Morning, ladies and gentlemen, and welcome to the BRP Inc. FY 2017 First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr.
Deschenes.
Thank you, Maude. Good morning, and welcome to BRP's Q1 conference call for fiscal 2017. Joining me on the call this morning are Jose Boisjoli, President and Chief Executive Officer and Sebastien 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 a number of risks and uncertainties. I invite you to read BRP's MD and A for listing of these.
Also during the call, reference will be made to supporting slides, which you can find on our website at brp dotcom under the Investor Relations section. So with that, I'll turn the call over to Jose. Thank you, Philippe.
Good morning, everyone. Fiscal year 2017 is off to a good start. Our team's efforts are paying off as we experienced significant success with all our product line, posting strong retail growth and market share gains around the globe. And despite a volatile currency environment that negatively affected our bottom line, we executed on our plan and delivered results right in line with our expectation and the outlook we gave last quarter. As we are heading into the summer, we like where we stand and we are reaffirming our guidance with some minor adjustments.
Sebastien will provide additional comments in a few minutes. But for now, let's go through the highlights of the quarter, starting with the financial results on Slide 4. As I mentioned, our quarterly results were essentially in line with the outlook we gave last quarter. Our revenues reached $930,000,000 a growth of 4% from last year's Q1, driven by favorable foreign exchange rate variation. As we were planning, the normalized EBITDA for Q1 was down 38% to $57,000,000 The decline is the result of our sales programs for snowmobile as we wanted to mitigate the impact of the poor snow condition in some region of North America and the weak economy in Western Canada.
Our programs were successful and we ended the season with a comfortable network inventory position, making room for the new Ski Doo platform, which bodes well for the next season. Another contributor to the normalized EBITDA decline was higher operating costs, notably as we continue to invest in R and D and maintain our tradition of delivering product innovation. Finally, this resulted in a normalized diluted earnings per share of $0.04 Now to give you a better appreciation of our worldwide retail momentum, we are giving you more colors regional retail trend for this quarter on Slide 5. Over the last few years, we have been focusing on developing our product portfolio, our brand and our dealer network and we are starting to see our momentum accelerating. During the Q1, thanks to the solid work of our team, our marketing campaign, effective sales program and the dedication of our dealers, we're able to drive strong retail demand for our products, notably in North America, where our powersport retail grew by 14% compared to a 3% growth for the industry.
The strong increase was driven by a good end of season for snowmobile, the continued success of the Outlander Mid CC and the early retail of the Can Am Defender. Outside North America, while retail has been softer in Latin America due to the difficult economic environment, our retail sales in the rest of the world was solid. We had mid teen growth in the Europe, Middle East and Africa region with good early season sales of personal watercraft and Spider as well as market share gain in off road. And we've delivered 26% retail growth in Australia and New Zealand as we had good success with the 300 horsepower personal watercraft and gain market share with our Can Am off road lineup. We are pleased with our overall performance and the team is focusing on our plan to continue our momentum going forward.
Now looking at year round product highlights on Slide 6. Revenue for the quarter were up 1%. For our ATV business, now 10 months into the season, the North America industry is down low single digit and our Can Am retail is up high single digits. We are pleased with the performance of our lineup, which is gaining market share worldwide, especially in the large mid cc segment with the Outlander. Turning to the side by side, the North American industry is up high single digit season to date.
After lagging the industry for most of the season, Can Am side by side had a good quarter of over 20% retail growth driven by our entry into the utility segment with the We are pleased with the Defender performance, which is off to a good start despite competing with non current models and discounted competitor product. Also, as we announced at the end of March, we have made the 2nd product introduction in our commitment to launch a new side by side every 6 months for the next 4 years with the introduction of the Defender Max, 6 passengers side by side. Production will start as planned next week. Now turning to Spyder. Still early into the season, the motorcycle industry is about flat compared to last year.
Can Am Spyder retail is down high single digit over the same period. We still see the industry growth being driven by lower price motorcycle, while model with an MSRP of $20,000 more, a better compatible for the Spider are also declining season to date. Our North American marketing campaign is ongoing and we continue to invest in product and brand awareness. Meanwhile, in Europe, the Spider F3 continue its good momentum and is driving our Spyder retail sales up in the 20% season to date. Now on to Slide 7 for an update on our new off road lineup that we introduced last week.
