The Bubble Has Burst: A Pandemic-era Recreational Stock Selloff

The COVID-19 pandemic has significantly changed consumer behavior, especially in the recreational vehicle (RV) industry. In the early days of the pandemic, sales of RVs, boats, motorcycles and snowmobiles soared, fueled by additional cash flowing into Americans’ bank accounts due to federal subsidies and a desire for social distancing, leading to multinational corporations. Year record.

But this initial bubble burst during the pandemic for RVs, along with boats, motorcycles and other outdoor vehicles, led to a significant market correction as demand normalized and financial conditions tightened. As the cost of living increases, remote work becomes more difficult, and interest rates soar, the cost of financing these big-ticket items has become prohibitively high.

According to RV Industry Association, RV shipments increased nearly 40% from 2020 to 2021. The RV industry shipped approximately 600,240 units to dealers in 2021, a 19% increase over the 2017 record. RV shipments have plummeted since the pandemic surge. The RV industry ended 2023 with 313,174 units shipped, a 36.5% decrease from 2022.

“The pandemic has sparked more purchasing behavior from consumers, but now we’re back to the numbers from 2018 and 2019 rather than the huge numbers from 2020 to 2022.” said This is Chris Grant, co-owner and general manager of Midway.

As the pandemic bubble bursts, investors may want to consider selling recreational stocks, including: Thor Industries (THO), Winnebago Industries, Inc. (WGO)and Polaris (PII). Let’s take a closer look at the stock’s fundamentals and near-term outlook.

Thor Industries (THO)

Thor Industries (THO), a leading RV manufacturer, has experienced a huge surge in demand during the pandemic, but is now facing a market correction. Stocks have struggled to maintain pandemic-era gains as consumers cut back on discretionary spending and higher financing costs dampen enthusiasm for RV purchases.

THO’s stock price is down more than 8% over the past month and about 10% over the past six months.

THO’s trailing 12-month gross margin of 14.10% is 61.7% lower than the industry average of 36.80%. Likewise, the stock’s trailing 12-month EBIT margin and net income margin are 4.28% and 2.59%, respectively, which compares unfavorably to the industry average of 7.59% and 4.70%.

“In the third quarter of our fiscal year, our independent dealers saw increased retail activity during the spring selling season. However, the transition to sales remained difficult due to economic pressures on retail buyers. Faced with high floor plan interest rates, our independent dealers are understandably cautious about their ordering patterns. “As a result, our independent dealer inventory levels remain suppressed.” said Bob Martin, President and CEO of THOR Industries.

“Given the macroeconomic conditions, we believe this cautious approach is sound for the industry, and we remain confident that top and bottom line performance will return robustly once macro pressures subside,” Martin added.

For the quarter ended April 30, 2024, THO’s net sales decreased 4.4% year-over-year to $2.8 billion. North American-bound RV net sales decreased 4.7%. Total profit was $421.85 million, down 2.5% year-over-year. Net income and earnings per common share were $113.58 million and $2.13, respectively, down 5.1% and 4.9%, respectively, compared to the same period last year.

As of April 30, 2024, the company had cash and equivalents of $371.82 million, compared to $441.23 million as of July 31, 2023. THO’s current liabilities increased to $1.74 billion at the end of the third quarter.

In light of difficult market conditions, the company lowered its full-year 2024 guidance. The prolonged market downturn, which lasted longer than expected, continues to impact THO’s independent dealers and consumers, which the company believes will limit its sales and bottom line in the fourth quarter.

The company revised its guidance range to reflect a more conservative fiscal 2024 North American industrial wholesale shipment range of 315,000 to 325,000 units based on current North American order intake levels through the end of May. This is down from the previous range of 330,000 to 340,000 units. .

THOR Industries expects full-year consolidated net sales of $9.8 billion to $10.1 billion, compared with previous guidance of $10 billion to $10.5 billion. Gross profit margin is expected to be 13.75-14%, down from the previous 14-14.5%. Additionally, the company’s earnings per share are expected to be in the range of $4.50 to $4.75 (previously $5 to $5.50).

Analysts also appear to be very negative about the company’s prospects. The Street expects THO’s revenue and EPS to hit $10.01 billion and $4.70 for the fiscal year ending July 2024, down 10% and 32.4% year-over-year, respectively.

Winnebago Industries, Inc. (WGO)

c, another major player in the RV market, is facing headwinds as demand declines. The company enjoyed a boom at the height of the pandemic, but the current economic uncertainty and rising interest rates have led to declining sales and inventory performance.

