The call is about to begin. I would now like to turn the meeting over to Mr. Philippe Deschenes, Aboule Deschenes. Please go ahead.
Thank you, Maude. Good morning, and welcome to BRP's 2nd quarter results conference call for fiscal year 2016. Joining me on the call this morning are Jose Bojalis, President and Chief Executive Officer Sebastien Marcel, 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 a listing of those.
Also during the call, reference will be made to supporting slides, which you find on our website at brp.com under the Investor Relations section. So with that, I'll turn the
call over to Jose. Thank you, Philippe. Good morning, everyone. Let me start by reminding you that Q2 is always the lowest quarter for BRP. Q2 'sixteen was no different.
Despite significant volatility and turbulence in the market, our top line results ended as expected. However, 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 remain uncertain, the U. S.
Market is solid and European markets have performed better than expected. Emerging economy, 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.
Now let's go into the review of the quarter with a look at the financial result on Slide 4. We achieved revenue of $812,000,000 a 4% increase over last year. Unit deliveries were similar to last year and revenue growth mainly came from favorable foreign exchange On the profitability side, our gross margin came in above last year, improving by 2 60 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 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 $53,000,000 and a normalized diluted earnings per share of $0.03 Now moving to the business highlight on Slide 5. 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 revenue 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 Spider. 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 operation side, some of our new 2016 off road model have recently hit the market. On the ETV side, shipment of the Can Am Outlander L with the newly introduced 570cc engine started late in June and will ramp up in the 3rd Q4. 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 Juarez II facility. The building is completed.
We already have assembled prototypes and ramp up will start late fall. The project is unplanned and on schedule. Now turning to year round product category highlights. Our revenue were about flat as slightly lower wholesale volume and unfavorable product mix were offset by favorable foreign exchange rate valuation. Looking at our retail performance, the North American ATV season just ended on June 30, and we are pleased with the Can Am performance.
The industry ended the season flat and Can Am was up low single digit, slightly outpacing the industry. But what is more impressive is that when excluding the youth ETV, a segment where we reduce our offering, Can Am was up mid single digit. 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 ETV business and we believe we are well positioned to continue gaining market share in coming season. The North American side by side industry also ended its 2015 season on June 30 and was up low double digit.
The season was disappointing for Can Am as sales were up low single digit. The industry trend remained essentially the same with growth coming from Utility and Sports segment, while Recruit continued declining. We are pleased with the Can Am performance, which saw retail increase despite that it is competing in a declining recu 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 and we are confident that we will be able to gain momentum. Finally, on the Spider side, the same trend we observed early in the season continue in the Q2. 9 months into the season, the North American Motorcycle Industry is up high single digit, primarily driven by sport bike and lower price motorcycle. I want to point out that motorcycle category with a price point lower than $15,000 grew mid double digit and the one over $15,000 was down mid single digit. Spider retail season to date is down mid single digit being part of the $15,000 and up category that I just referred to.
The F3, however, continued to perform well with sales broadly in line with our expectation. F3 is achieving our goal to refresh the Spider 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 reason to buy and 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 Spider and our team is working on our go to market plan for North America for the coming season. Now let's look at Spider result outside North America. The F3 and Spider 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 consumer. Our network in international country 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 7. For the ATV, the situation is tough in Canada, especially in the West and trends are not positive in the U. S.
However, we are pleased with our result 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 and although we have limited data, we believe the positive trend continue in the utility segment, which had a negative impact in our sales. In this perspective, our sales program for non current were not aggressive enough in the second quarter, adjusted our plan for the fall.
Our model year 16 off road vehicle had been well received by dealer and consumer and we are positive for the next season. Now let's have a look at seasonal product on Slide 8. Our revenues were up 1% in the quarter compared to last year. Watercraft deliveries were lower than last year, but compensated by snowmobile deliveries. We are delivering snowmobile unit to dealer who wants 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 digit, 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 market. One of the highlights is in Scandinavia, where our sales have increased by 400% because of Spark and the regulatory changes in Norway. After 2 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 in the international level.
