Good morning, ladies and gentlemen, and welcome to the BRP Inc.'s FY 2020 second quarter results call. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go ahead, Mr. Deschênes.
Thank you, Louise. Good morning, and welcome to BRP's conference call for the second quarter of fiscal year 2020. Joining me this morning are José Boisjoli, President and Chief Executive Officer, and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to uncertainties. I invite you to read BRP's MD&A for a listing of these. During the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the investor relations section. With that, I'll turn the call over to José.
Thank you, Philippe. Good morning, everyone, and thank you for joining us. I am pleased to report that we concluded the first half of the fiscal year on a strong note as our momentum continued in the second quarter, and we've delivered solid results across the board. The demand of our product remains strong as we achieve another quarter of double-digit retail growth for our powersports. Although we had poor early spring weather, especially in certain regions like the Northern and Midwest portion of North America, we were able to catch up in June and July for all product lines. From a financial standpoint, we experienced our best second quarter on record after delivering our highest revenue and normalized EPS diluted for that period.
On the back of this solid performance, the successful completion of our Substantial Issuer Bid and the closing of the Telwater acquisition, we are narrowing the range and increasing our year-end EPS guidance to CAD 3.65-CAD 3.80, an increase of 18%-23% year-over-year. Let's get into the highlight of the quarter, starting with the financial result on slide four. Our revenue reached a record level for a second quarter at CAD 1.460 billion, representing a year-over-year growth of 21%, notably driven by year-round product. All regions contributed to the growth, with revenue up 21% in the U.S., 32% in Canada, and 14% for international. Our normalized EBITDA was up 16% to CAD 168 million, resulting in a normalized earnings per share of CAD 0.71, up 8% over last year. Our retail momentum continued to be strong.
In North America, our powersports industry remained healthy and continued to perform well despite negative weather conditions earlier in the spring, posting a mid-single-digit retail growth for the quarter. Our product continued to outperform in the region as we've delivered a 2nd consecutive quarter of mid-teen retail growth. Internationally, we continue to be affected by political and economic tension in certain parts of the world. Mexico has slowed down but still remains up mid-single digit, with retail remaining generally strong in Latin America overall and up 18%. In EMEA, we are performing well, with retail up 18%, while the industry is down high single digit. For APAC, our performance in China has been flattish, and China is impacting the rest of APAC, where our retail is slightly down 2% and the industry down about 10%. Looking at the North American retail by product line on slide six.
Again, this quarter in general, we outpaced the competition and delivered growth in our powersports product line. Side-by-side and ATV had a very strong quarter, with retail up in the high 20s and low teen % respectively. Three-wheel vehicles continued their robust growth, with retail up in the 90%, driven by the introduction of Ryker. Finally, personal watercraft was up low single digit, affected by weather conditions this spring, which is better than the marine business and in line with the rest of the industry. Turning to slide seven. On June 4th, we introduced our model year 2020 Can-Am off-road lineup, the most complete and competitive yet. The key highlights are the introduction of the Can-Am Defender 6x6 HD10, representing a significant addition to Can-Am utility lineup with its six-wheel traction, longer cargo box, and industry-leading torque.
This model was in response to a need in the industry for increased cargo capacity. The combination of the longer box and six wheels give this product incredible capability and the opportunity to create a new segment in the industry. The Can-Am Defender 6x6 is also the eighth new side-by-side platform introduced over the last four years, delivering on the commitment we made in 2015 of introducing a new side-by-side platform every six months for the next four years. Now, the Maverick X3 TURBO RR offers the best performance in the sports segment, with its industry-leading 195 horsepower and improved off-road maneuverability. Since its introduction in 2016, we continue to build awareness for the Maverick X3, our flagship side-by-side vehicle, as the face of racing present and future.
For example, we occupied the top six place earlier this month in the highly regarded Best in the Desert race from Las Vegas to Reno. With our model year 2020 introduction, we now offer a more competitive lineup across the price spectrum with the introduction of a new mid-hp, an entry-level high HP Maverick X3 package. Very happy with those introduction. For ATV, the upgraded Can-Am Outlander feature improve airflow with new inner fender and side panel, making the temperature cooler and more comfortable for the rider. With the introduction of the Can-Am Defender 6x6 complete, we plan to continue the same pace of innovation, which allow us to more than double our side-by-side retail over the past four years. Our capability increase at Juarez II, is completed, and we are now running at full line speed.
