Thanks. Thanks to all of you for being here. Welcome to the Winnebago Industries Corporate Presentation. I'm Craig Kennison from Baird. And most of you know this, but Winnebago is building a portfolio of outdoor lifestyle solutions through many iconic brands. You'll know Winnebago, but also Grand Design, Chris Craft, and other marine brands, Barletta. We've got Mike Happy here, the CEO. And Mike, I think if it's okay, I'll ask you to just give a brief overview of the company to those of us who are maybe less familiar, and then we'll jump into Q&A, so have your questions ready.
Great. Thank you, Craig, and appreciate the opportunity to be here this morning. I'll try to run through the slides pretty quickly here so that we have time for Q&A. This slide is really a profile slide of who we are currently. We have transformed ourselves over the last decade from a single-branded, largely motorhome RV company to as Craig described, a more diversified RV and marine OEM company and have, we believe, strengthened the company from both a strategic and financial standpoint. So mostly North American, you know, certainly. I won't walk through this. This is really the constitution within the company. This is our mission and our purpose, vision, principles, and values, and this is what guides our employees and our team every day in terms of what we're trying to deliver these have been the the five enduring enterprise strategies that again internally we link to throughout the organization what differentiates winnebago industries from some of our largest competitors is instead of low cost high volume low mix we tend to be more high mix low volume very much focused on premium brands in the middle to upper segments of the market. Here is some recent data on RV unit share. We have our June earnings call on June 25th for our recently completed Q3 that ended this last weekend. We'll share some retail dollar share during that call, but this is some unit share on the RV side, winning on the motorized side here as of late, seeing a little bit of pressure on the towable side, although we're early in the stages of unveiling more of a dual branded strategy there, holding our own generally on RV unit market share in a very challenged macro environment. These are some of the new products on the motorhome side that we've been coming to market here recently, probably the most exciting of which in the last month has been the one on the left side of the screen, which is the Winnebago-branded Arca. We are in the middle of a transformation of our Winnebago-branded motorhome business, and that transformation will include a lot of new products in the future. This is what we call a backcountry adventure Class C product that you can take off the grid and candidly off the road to enjoy nature more intimately. Really strong feedback from both dealers but also consumers as we've launched that. Here are some products on the towable side. A couple of these are under the Grand Design brand, which is really one of the strongest brands in our portfolio. We've also launched Grand Design into the motorized business. I mentioned a dual brand strategy on towables. We're really investing a lot of time, effort, money into the Winnebago brand of towable RVs, and this Thrive product's been one of their growth catalysts here recently. We are seeing market share increases there, significant upgrades in our dealer base as Craig mentioned the marine business for us. We got into the marine business in 2018 with the acquisition of Chris Craft, an iconic luxury runabout brand. And the Barletta business entered the portfolio in 2021 and has been just a really astounding success. Barletta continues to gain unit market share literally almost every month, every quarter, certainly in the past several years, up to 9.3% on a trailing 12-month basis, now solidly the number three aluminum pontoon brand in the U.S. And we think there's significant upside here in the future around Barletta. And here's some products on the right side of the slide with Barletta, the Sansa is a $49.9 price point with a really good valued product to make sure that we hit the affordable part of the market, Seakeeper technology on many of the products for ride stabilization, and then you see one of the Chris Craft new products here. I have Joanne Andala, our treasurer, with me on this trip for this conference. We are very much focused on being disciplined and in challenged times in the outdoor recreation arena, keeping the balance sheet in good shape and allocating capital effectively and responsibly, and that's what the narrative of this slide is about. Particularly as of late, we've been focused on making sure that our net leverage is headed in the right direction as EBITDA recovers and we work on some things like debt pay down here recently. Last two or three slides are really meant to convey that interest in the outdoors remains strong, that we continue to see outdoor participation remain relatively stable, maybe not at COVID period highs in terms of outdoor engagement, but still historically strong, which we believe bodes well for the future of our business and our industry. The same is happening on the marine side with boating. Probably the biggest challenge for new product purchases on both RVs and marines is the perceived affordability challenge, which is, in fact, not just perceived but maybe real for many families with higher acquisition costs, higher interest rates, and certainly as of late, some of the higher gasoline prices as well. Last but not least, we are spending a lot of time on the digital side of our business, both connectivity within products and the center. We own a small strategic technology vertical company called Lithionics on lithium-ion batteries to serve not just the RV and marine markets, but probably the biggest TAM there is in the specialty vehicles, service vehicle market that we're beginning just recently here to penetrate. and then spending a lot of time on digital marketing, trying to influence the customer deeper into the sales process and certainly after the sale as well. And this is the closing slide, which is just a list of things that separates us, we think, or differentiates us from our peers and probably some of the other companies in Craig's coverage arena. So, Craig, those are the slides and certainly willing to take any and all questions.
