Earnings Call Transcript - DOO Q4 2025

Operator, Operator

Good morning, everyone, and welcome to the BRP Inc. Fiscal Year 2025 Fourth Quarter Results Conference call. I will now hand the meeting over to Mr. Philippe Deschenes. Please proceed, sir.

Philippe Deschenes, Moderator

Thank you, Sylvie. Good morning and welcome to BRP's conference call for the fourth quarter of fiscal year '25. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer; and Sebastien Martel, 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 implied in these statements. The forward-looking information is based on certain assumptions and is subject to risk and uncertainties and I invite you to consult BRPs 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. And as a reminder, note that the following the announcement of the initiation of the sales process for our Marine businesses, these businesses are now presented as discontinued operations. Therefore all periods presented in these releases reflect continuing operations only unless otherwise noted. So with that, I'll turn the call over to Jose.

Jose Boisjoli, CEO

Thank you, Philippe. Good morning, everyone, and thank you for joining us. Although fiscal '25 brought its share of challenges, I am proud of our team's agility and dedication. We have always been known to be leaders and this year was no different. In light of a difficult macroeconomic environment, softer industry and continued pressure on consumer demand, we were the first OEM to proactively reduce production and shipments. Throughout the year we remained focused on the disciplined execution of our inventory reduction plan to support our dealers and protect the value of our brands. As expected, this resulted in short-term market share losses. We have also continued positioning the business for long-term success. We have introduced several new models, entered new segments and further improved operational efficiency by achieving over $200 million in lean savings for the year. Also, as you know, we have decided to sell our Marine business. The process is currently following its course. We will update you in due time. Our strategy is to double down on our Powersports leadership position. We will focus our effort and investment on our core activities and capitalize on attractive long-term growth opportunities. Now let's turn to Slide 5 for key financial highlights. We ended the year with $7.8 billion in revenue, normalized EBITDA of $1 billion, a normalized EPS of $4.68, all within our revised guidance range. We also achieved one of our key objectives by significantly reducing network inventory levels as you can see on Slide 6. Inventory was down 13% at the end of the year or down 18% when excluding Snowmobile which saw softer than anticipated retail in the fourth quarter. With better snow conditions in February, Snowmobile retail has improved bringing our total North American Powersports inventory reduction to 18% in line with our objective of 15% to 20%. This solid performance shows our commitment to protecting our dealer value proposition and puts us in a favorable position to capture market opportunity when the industry rebounds. Let's turn to Slide 7 for an update on the global Powersports market. The fourth quarter was consistent with the trend observed earlier in the year. In North America, our Powersports retail was down 21%, essentially in line with our expectations. Excluding Snowmobile it was down 11%. From an international perspective, we continue to see softer demand in EMEA and Asia Pacific with retail down 11% and 10% respectively. Latin America continued to outperform other regions with retail up 16% driven by sustained momentum in ORV and Personal Watercraft. Turning to Slide 8 for a look at our North American retail performance by product line. ORV performed as expected during the quarter with our retail lagging the industry, as we were less competitive in non-current units due to our leaner inventory position. Meanwhile, Snowmobile retail was softer than anticipated, because of the late arrival of snowfall. Retail peaked later in the season with February and March better than planned, which should limit the shortfall for this season. As for Three-Wheel Personal Watercraft and Pontoon, Q4 was the offseason and there are no major trends to highlight as volumes were small. Let me circle back to ORV on Slide 9. As you can see, the dynamic we've discussed last quarter continued in Q4 with the industry essentially being driven by discounted non-current units. Since we significantly reduced our network