As you see on this slide, we still have a lot of room to grow in the utility, sport, and recreational segments. Over the years, we have set a solid foundation that position us well to capture market opportunity and continue our growth trajectory. Now let's turn to slide nine for the year-on product highlight. Revenue were up 33% for the quarter, driven by a higher volume of side-by-side and ATV sold and the introduction of the Can-Am Ryker. On the retail side, the North American side-by-side industry ended its season 2019 on June 30th, with retail sales up mid-single digit. Can-Am side-by-side had a very strong end of season, with retail up in the high 20% for the quarter, driven by our continued pace of innovation, strong momentum with our dealer network, and greater availability of product.
For the full season, our retail was up 20%. For the first time, we ranked second in the industry. Our side-by-side business also continued to grow rapidly in international market, notably in EMEA and Latin America, where retail sales grew above 25% in the quarter. Turning to ATV. The North American ATV industry also ended its season 2019 on June 30th, with retail down low single digit. For the same period, Can-Am ATV retail was up high single digit and ended the season with the number 3 market share position in North America. We have a very strong momentum with ATV as we continue to gain market share in both the mid-CC and the high-CC categories. Our ATV growth is also a result of our growing Can-Am off-road offering, our dealer value proposition, and overall improved brand awareness.
We have similar success in Latin America and in Europe, where our retail grew 15% and 37% respectively in the quarter. I am very pleased with our off-road vehicle performance and confident I can continue our momentum. Now looking at the three-wheel vehicle business. nine months into season 2019, the North American three-wheel motorcycle industry is up in the mid 30% range. Our Can-Am three-wheel vehicle retail sales are up over 100% for the same period, and our lineup is driving the industry growth so far this season. We are pleased with the momentum we have with Ryker. We are seeing strong consumer demand, especially in North America and in Europe, and the awareness for the product continue to grow as it is attracting a lot of attention from the media and the online community.
We have made good progress with our rider education program, which is now offered in 189 schools in 50 states and provinces and close to 17,000 courses completed with a conversion rate that is trending above our 15% target. All in all, we are pleased with the launch of Ryker and the progress we have made in the first year of our two-year plan, as well as with the different initiatives taken to unlock the full potential of our three-wheel vehicle business. As you know, our goal is to replicate the Sea-Doo Spark success story. We seems to be on the right path. Turning to seasonal product on slide 10. Seasonal product revenue were up 11%, primarily driven by favorable product volume and mix for personal watercraft. Looking at retail sales.
Historically, retail sales have always been strongest for Sea-Doo in the North America East and Midwest versus the competition, which trend to perform well in the South. With the poor spring weather condition and sustained flooding, we were disadvantaged in these markets. Despite this, because of our strong lineup, we were able to catch up in June and July and finish the quarter in line with the industry. The industry 10 month into the season 2019 is up low single-digit percentage, and Sea-Doo North America retail is also up low single-digits over the same period. It is a similar situation in EMEA, where the market was slightly down, driven mainly by Scandinavian weather condition, although Sea-Doo continued to gain market share. The Sea-Doo Fish Pro is also performing well in its first season, with very good sell-through in all our key markets around the world.
In fact, the Fish Pro won an Australian Good Design Award for the quality of our design and its innovative feature. For Snowmobile, the Scandinavian industry ended its season 2019 on June 30th with retail up low single digits. Ski-Doo and Lynx combined retail was also up low single digit for the season, and they maintain the number one position in the industry. Continuing with a look at Powersport PA&A and OEM engine on slide 11. Revenue were up 18% in the quarter, driven by continued solid momentum for our part and accessory business across all of our Powersport product line. Our accessory business continued to experience strong growth with a 32% increase in revenue for the quarter, notably helped by the success of the Ryker accessories line up, for which sales continue to trend above target.
The core of our success is our strategy to develop accessories in parallel with the vehicle, resulting in an extensive lineup of accessories that are ready at the launch, well integrated into the vehicle, and compatible with multiple models across all brands. The Defender 6x6 is a great example of this, as we already introduced over 150 accessories available for this vehicle. On the Rotax front, during the quarter, we opened the first Rotax MAX Dome in Linz, Austria, close to our manufacturing facility in Gunskirchen. It is an innovative concept that combines indoor electric go-karting racing with gaming technology, augmented reality, and virtual entertainment. Karting is the perfect product for electrification because the distance range per charge in a controlled environment is not an issue compared to other product line. By adding the aspect of gamification, it creates a whole new customer experience.
During the year, we will continue to improve the Rotax MAX Dome model, but our mid to long-term plan is to expand this concept to other cities and countries. This is our first venture in a direct-to-consumer experience, and it provide us a useful learning opportunity, both to define this model and to potentially offer other experiential concept in the future. Now looking at the Marine category on slide 12. Revenue were up 1% in the quarter due to the acquisition of Alumacraft and Manitou last year, offset by a lower volume of outboard engines sold. The Marine industry was the most impacted by the unfavorable weather condition we experienced during the spring and the early summer. On top of that, one-third of our Evinrude and Alumacraft business and 60% of our Manitou business is in the Great Lakes region, the area hardest hit.
