Big ticket durable goods, especially the middle part of the market for recreational items like motorcycles, off-road vehicles, pontoons, and power boats are under severe pressure as it cycles its pandemic "super cycle" which also led to excess capacity being brought online. How visitation looks is shown below, net-net, no floor has been set yet.
To adjust, manufacturers are increasing discounts and lowering prices and dealers are cutting inventory. Higher interest rates have also been a significant inhibitor to demand and dealers’ willingness to hold inventory (see our article on the Fed’s monetary policy transmission and the path for rates in last week’s article.) These dynamics are severely impacting the industry’s profitability and cash generation. For Q2 2024, Polaris reported revenue down -12% and profits down -43%. Recreational off-road vehicles were down -12% in revenue, motorcycles decreased -22%, and deck boats declined by a massive -43%. Polaris CEO Mike Speetzen said, “The second quarter proved challenging as our industry continued to contend with elevated interest rates, inflation, and an increasingly cautious dealer and consumer.”
Competitor in boats, Brunswick, also reported Q2 this week with revenue down 15%, new boats down 23%, and profits down 19%, with its quarterly release quoting CEO David Foulkes saying, “With high interest rates continuing to pressure consumer budgets and suppress discretionary spending, the introduction of new model year products at the beginning of the important month of June did not catalyze boat purchases as we had anticipated, and our second quarter results were slightly below expectations. Continued slower retail sales, combined with higher levels of discounting and carrying costs, have increased pressure on dealer and channel partner profit margins resulting in ongoing conservative wholesale ordering patterns which, in turn, is causing OEMs to maintain lower boat production rates through the main selling season, impacting Propulsion and Navico Group OEM orders." Competitor Harley Davidson’s traffic is down, the reflects less “kicking of the tires” and less merch & accessories sales (-9%). Wholesale sales revenue was roughly flat as last year was an easy comp; 2023 was of period of curtailing deliveries to dealers to lower dealership inventory levels, and so Q2 shipments were at 47% of the pre-pandemic levels versus at 90% last quarter. Moreover, Harley is slashing prices (-15%) for dealers to put greater value in front of the consumer. Management lowered guidance for the year and is further throttling back production.
