BRP Inc.

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Good morning, ladies and gentlemen. Welcome to the BRP Inc's Q1 fiscal year 27 conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschaines. Please go ahead, Mr. Deschaines.

Thank you, Sylvie. Good morning and welcome to BRP's conference call for the first quarter of fiscal year 27. Joining me this morning are Danny Lovatt, President and Chief Executive Officer, and Sebastien Matel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainty, and I invite you to consult BRT's MD&A for a complete list of these. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the investor relations section. So with that, I'll turn the call over to José.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. We delivered a solid performance in the first quarter, with financial results ahead of expectations and experienced sustained retail momentum across our key segments. As you know, the quarter was marked by a significant shift in the North American tariff landscape. While this created uncertainty and led us to suspend our fiscal 27 guidance, our teams have moved quickly to identify several mitigation measures to partially offset the impact on our business. Those measures include further optimization of our direct costs and overhead, a thorough review of our value chain to unlock efficiency, and targeted pricing adjustments. In addition, we continue to engage with government and key stakeholders to bring forward the impact of the current situation on the industry and consumers in general. Looking ahead, we are focused on navigating these headwinds while also protecting our long-term growth prospects. Although the geopolitical and trade environment remains volatile, we are issuing a revised full-year guidance that incorporates both positive trends in our business and net tariff costs. Sébastien will share more details later in the presentation. Now let's look at financial results on slide number four. We ended the first quarter with revenue of 2.4 billion, normalized EBITDA of $334 million, and normalized EPS of $1.83. These results exceeded our expectations, driven by stronger volumes, disciplined cost management, and a more favorable promotional environment, despite the early impact of incremental tariffs. We also generated strong free cash flow of more than 360 million, surpassing last year's level, underscoring the resilience of our operating model and our prudent approach to capital management. Let's turn to our network inventory position on slide number five. Dealer inventory remains healthy. down 3% compared to the same period last year, reflecting improved alignment between wholesale shipment and retail demand, particularly in ORV. Product mix also improved, with lower snowmobile inventory at the end of the season and better personal watercraft availability ahead of the peak retail period. We believe inventory is near optimal level. We are well positioned to capture market opportunities and remain disciplined in protecting profitability for both BRP and our dealers. Turning to global retail trends on slide number six, market dynamics in North America were consistent with the previous quarter, including snowmobile, which lapped a strong quarter last year. The industry grew low single-digit while BRP was up 2%. In line with our strategy, ORV remained the primary growth driver, particularly in the utility and premium segments. Let's look at other regions. In EMEA, trends improved despite a still relatively muted macroeconomic environment. Our retail increased by 10% in line with the industry. We saw growth across most of our product categories, supported by a stronger end-of-the-snow season in Scandinavia, as well as improved demand for PwC and ORV in key European markets. In Latin America, our retail grew by 7%, with record first-quarter performance in both Brazil and Mexico, driven by continued strength in ORV. In Asia-Pacific, the industry grew low single-digit, supported by strong ATV demand partially offset by a late-season decline in PwC. Given our higher exposure on PwC, we trained the industry, with retail down 4%. Overall, we are pleased with our retail performance, particularly in ORV, which delivers strong results across most regions. Now let's focus on our North American performance, beginning with side-by-side on slide number seven. The industry remained healthy, growing mid-single-digit, supported by the utility segment and continued adoption of cab units. Can-Am sustained its strong momentum, driven by the success of the new Defender HD11, equipped with a new road tax engine boasting 95 horsepower and best-in-class towing and cargo capacity, setting a new standard in the industry. We once again outpaced the market with retail high single digits, including low teen percentage growth in the utility segment. More importantly, we gained over three points of market share in premium current units. This shows that our commitment to innovation can drive retail growth and contribute positively to profitability. Turning to ATVs on sign number eight, while the industry declined low single digits during the quarter, we outperformed with retail up low single digits and reached the number one position in the North American industry in April for the first time ever. We continue to benefit from the rollout of our new platform across our lineup, contributing to more than three points of market share gain in current units during the first quarter. With continued traction with dealers, ongoing network development initiatives, and a robust pipeline of upcoming product launches, we are confident in our ability to sustain our ORV growth to further expand our market share. Turning to slide 9 to cover snowmobiles, the 2026 season ended in late March with industry retail at low single digits. As anticipated, since other OEM entered the season with elevated level of non-current inventory, industry retail was driven by heavily discounted units. In this context, we trained the industry slightly, given our disciplined approach to inventory management. That said, by maintaining pricing integrity rather than chasing discounted volume, we achieved a record market share over 70% in current units. and reduced our network inventory by 40%, putting us in a healthy position. Our new products and features introduced in February allowed us to once again elevate Winter Adventure. To name a few, a new Rotax 600 RR eTech engine with class-leading power, completely redesigned Skidoo Scandic and Tundra models, as well as a Lynx Shredder RE model up to 12 pounds lighter. This led us to have one of our most successful spring pre-order campaign ever. We are now well aligned to increase shipments and drive growth in the next season. Let's set aside 10 for an overview of our retail performance in other product categories for which the first quarter remains an off-season period. Looking at PwC, unfavorable weather affected the industry as a whole. In addition, C2's year-over-year retail was pressured by elevated levels of discounted carryover inventory from other OEMs. Still, we had a strong performance in current units. Moreover, as weather conditions improved through April, we saw retail activity pick up late in the month, and the trend continued into May. The situation evolved similarly for three-wheel vehicles and pontoons. Overall, we are pleased with our first quarter retail number. While seasonal product categories face industry headwinds, we continue to outperform in ORD our most important growth driver. This is significant to our financial profile going forward, giving us confidence in the revised outlook that we are issuing today. With that, I turn the call over to Sébastien. Thank you, Denis, and good morning, everyone.