inventory, we had lower availability of non-current units and were less competitive in that market. However, we've gained further share in current units which gives us confidence that we will regain momentum when the inventory position of other OEMs normalizes. Before reviewing quarterly results by product line, let's turn to Slide 10 to take a step back and look at our progress made over the past few years. We became the number one OEM in Powersports in North America and we are a much stronger company than five years ago. In fact, we have gained six points of market share versus pre-COVID. Our ambitious ORV strategy paid off, leading to market share gains of 11 points in side-by-side and four points in ATV. We even extended our leadership position in Personal Watercraft and Snowmobile with gains of two and nine points respectively. The only area where we lost some ground is in Three-Wheel vehicles as we face a tough comparable with pre-COVID being the first season of the Ryker. Even if fiscal '25 was a more difficult year, we continued applying the same formula that delivered these results. We pushed technology and introduced several key models across all our product lines to wow our consumers. We grew our addressable market with the launch of the Can-Am electric motorcycle. We expanded the rollout of our modular design namely with the introduction of the new high-cc ATV platform and we stayed true to our performance and innovation heritage, winning on the racetrack and being recognized by the industry with 17 design awards. With our momentum, we strongly believe that we are well positioned to benefit from a market rebound. Now let's turn to Slide 11 for a more detailed look at year-round products. Fourth quarter revenues were down 17% to $1.1 billion primarily due to the reduced shipment to right-size our network inventory. At retail, Can-Am side-by-side was down about 10% due to the non-current unit dynamic compared to the industry which was down low single-digit. Still, fiscal '25 was our second-best year ever at retail. We continue to experience strong demand for our high-end Defender CAB gaining about two points of market share this year in the Utility segment. ATV retail was also down about 10% for the same reason as side-by-side. However, we are well positioned with our new Outlander platform and gained over two points of market share in the mid-cc category in fiscal '25. This platform was also introduced last August across our high-cc model, a significant upgrade in ATV. Looking at Three-Wheel vehicle retail was down about 30% very early in the season. We remain optimistic about the upcoming season given the positive response to the recently introduced Can-Am Canyon which tapped into the growing adventure touring market. Turning to seasonal products on Slide 12. Revenues were down 29% to $678 million, primarily reflecting reduced shipments. In the counter-seasonal market, it was peak season for Personal Watercraft and Sea-Doos had a low-teen percent decline in APAC, slightly outperforming the market that was down mid-teen percent. Meanwhile, we continue to grow in Latin America with retail up low-single-digit percentage. As for North America, we are in the offseason but early indications from both shows suggest more stable industry conditions compared to last year. For Snowmobiles, retail was down low 30% in the quarter. When the season began, we had proportionally fewer non-current units than our competitors, resulting in market share loss in North America as of the end of January. In Scandinavia, we gained market share with retail down high single-digit percentage compared to an industry that was down low 20%. We introduced our new model 2026 in mid-February and we are currently in the booking process. We strengthened our lineup by expanding the REV Gen5 platform to additional models, adding new features and providing better connectivity. As this year was also challenging, we remain cautious with our upcoming production schedule to tightly manage inventory. Our new model coupled with the fact that some players are exiting the industry put us in a very good position to gain further share. Moving on Slide 13 for Part Accessories and Apparel and OEM engines. Revenues were down 1% to $293 million primarily due to lower shipment of P&A given softer industry trends. From a product standpoint, our ORV part business maintained its momentum, driven by ongoing usage of our growing vehicle fleet, while accessory sales have been softer in line with retail. With that I turn the call over to Sebastien.

