By Spencer Jakab
They say that the second-happiest day in a sailor's life is when he buys his boat. The happiest is the day he sells it.
Buyer's remorse isn't universal, and it often takes a while to set in, but the Covid-19 pandemic saw more than its share of regrettable big-ticket purchases. Extra cash and a desire for social distancing pushed sales of recreational vehicles, boats, motorcycles and snowmobiles to multiyear or all-time records. Then the cost of living increased, remote working got harder and, crucially, the interest rates to finance shiny, new playthings surged.
"The whole business is based on a monthly payment," says Marcus Lemonis, chief executive of Camping World Holdings, the world's largest RV retailer.
The result: Overflowing dealer lots at a time when plenty of lightly-used versions sit in driveways and marinas. That sounds like awful news for companies that struggled with pandemic supply-chain issues only to see demand for their recreational wares collapse once those problems got ironed out. It depends, though: Some are making lemonade out of lemons.
Take Brunswick, the world's largest maker of pleasure boats. Its first-quarter sales dropped 22% from the year earlier period and its operating income plunged by 53%. Brunswick's retail boat sales this year probably will retreat to what they were in 2012 or 2013.
But, even though its shares, along with other pandemic darlings, are well off their 2021 boom-time highs, someone who invested in Brunswick five years ago has made a 97% return. As its Chief Financial Officer Ryan Gwillim points out, sales of new boats are among its least profitable business lines. Once one has been sold, higher-margin items like motors continue to be needed for years to come.
Another sideline: Less than a year before the pandemic, Brunswick bought Freedom Boat Club, which allows people who don't want to own a boat or deal with maintenance and storage to use one regularly. Membership has more than tripled since the acquisition and attrition is only about 10% a year.
"We made a lot of smart portfolio moves in the last decade to make our business less cyclical," says Gwillim.
Likewise, MarineMax, which describes itself as "the world's largest recreational boat, yacht and superyacht services company," still gets most of its revenue from new boat sales through its dealerships. But it made 16 acquisitions between 2019 and 2023, mostly in areas like insurance, marinas and other services. It nearly doubled its revenue and tripled its net income during that span. Shareholders have made a 114% total return over the past five years.
The boat market might have gotten choppier when the tide went out if it weren't for especially sharp supply constraints that limited the number of vessels that could be manufactured when they were most in demand. The National Marine Manufacturers Association forecasts that combined U.S. new and used boat sales this year will be about 22% below their 2021 peak.
The boom and bust for RVs has been steeper. Initially hampered by its own supply-chain issues, the industry geared up and hit its monthly record for North American wholesale deliveries to dealers of 64,454 in March 2022, according to the RV Industry Association. That was the month the Federal Reserve began raising interest rates from zero. Within a year, monthly shipments had dropped by more than half, with the decline much sharper for pricey motor homes than for trailers. They have improved only modestly since then. Meanwhile, the number of used units listed for sale on RVTrader.com is more than twice as high as during the period of peak demand.
If nearly all you do is make RVs, that is a problem. On Wednesday Thor Industries, the world's largest RV manufacturer, reported that sales for its fiscal third quarter were down by 40% and earnings per share down by two-thirds from the same period in 2022. Some RV makers have scrambled to redesign their products so that "decontented" versions with fewer bells and whistles can be sold at a lower sticker price -- a move one blogger dubbed " cheapification."
Times are also trying for Polaris, a company that boasts it is "synonymous with adventure and passion." Its all-terrain vehicles, motorcycles, snowmobiles and boats were in high demand and earnings surged in 2021 and 2022. In April it reported a 20% drop in first-quarter revenue and a 97% fall in net profit compared with the same quarter a year earlier amid "elevated promotions." Its stock, which has given up all of its pandemic gains, rose briefly this week when it said it was expanding its boat-rental business.
Recreation companies that took hard decisions early could find themselves rulers of the waves or kings of the road, though. Knowing that price cuts on newer models were coming, Lemonis, known for playing "The Profit" on CNBC where he doled out tough-love advice to struggling businesses, took the painful step of discounting Camping World's older inventory ahead of price cuts he knew were coming on 2024 models.
As with boats, new RVs don't carry a large markup. Camping World's most profitable business is its Good Sam Club for RV owners. Parts and service, finance and insurance and used RV sales are also more lucrative. Since 2017, it has expanded from 124 to about 215 dealerships and is targeting 320 by 2028. An investment made five years ago has produced a total return of 122%.
People who can't make it to the lake, trails or campground as often as they had hoped, or are just looking to economize, might be disappointed in what their pandemic purchases can fetch today, but some of the companies that sold them their toys will benefit for years no matter who winds up owning them.
Write to Spencer Jakab at Spencer.Jakab@wsj.com
(END) Dow Jones Newswires
June 07, 2024 05:30 ET (09:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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