Hello ladies and gentlemen. Welcome to BRP Inc.'s fiscal year 2016 second quarter financial results. The call is about to begin. I would now like to turn the meeting over to Mr. Philippe Deschênes. [Foreign language] Please go ahead.
Thank you, Maude. Good morning, and welcome to BRP's second quarter result conference call for fiscal year 2016. Joining me on the call this morning are José Boisjoli, President and Chief Executive Officer, 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 a number of risks and uncertainties. I invite you to read BRP's MD&A for a listing of those. During the call, reference will be made to supporting slides, which you can find 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. Let me start by reminding you that Q2 is always the lowest quarter for BRP. Q2 2016 was no different. Despite significant volatility and turbulence in the market, our top-line result ended as expected. Thanks to our tight management of expenses and lower sales program, our bottom line is slightly better than planned. I will come back on this subject in a few minutes. Although the global economy remains uncertain, the U.S. market is solid, and European markets have performed better than expected. Emerging economies, especially Russia and Latin America, remain unstable and continue to underperform. The devaluation of their respective currency and the serious threat of inflation occurring on the horizon had a negative impact on the business. We also saw a slowdown in the Canadian economy as Canada was recently declared in a technical recession, the second since 2008.
Even though it has been a challenging quarter from our year-round product retail point of view, we are pleased to stand slightly ahead of our expectation entering in the second half of the year, and we remain focused on executing our plan. Let's go into the review of the quarter with a look at the financial result on slide four. We achieved revenue of CAD 812 million, a 4% increase over last year. Unit deliveries were similar to last year, and revenue growth mainly came from favorable foreign exchange variation. On the profitability side, our gross margin came in above last year, improving by 260 basis points. The improvement was in part due to good execution resulting in lower production costs and expenses, and we were able to achieve efficiency gain during the quarter.
We also benefited from lower sales program costs, which is the result of softer retail than planned in year-round product. Those savings are expected to reverse in the second half as we have strengthened our sales program for the fall. We'll give you more color on the industry in a few minutes. The gross margin helped achieve a normalized EBITDA of CAD 53 million and a normalized diluted earnings per share of CAD 0.03. Moving to the business highlight on slide five. Our revenues from North America grew by 4%. The growth was driven by favorable foreign exchange rate variation, offset by a weaker Canadian market, for which our revenues were down 10%. Our retail sales in North America for both seasonal and year-round product increased by 2% for the quarter. As I mentioned earlier, our retail performed below our expectation for year-round products.
We had strong retail growth for personal watercraft, but we had a weak quarter on the Can-Am side, especially for Side-by-Side and Spyder. On the international front, despite unfavorable foreign exchange fluctuation, we continued weakness in Russia and Latin America. Revenue increased by 4%. The growth was primarily driven by good demand for our product in Scandinavia, Western Europe, and Asia Pacific. On the operations side, some of our new 2016 off-road models have recently hit the market. On the ATV side, shipment of the Can-Am Outlander L with the newly introduced 570cc engine started late in June and will ramp up in the third and fourth quarters. As for Side-by-Side shipment of the base model, the Maverick Turbo, with a more competitive price point, started in August. We also have made good progress in the construction of the Juárez 2 facility. The building is completed.
We already have assembled prototypes, ramp up will start late fall. The project is on plan and on schedule. Turning to a year-round product category highlight. Our revenues were about flat as slightly lower all sales volume and unfavorable product mix were offset by favorable foreign exchange rate variation. Looking at our retail performance, the North American ATV season just ended on June 30th, and we are pleased with the Can-Am performance. The industry ended the season flat Can-Am was up low single digits, slightly outpacing the industry. What is more impressive is that when excluding the youth ATV, a segment where we reduced our offering, Can-Am was up mid-single digits. On the international front, we also have a good momentum with the Outlander L family in every key market.
Overall, we are pleased with our ATV business and we believe we are well positioned to continue gaining market share in the coming season. The North American Side-by-Side industry also ended its 2015 season on June 30th and was up low double digits. The season was disappointing for Can-Am as sales were up low single digits. The industry trend remained essentially the same, with growth coming from utility and sport segments while Rec/Ute continued declining. We are pleased with the Can-Am performance, which saw a retail increase despite that it is competing in a declining Rec/Ute segment. However, we are disappointed by the Maverick retail, which was about flat compared to last season. The competitive landscape is fierce. For 2016, we have adjusted our lineup from an offering and price point of view, we are confident that we will be able to gain momentum.
Finally, on the Spyder side. The same trend we observed early in the season continued in the second quarter. Nine months into the season, the North American motorcycle industry is up high single digits, primarily driven by sport bike and lower priced motorcycles. I want to point out that motorcycle category with a price point lower than CAD 15,000 grew mid-double digits and the one over CAD 15,000 was down mid-single digits. Spyder retail season to date is down mid-single digits, being part of the CAD 15,000 and up category that I just referred to. The Spyder F3, however, continued to perform well with sales broadly in line with our expectations. F3 is achieving our goal to refresh the Spyder image, and the look of the vehicle is now more suited as a reason to purchase than the stability of the vehicle.
