BRP Inc.
(DOO-T, DOOO-N) C$92.32 | US$71.99
Polaris Q2/22 Results: Solid Results Indicate Resilient Demand Event
This morning, BRP competitor Polaris (PII-N; not covered) reported Q2/22 EPS above consensus, while effectively maintaining its 2022 guidance.
Impact: SLIGHTLY POSITIVE read-through for BRP
Exhibit 1. Polaris Q2/22 Results (US$)
Source: Company reports, Capital IQ.
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Financial Performance: Sales were slightly below consensus, as supply chain constraints limited volumes, offsetting the benefits from sales mix and higher pricing. Product availability continues to weigh on retail sales, that were down 23% y/y. While supply chain constraints remained a headwind in Q2 they illustrated modest signs of improvement sequentially. This led to better-than-anticipated operating margins, that offset a degree of input cost inflation, and led to the beat on Adjusted EBITDA/EPS relative to consensus.
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Inventory: Dealer inventory levels remain at historical lows, down ~70% from Q2/19, and are anticipated to remain at this level through the end of F2022. While dependent upon supply/demand trends, this should result in a material (~ $750mm) restock tailwind beginning in 2023.
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Pre-order Sales: While slightly down sequentially, pre-order activity is elevated at ~60% of retail sales, illustrating the current resiliency in consumer demand.
Updated 2022 Guidance (US$)
Polaris narrowed its full year guidance for F2022 (EPS of $10.10-$10.30 from $10.10-$10.40), despite raising its sales forecast to up 13%-16% (was 12%-15%). There was no change to its EBITDA relative to their April guidance.
Key Takeaways: Our initial take is that the results for Polaris indicate a neutral to slightly positive read-through for BRP. The story remains that supply chain constraints are impacting overall industry volumes and that performance remains heavily weighted toward H2/22. That stated, we are encouraged by presales that show consumer demand remains resilient, as well as dealer inventory levels that remain depleted. Furthermore, we believe that BRP once again may have gained market share relative to Polaris this quarter. We will review our assumptions post the Polaris call, but maintain that BRP catalysts (outside SIB) are likely geared toward H2/F23, coinciding with management guidance for a material improvement in financial performance.