WGO’s stock has fallen nearly 15% over the past six months and more than 19% so far this year.

Ultimately, WGO’s trailing 12-month gross margin and EBITDA margin of 15.93% and 8.59% are lower than the industry averages of 36.80% and 11.18%, respectively. Likewise, the stock’s trailing 12-month net income margin of 3.70% is 21.4% lower than the industry average of 4.70%.

at 2nd quarter For the year ended February 24, 2024, WGO’s net revenues decreased 18.8% year over year to $703.6 million due to lower unit sales related to market conditions and unfavorable product mix. Total profit decreased 28.3% year over year to $105.3 million. Operating profit was $35.4 million, a 53.9% decrease compared to the same period last year.

The company also reported a net loss of $12.7 million, or $0.43 per common share, compared to net income of $52.8 million, or $1.52 per common share, respectively. Adjusted EBITDA decreased 83.7% year over year to $13.9 million.

Wholesale shipments were limited during the quarter as dealers closely managed inventory levels due to the high interest rate environment and seasonal demand trends. As of February 24, 2024, the camper RV segment’s backlog was $452.2 million (2,582 units), a 48.2% decrease from the previous year.

As of February 24, 2024, the company’s total outstanding debt was $694.8 million. Winnebago Industries completed a $350 million convertible senior note offering to refinance due 2025 in the second quarter. Cash and cash equivalents decreased to $265.7 million compared to $309.90 as of August 26, 2023.

Analysts expect WGO’s third quarter (ending May 2024) revenue to hit $805.49 million, down 10.6% year-over-year. The consensus EPS estimate for the same quarter is $1.34, reflecting a 36.9% year-over-year decline. Additionally, the company has missed consensus revenue estimates in three of the last four quarters, which is disappointing.

For the fiscal year ending August 2024, the company’s revenue and EPS are expected to hit $3.14 billion and $4.97, down 10.1% and 35.2%, respectively, from the same period last year.

Polaris (PII)

Polaris (PII)Known for its motorcycles, snowmobiles and other recreational vehicles, the crisis was also felt. PII’s shares soared as consumers sought outdoor activities during lockdowns. However, subsequent economic changes cooled demand and caused stock prices to decline. PII’s share is down more than 18% year to date and about 35% over the past year.

PII’s trailing 12-month gross margin of 22.23% is 39.6% lower than the industry average of 36.80%. Likewise, the 12-month trailing EBITDA margin and leveraged FCF margin are 9.78% and 3.72%, respectively, which are lower than the industry averages of 11.18% and 5.46%.

PII Sales decreased by 20% compared to the same period last year It recorded $1.74 billion in the first quarter ended April 23, 2024. The Company’s sales were negatively impacted by lower net prices and lower volumes resulting from higher promotional activity, partially offset by a favorable product mix. North American sales decreased 22% year-over-year. Adjusted gross profit margin decreased 29.5% year-over-year to $330.7 million.

Additionally, adjusted net income and adjusted EPS according to PII were $13 million and $0.23, respectively, down 89.1% and 88.8%, respectively, compared to the previous year. Adjusted EBITDA decreased 53.8% year over year to $110 million. Additionally, the company’s free cash flow was negative $162.1 million, compared to $35.1 million in the year-ago quarter.

According to its 2024 business outlook, Polaris expects annual sales to decline by 5-7% compared to fiscal 2023. Adjusted EPS attributable to Polaris common stock is expected to decrease by 10-15% compared to 2023.

The Street expects PII’s revenue and EPS for the second quarter (ending June 2024) to hit $2.17 billion and $2.27, down 2.3% and 6.3%, respectively, from the year-ago quarter. Additionally, the company’s revenue and EPS for fiscal 2024 are expected to be $8.38 billion and $7.90, down 6.2% and 13.7%, respectively, from the previous year.

conclusion

Companies primarily in the RV industry face ongoing macroeconomic challenges. The RV and boat markets have experienced an unprecedented boom during the COVID-19 pandemic, but the resulting decline in consumer demand and economic factors such as high interest rates and inflation have created a challenging environment for these stocks.

Despite this economic downturn, some companies, including: Brunswick Corporation (BC), succeeded in navigating these choppy waters. But other companies, including Thor Industries, Winnebago, and Polaris, haven’t fared as well. Investors should carefully evaluate their positions in these companies and consider the potential benefits of reallocating their portfolio in response to changing market dynamics.

Therefore, it seems prudent to consider selling struggling recreational stocks THO, WGO, and PII, which have lost huge profits during the pandemic era.