If you only followed Polaris' and Arctic Cat's financial goings on over the past year, it'd paint a doomy, gloomy picture for the powersports industry. And that'd be fair because, due to a cascade of socioeconomic reasons, from post-COVID clarity and simply having a snowless winter, the market has been against powersports manufacturers. So how then has BRP managed to double its profit since this time last year?
The Valcourt, Que.-based manufacturer that owns the likes of Can-Am, Ski-Doo, and Sea-Doo, to name a few, continued to beat industry dips and swerves along with a reduction in dealership orders, particularly during the last sales quarter, when the brand boosted its third-quarter profits by 150% year-over-year to $76.5 million.
BRP's revenue increased by 14% to 2.25 billion during the same quarter, and raised its revenue forecast for the year to $8.3 billion against its earlier projections of $8.15 billion to $8.30 billion. The company's CEO, José Boisjoli, puts the brand's success down to listening to what the consumers want and—spoiler alert—it's not super expensive side-by-sides.
In October, Boisjoli said that BRP's record retail sales for that month in side-by-side and all-terrain vehicles were driven by the latest high-spec Can-Am models, like the Maverick X3, and cheaper Defender models. But, surprisingly, it's the higher-end models that are carrying the burden of the sales, even amongst economic uncertainty, according to Boisjoli, who said, “The high-end products are selling well, but the lower-end models – the more entry-level models – traffic is lighter.”
What's on BRP's side is that the average household income of the brand's customers is $175,000 per year, which somewhat insulates the company from dips in the sale of higher-priced vehicles. But, this should, in theory, be a similar story for Polaris, a brand that's currently suffering financially. The thing is, BRP is suffering too, although still coming out on top.
BRP's overall revenue in North America fell 4% due to having lower-than-expected snowmobile sales, even though Ski-Doo finished spring with a 60% market share. Snowmobile sales are often down to the weather we experience during winter, but there's another unpredictable factor for BRP that could come into play at any moment in the form of tariffs.
BRP is a Canadian company, and 70% of the inventory that goes to the US is made in Mexico—not good if tariffs shoot up. What's on the company's side, though, is that all of its vehicles made in Canada and Mexico are compliant with the North American trade pact, which allows American buyers to avoid 25% tariffs. “We’re not reacting to news every day, because it will be too painful,” said Boisjoli. So, if BRP can avoid tariff hell in the near future, we have to hope that it'll be in a position for another good year.
The bottom line for shareholders is that BRP said it expects normalized earnings per diluted share to amount to $5, which is up from earlier projections of $4.25 to $4.75. It looks like the end of days is not yet here for powersports manufacturers, but more might want to take a leaf out of BRP's playbook, which might include selling off arms of the company that aren't turning a good profit, unfortunately.