Yeah, thank you for preparing those slides. If you have questions, feel free to ask them or shoot me an email on the device as well. But, Mike, maybe let's start with the health of the RV consumer. I think it's been a tough couple of years for a variety of factors, but what's the latest on that situation?
Well, I would say the macro demand environment in the RV and the marine industry remains challenged. The latest industry data that's public comes from March shipments and March retail, and both of those numbers were soft probably more depressed than we had hoped they would be a little a little bit disappointed in the the macro volumes there i know thor industries just announced some results this morning that i personally haven't had a chance to dive into in much detail so there's probably a little bit more public information there about their recent quarter results but i would say the macro demand environment just continues to remain challenged dealers craig as as you probably are well aware, are being very responsible and disciplined in what inventory levels they're comfortable carrying and doing everything they can do to prevent an accumulation of aging inventory on their lots and in their showrooms.
And if we were to unpack that consumer demand profile, is the issue, is it gas prices, interest rates, confidence? What are the driving factors behind that weakness?
You know, unfortunately, I think it is a number of those elements. I mean, historically, you know, consumer sentiment and interest rates specifically have been very important to the new unit market. And with consumer sentiment at a historic low, with interest rates being not quite double what they were five years ago, but at responsible credit today, a good credit customer would probably get around 7.99% retail financing. And five years ago, that was probably more like 3.99%. So cumulative inflation has affected the affordability of the products. I would say gas prices have been something that has come up, you know, in the last three months with the war in Iran with the U.S. and Israel affecting, obviously, with the strait, some of the gasoline and oil prices around the world. that is probably recently contributing to you know some hesitation by consumers to get into the lifestyle or in some cases even make a trade-up you know decision so so I think it's a flurry of things unfortunately and and we'll need several of those to soften or quiet themselves here probably before the the next up cycle begins.
So there is this value consumer out there if if you can call it that, but how is Winnebago trying to position the portfolio with respect to these macro headwinds, but also the, let's say, premium nature of some of your brands?