The level of awareness for F3 is only half of what it is for the rest of the lineup, but our sales are as expected. Styling has become one of the main reasons to buy, we are talking to a younger crowd. On top of that, customer satisfaction is excellent. As for the rest of the lineup, our retail sales in North America are below expectations, resulting in higher inventory in the field. We remain positive on Spyder and our team is working on our go-to-market plan for North America for the coming season. Now let's look at Spyder result outside North America. The F3 and Spyder business in general has exceeded our expectations. Since the cruising segment is not well developed outside North America, we have positioned the F3 as a power cruiser with a high performance dynamic ride.
This segment fits well with the F3 and is well received by consumers. Our network in international countries is very positive for the upcoming season. To conclude on year-round product, let me make a comment on the quarterly trend for the off-road industry in North America on slide seven. For the ATV, the situation is tough in Canada, especially in the West, trends are not positive in the U.S. However, we are pleased with our results because we are gaining market share in a challenging environment. For the side-by-side, the situation continued to be difficult in Canada. In the U.S., the industry is up, although we have limited data, we believe the positive trend continued in the utility segment, which had a negative impact on our sales.
In retrospective, our sales program for non-current were not aggressive enough in the second quarter, we adjusted our plan for the fall. Our model year 2016 off-road vehicle has been well received by dealers and consumers, we are positive for the next season. Now let's have a look at seasonal product on slide eight. Our revenues were up 1% in the quarter compared to last year. Watercraft deliveries were lower than last year, compensated by snowmobile deliveries. We are delivering snowmobile units to dealers who want to accommodate their spring break buyers. Several of them have made that request in the last few years. The increase was also helped by favorable foreign exchange variation. Switching to our retail performance. Season to date, the North American watercraft industry is up high single digits, driven by Sea-Doo, which is up mid-double digits.
Both the Sea-Doo Spark and the traditional Sea-Doo lineup are performing well, allowing us to gain market share. The same happened in key international markets. One of the highlights is in Scandinavia, where our sales have increased by 400% because of Spark and regulatory changes in Norway. After two years, we are pleased with the Spark result and our personal watercraft business in general. During this period, the North America market grew over 30%, attracting new customers. We see the same phenomenon at the international level. Spark has created momentum in the market and at the dealership. Spark is re-energizing the industry. On to propulsion system business on slide nine. Our revenues grew by 13% in the quarter as we had a stronger sales mix driven by the deliveries of the Evinrude E-TEC G2 and lower sales program.
The North American outboard engine industry ended its 2015 season in June up high single digits. Evinrude retail sales were also up high single digits over the same period, and we gained market share in the 200 horsepower plus segment due to the introduction of the Evinrude E-TEC G2. We also introduced two new jet drive outboard engine during the quarter. Those engine are a nice addition to our lineup as they excel in shallow water. On the jet propulsion front, another important news, it is our agreement with Williams Performance Tenders, the world leading jet tender manufacturer from the U.K. We will start deliveries in 2016. On the parts, accessories, and clothing side, we are pleased with our result. Sales have increased by 12% to CAD 155 million. The growth came primarily from the favorable foreign exchange variations, also from our strategy to develop accessories in parallel to the products.
Our focus on accessories for off-road, Spyder, and snowmobile is paying off. We will ask Sébastien to walk you through our numbers.
Thank you, José, and good morning, everyone. This morning we reported revenues of CAD 812 million for the second quarter of fiscal 2016, up 4% from last year. Our gross profit margin ended at 20.9%, improving by 260 basis points. As José mentioned, the improvement was mainly driven by lower production costs, sales program costs, and overhead expenses. Normalizing for the USD 72 million loss on our U.S. dollar denominated debt, normalized net income came in at CAD 4 million, an increase of CAD 13 million compared to the same period last year. Normalized EBITDA amounted to CAD 53 million, and normalized diluted earnings per share is CAD 0.03. Turning to our revenues by product categories and geographies on slide 13. 37% of our sales came from year-round products, 32% from seasonal products, 12% from propulsion systems, and 19% from parts, accessories, and clothing.
From a regional standpoint, most of the growth came from the U.S., helped by the strengthening of the U.S. dollar compared to the Canadian dollar. Canada was down 10%, driven by overall weaker industry trends, especially on the off-road side, and by lower demand in Western provinces due to a more difficult economic condition. International was up 4%, driven by higher deliveries in Western Europe, Scandinavia and Asia Pacific. Offsetting the growth was unfavorable foreign exchange rate variations and lower shipments to Russia and South America. Normalized net income increased by CAD 13 million in the quarter, driven by lower sales programs for an amount of CAD 10 million and lower production costs and operating expenses for CAD 22 million. These were primarily offset by an unfavorable impact of volume, mix, and pricing for CAD 9 million.