For the season 2017, we have optimized our offering and add the new packages to offer the most complete lineup in Can Am history. Notably, we reinforced our industry leading offering for hunters with the introduction of the new sorry, Mossy Oak Untying Edition for the Defender and the Outlander 1,000. We are strengthening our leadership position in the mod segment for the new Maverick Max and the Renegade 570 XMR. And we renamed our Outlander L mid cc TVs to the Outlander 450 and Outlander 570. Our Can Am Off Road business has been performing very well for the last few seasons and we believe that we have the right lineup to continue on that momentum for 2017.
Getting back to our product category highlight with seasonal product on Slide 8. Revenues for seasonal product were up 6%, driven by higher volume and stronger mix of personal watercraft sold as a result of the introduction of the 300 horsepower, but partially offset by the higher snowmobile sales program costs that were set to mitigate the impact of the poor snow condition in some part of North America and the economic slowdown in Western Canada. As I said, our programs were quite successful. We ended the 2016 season with a comfortable network inventory position, only slightly higher than last year and our dealer orders for the next season are firm with the booking level as expected. Looking at the snowmobile retail, the North American 2016 snowmobile season ended with industry retail down mid single digit percentage.
Because of our strong lineup and the quick reaction of our team in launching our sales program early in the season, Ski Doo ended the season gaining 3 percentage point on market share and achieving its highest market share since the industry began recording. On top of that, we are pleased with the customer reaction toward our new snowmobile platform, which position well Ski Doo to continue to be successful in the coming season. In Scandinavia, season to date, the industry is down low single digits and BRP Retail is in line with the industry. As for our personal watercraft business, still early in the season, the North American industry is up mid single digit and Sea Doo is also up mid single digit. Looking at counter season market share, market in Australia and New Zealand, the industry ended their 2016 season with its retail up in the low teens percentage, while SEDAR Retail grew in the high teens, gaining 2 percentage points of market share.
Now looking at propulsion system on Slide 9. Our revenue grew by 8% to reach $111,000,000 primarily driven by higher volume of aircraft engine sold and favorable exchange rates. In the outboard engine business, the industry season to date retail was up high single digits, while even rolled retail was down low single digit. We continue to gain market share in the 200 horsepower plus category with the G2 engine and we keep on progressing in our network development effort for Evinrude as we had the 15 new dealers and 2 OEM partners in the Q1 of 2017. Also later this month, we will be holding our 2nd Evinrude dealers event in 3 years.
We are expecting once again a strong participation with over 800 invitees who will attend our new product introduction scheduled for June 26. Now turning to Slide 10 for parts, accessories and clothing. Revenues for the pack business were up 4% for the quarter despite lower snowmobile parts sales due to the poor snow condition in many North American region that shortened the riding season. The growth in revenue was primarily driven by the good momentum we have in our Can Am Off Road Accessories business as we continue to grow our vehicle installed base and develop our accessories offering. As part of our model year 2017 ORV lineup announcement, we also introduced over 30 new accessories for the Can Am Defender.
As you know, utility side by side customer tend to accessorize their vehicle and this represents a good growth opportunity for our PAC business going forward. On that, I will turn the call over to Sebastien for an overview of our financial results.
Thank you, Jose, and good morning, everyone. This morning, we reported revenues of $930,000,000 for the Q1, an increase of 4% from the same period last year, mainly driven by favorable foreign exchange. Our gross profit amounted to $194,000,000 resulting in a gross profit margin of 20.9%, a decline of 2 80 basis points from last year as the positive impact coming from a favorable product mix was more than offset by higher sales programs for snowmobile and unfavorable foreign exchange, which alone resulted in a 220 basis point negative impact. Operating income was down $38,000,000 in the quarter. We are involved in multiple different lawsuits with one of our competitors, whereby each party is claiming damages for the alleged infringement of some of its patents.
Subsequent to quarter end, a verdict was rendered in one of those lawsuits against the company for an amount of US15.5 million dollars For the 3 month period ended April 30, 2016, the company recorded as an expense the preliminary compensatory damages of US15.5 million dollars or US19.5 million dollars in equivalent Canadian dollars, which we excluded from our normalized results. Management believes that the verdict is unfounded and we intend to file an appeal. Our normalized EBITDA ended in line with the outlook we gave last quarter at $57,000,000 and we generated a normalized net income of $4,800,000 and normalized EPS of 0 point and geographies on Slide 13. Our product category mix for the Q1 was quite similar to last year with 43% of our sales coming from year round products, 31% from seasonal, 12% from propulsion systems and 14% from parts, accessories and clothing. From a regional perspective, international markets drove most of the growth being up 17% driven by higher shipments of PwC and ATVs in Scandinavia, Western Europe and Asia Pacific.