Sebastien Martel, CFO

Thank you, Jose, and good morning everyone. We completed fiscal '25 with another quarter of tight execution against our plan to deliver on our network inventory reduction target, all the while meeting our revised guidance for the year. Looking at the numbers for Q4. Revenues were down 20% to $2.1 billion, primarily due to the lower shipments and higher sales programs. We generated $429 million in gross profit, representing a margin of 20.5%, down from last year, primarily due to the less efficient use of our assets given the lower production volumes, higher sales programs and an unfavorable model mix. These were partly offset by favorable pricing. Our normalized EBITDA ended at $240 million and our normalized earnings per share at $0.98. From a cash flow perspective, we ended the year generating over $450 million of free cash flow from continuing operations, allowing us to sustain attractive returns of capital to our shareholders with $62 million in dividend payments and $215 million in share repurchases. From a balance sheet perspective, we closed fiscal '25 with $180 million of cash and a comfortable net leverage ratio of 2.6 times, providing us with the balance sheet flexibility as we navigate the uncertain environment. All in all, while fiscal '25 was a challenging year from an industry dynamics perspective, I am pleased with our team's constant focus on the tight management of our expenses and cash generation and their ability to unlock efficiencies throughout the business. It is these efforts that allow us to deliver results at the upper end of our revised guidance. Now turning to fiscal '26, starting with an update on the current tariff situation on Slide 16. Like many North American companies, we have optimized our manufacturing footprint supply chain over the years, based on the free trade agreements between Canada, United States, and Mexico. As such, we currently have operations in a supply chain across all three countries and consequently the ongoing tariff disputes are impacting our business, our suppliers, and our customers. So far this is a situation for BRP. All of our vehicles produced in Canada and Mexico are USMCA compliant and are currently exempt from the 25% tariffs levied by the United States on these countries. We have limited exposure to imports from China into the US or from imports from US to Canada. And while we are impacted by US tariffs on steel and aluminum, the cost is relatively small as the exposure is mostly limited to our P&A business. So with what we know today, the tariffs that are currently in effect would have an estimated impact of about $40 million on our business if they stay as is throughout the year. But as you well know, the situation remains very fluid and we are continuously refining our assessment of the potential cost of these tariffs on our business, especially as it relates to potential impacts on our Tier 2 and Tier 3 suppliers. This brings us to the discussion about what to expect for fiscal '26 on Slide 17. As we already mentioned, with the disciplined execution of our plan throughout the past year, we started fiscal '26 in a stronger position, notably with leaner inventory levels, a cost structure that was rightsized for the current industry environment, and a greater focus on our core Powersports business. With that, we were well positioned to deliver some top-line growth driven by improved ORV shipments with wholesales more closely matching retail, new product introductions, and partly offset by lower shipments of Personal Watercraft and Snowmobiles to bring back our network inventory to a more normalized level. And we were poised to deliver some improvements in EBITDA margin driven by the increased shipments and lower sales programs, given that we are operating with leaner network inventory levels and a more efficient overhead structure following the optimizations we did in fiscal '25. These elements would be partly offset by the return of variable compensation and unfavorable foreign exchange variation. Accounting for higher depreciation, financing costs, and tax rate, our plan called for about $4.50 to $5 of normalized EPS for the year, with tougher comparables in the first half of the year, notably expecting Q1 EPS to be down about 70% on a continuing operation basis. However, since the beginning of the year, with the ongoing tariff disputes and changing geopolitical dynamics, our operating and demand environment has become much less predictable. While we expect to manage through the currently implemented tariffs, several more tariffs have been announced by different governments and we lack the necessary visibility as to the timing, nature, and extent of potential changes to trade regulations to fully assess their potential impact on our business. More importantly, we are seeing the uncertainty created by the situation starting to impact the economy and the consumer confidence which makes it very difficult for us to properly forecast our industries and the demand for our products with the level of confidence we require. In this context, we believe it would be inappropriate to issue guidance today and we will therefore refrain from doing so. Still, we remain focused on tightly managing our business and making sure that we remain agile to rapidly adapt to any change in the operating environment, all the while continuing to position our business to create long-term value for our shareholders. We look forward to a return to a more stable and predictable environment, enabling us to provide you with a clearer outlook for fiscal year '26. On that, I will turn the call over to Jose.

Jose Boisjoli, CEO

Thank you, Sebastien. Fiscal '25 was a challenging year for the Powersports industry. I am proud that we were the first OEM to reduce network inventory and more importantly that we have achieved our initial objective. We have also outpaced the off-road market in current units which speaks highly about the appeal of our lineups. We finished the year on plan, despite uncertainty created by the threat of tariffs which has further impacted consumer sentiment and market demand. We are used to dealing with changing trade rules and we have always succeeded in adapting to new tariffs. However, if we have to deal with significant changes in regulation, such as a 25% tariff, we will need enough time to adjust our plan accordingly. For now, we are closely monitoring the situation and proactively implementing short-term mitigation measures. As we enter fiscal '26, we are encouraged by our solid market position. From now on doubling down on Powersports will solidify our leadership while our strong product pipeline and passion for innovation will continue to set us apart. Our goal is to consistently wow consumers with market-shaping products and I can tell you that in fiscal '26 consumers won't be disappointed. On that note, I turn the call over to the operator for questions.

Operator, Operator

Thank you, sir. First, we will hear from Sabahat Khan at RBC Capital Markets. Please go ahead.

Sabahat Khan, Analyst

Great. Thanks and good morning and thanks for the initial sort of commentary on fiscal 2026. And as you think about your inventory that you outline, what sort of industry inventory backdrop and competitive pricing, et cetera, are you taking into account when contemplating a situation where you could grow revenue potentially and margins, do you feel the industry inventory broadly is in good shape? Just reviews on the peers and the industry from that perspective.

