Reflecting ongoing challenges in the RV industry, Winnebago (WGO, Financial) missed both top and bottom-line estimates in Q3 (May), marking another quarter of significant year-over-year declines. Investors anticipated a weak quarter following Thor Industries' (THO, Financial) disappointing April results. Elevated interest rates and ownership costs contributed to bleak quarterly projections from analysts.
Despite lowered expectations, WGO still fell short, highlighting the tough market conditions. As shares approach 52-week lows, it's evident that investor optimism for a quick demand recovery in the RV industry has waned.
- WGO's adjusted EPS plummeted 47% year-over-year to $1.13, and revenues fell 12.7% to $786 million in Q3. Towable RVs saw a slight 0.6% revenue increase, but Motorhome RV sales dropped 20.1%, and Marine sales declined 31.8%. Additionally, WGO experienced another year-over-year decline in backlog across all segments, as dealers remain cautious about inventory.
- On a positive note, profitability improved sequentially, with adjusted EBITDA margins rising 30 basis points to 7.4%. Gross margins remained stable quarter-over-quarter at 15.0%, aided by sequential increases in Towable RV and Marine adjusted EBITDA margins.
- WGO did not provide formal guidance but maintained its previous mid-cycle organic growth targets, including revenues of $4.5-5.0 billion, up from $3.5 billion in FY23 (August), gross margins of 18.0-18.5%, North American RV market share of over 13%, and U.S. aluminum pontoon market share of 13%.
Despite a moderate earnings beat and in-line revenue growth last quarter, we remained cautious due to persistent issues in the RV industry. Even if interest rates decline significantly, it's uncertain if this will quickly boost demand. Financing, maintenance, storage, and fuel costs are still factors. Although inflation has cooled, its cumulative effects may cause hesitation among potential RV buyers and upgraders for longer than WGO and its peers expect.
However, given the stock's significant decline since reaching one-year highs in December, WGO is starting to look attractive. While near-term challenges may prevent a rapid turnaround, the increased interest in the RV lifestyle sparked by the pandemic shouldn't be overlooked. WGO's focus on premiumizing its product suite helps bolster margins over time and cushions against economic downturns, as higher-income consumers are less deterred by rising ownership costs compared to lower-income demographics. Rival THO, whose shares have held up relatively better, is also showing signs of bottoming out amid post-April selling pressure.