Higher financing costs and income tax expense compared to last year for about CAD 5 million, increased depreciation expense for CAD 3 million, unfavorable foreign exchange impact of CAD 2 million. Moving to the balance sheet and cash flow update. We ended the second quarter with a cash position of CAD 157 million, and our long-term debt was up CAD 26 million from year-end 2015, mainly due to the strengthening of the U.S. dollar. For the first six months of the year, CapEx is up CAD 31 million, primarily driven by investments in the new Juárez 2 project. We have repurchased about 1.2 million shares for a total of CAD 34 million. Slide 16 for a look at BRP's powersport dealer inventory for North America at the end of July. Dealer inventory was up 23% from the second quarter 2015 levels.
A substantial part of the growth is explained by seasonal products with increased snowmobile inventory coming from higher end of season levels and earlier shipments this quarter, and by higher Sea-Doo Spark inventory, which as you may remember, was very low or nonexistent at the end of July last year. Besides having slightly more inventory than planned in Spyder and SSV, we are comfortable with these inventory levels entering the second half of the year. Finally, our guidance for fiscal 2016 on slide 17. As José mentioned earlier, our results for the first half of the year are slightly ahead of plan and we stand in a good position entering the second half of the year. As the year progresses, the environment is becoming more challenging.
We see more competitive pressure, especially in the off-road industry, and the money we saved on sales programs in the second quarter is expected to be used in the coming months. While we are happy to be standing ahead of our plan after Q2, we are expecting the second half to be more difficult than originally anticipated. Overall, we are still expecting to end the year in line with our initial guidance. That being said, we reviewed down our expected depreciation expense for the year and have adjusted certain numbers accordingly. Our year-end guidance now assumes a depreciation expense of CAD 125 million, down from CAD 135 million. The adjustment is driven by timing in CapEx spend and adjustments in depreciation periods for certain assets. We're still expecting revenues to grow between 5%-9% and normalized EBITDA between 6%-10%.
Due to the depreciation adjustment, our normalized net income range is being adjusted from down 9% to flat, to down 5% to up 4%. Our normalized diluted EPS guidance range is increasing CAD 0.05, and we now expect to end the year between CAD 1.55 and CAD 1.70. This concludes my remarks, and I'll turn the call back to José.
Thank you, Sébastien. In conclusion, I would like to say that I'm proud of our team execution as our factory are running smoothly. The launch of our new products are on schedule, and all key projects like Juárez 2 and our new dealer addition are also on plan. We can see on slide 19, in this volatile economy, market trends vary a lot from one region to another. We are following our plan, and we will continue to manage our expenses tightly. We are also pleased with our result in H1, because of the difficult situation in Russia, Latin America, and lately Canada, and with the intense competition in the U.S., we are maintaining our guidance on revenue and normalized EBITDA, but we have adjusted our normalized EPS because of lower depreciation. In a week from now, we will hold our 2017 BRP Club in Nashville.
2,300 dealers representative and several prospects from 65 countries will attend. It will be one of the best product launch in BRP history. We are excited, and we hope to see you there.
We're ready to open the lines for the Q&A.
Thank you. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Anthony Zicha from Scotiabank. Please go ahead.
Hey, good morning, gentlemen. José, could you please provide some more color with reference to the SSV and the roadster market excluding the F3 model? Are the Asian manufacturers applying more competitive pressure, maybe in terms of lower price point?
Good morning, Anthony. Let's see, starting by SSV. There is no doubt that there is more competition in this industry. You saw there is more product introduction on a constant basis into the industry. On top of it, for the side-by-sides aside, the trend is not helping us. Utility is growing. We're not there yet. The sport is growing at a lower pace, obviously, the competition is here in that category. The Rec/Ute is declining, and we're gaining market share, but in a declining market. The overall trend of the industry is not helping us. On the Maverick side, if I can comment, we came up with the 121 last year, a bit late into the fall season, and the retailer was okay.
After a discussion with dealer, we felt that it was a bit pricey, then we had charged a premium for the turbo. That's why on model year 2016, we have came out with the 131 replacing the 121 at the same price. On top of it, we have bring in the base model at a very attractive price. We believe right now that in the fall, we have readjusted our sales program, and we believe that we will be okay, going forward. We're quite optimistic about the model year 2016 season. On the ATV side, the industry is tougher, and we're gaining share with the Outlander L family about everywhere in the world. On the Spyder front, happy about the F3 doing. The media coverage worldwide was excellent. It's clear that we're talking to a younger crowd and customer satisfaction is very high.
At international level, very, very good performance, exceeding our expectation on F3 and the rest of the lineup. In North America, we are happy with the F3, very close to what we had planned. The awareness of the F3, despite the good media coverage, is about 50% of the rest of the lineup. We are readjusting our plan going forward, and we'll continue to build the awareness around the F3. For the rest of the lineup, quickly, obviously there is some cannibalization between the rest of the lineup and the F3. Plus also, we had too many Spyder ST non-current with quite a heavy discount that have somewhat mixed a bit the picture. We have a strategy going to BRP Club next week, meeting the dealers where we have this clear strategy where we'll be.
We have a strategy to clean out the pipeline and make sure that we give a chance to the F3 and the Spyder RT to continue to grow.
Okay. Great. What's your outlook on the snowmobile market? What are some of the challenges? I see that you're pretty well positioned with inventories going forward.