Spark has created momentum in the market and at the dealership. Spark is reenergizing the industry. Now on to propulsion system business on Slide 9. Our revenues grew by 13% in the quarter as we had the stronger sales mix driven by the deliveries of the Evinrude Etech G2 and lower sales program. The North American outboard engine industry ended its 2015 season in June, up high single digit.
Evenrode retail sales were also up high single digit over the same period and we gained market share in the 200 horsepower plus segment due to the introduction of the Evinrude Etech G2. We also introduced 2 new Jet Drive outboard engine during the quarter. Those engines 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 William Performance Tenders, the world leading jet tender manufacturer from the UK, will start deliveries in 2016. On the part, accessories and clothing side, we are pleased with our results.
Sales have increased by 12% to 155,000,000 dollars The growth came primarily from the favorable foreign exchange valuation, but 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. Now, we'll have Sebastien to walk you through our numbers. Thank you, Jose, and good morning, everyone. This morning, we reported revenues
of $812,000,000 for the 2nd quarter of fiscal 2016, up 4% from last year. Our gross profit margin ended at 20.9%, improving by 2 60 basis points. As Jose mentioned, the improvement was mainly driven by lower production costs, sales program costs and overhead expenses. Now normalizing for the $72,000,000 loss on our U. S.
Dollar denominated debt, normalized net income came in at $4,000,000 an increase of $13,000,000 compared to the same period last year. Normalized EBITDA amounted to $53,000,000 and normalized diluted earnings per share is $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 conditions. 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 $13,000,000 in the quarter driven by lower sales programs for an amount of $10,000,000 and lower production costs and operating expenses for $22,000,000 and these were primarily offset by an unfavorable impact of volume, mix and pricing for $9,000,000 higher financing costs and income tax expense compared to last year for about $5,000,000 increased depreciation expense for 3 unfavorable foreign exchange impact of $2,000,000 Moving to the balance sheet and cash flow update. We ended the Q2 with a cash position of $157,000,000 and our long term debt was up $26,000,000 from year end 2015, mainly due to the strengthening of the U. S. Dollar.
For the 1st 6 months of the year, CapEx is up $31,000,000 primarily driven by investments in the new Juarez II project. Finally, we have repurchased about 1,200,000 shares for a total of $34,000,000 Now 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 Q2 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 non existent at the end of July last year. Besides having slightly more inventory than planned in Spider and SSD, we are comfortable with these inventory levels entering the second half of the year.
And finally, our guidance for fiscal 2016 on Slide 17. As Jose 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. However, 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 Q2 is expected to be used in the coming months. So 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 and 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 $125,000,000 down from $135,000,000 The adjustment is driven by timing in CapEx spend and adjustments in depreciation periods for certain assets. So we're still revenues to grow between 5% 9% and normalized EBITDA between 6% 10%. But due to the depreciation adjustment, our normalized net income range is being adjusted from down 9% to flat to down 5% to up 4% and our normalized diluted EPS guidance range is increasing 0 point 0 $5 and we now expect to end the year between $1.55 $1.70 This concludes my remarks and I'll turn the call back to Jose.
Thank you, Sebastien. 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 Juarez 2 and our new dealer addition are also on plan. As 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, but 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 and A.
Thank you. Our first question is from Anthony Zica from Scotiabank. Please go ahead.
Hey, good morning gentlemen. Jose, could you please provide some more color with reference to the SSV and the roadster market excluding the F3 model? And are the Asian manufacturers applying more competitive pressure maybe in terms of lower price point?
Yes. 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 side side, the trend is not helping us. Utility is growing. We're not there yet. The sport is growing at a lower pace. And we had obviously, the competition is here in that category.
The recruit is declining and we're gaining market share, but in a declining market. Then 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 retail was okay. But after discussion with dealer, we felt that it was a bit pricey than we were we had charged a premium for the turbot.
And that's why on model year 16, we have came out with the 131 replacing the 121 at the same price. But on top of it, we have bring in the base model at a very attractive price. Then we believe right now that in the fall, we have adjusted our sales program and we believe that we will be okay going forward. We're quite optimistic about the model year 'sixteen season. On the ATV side, the industry is tougher and we're gaining share with the Outlander Rail family about everywhere in the world.
On the spider 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 have planned. But the awareness of the F3 despite the good media coverage is about 50% of the rest of the lineup.