Because of our current geographical concentration, we were especially impacted. Looking at retail, the North American outboard engine industry ended its season 2019 on June 30th, with retail about flat compared to the previous season. Evinrude retail was down high-teen % for the season. In the Marine business, boat industry data is delayed, and it's not reported the same way as for the engine and powersports. Regarding the boat retail for the period of April to June, for Alumacraft, the aluminum fishing boat industry was down low-teens, and we were down high-teens. For Manitou, the pontoon boat industry was down high-single-digit, and we're down mid-teens for the same period. Finally, following the end of the second quarter, we completed the acquisition of Telwater, the leading manufacturer of aluminum boat in Australia.
Our Marine strategy is ongoing, and the Evinrude, Alumacraft, and Manitou teams are all working together to integrate the next generation of engine with the next generation of boats. We are looking forward to sharing more detail on our strategy with you soon. Considering this is our first year into the boat business, this is not exactly the season we would have asked for. However, we are satisfied with the progress the team have made on the integration of our acquisition. As a reminder, this is a mid to long-term strategy, and we are confident in our ability to deliver its high potential. On that note, I will turn the call over to Sébastien.
Thank you, José, and good morning, everyone. Our momentum continued in the second quarter as we delivered solid financial results that came in line with our expectations. Our revenues grew 21% to reach CAD 1.5 billion for the quarter, representing a record for a second quarter at BRP. Our gross profit margin ended at 22.5%, a decline of 70 basis points from last year's second quarter, as a favorable impact coming from volume and pricing was more than offset by higher sales programs, production costs, and unfavorable product and region mix. The normalized EBITDA was up 16% to CAD 168 million, and the normalized EPS reached CAD 0.71. We generated CAD 75 million of free cash flow and invested CAD 67 million on CapEx.
We were also quite active in terms of capital deployment over the last few months as we successfully completed the CAD 300 million SIB, effectively repurchasing 6.3 million shares, and we completed the Telwater acquisition. To support both initiatives and to preserve our financial flexibility going forward, we raised a new term loan tranche of CAD 335 million during the quarter. Our balance sheet remains solid. Our strong financial flexibility allows us to continue to invest in the business, all the while maintaining the ability to opportunistically deploy different capital allocation initiatives. Turning to slide 15. Our quarterly normalized net income was up about CAD 3 million compared to last year, as it ended the quarter at CAD 69 million. In terms of year-over-year variations, we saw an increase of CAD 72 million, driven by a favorable impact coming from volume, mix, pricing, and sales programs.
These elements were mostly offset by higher production and distribution costs and higher depreciation expense for a total negative impact of CAD 23 million. Higher operating expenses for CAD 41 million to support our different projects, notably the launch of new products such as the Ryker, increased R&D costs for future product launches, and higher SG&A, notably associated with IT investments. Higher financing costs and tax expense and FX for CAD 6 million. Turning to slide 16 for a look at our network inventory position. Our network inventory position is up 16% versus last year's first quarter, primarily driven by the continued strong demand for our off-road lineup, for which retail percentages were up low teens for ATV and high 20s for SSV in the quarter. Remember that we had capacity constraints last year, which limited our ability to ship to meet demand.
Now with the completion of Juárez II capacity expansion, we have greater ability to ship products and sustain the retail growth. Our contributors to the growth of network inventory are Ryker, for which retail is very strong in its first season, and we are seeing some dealers already out of inventory. Snowmobile, as we ended the season with slightly more inventory than previous year, and we also started shipments earlier this year compared to last year. We have always been diligent in managing inventory levels with our dealers. At the end of the second quarter, our inventory at our dealerships is in line with expectations, and it is down 9% versus Q1, following a strong powersports retail performance in the second quarter. Overall, we are very comfortable with the level and the quality of our network inventory. Now looking at slide 17 for an update on guidance.
As I mentioned, we ended the first half of the year with solid financial results in line with our expectations, and our outlook for the year remains generally unchanged. Our industries are behaving as we had anticipated, with the exception of the Marine business, for which, as José mentioned, suffered the most from the unfavorable weather conditions. Given the strong momentum we have with SSV and the competitiveness of our new lineup, we are reviewing upward the lower end of our year-round products revenue guidance, and the range is now up 16%-19%. As for Marine, the addition of Telwater for the second half of the year is expected to offset the softer results we experience with our current North American Marine business due to the weaker industry trends. Our revenue guidance for Marine remains unchanged.