Listen, in North America, we have order on hand. We are in the full production deliveries in Q3, Q4 will be heavy on snowmobile. We have order on hand and typically, we're finishing delivery at the end of November before the snow really hit. In Scandinavia and Europe, mostly our order on hand. This is well aligned. We have order on hand also from Russia. Obviously, Russia is a bit difficult right now. Q3 and Q4 are big quarter for Russia delivery. We have reduced our expectation. That's the risk that we have in our end of the year is Russia will take all the orders or there will be some reduction. Beyond Russia, we're comfortable with the rest.
Okay. Well, thank you very much.
You are welcome.
Thank you. Our following question is from Martin Landry from GMP Securities. Please go ahead.
Yes. Good morning. Maybe just to touch a little bit about the Maverick change in pricing strategy. I believe historically, your products have been positioned as premium products, and I am wondering now it looks like your Maverick Turbo is going to be priced in the opening price point. Is this a change in pricing strategy for you, and can you elaborate a little bit on that?
Good morning, Martin. No, it's no change. Last year, we came out with the first Turbo in the industry, and we have came out with the price premium product. To be honest, it retailed quite well. When we started to survey dealers, some dealers and customers said there is a need for a base model with a big engine. Basically what we've done, we readjusted our lineup where we're offering a base model with the big engine, and we believe this will have some traction with consumer in model year 2016. We have the same strategy in other product line. If you take watercraft, you have the top of the line with the 260 horsepower watercraft, but we're also offering the 260 in lower price category, lower less feature product. Overall, it's not a change in our strategy. We like to be premium.
We like to push technology and charge for it. There was a clear need for a base Turbo.
Okay. That's helpful. Touching again on the U.S. industry. You're saying that it's healthy right now, but it's also very aggressive and wouldn't that be a behavior that we would see when times are tough? What's driving this increased competitiveness in the industry? Is it driven by inventory levels? To that end, do you have a picture on industry-wide inventory levels in the U.S.?
Well, maybe I'll take that one, Martin. One of the key drivers is the side-by-side is a growing industry, and I think the players want to capture market share and be an important player in that segment. That's why we're seeing more and more OEMs coming with new products and innovative products in order to capture that growing industry. ATV's been declining for several years. It's more flattish this year, but all companies like to see growth and the side-by-side is showing that promise, and that's why a lot of OEMs are targeting SSV.
Are we starting to see a buildup of SSV inventory at retail for all the OEMs?
Well, we don't have visibility on what the OEM's inventory is, but we're managing our inventory prudently as we've always done. I think subsequent to the recession, I think all OEMs have started that trend as well. It's not a question of building inventory. It's a question of having more products that are being offered to the consumer.
Okay. Just lastly, in terms of snowmobiles, I think your overall dealer inventory in North America is up 23%, and it looks like a good part of that comes from snowmobiles. I think that's for replenishment at dealers because we've had a good couple of years. Where are you at in terms of your snowmobile inventory at dealers versus historical levels of three, four, five years ago?
Yeah. Maybe I'll give you a bit of color on where we stand today and how much of snowmobile carrying that 23%. Out of the 23% growth, 12% comes from snowmobile, and you could split it, 6% was from the opening inventory that we have and 6% coming from earlier shipments. When I look at Q2 versus historical years, and yes, last year was an anomaly because we finished with very low inventory. We're at standard levels.
The critical point for snowmobile is when you come at January 31st, where you want your inventory to be at the lowest level. Now we have the orders from dealers. We're shipping the units as planned, retail is far from being started. It's going to be starting in October more. No issue there. In terms of comparability, we are comparable to prior years.
Okay. That's helpful. Thank you.
Thank you. Following question is from Steve Arthur from RBC Capital Markets. Please go ahead.
Great. Thank you. I just want to follow up on the sales programs and incentives for the Spyders and side-by-sides. We talked about the money being saved in Q2, probably being deployed in the second half. Can you give us any sense of magnitude of that shift, either in terms of dollars or gross margin impact we might expect?
As you saw, and we had it in the bridge, a sales program with an impact of CAD 10 million positive this quarter. I would expect that this money will be reinvested in H2, Steve. When I look out in terms of margin impact, while sales program impact in terms of margin is about 120 basis points favorable this quarter. We can see that rolling out, not necessarily all in Q3, but maybe parsed out in Q3 and Q4.
That makes sense. I guess sort or potentially related, just on inventory levels, Spark was higher at the end of July, which is very understandable given you couldn't really buy one this time of year last year. Are you comfortable with that Spark inventory level at this stage? You've seen some cash incentives out there on the Spark recently, or will that be a higher program expense in the second half as well?
If you look in North America, we are a bit higher than what we would like. Higher than last year, obviously, and that's why we have a small incentive on the Spark inventory, but very comfortable. We had a pretty good month of August with the warm weather in North America retail. At international, the inventory are very clean worldwide.
It's customary to have, at the end of a season, to have sales programs, what we refer to as now non-current sales programs on all PWC, and I think we're offering a CAD 200 discount on Spark.