U. S. Reached $498,000,000 up 1% as a positive impact from currencies was offset by lower volume of Spider Soul and higher snowmobile sales programs. Canada was down 9% also impacted by additional sales programs and lower volume of Spider. Looking at the normalized net income bridge on Slide 14, our normalized net income stood at $5,000,000 down by $32,000,000 from the same period last year.
Benefiting the normalized net income were volume and mix for $5,000,000 and financing costs and normalized income tax expense for $7,000,000 These elements were offset by pricing and additional sales programs, mostly coming from snowmobile for a net negative impact of $10,000,000 higher production costs and depreciation expense for $5,000,000 higher operating expenses for $15,000,000 driven by higher investments in R and D and increased administrative expenses mostly related to legal costs and unfavorable foreign exchange rate variations for $15,000,000 Turning to the balance sheet and cash flow update. We used $40,000,000 of cash we used 40,000,000 dollars of free cash flow in the Q1 compared to a generation of 6 for the same period last year. The main reason for the decrease in cash generation was the decline in normalized EBITDA and higher cash taxes paid. We also used $11,500,000 to repurchase approximately 650,000 shares in the quarter. Accounting for these elements, we ended the quarter with $183,000,000 of cash on the balance sheet.
Now to Slide 16 for a look at BRP's powersport dealer inventory for North America at the end of April. We ended the quarter with network inventory down 1% from last year's Q1. Our network inventory is up in certain areas of the business, primarily driven by a slightly higher level of snowmobile inventory in Canada due to the poor snow conditions last winter and also due to shipment ramp ups of Can Am Defender and increased dealer count. These were more than offset by a decrease in network inventory in the rest of the lineup. And finally Slide 17 for a quick update of guidance for fiscal 2017.
Our guidance remains essentially untouched except that we reviewed our expected depreciation expense to $145,000,000 down from $150,000,000 and we adjusted our share count to reflect the progress made year to date on the NCIB. The reviewed depreciation expense impacted our normalized net income guidance, which we adjusted upward to up 2% to 8%, increase from flat to up 7%. And both the reduced depreciation expense and the reviewed share count improved our normalized diluted EPS guidance of $1.79 to $1.89 up from the previous range of $1.75 to 1.85. Dollars In terms of EBITDA generation through the year, our plan remains the same. We are still expecting the majority of the normalized EBITDA to generated in the second half of the year.
Like we mentioned during last quarter's conference call, Q2 should once again be our smallest quarter, especially given that we received strong orders for the new Ski Doo platform, which will be produced in the second half of the year. So this is expected to decrease our snowmobile deliveries in the Q2, but increase them in the Q4 compared to last year. We are also planning for higher operating expenses in Q2 compared to last year and we are expecting the normalized EBITDA to be similar to what it was in fiscal year 2015 Q2. On that, I'll turn the call back to Jose.
Thank you, Sebastien. Once again, I am pleased with our results and where we stand at this point in the year. We are confident that markets in the United States, Europe and Asia Pacific will keep providing us with good opportunities going forward. We are however closely monitoring the situation in Canada, Russia and Brazil. On the product side, we are pleased with the great reception they get worldwide.
For example, our Can Am brand is well recognized and consumer awareness level is rising. Our different lineup enjoyed great momentum led by our new side by side, the Defender. As I said before, we'll keep adding new model in that segment every 6 months for the next 4 years. On the snowmobile side, we are pleased with the new platform and our booking for H2 is firm. We are also excited because we now stand with the greatest North American market share ever achieved since the beginning of Ski Doo.
For Personal Watercraft, we are pleased with the success of the Spark and the good early performance of the 300 horsepower models at the retail level. Our global marketing campaign is ongoing and we are pleased with our NASCAR sponsorship that is helping us building the Can Am brand. On the distribution side, we continue our dealer network optimization program and we are still targeting to add 45 to 55 new dealer this year. We are also focusing on integrating and bringing up to speed the 105 new dealer we added last year. Our global network continued to be highly committed in growing the business.
Finally, the BRP team remains engaged and focused on our strategic priorities of growth, agility and lean enterprise to deliver on our objective both for the year and for the long term. And on that note, I will turn the call over to the operator for questions.
Thank you. Our first question is from Mark Petrie from CIBC. Please go ahead.
Hi, good morning.
Good morning, Mark.
I wonder If you could just give us a bit of an update in terms of your performance and the pace of orders and inventory levels in some of your more challenging markets, so Western Canada, Russia and Brazil.
Let's start by Western Canada. In Western Canada right now, the industry is down low single digit. The first quarter where the rest of Canada was up 20%, then Canada is up mid double digit, but you can see the Western is affected. In Russia, last year, if you remember, we had planned to be 50% of fiscal year 2014. We ended up at 40%.