This results in a total company revenue guidance of up 10%-13%. The lower end of the normalized EBITDA guidance range has been increased, and we are now expecting growth of 21%-23%. We have adjusted upward our net financing cost to reflect the additional debt, the share count downward following the completion of the SIB, and reviewed upward the depreciation expense. These three elements result in a net positive impact of CAD 0.05. Following these adjustments and the strong results with SSV, we are tightening and increasing the normalized EPS guidance range to CAD 3.65-CAD 3.80, representing an increase of 18%-23% over last year. The normalized EBITDA cadence between the third and fourth quarter is forecasted to be similar in size for both quarters.
Our guidance calls for a strong second half of the year as the demand for our product remains solid and we have good visibility on our shipment volumes and operating expenses for the remaining of the year. We expect fiscal year 2020 to be a record year for BRP, and our business fundamentals are solid, giving us the confidence in delivering these strong results. With this, I'll turn the call back to José.
Thank you, Sébastien. We have had a record performance for our second quarter, and I'm very pleased with the result and progress on our key strategic initiatives. We are experiencing continuing momentum by product line and region, and I still see lots of growth potential for our business, especially in year-round segments. I'm also pleased with the conclusion of the Telwater acquisition and the fact that it marked an important milestone in the advancement of the marine strategy. Despite talk of an economic slowdown, our industry remains healthy, our dealer traffic is good, and we continue to observe strong retail trend in August. Our team continued to execute well on all front, and I want to thank them once again for their hard work around the world.
We are looking forward to our next Sea-Doo and Can-Am dealer meeting in a little over a week in Las Vegas, and the introduction of more innovative product, and hope to see you there. Finally, as I mentioned earlier, we are confident that given our positive performance, we will be able to deliver on our improved guidance. I will now turn the call over to the operator for questions.
Thank you, Mr. Boisjoli. Please press star one at this time if you have a question. There will be a brief pause while participants register and we thank you for your patience. Our first question is from Robin Farley from UBS. Please go ahead.
Great, thanks. Two questions. One is, just looking at the commentary about off-road being up mid-single digit. I guess others in the industry had talked about the June quarter being up high single digits. I wonder if you could just sort of say if you saw deceleration in the growth rate in July or perhaps did not. Just any color on that, and then obviously, of course, how August is also relative to that, just in terms of acceleration or deceleration from those trends. Thanks.
Good morning, Robin. Obviously, we cannot comment on the others, but what we saw in Q2 is ATV was basically flattish when side-by-side was up high single digit. Obviously, side-by-side has a big play in terms of volume in the second quarter. I cannot comment on the off-road numbers that you heard in other call.
The July was not soft for us. It was a good retail quarter. We're seeing, as José alluded into his opening remarks, again, we don't see the industry for August, but we see our numbers, and the trends are positive as well in August.
Okay, great. Thanks. Just obviously there are concerns out there about broader macro factors in the last two months. Just a longer term question. With shipments maybe more falling into Q2, I guess, or it's ramped up maybe faster than what you had initially guided or what expectations were for kind of what shipments would be in Q2. Given that higher shipment rate, could second half shipments also move up from these levels if it was a kind of a supply constraint issue keeping in your original shipment guidance that maybe is now behind you?
Yeah. Well, we've adjusted the guidance for year-round products driven by side-by-side off the strong demand that we saw in the second quarter. The guidance now reflects what we anticipate is going to happen in the second quarter. Obviously, if demand is continuing to be robust, could we adjust our shipments? Obviously, yes, we have that possibility of adjusting shipments if need be, and increasing capacity before the end of the year.
Is there kind of a % capacity that's being utilized now versus what potential is still there? I don't know if that's something you can quantify.
If I give you some color, and again, just to remind you what we said before, in H1, basically our capacity was similar to last year because we shut down the factory for two weeks to remodel it, and we had a slow ramp up to ensure that quality was right. Overall, our H1 capacity was similar to last year. In the second half, Q3, Q4, we have like a 50% capacity possibility. Right now we're running because Q3 is always, we introduce the new model year. Q3 will be a strong quarter. More to come on Q4, but this is the type of capacity that we have. On a full year basis, overall, if we will be using the full capacity, will be about 25% up versus last year.
Okay, great. Thank you.
Thank you. Our next question is from Benoit Poirier, Desjardins Capital Markets. Please go ahead.
Yeah. Good morning, gentlemen, and congratulations for the good results. When we look at the retail inventory was up 16% year-over-year, would you be able to quantify how much was weather driven and what should we expect in Q3 in terms of inventory level?