Yeah, I mentioned earlier that one of the ways we differentiate ourselves is by competing more in the mid-market to premium market segments. We are usually not the first brand that you might buy when you buy a boat or an RV. So we definitely have larger peers that are more competitive in some of the true opening price point, low value segments of the industry. That being said, each of our five OEM brands has been working to strengthen their profile in the lower parts of their product line. I mentioned the Barletta Sanza, which is an affordable priced pontoon below $50,000. That was a price point we had two or three years ago with the Aria, but with product inflation cost inflation we had vacated that price point the sanza puts us back there each of our different brands grand design winnebago numar chris craft have in their own way tried to strengthen the lower side of of their lines and so um you know that's you know that that's been a point of emphasis at the same time we're also trying to innovate with products that are new to the market and different from anything else you can find i mentioned the winnebago branded Arca. That's not a cheap product by any means. That's actually a pretty fairly priced product, but it is probably a best-in-class product in that backcountry adventure segment. So we're trying to compete in both ways, more affordable as we can that fits with our brands, but also staying true to our innovation and differentiation DNA as well. to what extent do you survey your own customers to understand purchase intent and even repurchase intent we know during the pandemic period of time there was a lot of purchases made by new people to the industry is there a chance that they will come back to the market at some point and drive a new cycle the good the good news related to the last part of that question is is and i continue to say this in many of these types of investor meetings is that we have yet to see a significant exodus of current or recently new customers in the lifestyle. The used market is healthy. Pricing in the used market has followed the new market a bit. As the new market has softened, so has some of the used pricing as well. But most of our dealers, Craig, would tell you that they can't get their hands on enough used products, especially at price points that they need to turn the margin that they desire. They're certainly not seeing as much used on trade-ins when somebody's coming in to buy another new product, but even on the open used market, they can't find enough at times, which says to me that there just isn't this exodus of customers from the lifestyle that's creating this glut of used products in the market. And it's an important space for dealers right now to address some of the affordability concerns that we just talked about minutes ago. So it's a part of the market that's healthy. Our consumer insights research focuses on brand preference and intent to buy. What it unfortunately doesn't always get to is the timing of those. We tend to have some of the most recognized and most preferred brands in our segments. Unfortunately, it's difficult to predict through our firsthand market research the timing of the customer intent to buy. We focus more on making sure the brand preference is high and then making sure that the close rate on our lead generation tactics is at a decent level. If they say they want to buy a Winnebago branded RV, we want them to walk out of that dealership with a Winnebago branded RV as opposed to being switched to another brand.
So when you joined Winnebago, I think you were quite intentional about taking the company into the towable category. You did that through acquisition, but you also have Winnebago towables. If you could, I mean, that's 85, 90% of the RV industry today, so a wise choice when you made it. But what is the strategy to increase penetration there? What are some of the challenges you face in increasing share?
Well, first of all, the Grand Design brand is the acquisition that you referenced there. And that has been a fantastic story over time. I mean, Grand Design, one of the fastest growing RV brands in industry history, but also one of the most successful, specifically towable companies in history as well. There's no doubt that our Grand Design business continues to be significant for us. and effective in many ways, but it has also been targeted because of its success by some startup brands over the last three or four years. And the Grand Design business is probably under as much pressure today as it has been. And I'm proud of the team for continuing to fight ways to retain as much share as they can. We have every intent and specific product and marketing plans in the future and dealer relationships in place to, we believe, be able to stabilize and grow the Grand Design Towables business in the future. I'll get to the other part of the towable strategy, but as you know, we've also extended the Grand Design brand into the motorized category in the last 18 months, and we're already up to somewhere in the 3% to 4% shipment share range on Grand Design motorized product in the market with retail share following along nicely. So the Grand Design brand remains healthy, and now we have a one-two punch there with towables and motorized. Our towable strategy, as I referenced earlier in my slides, now includes a greater emphasis on a dual-branded strategy with the Winnebago brand. The Winnebago brand will be more positioned in the middle of the market to more affordable side. And we still want the Winnebago brand to stand for quality and premium, but we're going to price the Winnebago towables brand a little bit more competitively in the market. probably in many cases a little lower than Grand Design. And with some of the new product that we're working on with Winnebago Towables, we think we can take what has historically been a 1% to 1.5% market share business to somewhere to the 3% to 5% range in the future. And recent SSI results have shown the beginning of, we believe, the flywheel spinning on Winnebago Towables with products like the Thrive, the Access, and the Micro Mini. So our intent is to get the double-digit towables market share with Grand Design carrying most of the weight, but Winnebago towables beginning to carry more water and have one plus one equal a little bit more than two in the future. So, you know, we're probably in that 9% to, you know, 9.5% range on Tollables retail share today. That should be definitely into the, you know, the 10% to 12% arena in the future.
It sounds like you have a careful pricing strategy around Grand Design and where Winnebago Tollables fits. What about distribution? How do you have to think through distribution strategy to be effective in taking share?