And this year, we're planning 30%. And this is all included in our guidance of fiscal year 'fourteen level. And for Brazil, in Brazil, the Brazil market is down by about half right now, but Mexico, Argentina and Venezuela is up by 30% and the whole together Latin America is down by about 30% and all of this is factored in our guidance.
Okay. That's helpful. Thank you. And then wondering if you could please just update us on some of your various manufacturing initiatives. I know there's a lot going on, but maybe just an update in terms of the ramp up in Mexico, how that's progressing?
And then more broadly, I guess, the push to lean manufacturing and some of your other facilities in other geographies. And then what savings are you realizing today? And how should we think about that in the coming 18 months or so?
Then let's start with the Mexico. The ramp up in URS 2 is done. We are right now running at the hourly rate that we're planning at the beginning of the program and everything is running well. The Defender Max will go on the line next week as planned. And we are ready to have the 2nd shift when the volume will dictate it.
Then Mexico, everything is ongoing in Juarez 2, Juarez 1 and Queretaro. In construction, you saw last year the progress we were doing into the factory, no change there. We are on plan. And right now in Belcourt, the Valcour 2020 plan is divided in 3 phase. Phase 1 is ongoing right now.
We are about halfway on it. And we will probably we'll start Phase 2 on the back end of this year, but everything is as planned. On the improvement on the financial impact, everything is included in our guidance going forward. But definitely, the goal and you see here, our guidance for this year is to increase at a higher rate the bottom line versus the top line.
Yes. As we talked last call, Mark, the margins for this year is expected to be flat as we're benefiting from Queretaro, PWC that is now fully ramped up, but we're getting a bit of headwind from Juarez II plant starting up. And next year, we should be seeing a lift on the margin coming from what is to being at full production.
Okay, that's great. Thanks very much.
Thank you. The following question is from Martin Landry from GMP Securities. Please go ahead.
Good morning. Wondering if you could give us some color in the U. S. On how demand for powersports is going right now. But I don't know if you can talk a little bit about traffic at dealers during the spring and what's expected during the summer.
But as you saw in our in my review of the industry, The industry in U. S, I mean, ATV is about flattish, side by side is growing, but at a lower pace. Snowmobile, we had a good end of the season, but it was because of the program. Watercraft is still early into the season, but looking good and we had good watercraft result outside North America. And motorcycle is flattish, drive by the low end motorcycle and the high end motorcycle is a bit down.
Then the industry is not growing at the fast pace, but I would say it's quite stable. But what I'm very happy with is our momentum with all our product line. And it's again multifaceted. There is the marketing campaign that is very well focused, the NASCAR sponsorship to bring the to build the Can Am awareness, the dealer network improvement, dealer make more money with our product than some of our competitor, then there is that momentum and I believe that we're well positioned for the future.
Okay. And then on Slide 3 sorry, Slide 5, you talk about your retail performance in the quarter in North America. Your is it your sales or are those units that are up 14%?
Those are units, Martin, that are up 14%.
Units, okay. What would that be in sales?
Oh, it's retail level. So it's tough to quantify, but obviously you can look at our wholesale at a dealer margin and extrapolate what that could represent.
Okay. And then just wondering what drove that increase? Was there like one product line that boosted it materially?
But I mean for sure the Defender we're entering in an industry where you have 60% of the industry, then if you would, I mean, move the Defender from those numbers, the rest of the product would grow 8%, which is still we're still very happy with all the other lineup.
Okay. That's helpful. And lastly, just on acquisitions, is this something that's on your mind? Are you looking at making acquisitions, expanding your product lines? Or is it pretty quiet on that front?
As we've discussed a few times, we still believe that with the 6 product lines that we have in entering a new segment and gaining market share, we can continue to grow for the next few years. That's all factored in our plan. And in our plan, there is no acquisition factor in, but it's something that we're looking at more actively.
Our following question is from Jamie Katz from The Morningstar. Please go ahead.
Good morning, guys. Thanks for taking my questions. First, I have a question actually on outboard engines. And it looks like in that segment, there might have been a little bit of share loss. I'm I guess curious what's working for competitors and how you guys might be able to adjust to capture more of that market because I know that's been an opportunity for faster growth for you.
Yes. If I recall the history, we acquired the market with when they restarted production, our competitor assigned almost all our boat builder OEM customers. And we end up being very, very successful in the power, but that segment is going down and the OEM is going up. Then the strategy with the G2 introduction was to create the pull from the consumer. And so far, we're very happy because since the introduction of the G2, we've been able to sign about 150 dealers and 30 new boat builder, then we can definitely see a momentum of hotboard evenrood engine with the G2 introduction.