Sebastien Martel, CFO

Good morning. Looking back 12 months, the industry had anticipated a more favorable outlook, which is why some OEMs currently have significantly more inventory than we do. As you may recall, early last year, we made the decision to decrease production and shipments to effectively manage our inventory levels. This has positioned us much better as we begin the year. However, not all OEMs find themselves in the same situation, and we are noticing increased non-current inventory from others. We expect that Q1 will see non-current inventory impacting market share, but we aim for more normalized inventory levels to emerge in the latter half of Q2 and into the second half of next year. If the industry experiences a slowdown, it may take other OEMs longer to reduce their inventory to normal levels. This could lead to additional incentives in the second half of next year, but we are accustomed to navigating such situations and will make the necessary adjustments. We are convinced that our earlier decision to rightsize our inventory was beneficial for both the dealers and the business.

Sabahat Khan, Analyst

Okay, great. And then just the second one on your expectations for sort of production, CapEx, et cetera. Is that a bit more fluid at this point in the year? Just trying to get an understanding of this year, maybe benefited from a bit of inventory cleanup on the free cash flow side. Just your thoughts on how CapEx and cash flow could trend through the year. Thank you.

Sebastien Martel, CFO

Yes, well, what, again, start of the year we were expecting very good solid free cash flow generation with, I guess, the elements I highlighted in my prepared remarks. Working capital, certainly something that we continue managing diligently and it could be a minor tailwind for us. And from a CapEx perspective, ballpark, we should be slightly higher to where we were last year again with what we see today. Most of that increase is actually coming from foreign exchange, US and Euro rates are quite high compared to last year and that's what's driving the CapEx variation. But again, we're nimble, we're flexible, and if things are more challenging, we'll obviously adapt our plans. But we remain very much aware of the situation.

Sabahat Khan, Analyst

Thanks very much.

Operator, Operator

Thank you. Next question will be from Joe Altobello at Raymond James. Please go ahead.

Joseph Altobello, Analyst

Thanks. Hey, guys. Good morning. Just wanted to go back to the network inventory situation for a second. You mentioned in your slide deck that you think shipments in retail should be in better alignment here in fiscal '26, but would you still expect to take inventory out of the channel? It does sound like ORV is in good shape, but PWC and snow probably a little bit heavy.

Jose Boisjoli, CEO

Good morning. Like you said, I think on ORV we have reached our level and we are very comfortable with what we have. On Watercraft everything is in line to achieve obviously the retail is on plan to achieve a good level of inventory at the end of the model year, the existing model year season that ends in the fall. Then on this we were cautious on production to make sure that we would end up in good shape. And on Snowmobile, to be honest, February and March was good retail, better than what typically we do because of delayed snow. Then it will be lower than last year, but still too high. And we are cautious on how many Snowmobiles we'll produce in this fiscal year to make sure we hand the inventory in good shape next year. Then overall we have very good progress in all product lines. Watercraft is on plan. Snowmobile is behind because of delayed snow.

Joseph Altobello, Analyst

Got it. Okay, helpful. And just to kind of go back to a comment you made earlier, Seb, about the $4.50 to $5 outlook for '26. Correct me if I'm wrong, but it sounds like that was more of your assumption three months ago. Since then, obviously, the tariff situation has evolved and so the $40 million you mentioned earlier is sort of incremental to that and then maybe some demand impact. Is that how we should think about that number?

Sebastien Martel, CFO

Yes, that's how you should think of it. As you pointed out in your last comment, consumer demand has softened since the beginning of the year, which would have impacted any guidance we might have issued today. Therefore, it does not take into account the $40 million headwind and does not factor in the softness in expected consumer demand.

Jose Boisjoli, CEO

And maybe if I can add on, Sebastien, and this is a measure we want to complete. Basically our plan in H2 was very well executed and we're on plan all second half of the year and we were on plan for fiscal year '26 before the tariff situation. Then this is basically a message we want to make sure that the investor understands.

Joseph Altobello, Analyst

Okay, perfect. Thank you.

Operator, Operator

Thank you. Next question will be from Craig Kennison at Baird. Please go ahead.

Craig Kennison, Analyst

Hey, good morning. Thanks for taking my question. Just to follow-up on the non-current inventory situation across the industry. Will that be an overhang in fiscal '26 and would you therefore expect to continue to lose share until that is complete?