We had a solid start to the year as we delivered robust top-line growth driven by continued strong demand for our products across the portfolio. We also benefited from a more favorable promotional environment than anticipated, which, combined with continued disciplined overhead management, drove Q1 results ahead of expectation. Looking at the numbers, revenues grew 30% to $2.4 billion, with solid double-digit growth across all product categories, as we lapped a quarter last year, where we were right-sizing our network inventory. The increase was primarily driven by higher PWC and ORV shipments, affordable product mix and ORV, and positive pricing net of sales programs. Turning to slide 13 for key profitability metrics. We generated $562 million in gross profit, representing a margin of 23.5%, up 210 basis points from last year. This improvement was driven by better capacity utilization, lower sales program, favorable pricing, and partly offset by tariffs. Normalized EBITDA increased by 67% to $334 million, and normalized EPS nearly tripled to $1.83. It is worth noting that we only had a limited impact from the revised Section 232 tariffs during the quarter, as these came into effect late into Q1. and we temporarily redirected planned U.S. shipments to other markets while we assessed the situation. Shipments to the U.S. returned to normal levels by the end of April. As a result of our strong performance and support of our working capital tailwinds, we generated a solid free cash flow of $367 million and ended the quarter with close to $700 million of cash on the balance sheet. Our balance sheet remains very strong with a net leverage ratio of 1.4 times at quarter end. This provides us with the flexibility to navigate the current tariff environment while sustaining our investments for long-term growth, aligned with our M28 plan, and continuing to return capital to shareholders. Now turning to slide 14 for context on our revised fiscal 27 guidance. As you'll recall, we entered the year with strong momentum, supported by solid retail trends, robust demand for recently introduced models, and network inventory close to optimal levels. and our Q1 results clearly reflect that positive trajectory. However, the quarter was marked by significant change in Section 232 tariffs. In essence, the amendment introduces a 25% tariff on the full value of imported snowmobiles and most ORV models, replacing the previous 50% tariff on metal content only. This represents a meaningful incremental cost to our business and has led us to suspend guidance while we assess the full impact. While uncertainty remains in the evolving geopolitical and trade environment, including the upcoming USMCA renegotiation, we now have sufficient visibility into the Section 232 exposure and our mitigation plan and our expected results for the year to introduce a revised guidance based on what we know today. Looking at the guidance, first, the fundamentals of our business remain strong. Our outlook for volume growth is largely unaffected by the incremental tariffs and actually continues to improve. Our revised guidance includes stronger than expected trends in ORV, snowmobile pre-orders above target, improved product mix, and higher P&A dealer orders. Together, we expect these factors to drive about $60 million of normalized EBITDA, or $0.60 per share of upside, versus our initial outlook. Against this, we expect a total incremental tariff impact of $500 to $550 million for the year. To address this, we have put in place an initial mitigation plan focused on overhead discipline, project prioritization, targeted pricing actions, and value chain efficiencies. Together, they are expected to offset approximately $200 million of that impact. As these actions progressively take hold through the year, the net tariff headwind remains meaningful, especially in the near term. So putting it all together, we started the year with a normalized DPS guidance range of $5.50 to $6.50. Since then, we anticipate a $0.60 improvement coming from better than expected trends in the business, resulting in a potential earnings power for the year of $6.10 to $7.10. before the impact of recent incremental tariffs. Still, keep in mind that this figure includes about $90 million of tariffs as per our initial guidance. And then, the expected incremental net tariff impact of $310 to $360 per share brings our revised guidance of $3 and $3.50. Turning to the full guidance overview on slide 15. Incorporating all these changes, we expect revenues between $9,125,000,000 and $9,375,000,000, normalized EBITDA between $925,000,000 and $975,000,000, and normalized EPS between $3 and $3.50. Additionally, despite the tariff impact, we continue to expect strong free cash flow generation of over $600 million, further reinforcing our balance sheets. That said, we want to be clear, this outlook does not reflect the full earnings potential of our business. It reflects the deliberate decision in the near term to prioritize protecting our long-term competitive position while implementing targeted mitigation actions to preserve our financial strength. We continue to evaluate other potential mitigation measures, and over time, we will take the necessary steps to further adapt and optimize our value chain, as we have done in the past. Based on this view, and given our confidence in the long-term value of the business, we intend to resume the share repurchases under our NCIB shortly. Finally, looking at the cadence of earnings for the year, we expect the incremental tariff burden to be fairly distributed throughout the rest of the year, with a slightly higher impact in Q3 due to the timing of snowmobile shipments. Looking more specifically at Q2, we expect earnings to decline by approximately $1.60 to $1.65 year-over-year, resulting from the net tariff impact, PWC shipment timing with more deliveries in the first quarter and less in the second versus last year, and the impact of the tax credit re-recorded in Q2 last year. Still, our fundamentals remain strong and we expect continued momentum with our ORV business. On that, I will turn the call over to Denis.

