Analyst Note| Jaime M. Katz, CFA |
Narrow-moat BRP printed a robust second quarter, including sales growth of 54%, with better-than-expected revenue across all segments relative to our forecast, and 980 basis points of gross margin expansion (to 29.9%). Seasonal sales were the best performer in the period, up 78%, while year-round products grew 54%, marine rose 56%, and parts & accessories jumped 19%. Admittedly, BRP was lapping the initial onset of COVID-19 last year, but we note total sales were still 30% higher than in second-quarter 2019. Its apparent that supply chain constraints will bound BRP’s upside over the near term, as limited inventory in the dealer network is limiting retail sales gains. Dealer inventory levels are down 76% versus second-quarter 2019, leading to 26 days of inventory in the dealer network versus 170 days in fiscal 2020 (and 80 days in the high-demand fiscal 2021). In our opinion, this was the key issue leading second-quarter retail sales to decline 30%.