Jose Boisjoli, CEO

Good morning, Craig. I mean right now if we look at some OEMs still have too much inventory. I give an example in ORV and again this is coming from CDK. It's a tool to manage in and out at dealer level. But on ORV, I mean some OEMs still have 50% of non-current inventory at this time of the year, which is too high. Then we believe like Sebastian said, that this, if the retail holds this would normalize at the end of Q1 or early Q2, but we feel confident for the second half of the year.

Sebastien Martel, CFO

And to your question Craig, yes. So market share challenges in the first half of the year are expected on our front.

Craig Kennison, Analyst

Thank you. And then with respect to the $200 million in cost savings that you have identified. How will that impact the income statement as you think about fiscal '26 and beyond? Is that something where you'd give price back to consumers or will some of that flow to the bottom line?

Sebastien Martel, CFO

Well, obviously we're operating in an environment where production is not at the level where we'd want it to be, where the industries are softer. And so it's not something that would automatically flow through as price reduction. We want to generate profitability. We want to generate free cash flow, so that's something that we will try to protect as much as possible. But again, we'll remain flexible based on what the industry dynamics are and what the promotional environment is to make sure that our products remain competitive for the consumers and for the dealers as well and that we're able to win the market share battle as well and sell the innovation that we have.

Craig Kennison, Analyst

Thank you.

Operator, Operator

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

Martin Landry, Analyst

Hi. Good morning guys. Lots of headwinds and lots of moving parts, but if we focus on retail demand, I'd like to understand a little bit how you view the industry at retail in North America evolve this year?

Jose Boisjoli, CEO

Good morning. If you look at some consumer highlights. Basically, new entrants right now are at the same level as pre-COVID and retail on the high-end product is quite good. It's touching more the entry-level product or recreational product. Then I give you an example, in some product lines like all our entry-level products, the Spark, the Ryker, and the Switch are down about 30%. On the other hand, the Defender CAB is up. This is basically what we see, same trend, and what we've told you in Q3 and Q4. In Q3, sorry, but this is the dynamic that we see. The inflation, the high-interest rate are affecting more the customer for entry-level product and the high-end is doing quite well. Obviously because of our non-current position, we're losing some share in the non-current. But on the other hand, we're very happy with the momentum we have in the current category.

Sebastien Martel, CFO

But your statement, Martin, as you mentioned, the situation is obviously evolving and it's tough to read and that's the reason why today it's difficult for us to have a valuation of what the true industry demand is and provide guidance. I'm looking at the February numbers, the retail is choppy. I'm looking at ORV retail down in the mid-teens for the ORV industry in February only. And so how is that going to trend going forward? And again it's very difficult to call.

Martin Landry, Analyst

Okay. And just to follow-up to that, you're saying that high-end products are selling well and value or entry-level products are a little less soft. So does that mean, you know, when you talk about your potential for top-line growth, does that mean from a volume price standpoint, volumes could be down year-over-year and price up?

Sebastien Martel, CFO

Potentially, yes. Potentially, yes. Again based on today the difficulty in forecasting the industry that is a potential scenario.

Robin Farley, Analyst

Thanks. Just trying to understand a little bit more, I know you mentioned that sort of previously you would have guided to the $4.50 to $5 range before the $40 million headwind from tariffs and retail softening. Can you sort of quantify what you, I guess, what that $4.50 to $5 would have assumed in industry retail kind of overall and for ORV? And maybe sort of aren't ready to quantify where you see that now, but just wanting to think about how your retail expectation has changed? Thanks.

Sebastien Martel, CFO

Yes, the assumption assumed a relatively flat industry outlook, but obviously we were lapping a year where we did a significant inventory correction, especially in ORV. And so we would have had retail matching wholesale in fiscal '26, which would have provided for obviously volume growth on our end and also new product introductions which are expected to be very well received by consumers. So that was our initial assumption at the start of the year before all of this took place.

Robin Farley, Analyst

And now your assumption would be for industry retail to be kind of flat.

Sebastien Martel, CFO

The assumption is no guidance. So, yes.

Robin Farley, Analyst

Okay. Understood.