Right.
Very minimal.
It's really just the maturity of the Spark program. It was brand new last year, sold out.
Yes, that's true
Mainstream. The intention would still be to increase production again next year on Spark?
The demand was good this year in the U.S., and we're going to BRP Club in a few weeks, and we'll see how the dealers, but the optimism is there. Based on the BRP Club results, we'll be adjusting our production schedules accordingly.
Okay. Thanks very much, passing the line for now.
Thank you. Following question is from Robin Farley from UBS Securities. Please go ahead.
Great. Thank you. On the slides, the commentary about off-road refers to the season that looks like kind of ended June. I wonder if you could comment a little bit specifically on July and August retail. Was there further deceleration? It looked like the three months ended June was a little bit further deceleration, and I wonder if you could comment on that for July and August for both ATV and Side-by-Side.
Good morning, Robin. I would say, in the U.S., no big change in the last two months versus the rest of the quarter. In Canada, obviously, we saw some slowdown, particularly in the west of Canada. In our case, we have quite high market share in Canada than obviously it's a tougher situation than maybe for other OEM. That being said, we still continue to gain market share in the ATV business. Very happy about that in both country. The side-by-side, we believe with model year 2016 realignment, we're well positioned for next season.
The comments about no big change in the last two months, was that for both ATV and side-by-side?
In the U.S., yeah.
Okay. Great. Similarly for motorcycle industry overall and your sales, it sounded like in the comments on the slides about the industry, it sounded like it was actually pretty steady, pretty similar to the trends in the prior quarter. Has that also continued since July and August? Just thinking about in motorcycles, whether the market is helping or hurting for the last two months.
No change. I would say the trend have been quite steady all season. Again, the entry level motorcycle price point below 15 is growing the industry. The high-end is slowed down, but I would say it's the same trend since the beginning of the year.
Okay, great. Lastly, for the comments about dealer inventory, you gave a breakdown of kind of what part of that was driven by snow. Can you give a little bit more color, too, on ORV inventory at the dealers in terms of what % increases from new products that say you want more on the floor versus maybe kind of like a same model increase year-over-year? What kind of a % increase that is?
Yeah. If I break down seasonal of the 23% increase, seasonal is about 18%. I look at the Outlander L inventory being up, so that's a new model, and that probably accounts for about 2%-3%, Robin. The remaining would be increase of similar models' inventory. We're looking probably at a range of, let's say, 2%-3% similar model increase. Don't forget, we've expanded our dealer network as well in the last few years in the U.S. and Canada, and that carries some of the increase as well.
Of the 2%-3% increase in similar models, even some of that is actually just additional distribution points, right?
Yes, some of it is additional distribution. As I said in my remarks, we do have a bit more inventory of Side-by-Side, given the softer retail in Q2 than what we were planning, and a bit more inventory of Spyder as well, which we will be working on adjusting in the next few quarters.
Okay. Just to clarify, I think, did you say that seasonal inventory was up 18%, or were you actually referring to year-round when you say 18%?
No, seasonal. When I look at the overall 23% increase.
Okay
18% of that is seasonal products.
Oh, okay.
Snowmobile up 12% and PWC, because of Sea-Doo Spark, up another 5%, 6%.
Okay. Great. Thank you very much.
Thanks.
Thank you. Our following question is from Cameron Doerksen from National Bank Financial. Please go ahead.
Yeah, thanks. Good morning. I guess I just wanted to ask a question on the marketing expense. It sounds like you're going to have a pretty broad new product launch next week. I'm wondering if you can sort of describe what that implies for marketing expenses as we look to the back half of this year, maybe into early fiscal 2017.
Yeah, when you look at our guidance number and then if you run the math as to what it means in terms of the second half of the year, you'll see overall revenues being implied for the second half being 0%-7% growth. When you look at each product category, year-round products will be growing quite significantly, and some of that is going to be skewed more towards Q4. Seasonal, expected to be down again based on just the implied numbers here as we brought some of the snowmobile shipments into Q2. Propulsion systems, in fact, the growth will be coming evenly in the two quarters. In terms of expenses, as you've highlighted, there's a lot of expected product launches that are happening, and we've transferred some of the operating expenses from the first half of the year into the second half of the year.
We'll be seeing a bit more marketing expenses in Q3, in terms of a year-over-year increase versus Q4. Q3 will be having more of that than Q4.
Okay. Maybe just second question on, I guess, market dynamics. I mean, you talked about Canada being pretty weak, especially driven by Western Canada, but can you maybe talk about what the rest of Canada looks like if we sort of exclude west, which we would expect it to be soft? Also, what countries in Western Europe are particularly strong right now?
Yep. I would say that if you take the west of Canada is down mid-double, I would say double-digit, 20%-25%. The rest of Canada is flattish. There is some months that flattish, that would be the best way to say it. In Western Europe, I mean, Scandinavia were down, and I think Scandinavia economy is quite close to Russia, was down at the beginning of the year, but we had a pretty good summer there for all product line. All the other country, France, U.K., Germany, Benelux, Italy, all those country that you would believe could be affected by the Greece crisis, are doing quite well in this year. To be honest, better than what we had planned. Very happy about this part of the world.