Then 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, I mean, obviously, there is some cannibalization between the rest of the lineup and the F3. Plus also, we had too many ST non current with quite heavy discount that has somewhat mixed a bit the picture. Then we have a strategy going to club next week meeting the dealers where we have this clear strategy where we'll be we have a strategy to clean up the pipeline and make sure that we give a chance to the RT to continue to grow.
Okay, great. And what's your outlook on the snowmobile market? What are some of the challenges? And I see that you're pretty well positioned with inventories going forward. So
Listen, in North America, we have order on hand. We are in the full production deliveries and Q3, Q4 will be Avian's slow mobile. We have order on hand and typically we're finishing delivery at the end of November before the snow really hit. In Scandinavia, we have mostly in Scandinavia and Europe, mostly our order on hand and this is well aligned. And we have order on hand also from Russia.
Obviously, Russia is a bit difficult right now. And it's 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. But beyond Russia, we're comfortable with the rest.
Okay. Well, thank you very much.
You're welcome.
Thank you. The following question is from Martin Landry from GMP Securities. Please go ahead.
Yes, good morning. So, 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'm wondering now it looks like your Maverick Turbo is going to be priced in the opening price point. Can you 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 1st turbo in the industry and we have came out with the price premium product. And to be honest, it retailed quite well. But when we started to survey dealers, some dealers and customers said there is a need for a base model with a big engine.
Then basically what we've done, we adjusted our lineup where we're offering a base model, I mean, and with the big engine and we believe this will have some traction with consumer in Model Year 16. We have the same strategy in other product line. If you take watercraft, you have the top of the line with the 2 60 horsepower watercraft, but we are also offering the 2 60 in low price category, lower net feature product. Then overall, it's not a change in our strategy. We like to be premium.
We like to push technology and charge for it. But there was a clear need for a base turbo.
Okay, that's helpful. And touching again on the U. S. Industry, you're saying that it's healthy right now, but it's also very, very aggressive. And wouldn't that be a behavior that we would see when times are tough?
So I mean, what's driving this increased competitiveness in the industry? Is it driven by inventory levels? And 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, segment. And 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 has 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.
So 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 OEMs inventory is, but we're managing our inventory prudently as we've always done. And I think subsequent to the recession, I think all OEMs have started that trend as well. So it's not a question of building inventory. It's a question of having more products that are being offered to the consumer.
Okay. And just lastly, in terms of snowmobiles, I mean, I think your overall dealer inventory in North America is up 23% and it looks like a good part of that comes from snowmobiles. Is there a way for you and 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 3, 4, 5 years ago?
Yes, maybe I'll give you a bit of color on where we stand today and how much of snowmobile carrying that 23%. So 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. So 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 31, where you want your inventory to be at the lowest level.
But now we have the orders from dealers, we're shipping the units as planned and retail is far from being started. It's going to be starting in October more. So no issue there. And in terms of comparability, we are comparable to prior years.
Okay, that's helpful. Thank you.
Thank you. Following question is from Steve Archer from RBC Capital Markets. Please go ahead.
Great. Thank you. I just want to follow-up on the sales programs and incentives for the spiders 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?
Well, as you saw and we highlighted in the bridge, our sales program with an impact of $10,000,000 positive this quarter. So I would expect that this money will be reinvested in H2, Steve. And so when I look out in terms of margin impact, well, sales program impact in terms of margin is about 120 basis points favorable this quarter. So we can see that rolling out, not necessarily all in Q3, but maybe parsed out in Q3 and Q4.
Okay, that makes sense. And I guess sort of 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?
I mean, if you look at the in North America, we are a bit higher than what we would like I mean, higher than last year, obviously. And that's why we have a small incentive on the Spark inventory, but very comfortable. And we had a pretty good month of August with the warm weather in North America retail. At international, the inventory are very, very clean worldwide.
And 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 $200 discount on Spark. Right. Very minimal.
So it's really just a maturity of the Spark program. It was brand new last year, sold out. Now it's becoming a bit more?
Yes, that's fair.
And the intention would still be to increase production again next year on Spark?
Well, the demand was good this year in the U. S. And we're going to club in a few weeks and we'll see how the dealers, but the optimism is there. And so based on the club results, we'll be adjusting our production schedules accordingly.