Yeah. Good morning, Benoit. When I look at the inventory, as I said, again, we're very comfortable. Retail was only softer for personal watercraft, and that was impacted by weather. But it was, again, very strong for ATV and super strong for side-by-side. Are we talking a few thousand units in inventory because of weather? That's probably the size of it. Not very material.
Okay, perfect. For the Ryker, you've been able to ramp up successfully the product, and also with the Millennials. Could you maybe provide more color about what you've learned from them related to the brand, the desire to have a two-wheeler vehicle, and also how they use Ryker as opposed to the Spyder in terms of commuting versus a pure hobby?
That's a loaded question, Benoit. Let's see. It's a bit early to conclude on the Ryker. We're super happy about the reception of the unit. As you know, today, our RT and F3 owners are in average 59 years old, and we're targeting a consumer between 35 and 55. Right now, very preliminary, but the average Ryker user or buyer is about 10 years younger than the RT and F3. We are attracting, definitely, younger people. That being said, it's a bit early into the season. You have early adopter, you have people who always wanted to have a three-wheel and could not afford an RT or an F3 that decided to buy a Ryker. Very difficult to conclude at this point. The intent is to finish the season because there is still retail going on.
We started shipping the model year 2020 in August. There is still some Ryker, with still some retail going on. We'll have a complete analysis of the season later in December, and when we meet you at the analysis day in October, and we'll be able to conclude more at the end of the next year.
Okay. That's great color. When we look at Marine, you're over-indexed to the U.S. Northern and Midwest region. Could you talk a bit about your dealership expansion strategy, how it goes so far?
Yeah. Basically, there is 3 type of expansion. There is Alumacraft or Manitou dealers or Evinrude who take another brand. There is a conversion to Evinrude, Alumacraft or Manitou dealer who take Evinrude, there is white space. Again, we'll share with you more about the detail of our strategy in October, but basically we had a goal this year in fiscal year 2020 to add about 120, 150 roof. It could be an Alumacraft dealer taking Evinrude or an Alumacraft taking Manitou or white space. We are about halfway there. We're tracking quite well. Obviously, like I said in my remark, Manitou is very Midwest, Alumacraft is East, we had a more difficult season than what we had hoped for. Again, the Marine strategy is a long-term strategy.
I'm very happy with the work that the team have done so far on developing the next generation of boats with the new generation of Evinrude. We feel confident in the future.
Okay. Last one for me, from a capital deployment standpoint, the stock is down significantly since the completion of the substantial issuer bid. I was wondering if you could tell more about the room to perform further in SIB and given the valuation right now and the strong outlook.
Yeah. Obviously, we are very disappointed with where the stock price is trading. Obviously, it's not reflective of the performance that we've had over the last several years and last quarters. As you said, the momentum is there. The valuation is attractive for buybacks, and obviously, it's something that we will consider and entertain in the next few quarters.
Okay. Thank you very much for the time.
Thank you. Our next question is from Tim Conder from Wells Fargo Securities. Please go ahead.
Thank you. Gentlemen, any commentary that you can give us relating to the promotional activities that you may have done during the fiscal Q2 or that you're seeing in the market right now, and again, maybe across the product lines on the Marine side, and then on the ATV and the side-by-side product lines? Thank you.
Good morning, Tim. If we start by off-road, I would rate it yellow. ATV was very similar to the last few years. On the side by side, you need to understand that it's the first year where we have some product availability, and it's the first season where we had some non-current at the end of June. We had, for the first time, some normal promotion on Defender and the Maverick family. Some of our competitor complain about it, but the rebate we were giving is in line with what every OEM is doing at the end of a season. I would consider off-road yellow. Watercraft, we reacted on the back end of the summer because we were behind then. Last year was green. This year we invested a bit more than last year. Not ridiculous, but a bit more than last year.
Three-wheel, I will consider it green. If you remember, we readjusted our pricing in RT and F3 last year, and our promotion for model year 2019 started only in August, like it should be. This is overall the retail environment. On the boat side, we were a bit more generous than in the past two year, but again, in line with the other OEM.
Okay. José, any color geographically, whether you want to look at North America collectively or Canada versus the U.S. and then basically the rest of the world, whether you want to say Europe or just broad geographic regions as far as promotions and collectively, or if you do want to break them down by the product categories?
Yeah. What I gave you, Tim, is applying to Canada and U.S. The situation was about the same in both countries. The weather was the weather. We catch up in June, July on the retail front. At international, it's a lot of moving piece. Scandinavia was similar to what we saw in North America in term of weather. We had a slowdown in the watercraft in Scandinavia. Off-road was not affected. That being said, in the Western Europe, watercraft have done extremely well because they had a warm summer and we're very happy with the overall. Other than that, some adjustment in APAC. Overall, I would say very similar to last year except North America and Scandinavia.
