Dealers are generally more optimistic toward the upcoming boat-selling season than they have been in the last few years, according to a report from Longbow Research.
“On average, our dealer contacts have experienced growth of about 14 percent so far during the first quarter (6 percent in January and 21 percent in February),” the report said. “While these numbers were clearly aided by unseasonably warm weather and [comparing] against exceedingly small numbers from a year ago, our dealer contacts are generally more optimistic towards the upcoming season than they have been in a handful of years.”
Although attendance was up just 1 to 2 percent at recent boat shows, the analysts said sales at the shows seem to be up considerably more. Among Longbow’s contacts, sales at the Miami, New York, Fort Lauderdale, Minneapolis, Fargo, Baltimore and New Jersey boat shows were all up. Dealers reported flat year-to-year sales at the Atlantic City show and lower sales were reported at the Mid-America (Cleveland) Boat Show.
“While we believe attendance is normally positively correlated with sales, the true indicator of a boat show’s success are the number of sales and sales leads which result from it,” analysts said. ”On this front, the majority of our contacts reported significantly better results than in the prior year, citing particularly strong interest in boats at the high and low end of the price spectrum. For boats in the 25- to 40-foot range, demand is beginning to return, although dealers say that these consumers are still deal-conscious and at least as inclined to buy a used boat as new.”
Another cause for cautious optimism: Average inventories are now in line with desired levels, an improvement from the inventory shortages that were reported late last year.
Longbow based its report on more than 25 domestic powerboat dealers it contacted to gain insight into trends in demand, pricing, inventory levels and market share in the January-February 2012 time frame and the outlook for the next 12 months. The geographic breakdown of the contacts was 22 percent East Coast, 22 percent Midwest, 26 percent South and 30 percent West Coast.
“Outlook among our contacts is predominantly positive, although with the significant caveat that rising gas prices may end up being a drag on 2012, particularly among the price-conscious customers who buy smaller (less than 25-foot) boats,” the report said. “While the exact relationship between boat sales and gas prices remains unclear, even to dealers, it is apparent that certain thresholds in fuel prices (i.e., $4-a-gallon gas) represent a psychological barrier for many customers with regards to the ultimate in discretionary purchases.”
Anecdotally, a few dealers also told Longbow they are having a difficult time getting floorplan financing for boats that are 10 years old or older.
“This waning supply of used boats, combined with consumers who are still bargain-conscious, has produced a dynamic where used boats are often selling for a few thousand dollars above list price because consumers would rather slightly overpay for a used boat than shell out full price for a new one, particularly in the mid-sized range of cruisers and fishing boats,” analysts said.
From 2000 to 2007, new-boat sales represented roughly 27 percent of total sales (new and used combined). This number has come down dramatically and appears to have bottomed in 2010 below 16 percent of total sales.
“While progress has been extremely slow, we believe 2011 new-boat sales represented between 16 percent and 17 percent of total boat sales, and that based on anecdotal feedback from dealers we should expect continued improvement in 2012,” according to the report.
“Brunswick continues to be one of our favorite names, given what we believe is considerable macro-independent growth in combination with even more dramatic macro-driven upside in 2012 and beyond,” according to analysts, who said they remained “neutral” on MarineMax.
“We are leaving our estimates unchanged for [Brunswick], given (1) what appears to have been a weather-driven boost to sales across the power sports industry that may or may not translate into comparable (or any) 2012 growth, and (2) a history of boat show trends that are not necessarily indicative of full-year boat industry trends,” the report states.
“We did, however, revisit our estimates for [MarineMax] and, while we are leaving our top-line estimates unchanged, we are lowering our gross margin estimates by 40 [basis points], which we believe represents a more realistic margin expansion target of 100 [basis points] for the year,” according to the report. “The result is a reduction in our full-year EPS target from a 20-cent loss to a 30-cent loss.”