Have a $137.00 target. GLTA
EQUITY RESEARCH
BRP INC.
FQ2 Preview: Execution In A Cloudy Macro
BRP will report its FQ2 results on Thursday September 7 before market
open. Management will host a conference call at 9:00am EST; dial-in number
is 1 (888) 396-8049; passcode: 52909951. The quarter ran from May to July.
Thoughts On The Remainder Of F24: Heading into FQ2 earnings, we are
expecting BRP to reiterate F24 EPS guidance. On the positive, commentary
from recreational vehicle peers continues to showcase relatively healthy
demand across the industry, especially in the premium segment of the
market where BRP is over-penetrated. Looking forward, we believe BRP’s
recent product introductions can support further market share gains,
potentially somewhat offset by improved availability at competitors. While we
acknowledge the multiple tailwinds that would support a raise to revenue
guidance for F24, we are cautious in the face of slower spending overall, and
we expect flow-through to EPS to remain limited due to higher SG&A spend
(to support ongoing innovation) and higher financing costs.
FQ2 Preview: We model 15% revenue growth Y/Y driven by higher volumes
and favourable pricing, partially offset by higher sales programs. By product
line, we expect the majority of the growth to come from year-round, along
with marine products, with the latter benefiting from a shift in timing from FQ1
to FQ2 due to supply chain constraints earlier in the year. Below the top line,
FQ2 margins are expected to be below full-year. We model 83bps of gross
margin expansion, driven by pricing, more favourable mix and lower logistics
costs, partially offset by higher sales programs and higher interest rates on
floor plan financing. Furthermore, we forecast SG&A to be up 38% Y/Y due
to higher marketing and R&D expenses. This translates to 10% EBITDA
growth but ~flat EPS Y/Y due to higher depreciation and financing costs, in
line with management commentary. BRP also repurchased 1.5 million shares
in FQ2.