Okay, great. Thank you for the color.
Yeah.
Thank you. Next question is from Gerrick Johnson from BMO Capital Markets. Please go ahead.
Hey, good morning. Looking at your own inventory up 22%, can you discuss the puts and takes there? Thank you.
Yeah, good morning, Gerrick. Well, as you probably saw, the second half of the year implies a very strong H2. A strong volume growth as well, and strong profitability growth. We have produced some of the units for shipment in Q3. That is the main driver of the increased inventory. The SSV business is going strong. We have also a strong international business with longer transit times and that business is growing as well. That needs to be accounted for in our planning as well, and therefore, that results in higher inventory levels.
Okay. Thank you for that. One more thing that you don't seem to talk about, but I'd like to hear about is your initiatives in Texas and how that new office is going and some update on what's going on with your stuff in Texas. Thanks.
Overall, we are on plan. We ramp up the number of people in Dallas, and we change a bit the structure of the management team. We divided the U.S. in three regions, and we have a leader on each region. In the past, we were managing U.S. a lot, east to west, south to north, and now we have more regional focus, which gave us an opportunity to have some tactical focus on different regions or different opportunities. Overall, very happy with the Dallas office. We believe that we have a lot of people there that are better connected to the U.S. market versus when we were managing U.S. from Canada.
Great. Thank you.
Thank you.
Thank you. Our next question is from Mark Petrie from CIBC. Please go ahead.
Hey, good morning. I just wanted to ask about the dealer base in the U.S. and I guess specifically mostly on the side-by-sides, but I think you're sort of at relative maturity in terms of dealer count, but gaining floor space and mind share. Wonder if there are any metrics you can share that would help us gauge that and how you sort of continue that momentum. Obviously there's a combination of factors, but is the focus sort of in continuing that momentum more on just generating demand, or is there still more to do around engagement, improving systems and that sort of thing?
On the number count, we believe we are about the right number of dealers. If you remember, we signed a lot of dealer in the last few years, and now we have about 1,250 in North America. There is always some turn, 25 to 30 a years, that is happening. The focus is more on what you said, continuing to gain space into the dealership and gain in efficiency, better engage with our dealers, help the dealers to become better retailer. We work with them hand on hand. This is the focus, and we're doing, I believe, a pretty good job to have business discussion with dealers and helping them to raise the bar.
Do you think, broadly speaking, obviously, there's lots of different factors, but in terms of driving that engagement, is it more a matter of continuing to create consumer demand and obviously the dealers are going to respond to that? Or is it, in terms of how you engage with the dealers, manage their profitability, improving systems, ordering systems, inventory, supply, and those types of levers?
We try to help the dealer to order the right product mix. We're monitoring more and more their inventory, helping them to understand their retail and make sure that they have the right model at the right time in the dealership. Also, the service part is getting more and more important. There is a lot of money tied into the service part, and some dealers do it extremely well, others not as well. It's working hand-in-hand with the dealers to help to be more efficient in what they do. So far, we don't see the need to increase the number of dealers. It might happen if we continue to grow in the side-by-side business, where we have maybe today we have a dealer supporting a big region, and maybe in time we need two.
For this year, the focus is more working on the efficiency of the dealer.
Okay. Appreciate it.
Thank you. Our next question is from Craig Kennison from Baird. Please go ahead.
Good morning. Thanks for taking my questions. I wanted to ask about your view of the U.S. consumer. A lot of talk about maybe a slowdown, maybe that's especially true with wealthier consumers, but you have an interesting perch on the world. What are you seeing?
Good morning, Craig. There is a lot of talk about a slowdown, you know the thing that we're watching that we believe could affect our business. I give you some statistics. U.S. unemployment rate in July was 3.7%, very low. The housing slowed down a bit, it was up 0.6% in July versus a year ago. The U.S. consumer consumption remains strong. It was up 3.3% in June and 3.4% in July. To be honest, we don't see a slowdown in our powersport business. Q1, the industry was up high single digit, in Q2, we were mid-single digit up. You know we're not economists, this is the thing that we believe that is affecting our business. So far, we're very happy with the state of the economy and the consumer.
Thanks. With respect to Telwater, I apologize if I missed it, could you frame the revenue and margin profile of that business and detail what's included in guidance?
Yeah. So in guidance, we have six months of revenue built in there. On an annual basis, Telwater is a, let's say, CAD 80 million-CAD 90 million business, Canadian dollars. Margin profile is very similar to what you see in other boat companies in the U.S. So lower gross margin, lower level of operating expenses, but similar EBITDA margins.