And this takes times because when you deal with an OEM, it's longer than directly with the dealer and you have also the boat builder in there. But we're quite pleased with our momentum so far and we will announce more product on June 26. Then overall, the strategy is on track and we're happy with our progress so far.
Okay. And then it looks like there's very little leverage in operating expenses this year as you guys invest in the manufacturing side of the business. Do you have a feel of what top line growth you might need to see the future, just sort of a rough estimate to really start levering those expenses? Or will the efficiencies just sort of naturally lever starting in 2017, pending that the promotional environment doesn't get more competitive?
We will be seeing some efficiencies and we've talked about our lean and agile manufacturing strategy, the way we design products. And as we are introducing these products with the new design methodology, we will be seeing a benefit to the margin. In terms of operating expenses, what we look at is about 15% of revenue is an area where feel we're comfortable in terms of operating expense, making sure we sustain investments in R and D, give an appropriate support on the marketing side to make sure our brands are being promoted out there. And that's the level we're seeing. So yes, obviously, if we get some when we get some revenue growth, we are going to get some operating leverage from the admin expenses and other areas of the business, especially on the manufacturing side.
But in order to achieve profitability growth, we don't necessarily need to grow revenue tremendously.
Okay. And then lastly, on Personal Watercraft,
can you
tell us what your estimate for industry growth might be this year just to think about share shifts?
Yes. Well, the industry has grown quite considerably over the last 2, 3 years since we've introduced the Spark and Spark actually carried all of the industry growth. Our expectation for Spark this year is continue to grow, but not necessarily at the same pace that we saw in previous year. I would say, let's say, low single digit industry growth would be a fair assumption for this year.
Thank you. Thank you. Our following question is from Robin Farney from UBS. Please go ahead.
Great. I wonder if you could give us a little bit of color on your average selling price per unit and then maybe how much that was impacted by the sales programs? I guess I'm specifically thinking about ORV. I mean, if you have ORV and snow separately, but just to get some color on that. Thanks.
Yes, the ASP was up about 3% this quarter. That includes also the currency impact. And as you saw, currency was about 4%. When you strip it out, you're probably a negative, you're at 1%, 2% ASP. And the impact of sales program is what brought the average selling price down.
If you look at it by product line, most of the discounting as you can appreciate happened in the snowmobile side, which brought down the ASP there. But in terms of ORV, we're seeing, let's say, a flat average selling price year over year.
And would there have been mix benefit that is offsetting that? In other words, if the average selling price in constant currency is down 1% or 2%, does that mean the sales program impact is 1% or 2%? Or is it like mix actually made ASPs go up some percent and so the sales programs, the drag is actually great?
Mix did bring it down about 1%, Robin. We sold less Spider and the average selling price for Spider is high. And that would have brought the overall mix of the ASP down.
And just in ORV as well, would the ASP have been flat?
No, we're shipping the Defender 1,000. It's a unit with which has a good wholesale price compared to the Commander or the Maverick. So the average price would have been flat there.
Okay. Great. And then just looking at your commentary on retail sales for the Off Road business. So you give the season to date at the end of January and then the season to date at the end of April. And so it looks like there was quite a big swing in there.
And then when we compare that to other manufacturers' comments about the March quarter, industry sales being mid to high single digits, I guess I'm thinking does that imply I don't know if you can give us some color on the cadence throughout the quarter, but it seems to imply if I combine all those all the commentary out there, that the month of April was up at a double digit rate or possibly that there's just different definitions of what industry means when you talk about industry sales and others do, but maybe you could give us a little bit of commentary on sort of the cadence through the quarter?
But if we talk about the off road the ATV is the trend is still flattish. And we continue our good momentum, mainly drive by Outlander Mid CC family. On the side by side side, there is some growth happening. First, very limited data on side by side industry. We don't have much.
Then the side by side is still growing. But for us, the Mavic and the Commander, there is some cannibalization with the Commander, with the Defender. But the Mavic Commander are doing okay and we're doing quite well on the Defender and the lineup is expanding. Just to give you a sense, on the Defender, we started to ship the HD 10 in December 2015. The HD-ten cab in January, the HD-eight and HD-eight cab in March and we're starting shipping next week the 6 passenger.
Then we on top of ramping up production in U. S. We're ramping up the model and that's what is creating the momentum for us.
Okay. Okay, great. That's helpful. And then maybe just last thing, it's just a quick clarification.
All right.