Thank you, Sébastien. As you saw, our first quarter results confirm the strength of our competitive position as shown by our sustained retail momentum. As the terrorist situation continues to create uncertainty, I am proud of our team's hands-on approach to defining mitigation measures, proving once again that DRP is an agile organization. We are used to deadlines with evolving trade requirements and are always striving to find solutions to overcome challenges. We will continue to monitor the situation, including the upcoming USMTA negotiations, and we will not hesitate to further adjust our operations to protect our long-term competitiveness. Our objective is to continue outpacing the industry by focusing on what we can control, including the execution of our M28 strategic plan and delivering on our commitment to innovation. In this regard, we are looking forward to our dealer event coming up in August in Orlando, Florida. You can expect exciting Model Year 27 product news that will continue to build on our current momentum. And you are welcome to join us. In closing, thanks to our engaged dealer network and cutting-edge product lineups, we are confident in our ability to further strengthen our position as a leading global power sports OEM in the future, drive sustained growth, and deliver lasting value to shareholders. On that note, I turn the call over to the operator for questions.

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if using a speakerphone, you will need to lift the handset first before pressing any keys. And out of consideration for other callers on the line today and time allotted, we do ask that you please limit yourself to one question and one follow-up. Thank you. Your first question will be from Craig Kennison at Baird. Please go ahead.

Hey, good morning. Thanks for taking my question. I appreciate the detailed color on the slide presentation as well. So I wanted to dig into, I guess, slide 14. And understand the tariff mitigation, that $200 million. Could you be specific, I guess, on where you can cut overhead, which projects get reprioritized, how much your partners can absorb? And then lastly, by how much can you raise price without really damaging demand?

Yeah, well, certainly when we looked at the overall mitigation plan, the priority of the team and of the board as well was to protect the long-term growth of the business, the M28 fundamentals as well that we want to protect. But certainly we do have levers as any company. And one of the big levers is certainly overhead. And so we have, I guess, targeted certain initiatives like e-travel is one of them where we can scale back and not impact the business. Certain more longer term projects, exploratory projects, which we've moved back. And as you know, in our initial guidance, we were planning to invest in overhead. And so we've scaled back as well the increase or the pace of increase of overhead. So that's only one element. As you know, as well, in M28, we have the lean initiative, which targets to bring $350 million of lean in the business over three years. And so we are able to accelerate some of these lean initiatives and bring them into the current year. And as for pricing, again, we don't want to jeopardize our competitive position in the market. And so we really hone our pricing very specific. And what we do is we want to peg pricing around the world on the U.S. market. And so we saw opportunities from a, we'll call it based on currency movements, that we could adjust pricing in some markets in order to offset some of the headwinds. And these were above and beyond what we had planned in the budget. So In a nutshell, that's where we've targeted these initiatives, but again, very focused on not hurting the business for the long term.

Yeah, exactly. Thank you, Sebastien. So don't expect, to your question, don't expect any brutal move on the pricing on the market. We'll preserve the good momentum we're having on the retail, and also we protected the investment and CapEx for the seven-year lineup also, so we haven't been touching the products for the future growth of the company.

Thank you. And as a follow-up, I imagine you're much closer to USMCA negotiations than me, but to what extent is Section 232 on the table? It seems to be the one that you need to be changed.