Thank you. Finally, again, with respect to Telwater, to what extent do you intend to run Telwater, Alumacraft, and Manitou separately versus trying to leverage any commonalities among those businesses, in terms of R&D and other factors to get efficiency?
Yeah, absolutely. We are working right now on the metrics organization, where obviously there will be a leader for each boat brand, but you have cross-functional function like design, R&D, operation, where company will share the best practice. What we like about the three acquisitions is the three of them are involved in aluminum boat construction, there is definitely synergy between each of them to be gained and comparing the way they do things. On top of it, in terms of product development, we have team right now working on the next generation of boat and engine to make sure that we have a perfect integrated product. Basically it's a metric structure where there is a responsible for each boat brand, but you have some cross-functional function to help the synergy.
Very helpful. Thank you.
Thank you.
Thank you. Next question is from Brian Morrison from TD Securities. Please go ahead.
Good morning. I think I understand the increase in inventory in the powersport industry. I'm content with that. Maybe with the inclusion of Telwater and the flat revenue guidance in marine now, maybe you can just walk through or help us understand the marine inventory, both in the dealer network and internally, and potentially with the industry softness that you're going through right now, and albeit potentially temporary, whether your appetite for M&A might be heightened or whether you're content with your current portfolio?
Yep. Again, the Evinrude inventory have decreased by 10% into the quarter, then we are comfortable with our level of inventory. On the boat side, the two brands that we manage in North America are very different. Manitou, it's a high ticket item, and they used to have five to six months of inventory at the dealership. They turn their inventory typically a bit more than two times a year. Right now, we have about six months of inventory out there, about 10% higher than typical, and we're comfortable with that. Alumacraft is a lower ticket item. Their normal inventory is more in the 12 months, about the same than the industry average. We are a bit, maybe 5%-10% more than typical, but we are comfortable on both brands on the boat inventory at the dealer. At our factory, very minimal.
A boat is a big piece of equipment, and we have minimum inventory in our yard at both Manitou and Alumacraft. For Telwater, it's about the same. We've done officially the acquisition on August 1st. It's the same pattern, not much inventory at the manufacturing facility. I believe they turn the inventory quite high, but I don't have enough data to answer your question. In terms of acquisition in the boat space, for the time being, we're happy with those three boat company and the focus in the next, I would say 12 months will be to make sure that we maximize the synergy and we maximize the integration, and how we can maximize the work between the three boat company and BRP to, again, deliver on the boat strategy. Don't expect boat acquisition in the next 12 months.
Okay, thanks. Just to clarify, in terms of the inventory, should we expect promotional activity in the back half of the year? I can only presume that that's factored into your current guide.
The promotional activity should be similar year-over-year. Obviously, sometimes our promotional activity may be influenced by weather, especially when we look at the snowmobile season that is upcoming. The guidance reflects what we believe is appropriate promotions in order to drive the retail that ultimately drives our wholesale numbers.
Okay. One last housekeeping item, maybe, Sébastien. In terms of your net income adjustment, can you maybe just clarify? It's modestly changed, but includes an FX change. Maybe just on a normalized basis, can you just tell me what's changed here?
Yeah. The only FX change that you see in our normalization of net income and normalization of EBITDA relates to the long term debt. As our debt, which is denominated in U.S. dollar, gets revalued every quarter, that creates a non-cash FX variation in the P&L. Given the materiality of the debt and the swings that we often see in currency, it does create noise in the P&L, and that's why we normalize that item.
Yeah. Just on a normalized basis, has net income changed, or is it up or down?
Well, the net income as per the bridge is up CAD 3 million at CAD 69 million, if you look at the bridge that we have in the webcast.
Sorry, I'm talking about the guidance.
Oh, the guidance, sorry. The normalized net income is up to reflect the EBITDA adjustment that we did on the bottom end of the range.
Okay. Thank you.
Sorry.
Thank you. Next question is from Gregory Badishkanian from Citigroup. Please go ahead.
Hey, guys. Good morning. It's actually Fred Wightman on for Greg. Just wondering if you could talk about what, if any, impact you're seeing in terms of the supply chain, either product disruptions or pricing changes, just given the tariff and trade back and forth we're seeing in North America. What that means for the implied back half increase in output that you guys are expecting in guidance.
Yeah. As we've shared with all of you in the last few quarters, the whole tariff dispute between U.S. and China is having minimal impact on our results. Let's say the wave 4s that were just announced, we're probably looking at worse, a CAD 5 million impact for us. All the tariffs, when you combine them all for the full year, from wave 1 to wave 4, you're probably looking at CAD 15 million for full year, for this year. Let's say if that was to be applied on a full year basis, you're looking at probably maximum CAD 20 million. Again, we source very few of our components from China.