Okay. That's it for me. Thanks very much.
Thanks.
Thank you. Following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yeah. Good morning, gentlemen. Just to come back on the Side-by-Side, the SSV, I was wondering if you could provide more color about the implication of lower pricing. We just know that Polaris took the lead with the Turbo, now you've lowered your pricing. I was just wondering if we should imply that it will be tough to respond to Polaris in the short term, what is currently the main driver? Is it more a race to HP, or is it more a pricing response that will drive the market going forward in the sport category?
First, in any sport category, Benoit, snowmobile, watercraft, I mean, performance is the name of the game. We're used to that. That's what we like to fight too. We believe that in the high-end sport category, performance is important, but also pricing is important. We came out last year with the XDS Turbo at CAD 22,999. The dealer told us that there was a need for a base Turbo. We introduced the base Turbo.
This year, our offering is 131 horsepower. Polaris came with the 144. Their pricing is higher than ours. In term of performance, obviously, they have more horsepower, but they are more weight than us. If you look, the power to weight ratio will be very similar. Even if you go on YouTube, you will find some video on YouTube comparing the two model in its head to head. It will be an interesting season coming in. We'll see how it goes, but I believe with the Maverick Turbo, two position price point, we're very well positioned for the model year 2016.
Okay. That is very good color, José. Just if we look at the Spyder, the F3 is performing in line with expectation. If you look at the traditional Spyder, was just wondering if it's really related to difficulty with the ST or the RT. I'm wondering if there are some RT customers that are awaiting a bigger F3. This is why the RT sales could be impacted.
Yeah, don't forget, Benoit, that we introduced the RT with the bigger engine last year.
Yeah.
Not model year 2015, but 2014. This created definitely a lot of trade-in, for the new engine with the RT. Definitely, we saw some customer coming in a store. When they see an ST 2014 with a non-current discount, they're struggling between this model with a discount versus an F3 or another new model. At international, we started the year quite clean, and we had the good momentum overall with all the business. We believe that in North America, the inventory that we had from model year 2014, particularly RS and ST, created some turbulence, into the retail. We have a plan to correct the situation. We'll tell you more when you come at club with the dealer in a week from now. We have a plan to really address the situation for model year 2016.
Okay. Just for the F3, it seems that it attracts a younger crowd, which are more sensitive in terms of pricing, and even the younger guys are more attracted by two-wheel. Could you come in with a lower price point eventually on the F3, develop either a new product or bring a lower price point? Either, support a stand that a two-wheeler might be something interesting for you going forward?
Obviously, Benoit, I won't comment on future product. I cannot comment on future product. On the other hand, if there is one thing that we've learned in North America, despite the incredible media coverage we had on the F3, the awareness is still half of what you have on the rest of the other Spyder. What's happening for half of the people who know about Spyder, for them, a Spyder is an RS, ST, and an RT, not the F3. We will need to continue next year to build the awareness on the F3, and we believe it will be definitely part of our go-to market plan for next year.
Okay, perfect. Just for Russia, is the guidance still unchanged with respect to a 50% decline in revenues versus fiscal 2014, José?
Yes. Hi, Benoit. Yes, it's still in line. Again, Russia, if there's one area which we are monitoring very closely is the overall situation in Russia. The ruble has lost value in the last month or so. There's still a lot of unit deliveries to be done from now to the end of the year. The forecast is still at a decline of 50% over fiscal year 2014, but it's one which we are tracking very closely.
Okay. What were you assuming in terms of effects between the RUB and the EUR, Sébastien?
Well, before the crisis, the RUB was many years at 40, 45 RUB per EUR. If you remember last year in December, it did peak to 90 something RUB per EUR for a few weeks. We were happy because in April, May, it did go down to about 55, which we saw some traction there, and now it's back to 75. A lot of volatility in the currency between the RUB and the EUR. That's why we have some uncertainty on snowmobile delivery there, but right now we're following the plan.
Okay. Last question, just with respect to Western Canada, did I hear right that you say that it was down 20, 22% as opposed to flattish for the rest of Canada?
Yeah, about that.
Okay. What is your percentage of revenues, in Canada that comes from the west?
We don't give that type of disclosure, Benoit. Again, the West is a material market for us, on the snowmobile side and on the ATV side. We have good market shares in those regions, so it's not a market that should be neglected.
Okay, perfect.
Maybe I could add, Benoit, to give you more color. On the snowmobile side, because obviously the oil situation started about a year ago, our order from dealers on the West were significantly lower versus the year before. The snowmobile volume is factored in right now.
Okay, perfect. Thank you very much for the time.
Thank you.
Thank you. The following question is from Mark Petrie from CIBC. Please go ahead.
Yeah, good morning. You guys covered off a lot of my questions in a lot of detail, but I did just want to follow up, broadly speaking, on the PWC business and the Spark. I know when you launched the Spark, your plan was to sort of increase the penetration of PA&C for that product. Historically, PWC, I think, has not been particularly strong in PA&C. But I just wanted to ask, how has that progressed and how have your gross margins on PWC as a product performed over the last sort of year or two relative to your expectations?
