Issue link: http://read.dmtmag.com/i/765954
FINANCIAL Note: The following report was provided to PSB from Wells Fargo CDF. It is a followup of some of the data presented by CDF at the Powers- ports DEALER Seminars @ AIMExpo State of the Industry Roundtable. — Dave McMahon The first half of the year saw the U.S. powers- ports industry struggle to mirror the success of the broader economy. Despite largely positive economic indicators with respect to consumer confidence, purchasing power and credit avail- ability, gains enjoyed elsewhere — such as within the marine and RV sectors — have largely eluded powersports to date. As we enter the last few months of the year, we take a look back to evaluate how 2016 has progressed — and where dealers stand in their expectations for Q4, and beyond. Throughout 2016, most relevant eco- n o m i c i n d i c a t o r s h a v e b e e n t r a c k i n g positive, including broader consumer fun- damentals that historically carry positive correlations to the powersports industry. Unemployment, personal income growth, interest rates and consumer credit are per- forming favorably and show signs of contin- ued stability in the near term. However, despite broadly positive con- sumer fundamentals, the powersports industry has remained sluggish in 2016. While other industries reap the rewards of economic prog- ress and improving consumer activity, the traditional powersports end-user has been seemingly more impacted by concerning underlying economic trends in key sectors, including oil, agriculture, construction and manufacturing. While it's true that economic conditions favor the consumer on a broad basis (broad consumer spending is a critical factor in YTD GDP growth), it's vital to note that the leading areas of job and wage expansion are occur- ring in sectors such as technology, healthcare and services. Job and wage growth in these areas tend to support the performance of the higher-ticket sectors; less so in powersports. In the core manufacturing industry — which we believe traditionally has had a stronger tie- in to the performance of powersports — the economy has struggled of late, shedding 42,000 manufacturing jobs in the 1H of 2016. For much of the country, weather trends have not played a meaningful role in slower YTD retail performance — lighter-than-usual precipitation and warmer, milder-than-usual temperatures have led to favorable sales condi- tions that have continued through the summer. However, through July the motorcycle and ATV markets were down low to mid-single digits year-over-year, respectively. Personal watercraft, which has been a bright spot for the industry, is up high single digits in year-over- year market retail numbers. In the first half of 2016, the retail promo- tional environment was similar as compared to 1H 2015. Core ATV and ORV segments saw the highest levels of incentives, with cash back and retail financing offers leading all promo- tional activities. The good news: Dealers surveyed have reported a slight improvement in summer retail sales, specifically in the utility side-by-side and motorcycle segments. This falls in line with Wells Fargo CDF's view of industry liquida- tions for the same period. LOOKING AHEAD: SECOND-HALF OUTLOOK While the oil and agriculture sectors have mod- estly stabilized, there will continue to be some near-term headwinds, which will likely limit the powersports industry's recovery. Still, many sectors are poised to normalize their numbers in the second half of the year, with personal watercraft and side-by-side anticipated to finish the year most favorably in the sector. A recent Wells Fargo Securities Sur- vey found that dealers are maintaining a cautious outlook through 2016. Prevail- ing consumer concerns, market saturation, increased competition, and difficult Q1-Q3 comps are pacing this outlook. Evaluating 6 • December 26, 2016 • Powersports Business www.PowersportsBusiness.com Wells Fargo CDF: Industry 2016 growth 'sluggish' STOCK MARKET WATCH DEALER FINANCIAL SNAPSHOT OCTOBER 2016 Same store sales for 1,612 CDK Global Recreation dealers were down in October. Overall, U.S. dealers saw a 5.2 percent decrease. Each category — parts, service and major units — dropped in the month for the U.S. All five regions were also down overall. The only area of growth throughout the country was a 1.2 percent increase in major units in the West. The Northeast was down the most overall, with a 9.9 percent decrease. PARTS SALES In parts, 538 dealers were up, and 1,074 were down. SERVICE SALES 661 dealers were up in service, and 894 were down. MAJOR UNIT SALES In major units, 662 dealers were up, and 793 were down. NORTHWEST -7.6% Parts Department -5.6% Service Department -8.2% Major Units -8.2% Overall MIDWEST -7.5% Parts Department -7.8% Service Department -5.9% Major Units -6.0% Overall NORTHEAST -12.5% Parts Department -8.5% Service Department -9.4% Major Units -9.9% Overall SOUTH -10.9% Parts Department -5.3% Service Department -3.3% Major Units -4.8% Overall WEST -4.4% Parts Department -1.6% Service Department 1.2% Major Units -1.4% Overall UNITED STATES -8.5% Parts Department -5.4% Service Department -3.9% Major Units -5.2 % Overall Stock Price Percent Company Ticker 12/2/16 Change Universal Technical Institute UTI $2.62 56.0% TCF Financial Corporation TCB $17.82 25.1% ArvinMeritor ARM $12.63 21.7% MarineMax, Inc. HZO $18.90 21.2% Brunswick Corp. BC $50.89 17.6% Deere & Company DE $101.50 14.0% Speedway Motorsports, Inc. TRK $20.71 12.0% CDK Global CDK $56.91 -0.1% Bridgestone Corp. ADR BRDCY $18.54 -0.4% Spy Inc. XSPY $0.08 -6.3% POWERSPORTS BUSINESS WINNERS AND LOSERS See CDF, Page 7 MARKET WATCH Change 12/2/16 from 11/7 % Change Powersports Business Index 247.168 18.77 8.22% Dow Jones Index 166.741 8.93 5.66% S&P 500 Index 149.188 5.04 3.49% Source: Wells Fargo Securities LLC 0 50 100 150 200 250 300 4/8/16 4/29/16 5/20/16 6/17/16 7/22/16 8/12/16 9/9/16 10/14/16 11/7/16 12/2/16 PSB INDEXED VALUE DOW JONES INDEXED S&P 500 INDEXED STOCK MARKET ACTIVITY FOR MORE ON THE SAME STORE SALES DATA For more information on this report and other industry data, contact: cdkrecreation.com/dataservices