Sebastien Martel, CFO

It's difficult to call. It's been choppy. And obviously with the uncertainty created by all of this, the consumers are holding back. You could have expected consumers to buy these goods because if their tariffs are coming on, there's going to be surcharges, they're going to be applied. And so technically, these goods are more affordable today than they might be in six months. But again, that uncertainty is a bigger overhang than the potential opportunity of buying a product with no tariffs today. So it says a lot about how the consumer is feeling.

Robin Farley, Analyst

And then just for my follow-up, you mentioned, you've taken some mitigating actions. Is there sort of some amount of inventory that you've manufactured that you have crossed the border or able to get across by April 2nd, so that you could continue to have inventory go to dealers without tariffs for some period of time? I don't know if you can quantify any sort of day sales outstanding or kind of thinking about what amount of inventory you've maybe been able to move in anticipation of potential further tariff action?

Jose Boisjoli, CEO

Yes, when all this tariff discussion started back in December last year, we even rented some warehouses in the United States to give us additional capacity. And right now every product that is produced to be shipped to the United States, even if it's too early to ship them to the dealers, we cross the borders and our warehouses that we have in the US are always full. We're maximizing everything we can for product, but also for Parts and Accessories. Then this is what we're doing right now. And it's difficult for us to quantify, but I would say we probably have a month of inventory altogether that is on the other side of the border.

Sebastien Martel, CFO

And also we need to remember that our dealers also have inventory in their yards. And so if something would be announced, we don't necessarily need to have a knee-jerk. We can see how things will evolve. And as we've seen in the past, things sometimes change after a few days and so we're not forced to ship units every day and that I think is a positive thing about our business that we can see where things are going to kind of trend towards before making more midterm to long-term decisions.

Robin Farley, Analyst

Great. Very helpful. Thank you.

Operator, Operator

Thank you. Next question will be from James Hardiman at Citigroup. Please go ahead.

Sean Wagner, Analyst

Hi. This is Sean Wagner on for James. Just kind of you touched on February retail trends. Is there any color you can give on March month-to-date retail trends?

Sebastien Martel, CFO

We're kind of seeing the same elements. Retail is still softer than what we would have expected three months ago. So again, there's still the uncertainty around what's going to happen on April 2nd and I think that is influencing consumer behavior.

Sean Wagner, Analyst

Okay. That's fair. And I guess if we take the incremental $40 million in tariff costs as sort of a base case scenario, are you even considering what the size of the worst-case scenario might be or I guess excluding tariffs, you had talked about 50 bps of improvement in OpEx year-over-year in your last call. Is that still sort of excluding the incremental $40 million what you would be targeting or were there other moving parts since your last report that maybe changed that thinking?

Sebastien Martel, CFO

The situation is constantly evolving, and we keep a close watch on it. As of now, we estimate the impact to be around $40 million. The U.S. market is significant for us, accounting for 60% of our revenue, with most of our sales to the U.S. originating from Mexico or Canada. If tariffs were to be imposed on all goods crossing the border, it could have a considerable effect. Our supply chain, like many others, has been optimized over the past 25 years due to free trade agreements, so a sudden, drastic change would be highly disruptive for many companies and the economy overall. We don't see that scenario as sustainable in the long run. Changes to the USMCA agreement seem likely, as it is scheduled for renegotiation in just over a year. When modifications have occurred in the past, a transition period was provided to allow companies to adapt. We have always been flexible in adjusting our operations to align with new rules as they arise. That's our perspective on the matter.

Sean Wagner, Analyst

Yes. Thank you.

Operator, Operator

Thank you. Next question will be from Xian Siew at BNP Paribas. Please go ahead.

Xian Siew, Analyst

Hi, guys. Thanks for the question. On the current versus non-current inventory mix, helpful that you mentioned what you think some of the competitors are at, but could you maybe give us a sense of how your inventory mix is current versus non-current and how that compares to maybe pre-COVID FY'20?

Sebastien Martel, CFO

Yes. When I look at where we were on January and if I look at just ORV, only a third of my inventory was non-current and so the rest was current, which obviously is very good compared to what the numbers that Jose mentioned to you. And I would say it's pretty much in line even better than when we were pre-COVID. We actually purposefully reduced inventory and so that had the benefit of reducing non-current inventory. So that's where we are for non-current on ORV. And for seasonal business, we're a bit higher because we've just ended the season and Snowmobile was a tougher season compared to the season we had versus pre-COVID. So we're trending a bit higher on Snowmobile, but in a very good position on ORV with 30% of our inventory being non-current.