Well, hi, Mark. On the PA&C side, we got good traction. There's a lot of accessories that were offered with the Spark, the convenience package, the step ladder, and the take rates on those were very good, and so we're extremely happy. For sure, when you look at the overall margin of a Spark compared to other traditional PWCs, you're probably looking at, let's say, a seven-point difference in margin. When you have important volume with the Spark, that brings down the overall margin of PWC. But in terms of overall benefit to the bottom line, it is positive. When we look at the overall impact it has on the industry, on the dealer engagement, now PWC is much more top of mind, not only in North America, but in dealers in Asia and in Scandinavia.
It's a plus for us and therefore it's a recipe to continue on other product lines if we can do it. Overall it's a big positive.
Okay, thanks very much.
Thank you. The following question is from Gerrick Johnson from BMO. Please go ahead.
Hey, good morning. Just to follow up and continue on the Spark discussion. Obviously, it's done very well here and done what you thought it would do in terms of re-sparking the industry. Can you comment on how it's been doing relative to your plan in the emerging markets? I know it's going to be something that would be attractive to those markets.
To Gerrick, on the press release, we said worldwide it has an impact of 25%. We say North America, it's slightly higher. In my script, I said 30%. Overall, like Sébastien just mentioned a few minutes ago, all the dealers now have the watercraft in front of the store in the summer because there is a lot of activity in the watercraft market. We're happy with the overall situation, and we believe there is still room to grow. In emerging market, it's doing well. It's definitely a product that has good traction. In Brazil, it's maybe the reverse impact.
Right now in Brazil, with the devaluation of the real, which was about 35% in the spring, we have increased, like all other EM, our pricing by about 20%-25%, depending on the product line. We see some slowdown on the entry level product, continue retail on the high end because rich people can afford product despite the real devaluation. I think my conclusion would be in a normal economy, Spark has traction in emerging market. When there is a situation like you see in Brazil, it's affecting the entry level product faster than the high end.
Very interesting. Thank you for that. On propulsion, I'm assuming some of those gains are from Evinrude. Can you break out between repower and packaged sales? Was the growth in Evinrude mostly delivered to OEMs, or is that repower? How is that breaking out?
Yeah. Well, as you know, we've had a strategy to sign up new dealers and also sign up boat OEMs. With the G2, the strategy was also to target OEMs. Most of the growth that we're seeing in outboard engine, Evinrude comes from the packaged business.
Okay, great. Just a couple more here. On snowmobile, why would dealers be asking for inventory earlier? If you do ship earlier, are you paying that floor plan financing for them in the interim?
What happened, Gerrick, we've been quite good in the last two to three seasons to sign our ratio of spring break units, snowmobile that the customer gave a deposit on it. Our ratio in the last two season have been extremely high, the dealer have till the end of October to deliver the unit. Last year, we had dealer who had a few hundred unit to deliver in a month and a half, it was a complaint from many dealers. Those snowmobile that we're trying to ship earlier, that's what we've done in Q2. We ship earlier to help the dealer not to have the bottleneck in the shop.
Okay. We shouldn't anticipate that that would increase your cost in terms of helping these guys floor plan it.
No.
Okay.
No, because the customer paid for it and typically will pick it up end of October, early November.
Yeah. Okay. That makes sense. All right, my last one here. You explained that there's some unfavorable trends in Rec/Ut in the Side-by-Side business. Why do you think that is? What's exactly going on there in your mind in Rec/Ut?
I believe that the utility segment is getting more recreational. I think you see a lot of new product entering into the utility segment, and it's a bench seat, obviously, but the product is more attractive, more appealing, better performance, and I think this has some impact.
Okay. All right. That makes sense. Thank you.
Thank you.
Thank you. Our following question is from Craig Kennison from Baird. Please go ahead.
Good morning. You've taken most of my questions as well. I wanted to follow up on dealer inventory. You mentioned that inventory growth is partly due to the timing of shipments of seasonal products, as you covered with Gerrick. I'm wondering, as we get to year-end, the end of the fiscal year, what should we expect in terms of a year-over-year increase in inventory? How much of that would be tied to an increase in the number of dealers?
What I can give you is I can give you color on, let's say, the next quarter. I'm expecting Q3 inventory to be up, but not as high as we've seen it in the previous two quarters of the year. What will be driving that growth will also be on the seasonal product side. Not expecting a year-round product side to be a big driver of inventory growth. Obviously, at the end of January, it's all dependent on the snowmobile season. We're all hoping for a very good snowfall and great retail on snowmobile. We will have more PWC because, again, we're finishing the season with Sparks on inventory, that is still going to be there at the end of January. Overall picture for January is going to be dependent on the snow season. It's kind of tough to call today.
Thank you. Lastly, just could you give us some color on the age of inventory or the level of non-current inventory? Go ahead.
Yeah. It's something we do track on a monthly basis. When I look at it today, there's very little aged inventory. We're quite clean, in fact, in terms of inventory. We are a company that introduces a lot of new models on a yearly basis, and we manage that pipeline very closely. It's below in terms of above 18 months there. It's below 5%.