On your slides, when you talk about kind of what makes things between the first half and second half be more weighted towards the second half, It's Slide 18. You mentioned shipments of the Defender and I was just wondering why that would and maybe that actually you just sort of answered it. In other words, it sounds like you're not really fully ramped in the first half for Defender. So I mean, I know you've been shipping it for a number of months. That's why I was didn't know why it would have been more of a second half impact versus first half?
Well, it's both the first and the second half. We started shipment late last Q4. And so this quarter we shipped the HD-ten, the HD-eight and the cab version. We're going to be introducing more models as you saw the 6 passenger Defender and so that's going to be starting to ship now and we're going to be shipping as well in the second half of the year. So as we introduce a more complete lineup of products, you'll be seeing positive shipments throughout the year.
Okay. Thank you.
Thank you. Our following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yes. Good morning, gentlemen. And just to come back on the significant outperformance of BRP versus the industry, especially in Latin America and Asia Pacific. You mentioned good color about Argentina and Mexico, but I was just wondering what drove this significant outperformance, if it was some products in particular that drove this outperformance?
Good morning, Benoit. If you take Brazil, Brazil is a market where it's like there is people like the high performance product, watercraft. And there is also a market for entry level, the Spark, the mid range has never been a great business. Then right now, we're outpacing the industry because of the 300 horsepower watercraft in Brazil because it's a market that is fueled by the performance. Mexico is really, really going well for our RV and watercraft and also Spider.
Then with Mexico, we have a great momentum and the dealer are getting more engaged and success brings success, they invest more in their business. Then Mexico is great. Argentina, you know that the country was blocking to manage their currency. They were blocking product that we could export there. And right now, with the new government that is now in place, there is more units that we can ship in that country.
Then I think at the end of the day, it's the strength of our lineup and we're well positioned in all segments in each product line. And we're benefiting of that the strength of the lineup and also the dealer network that is well established that make the difference.
Okay. Very good. And on the SSV side, you've done a very good job of growing revenue in a challenging market. The industry looking specifically and the industry Jose, it's down low single digits. Obviously, you're capturing some market share.
But just wondering any thoughts on what is
I'm just wondering if it's
more related to the I'm just wondering if it's more related to the utility recreational or it's kind of the used Side by side, sorry.
Okay.
The way we see things, the I said it a few times, we believe the utility vehicle, the Defender category, the vehicle are getting more sophisticated. I said a few times the example of the Ford F-one hundred and fifty where the vehicle are getting more luxurious, more better suspension. And I believe that that's why the utility segment is still doing well and us entering with the Defender in that product category with a very good product is giving us an edge. And also one of the competitor introduced the Recu, the commander category, a good product. And that is also giving a spark in this segment.
And the dynamic is changing quite fast in the side by side industry. The trend is very good for us and we're benefiting again of the lineup that is getting better, the momentum with the dealer network and the marketing campaign and the NASCAR sponsorship.
Okay. And just for the Spider, obviously, you've made a significant sponsorship for NASCAR, which has garnered a pretty strong interest. Looking at the retail sales down high single digits, obviously, you made some comments about the momentum around the kind of low end. So just wondering if there is an opportunity here for kind of introduce a low entry level or maybe adjust the price like you've done with the RS model in the past?
But first, this year, there is a few things. The F3 awareness is still below what we would like to be. To be honest, it's taking more time that we would like to create the awareness of the F3. That being said, it's growing at a good pace, but we're expecting a faster pace. The other thing that we didn't mention so far is the marketing campaign.
We delay the marketing campaign by about a month in Canada and in the United States, then this could have some impact. And also we cannot ignore the trend of the high end motorcycle that is down. The motorcycle industry is flattish, but it's because of the low end motorcycle that is up. Then all of this is the Spider situation. That being said, we still believe that Spider is an area where we can grow and it will remain a priority.
But it's taking more time than we would like to build the awareness.
Okay. And last question, just on the propulsion system, Jose. The industry is up high single digits, Evinrude retail down low single digits. Is it still again the same thesis around the repowered market? Or was there some impact from the weather or kind of people waiting for the G2 or the further announcement on June 26?
There is definitely the industry is the growth is coming a lot from the saltwater where we are weak. And also like I said before, the depower business where we are strong is this segment is going down. Then right now, we're trying to continue our momentum with the G2. And what I'm happy with is since the G2 introduction is the momentum we have with new dealers and new boat builder. And just to give you a sense, we've done a training tour about a month ago.
We visit 40 cities in 40 days. We train about 1800 technicians about the G2 advantage and how to rig a G2 on the boat. And this is starting to gain momentum definitely. Then so far, we are disadvantaged because of the trend of the saltwater growth where we're weak and the depower that is going down. On the other hand, I'm happy because we have good traction with the G2.
