RBC analyst reports on Q1 dealer survey

RBC Capital Markets analyst Joe Spak provided the following research note to Powersports Business following the combined RBC/PSB Q1 Dealer Survey.

“Winter weather clearly weighed on traffic, and 1Q15 retail sales are likely to be short of prior expectations. In many instances, this has contributed to a higher than desired inventory position. The ORV and motorcycle environment was also more promotional, though it is unclear what is related to clearing out old models vs. a more competitive stance. … Most dealers are still fairly encouraged about industry trends for the remainder of 2015, though motorcycle expectations accelerated while ORVs decelerated.”

Here’s a look by vehicle segment, according to Spak.

“SxS. We believe SxS retail sales grew +mid-single-digits year-over-year decelerating from the mid-to-high single digits seen in 4Q14. Polaris does appear to have outperformed by a few points. Industry SxS inventories appear alarmingly high partially due to lower than expected retail sales from weather (encouragingly, many started to report better trends as weather broke). Elevated inventories likely led to some higher promotional activity, though Arctic Cat is causing some havoc in recreational vehicles as they move to aggressively clear old product. Polaris responded, but not broad based and rather targeted by product/region. Despite a relatively tougher 1Q15, industry (and Polaris) dealers are still fairly optimistic about the rest of 2015, though perhaps a little less so than in 4Q14. On the other hand, we are incrementally cautious about two factors: 1) the increased dealer chatter about oil/gas/ag impact, and 2) some OEM/dealer tension leading some dealerships to look to new OEM relationships (such as CFMOTO) to try and earn better margins.

“Motorcycles. Overall, we believe motorcycle retail sales were up low single-digits in 1Q15. While Harley’s January/February checks were relatively flat, we saw a slight improvement in March, so for the quarter we would peg Harley U.S. retail at flat to +2% y/y. We have also picked up some divergence between southern dealers that reported better trends vs. northern dealers. While overall retail may be below prior expectations, we are not overly concerned given the relatively lower volume in 1Q. Supporting this view is that more recent checks appear better, and dealers are largely optimistic about motorcycle expectations over the upcoming season, with Harley (and Indian) dealers leading the way. With relatively clean inventory and increased excitement over Harley’s products, we continue to see a favorable risk/reward setup for Harley’s shipment guidance.

“ATVs. Retail sales growth in 1Q looks fairly muted. Honda appears to have had a strong sales quarter, but they have also been one of the more promotionally aggressive, causing other players to respond. Next 12 months expectations for ATVs appear to have moderated somewhat versus last quarter. Even if volumes hold in, given the more promotional environment, we worry about the ‘value’ of sales.

“Snowmobiles. A tough season for snowmobiles given poor snow conditions.”