Okay. Thanks very much. I'll pass the line for now.
Thank you. The following question is from Robin Farley from UBS Securities. Please go ahead.
Great. Thank you. So on the slides, the commentary about off road refers to the season that looks like kind of ended June. So I wonder if you could comment a little bit specifically on July August retail. Was there further deceleration?
It looked like the 3 months ended June was a little bit further deceleration. And so I wonder if you could comment on that for July August for both ATV and side by side?
Good morning, Robin. I would say in U. S, no big change in the last 2 months versus the rest of the quarter. But in Canada, obviously, obviously, we saw some slowdown, particularly in the west of Canada. And in our case, we have quite high market share in Canada.
Then 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 countries. And the side by side, we believe with model year 16 realignment, we're well positioned for next season.
And the comments about no big change in the last few months, was that for both ATV and side by side?
In U. S, yes.
Okay. And then similarly for motorcycle, the 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 August? Just thinking about whether in motorcycles, whether the market is helping or hurting for the last 2 months?
No change. I would say the trend has been quite steady all season. Again, the entry level motorcycle price point below $15 is growing the industry. The high end is a slowdown, but I would say it's the same trend since the beginning of the year.
Okay, great. And then 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 to you on ORV inventory at the dealers in terms of what percent increases from new products that you want more on the floor versus maybe kind of like a same model increase year over year? What kind of a percent increase that is?
Yes. If I break down seasonal of the 23% increase, seasonal is about 18%. Then I'd look at the Outlander L inventory being up. So that's new model and that probably accounts for about 2 percent to 3%, Robin. So the remaining would be increase of similar models inventory.
So we're looking probably at a range of, let's say, 2% to 3% similar model increase. Now don't forget, we're all 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.
So of the 2% to 3% increase in similar models, even some of that is actually just additional distribution points, right? That's not Some
of it is yes, some of it is additional distribution. And 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 Spider as well, which we will be working on adjusting in the next few quarters.
Okay. And then just to clarify, I think did you say that seasonal inventory was up 18% or were you actually referring to year round?
No, seasonal. When I look at the overall 23% increase, 18% of that is seasonal products. So snowmobile up 12% and PWC because of Spark up another 5%, 6%.
Okay, great. Thank you very much.
Thanks.
Thank you. Our following question is from Cameron Doerksen from
NBF. 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 what if you can sort of describe what that implies for marketing expense as we look to the back half of this year, maybe into early fiscal 2017?
Yes. When you look at our guidance number and then if you run the math as to what it means in terms 7 percent growth. And when you look at each product category, year round products will be growing quite significantly and some of that is 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. And propulsion systems impact the growth will be coming evenly in the 2 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. And we'll be seeing a bit more marketing expenses in Q3 in terms of year over year increase versus Q4. So Q3 will be having more of that than Q4.
Okay. And maybe just second question on, I guess, your market dynamics. I mean, you've 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? And also what countries in Western Europe are particularly strong right now?
Yes. Let's say that I would say that if you take the rest 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 see 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 lines.
And all the other countries, France, UK, Germany, Benelux, Italy, all those countries 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 and very happy about this part of the world.
Okay. That's it for me. Thanks very much.
Thanks. Thanks.
Thank you. Following question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yes. 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 came in with took the lead with the turbo and now you've lowered your pricing. So I was just wondering if we should imply that it will be tough to response to Polaris in the short term.
And what is currently the main driver? Is it more race to HP Or is it more 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. And we used to that. That's what we like to fight to. And we believe, but in the sport category in the high end sport category, performance is important, but also pricing is important. Then we came out last year with the XDS Turbo at 22,999 and there was the dealer told us that there was a need for a base suitable and we introduced a base suitable.
And this year, our offering is 131 horsepower. But that is came with the 144. Their pricing is higher than ours. And in terms of performance, obviously, they have more horsepower, they are more weight than us. And if you look, the power to weight ratio will be very, very similar.
And even if you go on YouTube, you will find some video on YouTube comparing the 2 model and it's head to head. And it will be an interesting season coming in and we saw it goes. But I believe with the Mavic Turbo 2 position price point, we're very well positioned for the Model Year 16.