Yeah, we've been very active indeed, of course, right, with the three governments, would it be Canada, U.S., as well as Mexico, as you know for sure. Our first target was to make sure that all of them understand the implication globally on the industry and globally on the future clients so we know that negotiations and discussions are ongoing. Obviously, we don't know and we are not in a position to say what is going to happen, but we know that this is ongoing. And together with USMCA in parallel, in the months to come, there should be a clarification on what will be the regulation going forward, which is also important for us because, of course, we are actively working on those potential scenarios to even improve our situation.

Thank you.

That's right. Next question will be from Mark Petrie at CIBC. Please go ahead.

Yeah, thanks. I wanted to actually just follow up on the mitigation efforts. And just to clarify, so the $200 million impact, I think, is for fiscal 27. So what would be the annualized level exiting fiscal 27? And do you think some of these are sustainable, or do you think some of this would just revert back should the tariff environment go back to maybe what you had expected before?

Well, it's certainly too early to call out what next year is going to be, especially on the tariff front. As you know, things are moving and USMCA is being renegotiated. So our view is that there is probably a world where tariffs will exist, but probably not in the configuration that we see it today going forward. And certainly, if we don't need these mitigation measures and we want to reinvest in the business, we'll certainly scale back on some of them. But for sure, some of the lean initiatives that we are accelerating are going to be there next year. So that's good. So you probably have, I don't know, probably in the range of $100 million of initiatives that will certainly remain. Then for next year, obviously, depending on the landscape, we'll decide what we do with the overhead spend and whether or not we can further invest in the business or scale back some of these investments.

Fair. Appreciate that. And I just want to ask about the demand environment and just sort of more short-term focused. If you've seen any shifts as sort of macro uncertainty, higher energy prices have had a bigger impact on consumer sentiment just in the most recent months.

Not really. It depends on the market. Maybe a little in Europe, which is not of that importance for us. But when it comes to North America, first have in mind that most of our clients are wealthy households, okay? So the level is higher than the average population, which means that we don't really see that. As I said before, the ORV trend is a good one, and we are performing into it, as well as, for instance, if you take the model year 27 snowmobile, The pre-order we're having is 50% more than what we had last year. So we cannot say that we see a reflection of the global economy on the demand on our products so far.

Okay. Appreciate those comments and all the best.

Next question will be from James Hardiman at Citi. Please go ahead.

Hey, good morning. So following up on some of the previous questions, I can certainly appreciate the idea that you're going to drive as much mitigation as you can without really making any sort of wholesale changes that could be undone by the next tweet or certainly by a series of tariff renegotiations or court cases. But I guess I'm curious, if you deemed the current structure as the new normal, what more serious levers are available to you to maybe cut back on the bulk of the tariffs that are currently hitting you specifically? You know, at least one of your competitors, as we think about 232, is paying closer to that 10% rate as opposed to the 25% rate on 232. Just curious. How difficult would it be for you to get there? I think it would involve you shifting a lot of your metal sourcing to the United States. But maybe speak to that and just more broadly, what are the levers, the more drastic levers that you could pull if this tariff headwind persisted? Thanks.

Well, obviously with the visibility we have, we believe that the $200 million is the right level of mitigation measures protecting the long-term growth of the business. But obviously if this landscape were to stay more permanent, which we do not believe is the case, but if it were the case, then what we've always said is, Once we know what the rules are and they're well established, then we'll make the right decisions. So, of course, the teams are not on standby and waiting for the rules to come in. We're looking at various scenarios. And once we know what these rules are, then we'll put them into play. But, again, we've opened plants in the past, and that's certainly something we can do. We've shifted production from different plants to other plants, and that's also something we can do. So the... I guess the munitions we have are well-known, well-understood, and well-controlled by us, and if once we need to pull the trigger, we'll put them in execution. But my view is I don't want to commit hundreds of millions of capital until we know what these rules are. And so today we believe that managing in this environment with 200 million mitigation measures is the right thing to do. And once we know what the rules are, we'll act accordingly.

Yeah. We know we need visibility and stability, and we know negotiations are ongoing between the governments, so it's too early to tell. We're going to react when we're getting ready.

And the last thing I'd say is we have a solid balance sheet, and so we're not – if we need to deploy capital, we'll deploy it, again, if it's the right thing to do for the business in the context of the new trade environment.

That all makes sense. And then maybe shifting to the fundamentals of the business, excluding tariffs, you touched a little bit on it in the prepared remarks, but maybe walk us through the past few months and Sounds like there was some weather. Obviously, you had a war that started. But then maybe more specifically, any detail you can give us on May trends from a retail perspective for both you and anything you can glean from the industry.

