Winnebago Industries is facing a challenge with its financial forecasting, telling investors that, in a historically cyclical industry, its plummeting sales are likely temporary – but, in a shaky economy, it isn’t sure when they will fully recover.
Winnebago, best known for making motor homes and camper vans, benefited from a surge in consumer spending on outdoor activities during the early days of the pandemic. But sales to retailers plummeted as concerns about COVID-19 waned and people spent more money on air travel and hotels. High interest rates have also made purchases unaffordable for some buyers. During the quarter ended Feb. 24, net revenue at the company fell 19% from a year earlier, to $703.6 million.
Recreational vehicle sales typically rise and fall with the economy. Winnebago’s business model is built to weather such downturns, even after RV shipments to retailers sank to the lowest point since 2012. Roughly 85% of the company’s costs are variable, meaning they can be quickly cut, Chief Financial Officer Bryan Hughes said. Over the past year, Winnebago cut its expenses by operating its production lines fewer than five days a week.
Any rebound in the company’s revenue will be largely tied to a stronger economy—and that is difficult to predict when many consumers are pessimistic and interest rates remain high.
Winnebago last week issued financial guidance but without a target date. It includes a goal to generate between $4.5 billion and $5 billion in annual net revenue. The company generated $3.5 billion in revenue during the latest fiscal year that ended on Aug. 26. The company hopes to achieve the new targets within three to five years, it said.
Winnebago’s previous targets, issued in November 2022, included $5.5 billion in revenue by 2025, including from acquisitions.
“A lot of those analytics that we run suggest that we are at trough, and that the consumer is starting to show some signs of stability again,” Hughes said. The company’s financial models suggest sales are stabilizing and are poised to increase this spring, he said. Its revenue guidance assumes sales will return to historic averages.
Winnebago sells its vehicles to retailers, which were stuck with too much inventory once demand began to fall from pandemic highs. In 2023, RV shipments from manufacturers to retailers declined 37% from a year earlier, to 313,174, the lowest level in about a decade, according to the RV Industry Association.
During the first two months of 2024, however, shipments rose 15% from the same period a year earlier, to 53,698.
“The revised guidance approach removes the macro, which is definitely beyond their control,” said Craig Kennison, senior research analyst at the investment firm Robert W. Baird. The new guidance instead puts the focus on what the company can control, he said.
In addition to revenue, Winnebago’s guidance also includes targets for other metrics including gross margin and free cash flow.
Several initiatives at Winnebago could boost sales and increase profitability in an otherwise down market. The company has begun selling towable trailers at a lower price point. Additionally, the company is looking for ways to reduce costs in its supply chain. And it is seeking potential acquisitions, according to Hughes.
Read the full article by Kristin Broughton in the Wall Street Journal here.