Xian Siew, Analyst

Okay, very helpful. And then on Snow it sounds like you're planning some reduction in shipments. Maybe could you help us think about how big of an impact that could be to the topline or maybe remind us how big Snow now is within your seasonal?

Sebastien Martel, CFO

Yes. I'd say the snow business is probably going to be similar to the snow season we had last year. And so fiscal year '25 for us was not a good snow season from a wholesale perspective because we reduced shipments off a tough season. So the expectation for next year is we'll have similar deliveries as we had in fiscal year '25. Correcting inventory in the network.

Xian Siew, Analyst

Got it. Thank you.

Operator, Operator

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

Jonathan Goldman, Analyst

Hi. Good morning and thanks for taking my questions. I just want to circle back to some of the slides you provided on the potential for top-line growth and potential for margin improvement. On the top-line growth, you talked about better alignment of retail and wholesale and ORV and destocking seasonal. And you discussed earlier potential for share shifts. So what would be the underlying assumption that would drive the top-line growth?

Sebastien Martel, CFO

Well, the underlying assumption that would drive top-line growth is the first one is, ORV deliveries where wholesale is better aligned with retail. We did a significant adjustment to inventory. A 19% reduction in ORV in inventory reduction this year. Obviously that means that you're shipping much less into the network than you're retailing. So that's the number one. And the other element, which is not on Slide 17, but it's the introduction of new products this year, which we believe will in the back half of the year, drive wholesale delivery and revenue because the dealers and the consumers will want these products in the showroom and in their yards. And that would be somewhat offset by the adjustment of inventory for seasonal business. There's also a pricing increase, obviously, and we believe that the overall promotional environment will be better for us in '26 than it would have been in '25 because of less non-current inventory that we need to deplete.

Jonathan Goldman, Analyst

Okay, but just circling back maybe on the pricing discussion. The margin improvement driven by lower sales programs, given the consumer headwinds you've called out and the aggressive promo from other OEMs that maybe weren't as proactive destocking on current units, why would industry or your promo be down or even flat this year?

Sebastien Martel, CFO

Well, there's two things, one is we have less non-current inventory to liquidate. So that means you don't necessarily need to have the same level of promotion on your non-current inventory. Yes, OEMs would need to liquidate their non-current inventory and that's why we said we would expect to lose market share in the first half of the year. And then in the back half of the year, once the OEM in the industry has corrected their inventory situation, we'd be operating in a more normalized environment in the back half of the year. But again, these were the assumptions that we had at the beginning of the year and so we'll see how the industry is trending and we'll adapt accordingly.

Jonathan Goldman, Analyst

Okay. Got it. Thanks for taking my questions.

Operator, Operator

Thank you. Next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.

Cameron Doerksen, Analyst

Yes, thanks. Good morning. Just a question, I guess on the supply chain, I mean, you mentioned the $40 million tariff impact so far. I presume that most of that is related to the steel and aluminum tariffs, maybe there's a little bit of China exposure there. I'm just wondering if just on that portion of what's been announced so far are there anything you can, is there anything you can do to adjust your supply chain to mitigate that over time?

Jose Boisjoli, CEO

Yes, I mean, for sure. We've been dealing with tariffs all our lives and we are used to adapting to rules. What is difficult this time is the rule is not clear and they are changing all the time. And there is no lead time. Then the point is we need clear rules, stability and lead time and we will adapt within that a lot of time and will adapt going forward. Right now the $40 million is an estimation. I think we can work on it to reduce, but we don't know if there is another rule that will happen in a month. Now this is the difficulty. The $40 million is our best estimate at this point with what we know. And obviously we'll continue to work on ways to mitigate it.

Cameron Doerksen, Analyst

Okay. No, fair enough, lot of uncertainty out there. Just for a follow-up, just on the dealer inventory finance, I know you've been providing a fair amount of support there for the dealers on that front. Now that the dealer inventory at least for your products is down to a more normalized level, how do you expect that that financing support is going to trend over the next 12 months?

Sebastien Martel, CFO

Well, for us, it will obviously be a positive. When I look at what we've invested in fiscal year '25 versus pre-COVID, just the floor plan financing was about 1.6% of our revenues compared to 1% in fiscal year '20. And today with what I see, I'm expecting floor plan to be relatively as a percentage of revenue similar to what we had in fiscal year '20. Obviously the leaner inventory will certainly help and the more rapid liquidation from the dealers as well with that leaner inventory is another factor.