Thanks. Yeah, sure. The weather actually was good for the Somoville. Less good, if we may say, for the PwC, which is very normal in a way. On both these seasonal products, we satisfied with where we stand. The snowmobile may look a little down for sure, but have in mind that there is a seasonality of the quarter, year on year, which is very drastic. So the global season was kind of the same this year versus the last year. Number two, we are running at a speed of 70% market share in the current snowmobile, which is very high. Shows how competitive we are in terms of product. And I said before, the order of the 27 models, because the question is on the short-term period, the order of the 27 models is 50% 5-0 up compared to last year. So we are very confident with that one. Of course, this is very early on the PwC to get the global vision, okay? Again, our market share on the current is up 10 points, so which is not neglectable, but the market is still kind of puzzled with a lot of non-currents that we basically do not have at BRP, or should I say at CEDU. So we got to see the way it's coming. End of April, beginning of May, the trend is becoming positive back again. So this is early in the season to talk about. And to finish with the most important product, we're super happy to be online with our plan. I'm talking here, of course, of ORV. So let me repeat, the last month, April, we were number one in North America with the ORV. And on the current unit, we were up three points on the market. And same with the SSV, we are a little above the industry. And on the premium current, we are above, again, three points, especially with the defender because the utility segment is the most growing one inside this. So all in all, the momentum is very solid. Got it. That's helpful.

Thanks and good luck.

Next question will be from Robin Farley at UBS. Please go ahead.

Great. Thank you. And, you know, I appreciate the fact that the tariff situation is likely to change in your view. I just wonder if you could help us think about, if it didn't, just so we can think about what an annualized impact looks like for both the tariff and the mitigation. So that $500 to $550 is for this sort of partial year period. Would that be, I would assume, somewhere in the $600 million to $700 million on a full-year basis, if you could help us in that range? And then similarly, your mitigation, that $200 million, is that also a partial year, or does that kind of represent you really have – put everything that would be annualized that will land in the next three quarters? Or does that number look bigger on a full year basis? Again, with the idea that if things didn't change.

Got it. So I would say the tariffs annualized is in the range of let's say 650 to 700, so very close to your number. In terms of mitigation measures, you could see a higher amount annualized, maybe let's say 25 to 50 million higher. Some of the initiatives that we're doing will only take hold in Q3 and Q4. And so this is what you could expect on a full year basis.

Okay, great. Super helpful. Thank you. And then just to think about potential, you mentioned you're engaging with the government in various ways. My understanding is that 232 has always sat outside of USMCA. So I guess, are there other things outside of the renegotiation period for USMCA which could end up not changing? Are there other avenues for you to pursue potential changes in this 232 tariff? Thanks.

Well, the going in assumption is obviously when you talk about a free trade agreement between the North American countries, free trade means free trade. And so when you factor in a 232, you're no longer in a free trade territory. And so The going in assumption is that at some point the 232 lane will merge with the USMCA lane and the governments will come to an agreement as to what is the required or desired level of tarification between the countries. And so that's why we believe that the current landscape and the current structure of tariffs is temporary. And the USMCA will lead to a revision of the whole tarification policies of the different countries.

Okay, great. Thank you very much.

Next question will be from Brian Morrison at TD Cowan. Please go ahead.

Thanks very much. First of all, I want to commend you guys on putting guidance out there. You often put yourselves out there when others don't in challenging times, so thank you. Maybe just going back to some of the questions on potential alternatives or offsets to the tariffs that are out there. Would that include potential reconfiguration of your manufacturing footprint if the tariff stays in current form?

Well, first of all, we are, depending on the tariff and the USMCA, first of all, we're already present in the US, if it is what's behind the question, because we are manufacturing some products in the U.S. We also have foundries in the U.S., and we also have, of course, a solid network of suppliers that we procure from in the U.S. It's way too early to answer your question so directly because, of course, it will depend on how the thing is globally going, both from the 232 and the USMCA, right? So, as we said before, we are, of course, preparing all scenarios, but we will certainly not make any decision before we estimate that the The regulation is becoming steady and reliable, which is not the case today. We hope in a few months we're going to get more clarity on that one.

Okay, so it's steady state in terms of pricing and cost efficiencies until such time that you get visibility on USMCA. Is that correct?

Absolutely.

Okay. And then my second question is for Seb, just specifically on the free cash flow. I mean, $650 million, that's a big number. I'm having trouble getting there with your guide. Maybe is there some sort of working capital contribution?

Working capital is a good tailwind this year. Two key elements. One, AR, we are putting in place a floor plan factoring facility in Scandinavia that should bring about $150 million this year of a tailwind. And cash tax will also be relatively slim this year. That's also a big, a nice tailwind that we have. Thank you very much.

Next question will be from Martin Landry at Stifel. Please go ahead.

Hi, good morning. I just wanted to get more details on the price increases that you've put through or you expect to put through. Can you give us just an order of magnitude in terms of percentage-wise what that implies?

