are a part of it at times. I would say, and I always, I'm never going to name names on a phone call like this in terms of specific suppliers, but we continue to see challenges at times with portable power generation within our products. I mean, that's probably the key category in Q2 that has challenged us in terms of getting motorhomes out the door. Unfortunately, if you look at some of our inventory numbers, you will see some elevated inventory numbers, which means we have the parts. At times, we have an unfinished product still sitting on the grounds waiting for that final component before it is shipped to the market. We continue to battle the supply chain more so on motorized than we do towables these days.

And on working capital, looking at the capital statement, there's a big headwind in AR that was not present at this time through the first half of last year. What's driving that?

Yeah, this is Brian, David. Some of that, it's all the same. It's the timing of deliveries and to the extent that the supply chain issues might be resolved later in the quarter, which we're seeing happen. You know, some vendors are understand the pressure we have at the end of a quarter to get our units shipped and oftentimes will come through with that end of quarter help for us and that results in the timing of the shipments to be tilted more towards the end of a quarter and therefore accounts receivable elevated. So it shifts in some respects the inventory problem into an accounts receivable problem at quarter end just from the timing of some of those mitigating efforts.

Okay, and finally on the ERV, if someone was just casually interested in the emerging electric RV space and they saw your release with 125 miles and then Thor with 300 miles and an integrated fuel cell, someone might be tempted to think, well, Thor must be ahead of Winnebago on battery development, and that's probably not fair or an oversimplification. I'm just curious what would your response be?

David, we're very focused on having a high-quality electric RV product in the marketplace that has acceptable features and capabilities for consumers that are interested in that product. Our concept vehicle has been driven extensively with the existing technology that's in the product. We are communicating exactly what we know is real at this time with a concept model that's been driven extensively. Our number does not include any range extension technology. that may or may not be commercially or financially feasible. And we will continue to stick to, you know, feature descriptors that have been proven in our test environment through our engineering teams and with our motorized chassis partners and our electric motor and technology partners. So we are not worried in the long term. about not having competitive products around electric RVs in the market in the future. And we'll let our competition, whoever it is, describe and sell their products in the way that they choose. But what we've communicated is what we know today through extensive testing. and what we will release in the future as an actual product for the market to consume. We have stated several times in the last two months that we anticipate the range to be higher when the product goes to market than what we're communicating today. So I would just ask everybody to be patient as we work through the engineering and product development stages of that project.

That makes sense. Thank you.

Thank you. Our next question comes from the line of Joe Altabello with Raymond James. Your line is open.

Hey, thanks, guys. Good morning. Just two quick ones for you. I guess first more of a point of clarification. You mentioned order refreshing on the part of your dealers. When you say backlog, that represents a firm dealer order, but it doesn't necessarily mean it has the customer's name on it. So do you know what percentage of your Backlog today is retail sold at this point.

Joe, good morning. That number varies by brand. It's probably highest on our luxury brands, Chris Craft and Numar, and in some cases on those brands could be approaching even as high as 50%. The percentage of retail sold is probably lowest on our higher volume travel trailer categories, where that number is probably somewhere in the low double digits. It does vary as dealers and our sales team continue to collectively revisit the order positions. and we've been very clear in how we define our back orders and the integrity of the process we use, and certainly that they can be canceled by dealers as they deem. We are not seeing a high rate of cancellation of dealer orders at this time. Rather, we are seeing some of our dealers go in and just continue to refresh their the timing and the mix of product, especially stocking inventory. We do anticipate that as the retail environment heats up seasonally in March through July, that the retail sold orders will probably increase just based on inconsistency of field inventory mix in the channel. But, you know, the answer to your question, unfortunately, varies widely between category and brand.

Okay, that's helpful. Maybe secondly, it does sound like you expect dealers to swallow most of your price increases. I guess, why wouldn't you expect to see some pushback on that since inventories are almost back to new normal on the total side and retail is expected to be down this year? Obviously, their margins are elevated, but at the same time, your margins are elevated as well versus historical. So I'm just trying to get a sense for how those discussions are going.

Joe, I can assure you that our business unit presidents and their teams are having very robust pricing discussions with our dealers about what everyone feels the market can accept. And unfortunately, there are times where our hands are tied by our suppliers in terms of the frequency or the degree of the cost increase we face from them. And again, those inflationary pressures have not subsided significantly in Q2 versus Q1. But I would tell you that the conversations with the dealers are very direct about what we believe the market can handle. And so we recognize that we've been in an inflationary price increase environment here for probably going on now roughly a year and whether you call that sort of late cycle or not in terms of you know sort of a price increase time period, it probably wouldn't be surprising that our ability to raise price in the future will be more challenged than it was on day one. But if we continue to come out with high quality new products, refresh floor plans, we believe that in partnership with our dealers, we can continue to have margin stability for both parties for some time longer. But I would just say, again, the conversations about pricing are very, very healthy between us and our dealers. Okay.

Great. Thanks, guys.

Thank you. We have a follow-up from the line of Scott Stember with CL King. Your line is open.

My question's already been answered. Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Steve for closing remarks.

Great. Thank you, Tawanda, and thank you, everyone, for joining our call today. With the official start of spring this past Sunday, we certainly hope everyone is enjoying or plans to enjoy more time in the outdoors. With that, have a great day, and thanks again for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.