Yeah. One of the ways we're different from a lot of our larger competition is that we don't clone products in the effort to create distribution coverage that blankets a market with excessive dealers. When you go to a market, most of our competitors will have more dealers than we do and more brands in the market with some of those products being cloned or with relatively low differentiation. We go to a market and there's a Winnebago branded dealer, there's a Newmar branded dealer, there's a Grand Design branded dealer. In some cases, they might be the same, but we really try to give our dealers larger territory, more exclusive access to our brands so that they can make margin. I mean, we really believe the dealer relationship is win-win. We want our dealers to have hot winning products, to have higher turns with our products, and to have higher profitability with our products so that they preference us in the future. And so our dealer strategies are set up to be very specific to ensure the dealer has a path to success if we do our job. Within our portfolio, our business unit leaders talk amongst each other to try to create complementary channel strategies and product strategies, by the way, but channel strategies to make sure that we're, you know, we're growing all of our brands, but also partnering with some of the best dealers in the industry. So a lot of internal collaboration, but also a philosophy that dealer profitability is paramount. And by the way, I think that fits with the style of our company as well. You will see us many times preference margin over sales at times. I think that's healthy from a sustainability standpoint, allows us to reinvest into the company. And if we are responsible from an SG&A standpoint, that should result in decent, you know, bottom line profitability as well.
Where this industry has gotten into trouble in the past really has a lot to do with inventory. You can only do so much on the discipline on your side, but you have to count on your peers and competitors to also be disciplined. What is the latest on dealer inventory? You mentioned profitability being a factor, but how would you characterize inventory today?
Yeah, in late June, we'll give you a specific update on our field inventory position and turns at the end of our Q3. Back in March at the end of Q2, we had mentioned during our earnings process that field inventory in the industry was, from a turn standpoint, a little bit lower than we'd like to see it be. For our products at the end of March, well, end of February, technically, it was at 1.5 times. We stated during the March earnings process that we would like to see that number close to two for all of our RV brands specifically, and that we would intentionally be working on that through the course of calendar 26. The only way to get there is to have retail be higher than shipments. I mean, that's the math. And so we're being very conscious about our shipment velocity into the market relative to retail. I think one of the challenges in answering your question is that retail velocity has been lower than most of us in the industry have forecasted, including our dealer partners. And so, you know, we have to stay on top of production planning on a daily basis to try to make sure that shipments don't continue to run ahead of retail and lower turns in the market. And so turns from a historical gross unit standpoint are relatively low in terms of overall numbers. I mean, you know, we're at retail velocity of probably 2013 levels right now. Field inventory levels are probably at 2014 or 2015 levels for the industry. It's the turns that we really focus on. That's really the metric you need to stay focused on. And we think there's improvement there for our business that we'll be working on. And I won't speak for our competitive peers, but I would imagine that there's some opportunity for improvement in turns there as well.
Has the industry improved overall in terms of how disciplined it is with respect to dealers, thinking through inventory turns, OEMs, partnering in a better way?
I've only been in the industry 10 plus years. As you know, Craig, we can't and won't, you know, work with our OEM competitors on any of that. But I think there is a heightened sense of doing the right thing or being as responsible as possible based on some past cycles where there was a longer hangover, given some prior levels of less discipline. So I think each of us individually are certainly trying to mind our own shops and run our plants in a disciplined way. I will tell you in this particular down cycle, because it's lasted so long, I think the dealers have become very conditioned right now to be very strict and intentional about what they bring in. and i think there's less appetite for dealers for the deal of the day this is still a very intensely competitive environment right now where oems and suppliers are working to try to obviously get the most out of what the market allows us to from a macro standpoint but dealers are certainly playing a very strong role right now in managing inventory levels to where they think is right, uh, for their particular business.
How would you frame the health of the broader dealer network and then the Winnebago network within that?