Well, as I mentioned earlier, Martin, it's not the big lever as part of the 200 million, and so the big levers of the overhead, the lean initiatives. And as I said, we look at pricing globally, but benchmarking it to the U.S. market. And so versus our initial budget assumption, we had an opportunity to increase pricing because of currency movements. And we want to peg the pricing as much vis-à-vis the U.S. And so that's what drove.

We completely protected the 2026 model year, which are ongoing, number one. Number two, we also protected the pre-season orders of the snowmobile on the 27 model, so this is a no-move for the existing, say, pipe of orders ongoing with our network, so no bad surprise for nobody here. And then, of course, don't expect a move. I think we're going to preserve totally our competitiveness versus competition when it comes to the 2027 model years. So we completely respect the retail momentum we're having.

Okay, so if I hear you correctly, it looks like you're raising prices across the globe to subsidize a little bit the tariff impact on the U.S. So if I hear you correctly, it sounds like the price increases that you're putting through in the U.S., are something like low single-digit percentages, nothing that could impair your competitive pricing versus your competitors.

Yeah, and we're not even talking about low single-digit, because if you do the reverse math, let's say around $10 billion of revenue, 1% is $100 million, and we're not even at these levels in terms of pricing increase.

Okay. Okay. Okay, that's helpful. Thank you.

Next question will be from Joe Atabello at Raymond James. Please go ahead.

Thanks. Hey, guys. Good morning. Just a little more clarification on the tariff outlook. There's a lot that's going to happen in July, right? So the 122 tariffs... will expire. And I guess the thinking is that the new 301 tariffs will take their place. So is it fair to assume that your assumption and your guidance is that that indeed is the case, that nothing changes from where we are today on a net basis?

Our assumption is that for the full year basis, we have nothing changes. And so we're exposed to the 232 until January 31st. That's why you get the $500 to $550 million gross impact.

Yes. Okay, perfect. And just to follow up on that, you mentioned the promotional environment was a little bit more favorable than you expected. Has that continued here in the second quarter?

Yes, it has. Obviously, the big OEMs have a cleaner inventory, and we see them not being as competitive or not as aggressive on promotions as we've seen them in the past.

Okay, super. Thank you.

Next question will be from Benoit Poirier at Desjardins Capital Markets. Please go ahead.

Yeah, good morning, everyone. My question is more related to PWC and pontoons. So when we look at pontoons down low 30% while PWC down low teens, I was just wondering how much is related to poor weather or whether it's still tough market dynamics out there with higher inventory, and any thoughts on your PWC fishing offering since the introduction of the CrossWave by your competitor?

Yeah, well, obviously, it was a tougher quarter for Personal Watercraft in Q1, whereas Denis alluded to 1 OEM had a lot of non-current inventory, and that's what drove the industry. But when I look at the May trends, our watercraft sales, retail sales are up quite sizably versus last year, so we're happy. Good news is that the OEM probably got rid of some of the non-current. And obviously, we had a lot of innovation on personal watercraft, which is driving momentum. And our lineup, obviously, we've been in this business for 50 years. There's always some competition coming in with new products, but our lineup in personal autograph is super strong. A lot of innovation, a super strong lineup. So, obviously, we're not too concerned with new products coming in. And I think it's good for the industry because it'll probably bring new consumers to the personal autograph industry, and that's good for our business in general.

Okay, that's great caller. And with respect to the 60 million of positive impact that comes from improved fundamentals, obviously you gave good details about it on ORV. You talked about improved product mix. I was wondering if it's more a reaction of Section 232, the fact that you put more accessories on products. or it's just a matter that premium continues to outperform low entry levels?

It would be the latter. As Denis mentioned, we have affluent customers that tend to be more insulated from inflationary pressures and gas prices, and that's driving the mix up as well.

Also note that the season went well in terms of use of the product and PANA is up also. PANA consumption, especially parts, was very good during the quarter.

Great caller. Thank you.

Next question will be from Cameron Dirksen at National Bank. Please go ahead.

Thanks. Good morning. Maybe just a couple of questions on the international markets. Maybe you can just go into a little bit more detail of what you're seeing, I guess, more recently and expectations for the reign of the year and some of the key international markets that you're in.

Yeah, as I said before, sorry, in Europe, the markets are high, single-digit high, and we are 10% high. So in Europe, we are doing rather well. Latin America is a very good momentum, not this quad. It has been now for a few quads, okay, that we are growing big time in Brazil. So we are beating records every quad in Brazil, and Mexico is also back. So these are two good zones of the world for us. Asia-Pacific is slightly down. We are a bit more down than the market, but this is just because the PWC, just like here, is a little slow and is very, very high in our mix down there. And also note that, by the way, we are getting ready to launch the Riker, which is the three-wheel vehicle in Southeast Asia that will be manufactured in our Vietnam factory. So we are also preparing for, let's say, a second step in our international game plan.