We are really creating the pull from the consumer.
Okay. And what would be the lag because you signed up a lot of dealers in the last few years on the propulsion side. What is the lag before seeing the impact on the retail sales side closely?
But there is I think the lag on the dealer side is not too long. It's the boat builder. When you sign the boat builder, it takes time because a boat builder will do the perfect rigging of the engine on the boat. He will introduce our engine in their boat with the new lineup. Sometimes they start with a few model and they grow in time depending on the success.
And I would say, the delay between when you sign a boat builder and when you see the rail growth is longer than the dealers. That being said, we're still planning a good growth in our guidance for propulsion system this year and I think we'll continue the momentum.
Okay. Thank you very much for the time.
Thank you.
Thank you. Our following question is from Gerrick Johnson from BMO Capital Markets. Please go ahead.
Hey, good morning. On your 12% North American retail growth, how much of that was driven by promotions and how much of that would have been for price sales?
It was 14% in North America. The obviously promotion was a big factor this quarter. However, as Jose mentioned, the Defender did carry a lot of the retail growth and that was not influenced by promotional activity. Snowmobile probably has an impact of 2% on the overall retail increase year over year. And that as you are aware of was subject to heavy promotions as we wanted to make sure we finish the year with clean inventory as we knew we were launching a new model for the next season.
Okay. So with the 12% number that's in the MD and A, does that include outboard engines, is that where that's lower?
Yes, yes. That includes the outboard engine part of the business.
Okay. And my second and last question. Your dealer inventories, 1% down, but includes Defender and new incremental dealers. So obviously strip those out, it would be a little bit lower. Do you have a number, an exact number what that would be without Defender and new dealers?
Yes. Defender new dealer is 9% up. So if you strip that 9%, you'd be significantly lower.
All right, great.
Thanks, Svesh.
Thanks, Svesh.
Thank you. Following question is from Cameron Doerksen from NBS. Please go ahead.
Yes, good morning. Just wanted to touch on the I guess the guide full year guidance and your visibility into the second half of the year, obviously a pretty back end loaded year. It sounds to me like you're very comfortable with where you are on the snowmobile side and your visibility in the second half of the year. But what about for the rest of the business? I mean, I guess maybe the question is, do you feel more confident about the second half of the year today versus 3 months ago?
For sure, Cameron, because we have now firm order for snowmobile and there is a lot of snowmobile that will be shipped in H2, we are more comfortable with this business for the back end of the year. But when you look at the big picture, the risk is always in this there is always more risk in the first half of the year. We've just introduced last week our new off road lineup. Dealer we know will and our retail is going well, then dealer will reorder on a monthly basis, ATVs and side by side. Right now, watercraft is going well and we'll introduce our new watercraft at our club in August and there will always be demand for watercraft, which is the second half of our fiscal year, but the first half for the retail season.
Then for us, there is always more risk in the first half of the year than the second half. And that's why we confidently are affirming our guidance.
Okay. Very good. Just second question on the litigation. I know this is sort of part of the industry, but maybe if you can just talk a bit about the timeline. I mean, if you're going to appeal this decision, what is the timeline to when cash might go out the door if you were to lose that appeal?
I mean, I would assume this is going to take a fair bit of time.
We will appeal the verdict. And again, we can it can vary a bit from state to state, but we're talking maybe a year before to get the verdict or the result of the appeal.
Okay. That's all for me. Thanks very much.
Thank you.
Thank you. Following question is from Anthony Zica from Scotiabank. Please go ahead.
Yes, good morning. Jose, what is it going to take to push the Spider sales higher like you mentioned build more awareness? Is it also a pricing issue? And could we eventually see lower priced product? And then my second part to the question is, when we look at dealer recruitment, could you give us an idea how important the Spider is in terms of recruitment and overall product portfolio when a dealer wants to join?
Yes. Good morning, Anthony. For the Spider question, and I said it a few times, we have what I'm happy about the business overall, but on the other hand, frustrated because we have some dealer who are extremely successful with the spider, others that are not as successful. And the first priority right now is to make sure that every dealer has the success as Spider deserve. For sure, if we would introduce lower price point spider, you could see some volume there.
But right now, the priority is to make sure that all our dealers are doing the right thing to generate the success that the Spider deserve. And that's a priority that we're focusing. Your second point was about?
Well, and in terms of dealer recruitment and how important is it to attract?