I, I, I think our dealer network, and those are probably similar questions because, uh, we do not have a franchise dealer model. Uh, most of our dealers are similar dealers in some respects to some of our competitors dealers. Uh, and so the industry and our network, we, we've, we like to think we probably have more A and B dealers, you know, of the RV and marine dealer market. And I would say to answer your question from a financial health standpoint, as best we can ascertain, is that the dealers remain in okay shape right now. They certainly aren't making the margins that they were at the peak of COVID. And I would say they are pursuing other revenue and profitability streams like used sales and aftermarket opportunities in order to supplement cash flow and profitability that isn't quite as strong on the new unit side. What worries me about the current down cycle is the length of the down cycle and the ability for especially small to medium-sized dealers to sustain lower levels of profitability or cash flow for multiple years in a row. So the good news is, is that we haven't seen any recent significant signs of dealer stress that have shown up in our business from a dilutive standpoint. But that doesn't mean that there isn't stress and anxiety in the dealer channel, you know, as there is, I'm sure, at the OEM and supplier level. But a lot of these dealers, as you know, are smaller in capitalization and size and independent in nature. um earlier this year maybe a month ago there was a discussion of two of your key suppliers getting together do you have a point of view on consolidation in your supplier network and whether that might lead to vertical integration on your part well i i have a distinct point of view on on that particular uh uh circumstance that you referenced that i won't share today but But in general, we've seen a rise in both dealer consolidation and supplier consolidation. And as an OEM, we obviously need to factor that into our future strategy, our resiliency and agility, and how we ultimately retain a pathway to significant growth and earnings improvement in the future and in and without you know threat to our overall business model so you know I would say you know competition is healthy you know for most markets and a you know capital society and and you know I we would we would probably prefer in the future as an OEM less consolidation you know than more in the OEM and supply, or excuse me, in the dealer and supplier channels, but we'll have to be agile enough to deal with whatever happens. It definitely is entering our calculus in terms of future enterprise and corporate strategy as to how to be successful in a world that may have more characteristics, as you described.
We have a question from the audience that's going to require you to do some math on stage. But what percentage of your towables and motor homes are financed? And at the median price point of each category, what's the delta in the monthly ticket versus a few years ago? So that monthly payment question really in those categories.
So I can answer the first one a little bit more easily than the second part of the question. We believe at least two-thirds of RVs and boats are financed at retail by some source of credit. It may be the source that the dealer provides to the consumer, or it could be their local credit union or bank. We often don't see the source of credit, but we believe at least two-thirds of products are retail financed. In some of our more affluent premium brands, the more affluent customer will bring cash to the table for the entire transaction. The second part of the question is harder because there's a lot of different segments and we have multiple brands. I would say the acquisition price from just a pure selling price at retail standpoint of many of our products has increased anywhere between 25% to 45%, depending on brand. And then you add the cost of financing growing, as I referenced earlier in our discussion. You're probably looking at monthly payments over the last five years that have increased. you know in some cases you know 50 you know 50 it would vary by brand and by by segment but you know that's challenging as we've mentioned you know with especially middle class homeowners who are you know seeing inflation and groceries and energy and housing and in other parts of their life and so that's why a lot of oems are certainly working on strengthening the lower parts of their product catalogs to try to retain some level of affordability of new products in the market.
And with the time we have left, we have one more audience question having to do with Lithionics, but are there opportunities for Lithionics battery management systems to enter end markets beyond specialty vehicles such as commercial transportation, automation, and telecom?
The answer to that would really depend on what our decisions would be in terms of the catalog that Lithionics has. Not all of those applications referenced fit our current catalog of products at Lithionics. We sell lithium-ion battery packs. We do battery management systems. Our catalog includes alternators and inverters and other power packs. We sell some portable power systems into really interesting commercial applications, but not at scale i would say for now we're going to be focused on the rv market we're going to be focused on the marine market and we'll be focused on the service and specialty vehicles market with lithionics again as i referenced earlier the tam in each of those markets is meaningful for lithionics it's especially meaningful on that service and specialty vehicle market and uh and the team is in the early stages of starting to penetrate uh that so i'm excited about the opportunity and possibility of that business in the future.
Right on time. Mike, thank you so much. Thank you, Craig. Appreciate it.