When we look at our whole supply chain and product quality, it doesn't necessarily always fit to source in China because we're not necessarily all meeting the specs that we want to meet or the lead times are not there. That's why we source very few of our components from China, and we're not as impacted as other companies.
That's really helpful. There is a call-out in the slide specifically for the Maverick Sport dealer inventory impact. How much is that specifically on a percentage basis?
Off the top of my head, I wouldn't be able to give it to you. I'll probably give it to you offline, but last year, we had very little Maverick Sport in the network. It was a new product, and as we were obviously capacity constraints, we privileged the shipment of the Maverick X3 and the Defender.
Which are higher margin products, and that's why this year now, with the capacity we have, we ship more into the network.
Okay. We'll follow up. Thank you.
Thank you. Next question is from Derek Lee from Canaccord Genuity. Please go ahead.
Yeah. Hi, guys. Good morning. Just following up on just that question in terms of dealer inventory. There's also a comment in there just in terms of snowmobile sales having earlier shipments. Should we expect some sort of a timing adjustment between Q2 and Q3?
No, again, it's small volume. This year, our snowmobile volume shipments are expected to be higher than last year, given the season and the production schedule is very condensed. You have abilities to either produce earlier in the second quarter or later in the fourth quarter. Depending on when engineering release are ready, that's going to impact when we ship and therefore this year, because of those factors, we ship more units in the second quarter.
Okay. That's helpful. Sébastien, I think in the past you've provided a bit more color, just in terms of some of the puts and takes and the magnitude of each of the impacts on gross margin that you called out in the press release, commodity production distribution. I'm wondering if you could give us that bridge again.
Yeah, sure. As you all saw, margins are down 70 basis points this quarter. Volume was a positive impact as you saw the revenue growth year-over-year. That's almost a 200 basis points plus to the margin. Mix was unfavorable and sales programs as well were unfavorable. The mix driven obviously by Ryker and also we did ship less X3s in the quarter as we knew that we were coming out with a new X3 at 195 horsepower, so we kind of held back on some of the shipments of X3s. That was a negative combined there, the mix and the sales programs, 140 basis points. Production cost, negative 80 basis points, half of it coming from added depreciation. The other half coming from, obviously now we're running a bigger plant.
We've kind of done two waves of increases on a year-over-year basis, so that's being reflected in our operating costs. That's 80 basis points and the last item, FX for 50 basis points.
Great. Very helpful. Thank you very much.
Thank you. The last question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Thanks very much. Just wanted to clarify the question earlier on some of the inflationary cost headwinds and the tariff impact. I think in the past, the number that you had talked about was kind of CAD 35 million in inflationary costs. Some of that was tariffs and some other things. What's the equivalent number now on a kind of a full year basis?
Well, we talked about CAD 35 million impact in the past for, we call it inflation, freight, commodity, and tariffs.
Right.
You could add an extra CAD 5 million to that, Cameron.
Okay. Perfect, no, that's great. Just on the side-by-side business, just thinking about the product portfolio now. You've introduced the eighth platform, which you had been targeting over that period. I just wonder if you can talk a bit about just on a product basis, where you think you're still underrepresented or is it just really more of a kind of growing market share in the sub-segments that you're in now? Is there anything else that you feel as though, that you need to, I guess, increase the product portfolio to continue to grow?
In the last four years, basically, we introduced new platform in almost every segment into the industry. There is still wide space for us in the side-by-side business. You can expect in time, other new platform, not at the pace of one every six months, but you can expect also variation of model trying to create new segment like an example, the Fish Pro in the watercraft. We're good to create new segment in a product category. That will be our main focus. Still, if you look at our product portfolio, today we have the base, but we can continue to expand our offering to the consumer and delivering a new trend or new request for consumer. Some investor is always asking the question, will you stop there? For sure not.
We intend to keep the same pace of investment that we've done in the last four years forward. Obviously, like I said, it's not necessarily a new platform every six months. You can expect that we will continue to push in the side-by-side industry.
Okay, that's great. That's very helpful. Thank you very much.
Thank you.
Thank you. Mr. Deschênes, this was our last question. I will now return the meeting back over to you for closing remarks.
Thank you, Louise, and thanks everyone for joining us this morning. We want to invite you to join us at our dealer event in Las Vegas in September 10 and 11, and at our Investor Day in October 28 and 29. Thanks again, everyone, and have a good day.
Thank you. Your conference has now ended. Please disconnect your lines at this time. We thank you for your participation.