Yes. For sure, when we recruit dealers, we try to sign a dealer who carry as many product lines as we can. So far, since we've signed we the signing of new dealers, we have increased our dealer coverage for Spider by about 30%. And we're planning again to add 45% to 55% this year and we'll try as much as we can to sign Spider Dealer. That being said, I still believe there is more upward if we can engage every dealers to do the right thing then signing more dealers.
That's the priority for now.
Okay, great. And then one question for Sebastien. Could you please give us some more color that's tied to the increased cost to the Juarez II plant? The surprise there and
Well, there was actually no surprise there, Anthony, in line with our plan. And when you look at the 80 basis points, What drove the majority of the margin decrease was currency for about 220 points. And then the other one was pricing and sales program for about 80 basis points. So overall, no surprises on Juarez to opening.
Okay, great. Well, thank you.
Thank you. The following question is from Tim Conder from Wells Fargo Securities. Please go ahead.
Thank you. Gentlemen, I just want to maybe continue on a little bit there on the Spider. You expanded the dealer base and brought out lower more entry level product. Could part of it be there's some, I guess, competitive clearance of inventory out there. And how do you see that part maybe being part of the equation here and impacting drawing customers in at a price point.
And as that maybe winds down in your opinion on that, Do you see the spider picking up? Or again, as it's maybe been alluded to, is it where you need to kind of adjust the price points on the spider more on a permanent basis?
Tim, as we said, when we ended the season last year, we end up the season last year with too much inventory that more inventory that we'd like to. Definitely, right now, there is promotion on the non current. And for a model where you don't have much change, the non current sell faster than the current model. And when you create those situation, you always there is customer who stay on the fence, who will wait for the current model to become non current and get that rebate, that sales program. Then right now, our strategy is to as fast as possible, but we cannot go too fast to bring the inventory of non current to the right level like we have in other industry.
And we believe that will stabilize the appetite for customers for non current product. Again, coming back to the low price spider, for sure, if it would bring lower price spider, it could generate some volume. That being said, I still believe that there is more opportunities if we can do a better job in market the product, build the awareness faster and engage faster our dealer network. But at the same time, I still believe that Spider is one of the growth opportunity that we have going forward. Okay.
And Jose, I guess shifting to the competitive outlook here in ORVs, just your view of you had an announcement from Yamaha yesterday with some additional tweaks on their YXZ product and your Defender is going well. How do you view or it appears some of the new products are targeting more in the sport rec side of the side by side market?
To be honest, Tim, yesterday was the board meeting. I didn't see the Yammer introduction in the detail. We knew it was coming because there was some video teaser out there. But so far, our maverick is performing well. People recognize more and more the performance of the Mavriq versus some of the competition.
The durability is very good. Then we're well positioned with Mavic. We're well positioned with the Defender. There is more cannibalization that we had planned originally between the commander and the defender. That being said, the same in the last 2 months where we've took orders that the ratio is coming back to what we had planned.
Then at the end of the day, there is definitely more product introduction from all OEM in the last few years. But we believe that we have a strong lineup and this lineup will get even stronger because we are on plan to introduce another model in the fall. And that's the plan.
Thank you. Our following question is from Craig Kennison from Baird. Please go ahead.
Good morning. Thanks for taking my questions. The first is regarding dealer inventory. It finished lower this quarter. What would be the expectation for the full year?
Well, what I could give you, I could give you a bit of color what we're expecting for the next quarter, expecting the inventory to be higher at the end of Q2, probably up high mid to high single digits coming from SSV inventory. As you as we've said, we're shipping the Defender in all of the current versions. And I'm also expecting a bit more snowmobile inventory from where we ended the season and probably a bit of more PWC as we do have we did finish the year with more inventory last year and that's going to be retailed in the later months of the year.
Thanks. And Jose, it's early, but based on early Defender sales, what does the demographic profile of that buyer look like relative to your expectations? Thank you.
It's a bit early. Obviously, we've targeted our usual customer, but done quite a lot of advertising in farming magazine and website. Also, we've done a lot more hunting, promotion and magazine. But I would say at this point, it's too early to say, but we focusing on those 3 are typical customers, hunters and the farmer. And so far too early to give you a good answer, but this is our focus.
But I cannot give you colors if we're successful or in which category we're more successful.
Thanks for taking the questions.
Thank you.
Thank you. We have no further questions registered at this time. Back to you, Mr. Deschenes.
Great. Thank you, Maude. And thanks everyone for joining us this morning and for your interest in BRP. And I also want to invite you to our annual shareholder meeting that will be held this morning at 10:30 and will be accessible on the web@brp.com. So thanks again everyone and have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.