A recent survey of boat, RV and power-sport dealers shows “negative” trends across the board for the third quarter, according to a report by RBC Capital Markets, with certain categories down in the 50 percent range.
“Dealers are under stress, especially in the RV and marine industries, where trends are worse and excess capacity is most pronounced,” analyst Edward Aaron said in the report. “Dealers attribute the weakness primarily to tight credit, low consumer confidence and high energy prices.
The survey of nearly 500 dealers was conducted in mid- to late September. Of those, 250 were boat dealers, representing a broad cross-section of the industry.
Boat dealers are most pessimistic about the current business environment and long-term outlook, the report said, with power-sport dealers being the least pessimistic.
In general, 45 percent of dealers plan to cut expenses, 30 percent intend to cut orders, and about 20 percent plan to reduce prices in an effort to bring inventory more in line. Only a small percentage of dealers said they would exit the business.
The majority of boat dealers surveyed said margins are trending significantly lower than a year ago, though they expect the rate of retail sales decline to improve in the next six to 12 months.
“We continue to advise a cautious approach toward investing in the space,” the report said. “Although there’s something to be said for contrarian investing, we believe it is prudent to wait for some signs of stability before getting involved.”
The report says RBC has “significantly” lowered estimates for Brunswick and MarineMax shares to reflect “extreme demand weakness” in the United States. Both companies are in danger of violating debt covenants, and it estimated the two could trip debt covenants in the December quarter.
“We expect both companies will be able to manage through these issues, but the risk profile has certainly changed in the past few months,” the report states.
— Beth Rosenberg