Okay, that actually leads me to my sort of second question on international markets. I mean, in your longer-term strategic plan, that was highlighted as a key growth area. Just in the context of all the tariffs that we're seeing in the U.S., is there a way or is there any consideration to try to accelerate growth in international markets? Because obviously those would be less impacted by some of the tariff stuff we're seeing in North America.

Well, we're still at par with our plan, and the plan is actually we are growing in international as we speak, right? We are chasing $2.5 billion next year, fiscal 28. This is the target of the plan, and we are on track for that. So this is a serious growth. And after that, we'll come back at the right moment with a future plan to talk to you about how we continue this growth going forward, the years to continue. But for sure, it's a territory that we will continue exploring to progress globally in the closer to the company, yeah.

Okay, appreciate it. Thanks very much.

Next question will be from Luke Hannan at Canaccord Genuity. Please go ahead.

Yeah, thanks. Good morning. I wanted to ask about the revised Section 232 tariffs. Have they impeded your ability at all when it comes to expanding the dealer counts in the near term?

No, you understand that as part of the M28. We have a dealer expansion plan of 100 dealers. Last year, we opened 36 dealers. This year, the target is 40, and we're well on track to achieve this target this year. I'm happy with the progress that was made in the first quarter.

Great. Thanks. And then a second question, a quick one, and just a clarification. So the revenue guidance that you have there now is up slightly from what you had previously before the suspension. I'm assuming embedded within that is the same sort of industry sales assumption, and it's just implying a little bit more market share capture than what you had previously?

Yes, that's correct. The industry assumption is for a flat industry with gains in market share. Obviously, we've had a solid snowmobile season and a solid pre-order book from consumers. And so that's what provided us with an increase in revenue guide.

Great.

Thank you very much.

Next question will be from Jean-Sue at BNP Paribas. Please go ahead.

Hi, guys. Thanks for the question. Wanted to ask about cost maybe outside of tariffs. I think last call you talked about 60 bps from kind of freight and fuel and cost inflation. So maybe just can you update us on how you're seeing costs maybe outside of the tariff environment?

Yeah, good question. In our initial guidance, we had talked about the barrel at $100 for the full year, and so this assumption remains, but we've updated our cost estimates, and the 60 basis points is now more in the range of 70 to 75 basis points, coming more from freight costs and also commodity, so still manageable. but we have seen some changes versus our initial guidance.

Okay, got it. Thanks. And then maybe on retail, I think you just mentioned, you know, flat for the industry and market share opportunities, but maybe can you talk a little bit about some of the new products? I mean, HD11 seems to be off to a good start. Any other kind of call-outs in terms of where we could see more potential market share gains?

Well, the Snowmobile lineup, we announced our new features just a few months ago, super well-received, and that's why I did mention that the pre-orders were very strong coming from that innovation. The high-end ATV as well is selling extremely well, so we're seeing good momentum. And obviously, as Denny mentioned in his prepared remarks, we have a dealer meeting coming in August, and we'll also have a lot of product news that should drive wholesale in the back half of the year.

Okay, great. Thanks, and good luck.

Next question is coming from Garrick Johnson at Seaport Research Partners. Please go ahead.

Good morning. Thank you. Hey, on gross margin, you mentioned promotions are a tailwind, and then you gave us the update on the input cost. But what's the gross margin outlook for the year that's embedded in your guidance?

Yeah, obviously the gross margin outlook is expected to be hit because of the tariff. When you look at the midpoint of the guidance, their gross margin should be probably slightly north of 19% for the full year. That's my estimate at the midpoint.

Okay. Great. And then, you know, on the halting of shipments of ORVs to the U.S., you know, I understand you shifted shipments elsewhere. But how much of a gap was there? How much of a gap in the United States and how much might it have impacted your retail in a quarter? And will that be made up in the U.S.? ?

Well, we paused for a few days at the beginning of April once the 232 terrorists, we redirected shipments to Canada for certain models, but for the Defender HD11, we continued shipping into the U.S., so I don't feel it impacted our retail performance.

No, not enough to hit the retail. It was just very temporary. Okay. Thank you.

Thanks, Eric.

Next question will be from Anthony Bernadio at Wells Fargo. Please go ahead.

Anthony Bernadio Yeah. Hey, guys. Thanks for taking our questions. Just one more on tariffs. Can you just talk about the competitive implications from the tariff changes just given where your peers are manufacturing if we sort of see some sustainability to this? And does that at all impact your view on your ability to take share over time?

