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BRP says consumer demand still strong despite recession worries

Employees work on the SeaDoo assembly line at the Bombardier Recreational Products (BRP) plant Thursday, June 12, 2014 in Valcourt, Quebec. THE CANADIAN PRESS/Ryan Remiorz
BRP's CEO says "consumer demand remains healthy," despite recession concerns. (THE CANADIAN PRESS/Ryan Remiorz)

Ski-Doo and Sea-Doo maker BRP Inc. (DOO.TO) says demand for recreational products remains strong despite concerns about a recession, as the company hiked its full-year guidance following record results.

"Consumer demand remains healthy, despite the ongoing macroeconomic concerns," BRP chief executive José Boisjoli said on a conference call with analysts on Wednesday.

"We continue to see a strong level of pre-orders. Over 40 per cent of our expected North American retail for (the fourth quarter) is already pre-sold to consumers. Cancellation rates remain low... retail financing metrics remain quite favourable, demonstrating that our customers are in a strong financial position."

Several economists are predicting that a recession will hit in the first half of 2023 as soaring inflation and rising interest rates weigh on consumer spending, the housing market and labour force participation.

Many companies, particularly retailers, have already started to see discretionary spending slow among consumers in the wake of skyrocketing inflation. Earlier this month, U.S. retailer Target said consumer shopping patterns had shifted, with people spending more on food and household essentials and less on discretionary items. A recent Yahoo/Maru Public Opinion poll also found that three quarters of Canadians (74 per cent) have reduced spending in the past month to cope with the higher cost of living.

But some consumers appear to still be in the market for snowmobiles, off-road vehicles, boats and personal watercraft, according to BRP. Sales of recreational vehicles were up 43 per cent compared to the same time last year, with the company's market share in the powersport industry growing two percentage points in North America and the global market share increasing to more than 30 per cent.

While the year-over-year comparison is to a period marred by supply chain shortages and low inventory levels, National Bank analyst Cameron Doerksen said in a note to clients on Wednesday that "the retail numbers would not suggest that overall retail for BRP is weakening."

Boisjoli acknowledges that traffic has recently slowed into its dealership network across North America and Europe, but says the company has slowed its advertising spending and that sales still remain strong.

"We're hearing... about macroeconomic concerns and the slowdown and (rising) interest rates. Except for the traffic at the dealerships, we don't see that (showing up) in our hard numbers," Boisjoli said.

The strong demand, as well as supply chain improvements, helped the Quebec-based company record its strongest quarter ever in terms of sales on Wednesday, with revenue surging 71 per cent in the three-month period ending Oct. 31. Revenue hit $2.71 billion, up from $1.59 billion last year. Net income also increased in the quarter, from $127.7 million last year or $1.53 per diluted share, to $141.6 million or $1.76 per diluted share.

In response to supply chain issues brought on by the COVID-19 pandemic, BRP embarked on a strategy that saw it ship incomplete products – ones missing a few parts – to its dealers that added the parts when they were available. Boisjoli says the strategy led to healthier inventory levels, but that there are still areas where the company needs to rebuild inventory to bring it to a more optimal level.

"As we look to the rest of the year, we are well positioned to sustain our solid momentum as we continue to experience robust demand for our products and as the improvement in our supply chain is allowing us to better utilize our increased capacity and deliver more units for our network," chief financial officer Sébastien Martel said on the conference call.

"With two months to go in the year, we are comfortable increasing both our top line and bottom line guidance."

BRP now expects total revenue to climb between 27 per cent and 32 per cent in its 2023 fiscal year, an increase from its previous estimate of between 26 per cent and 31 per cent.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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