Cameron Doerksen, Analyst

Okay. No, that's very helpful. Thanks very much.

Operator, Operator

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

Luke Hannan, Analyst

Good morning. Thanks. I want to follow-up on the earlier line of questioning on the staging of inventory. I know that was in response to discussion around the tariff uncertainty and perhaps moving inventory around in advance of these tariffs being imposed. But I wonder if the experience the dealers have had over the course of the last several years now has given them any sort of thought and perhaps yourselves any sort of thought as to, I guess, helping to stage inventory a little bit more thoughtfully, we'll call it moving forward so as to make sure there's less inventory on their lots going forward, less of a burden from a floor plan perspective. Curious to know, if you've had any discussions there and what your thoughts are absent of course what's going on with tariffs?

Jose Boisjoli, CEO

Obviously, with the high-interest rate that we had in the last few years, dealers are extremely sensitive to inventory. And that's why on the year-round product off-road, particularly where we take orders every month for what will be shipped in three months, it's a discussion that there's a lot more detail with dealers than it used to be. Then for sure and when the seasonal product like we're doing the booking right now in Snowmobile for production that will happen this spring and summer. It will be for sure a total discussion with the dealer. Then the dealer typically don't they make less profit selling non-current and obviously the high-interest rates. Then they are extremely cautious about what they will order. And I think overall this will be healthy for the industry mid to long-term.

Luke Hannan, Analyst

Okay, thanks. And then for my follow-up here. Jose, you mentioned that the early read from the boat shows was showing more stable industry conditions. Just curious what sort of data points are you looking at there? Is it registrations primarily or is there other information that's sort of informing that?

Jose Boisjoli, CEO

Yes, boat shows, it's always difficult to get statistics from boat shows because customers go to the boat show dealers, meet them and it's very difficult to get what is signed at the boat show or what will be signed in the following weeks. But what we're hearing from dealers, last year dealers' boat shows were very good in certain areas and bad in other areas. This year it was more consistent across North America. Then what we're hearing, the dealers are quite happy with the boat show booking or the boat show sales and even right now we are on tour on off-road and the attendance, the interest for the product is there. Then like we've said many times, we feel good about the beginning of the year and I think a lot of customers are on the fence waiting to better understand what will happen with the tariffs and the global economy.

Operator, Operator

Thank you. Next question will be from Jaime Katz at Morningstar. Please go ahead.

Jaime Katz, Analyst

Hi. Good morning. I want to approach profit growth from a different perspective. Is there a specific level of sales at which you start to see absorption increase and contribute to operating margin expansion? Is it around low single-digit growth or mid-single-digit growth? Can you provide some insight into that for us?

Sebastien Martel, CFO

Well, this year, fiscal '25, we were operating our plans probably at, let's say, 55% utilization, which is obviously suboptimal. Every unit we add is contributing what we'll call it direct margin or call it revenue minus variable cost to the bottom line. And so they're all extremely profitable. And so any volume increase is beneficial for us and I'll give you more than what you're currently reporting as a profit margin or a gross margin. So that's the obviously the beauty of our business. Yes, there's certain level of fixed costs. We still can be profitable even running with 55% asset utilization. But as we increase, every percentage point of asset utilization is exponential in terms of revenue growth that we could get.

Jaime Katz, Analyst

So anything positive would be good is what it sounds like? And then can you talk a little bit about how you guys are thinking about your capital allocation priorities this year and where that spend is going to? Thanks.

Sebastien Martel, CFO

Well, the number one priority continues to be the product, the innovation. This is what fuels demand, fuels interest in the consumer, fuels dealer engagement and so that's why we're continuing to invest. And if we have an exciting year of product introductions coming up and we'll continue focusing on that and protecting this. The other element is obviously we want to distribute capital to shareholders with the dividend, so we're modestly increasing the dividend this year. We still have $3.3 million of shares that we can buy back under the NCIB program. And so that is certainly an opportunity that we would like to tap in. But obviously you'll understand in the current context, we prefer protecting the flexibility of our balance sheet. And so we'll be holding back on buybacks until we have a better read as to where tariffs will go and where the economy is going to land.