Well, as you saw, we've increased the guidance this year by 60 cents because of the momentum we have in the business. So our view is this does not change our competitiveness in the market. And we purposefully did mitigation measures that did not hurt the business. And so no change to our market share or growth aspirations. The M28 fundamentals and the priorities are still intact. And the teams are moving forward, be it dealer expansion, commercial improvement, market share gains, et cetera, product innovation, as Denny mentioned as well. So very much still relevant in this context.

Got it. That's helpful. And just as a follow-up on the M28 targets, I guess just given all the changes we've seen, how are you now thinking about that $8 number in F28 and what might that look like under different tariff scenarios?

Yeah, well, obviously, there are many hypothetical scenarios we could run for now. As we said, we believe this context is temporary. We might end in a situation where there's tariffs, and I will remind you that our initial guidance had $90 million of tariffs, and that was based into our N28 targets. So too early to call out, but certainly if tariffs were to remain as is, it would certainly be a headwind. But again, I mentioned, and I don't want to sound like a broken recorder there, but we're protecting the fundamentals of M28.

Got it. Thanks, guys.

The question is from Tristan Thomas-Martin at BMO Capital Markets. Please go ahead.

Hey, good morning. I just wanted to make sure I heard something right. Did you say quarter-day retail May was positive, and was that for a consolidated or just an ORV number?

It was more positive, consolidated, ORV numbers up, personal watercraft numbers up as well. So good indication kind of going into the prime retail season.

Okay, great. And then just what are you saying in terms of financing rates at the dealership level? And then any other credit metrics you want to provide would be great.

Thank you. What we are seeing from a retail financing point of view, we are seeing FICO scores come down. And so obviously when we dig in and understand what's driving this is actually that the Tier A customers are actually using the cash rebates or paying cash and not necessarily going for the financing option, which has driven down the FICO scores. But besides that, everything is pretty much similar to what we've seen in the past. No big changes.

Just any sense of where rates are, maybe year over year?

Off the top of my head, I wouldn't be able to recite the rates, but again, no changes. The bank rates haven't moved in the last quarter, so steady to where it was in Q4. Great. Thank you.

Next question comes from Brandon Rowley at Loop Capital. Please go ahead.

Good morning. Thank you for taking my questions. First, just on slide seven, you displayed strong market share gains within the utility segment. I think a lot of people associate you guys with strong market share in the recreational segment. Could you touch on what's driving some of those share gains within the utility segment?

Yeah, of course. This is the HD11 itself, right, which is our new product that we are launching on this segment. With the strength of the brands of Can-Am and entering this segment, we are really doing very well in this segment, especially I mentioned the 95 horsepower road tax, which is engine, which is very much adapted to this kind of vehicle. So the demand is very, very high, and we are producing at the maximum in our factories to provide to the market. So this is a very good trend that we have it. And by the way, we are not only recreational, because if you take the U.S. ORV vehicle, where more than 50% is a professional usage, would it be a first respond, professionals, farmers, et cetera, et cetera. So we've been already in this market for a while.

Okay, great. And then just circling back to the competitive positioning questions, you know, post tariffs, I was just wondering, you know, it seems like historically, you guys have been slightly your products have been slightly more expensive than maybe some of your larger competitors, and you're only potentially layering on a low single digit price increase. So is that, you know, one, is that true? You know, your products, you know, are more expensive already and, you know, you still take share. Or do you feel like, you know, this step up, this low single digit price increase, you know, would vastly increase the pricing spread between you and some of your larger competitors?

Well, price is a matter of specification. I mean, our products are very high spec product and we are leading the pace in terms of innovation and attractiveness in what we are offering. So, of course, not everything has the same price. When it comes to competitiveness, I think that we are, I think because it depends on capitation, but as Sébastien said it, we're not going to press on the pricing level, okay, just to be very clear. It's very minimum, you know, 200 million plans, so don't expect any big price movement by ourselves. And I do think that we're going to keep the same competitiveness as we're having right now, which we are okay with, because you see the retail momentum we're having proves that we are well positioned.

That's great to hear. Thank you so much.

Next question will be from Jonathan Goldman at Scotiabank. Please go ahead.

Hey, good morning, team. Thanks for taking my questions. Just one for me, and I apologize that this has been asked already, but did you update your views on your expectations for Power Sports North America retail this year? I believe in the previous call you were talking about flat for the year.

Yeah, that hasn't changed. We're still expecting flat industry this year.

Okay, so the improved fundamentals on your supply deck, it's everything you listed there, the ORV trends are better, snowmobile, seasonal, improved mix, any potentially share gains and a better pricing environment? Yeah, they're BRP specific, yes. Okay, perfect. Thanks for taking my question.

Thank you. And at this time, we have no other questions registered. I would like to turn the call over to Monsieur Deschaines.

Thank you, Sylvie. And thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our second quarter conference call on September 3rd. Thanks again, everyone, and have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.