Perfect. Thank you.
Thank you. Following question is from Tim Conder from Wells Fargo. Please go ahead.
Thank you. Just a couple more color questions. You've given some commentary about Polaris. You've always cited Polaris as the competitor you watch the most, but your thoughts here with Honda and Yamaha in particular in the off-road segment and in particular the Side-by-Sides with the YXZ just coming out. We're hearing some very good early things about that from at least the dealers. The lineup that Honda has brought. If you had to rank those three competitors, who would you be most worried about and then least worried about given the broader new product launches here this year?
Obviously, Tim, the OEM who has the biggest share is Polaris, this is definitely the one that can influence the most the industry up or down with their move. Lately, I'm not surprised that the Japanese company are coming back because if you look at the worldwide market, I think they're doing extremely well with the entry level motorcycle worldwide. If you look in North America, the Side-by-Side industry is still growing at a good pace, and it's somewhat normal that they're coming in more aggressively. Now, each OEM has its own DNA, I would say. Obviously, Honda is a bit more utility side. That's their DNA. Yamaha has a broad range of product. I think at the end of the day, the big player is Polaris, and we all try to catch up to them, and I believe we're well-positioned overall.
Okay. Then, gentlemen, as it relates to the outboards, José, I believe you mentioned that you're really pleased in the 200-plus horsepower part of the market. Can you talk about is that concentrated more saltwater, coastal type of product? Is that where you're seeing the gains, or is it freshwater? Is it balanced? Is it coming from the other main competitors out there, Yamaha, Mercury, Honda, Suzuki? Any tilt one way or the other where you're seeing that share come from?
It's a bit early, Tim. We've been shipping G2 in big volume since December. We had a good first year. I will say right now, we're gaining momentum everywhere in the world with the G2. What I'm very happy with is the fact that we've been able to sign something like 30 new OEMs. We're having new dealer coming in, and there is definitely. The strategy was to create the pull from the consumer to embark more OEM and more dealers. So far it's working, but it's just the beginning. We don't have a full delivery season yet. Happy overall, but I would say we're gaining overall right now.
Okay. Lastly, gentlemen, I think just a brief allusion earlier in the call, but El Niño, especially here in the U.S., a little bit of news coverage there and some comments there. Your thoughts of implications here and, I guess more importantly, your flexibility to respond to any potential disruptions in the market created by El Niño.
I've been with this business many, many years. We had year like this year, what they talk about El Niño and La Niña and Farmer's Almanac. There is not much we can do. We took the order from the dealer late spring. We adjusted our production, everything is running. As you know, the retail is very short in snowmobile. You're delivering the spring break model in October, November, and the non-spring break in-season model will be November, December, January. There is not much we can do to adjust our production. Everything is rolling. We've been in good year, bad year with snowmobile. At the end of the day, wholesale will happen. If there would be a bad snow, we always face reality, we will help the dealer to try to clean out the pipeline.
It will have an impact on next year for us, not on this year, because if the inventory is higher, obviously the booking will be lower next year. For the year, everything is rolling. We would adjust with the program if we see that the snow is not there.
That could potentially benefit some of your more other products, correctly? If you have a bad snow season, it could be better for the off-road vehicles.
Yep.
An earlier spring and better for year-round.
That's the beauty of multi-line products.
Okay. Well, see you, gentlemen, in a week here then. Thank you.
Thank you.
Thank you.
Thank you. Our following question is from Robin Farley from UBS Securities. Please go ahead.
Oh, great. Thank you. Just thinking about your full-year revenue guidance unchanged at that up 5%-9%. If we look at the U.S.-Canadian exchange rates moved about 7%-8% since you last reported and kind of last gave that guidance, can you help us think about your expectations for shipments on a currency-neutral basis? In other words, your as-reported revenues unchanged at 5%-9%.
Sure.
I guess what's happening on a shipment basis, currency neutral?
Sure, Robyn. When you strip out foreign exchange from the guidance, foreign exchange probably has a positive impact of about 6% in our guidance number. If you remove that foreign exchange impact, you would have, on a constant dollar basis, a year-over-year growth.
Are you saying that that 6% referring specifically to just the change since you last gave guidance, or you mean?
No, year-over-year.
Year-over-year. I'm just thinking then. Is there a way to think about the change in guide just since you last gave it in July?
No, we haven't changed guidance since we last gave it. When we did give guidance initially in March, the U.S. ended January trading quite high at U.S.-CAD. We finished the year out almost at CAD 1.30. That was implied in our initial guidance.
Okay.
The currency is strong now, it was strong as well at the beginning of the year.
Yeah. No, great. That's helpful. Yeah. Thank you.
We tend to forget that, it's swung quite a bit in the year.
Okay, great. Thank you.
Thanks.
Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Boisjoli.
Thank you, Maude. This concludes today's call. I want to thank all of you for your interest in BRP, and I also want to invite you to join us for our third quarter earnings call that will be held on December 11th. 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.