Okay. That is very good color, Jose. And just if we look at the Spider, the F3 is performing in line with expectation. But if you look at the traditional Spider, was just wondering if it's really related to difficulty with the ST or the RT. And I'm wondering if there are some RT customers that are awaiting a BAGR F3.
So this is why the RT sales could be impacted?
Yes, don't forget Benoit that we introduced the RT with the bigger engine last year, not more than year 'fourteen, 'fifteen, but 'fourteen. This created definitely a lot of trade in for the new engine with the RT. Definitely, we saw some customer coming in a store and when they see Neste2014 international, model. And we believe and at international, we started the year quite clean and we had a good momentum overall with all the business. We believe that in North America, the inventory that we had from model year 14, particularly RS and ST, created some turbulence into the retail.
Then 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. But we have a plan to address the situation for model year 'sixteen.
Okay. And 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 attractive by 2 wheel. So could you come in with a lower price point eventually on the F3, develop either a new product or bring a lower price point or either support a stand that a 2 wheeler might be something interesting for you going forward?
Obviously, Benoit 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 Spider. And what's happening for half of the people who know about Spider, for them a Spider is an RS STO and an RT, not the F3. And then 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. And just for Russia, is the guidance still unchanged with respect to a 50% decline in revenue versus fiscal 2014, Jose?
Yes. Hi, Benoit. Yes, it's still in line. But 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.
And so there's still a lot of unit deliveries to be done from now to the end of the year. The forecast is still a decline of 50% over fiscal year 2014, but it's one which we are tracking very closely.
Okay. And what were you assuming in terms of effects between the ruble and the euro, Sebastien?
Well, I
mean, before the crisis, the ruble was many, many years at RUB 40, RUB 45 per euro. If you remember last year in December, it did peak to 90 something ruble per euro for a few weeks. We're happy because in April, May, it did go down to about 55, which was we saw some traction there and now it's back to 75. Then a lot of volatility in the currency between the level of the euro. That's why we have some uncertainty on snowmobile delivery there.
But right now, we're following the plan.
Okay. And 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?
Yes, about that.
Okay. And what is your percentage of revenues in Canada that comes from the West?
We don't give that type of disclosure, Benoit. But 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.
Maybe I could add Benoit to give you more color On the snowmobile side, because obviously the oil situation started about a year ago. And on the snowmobile side, our order from dealers on the west were significantly lower versus the year before then 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.
Yes, good morning. You launched the Spark, your plan was to sort of increase the penetration of PAC for that product. And historically, PwC, I think, has not been particularly strong in fact. But I just wanted to ask, how has that progressed? And how have your gross margin on PWC as a product performed over the last sort of year or 2 relative to your expectation?
Well, hi, Mark. On the pack side, we got good traction. There's a lot of accessories that were offered with the Spark 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 7 point difference in margin.
And so 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. And 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. So 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 resparking the industry. But 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.
I think, Eric, we said worldwide on the press release, we said worldwide, it has an Australia, New Zealand, where there is a lot of riding offshore, the spark is a bit lower than in some other country. But overall, like Sebastien just mentioned a few minutes ago, all the dealer now have the watercraft in front of the store in the summer because there is a lot of activity in the watercraft market. Then we're happy with the overall situation and we believe there is still a room to grow. In emerging market, it's doing well, it's definitely a product that has good traction. But 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 of the OEM, our pricing by about 20%, 25% depending on the product line. And we see some slowdown on the entry level product, but continue retail on the high end because rich people can afford product despite the real devaluation. Then 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.
Okay, very interesting. Thank you for that. And then on propulsion, I'm assuming some of those gains are from Evinrude. Can you break out between repower and package sales? Was the growth in Evinrude mostly delivered to OEMs?
Or is that to repower? How is that breaking out?
Yes. Well, as you know, we've had a strategy to sign up new dealers and also sign up both OEMs. And with the G2, it's the strategy was also to target OEMs. So most of the growth that we're seeing in outboard engine Evinrude comes from the package business.
Okay, great. And just a couple more here. On snowmobile, why would dealers be asking for inventory earlier? And if you do ship earlier, are you paying that floor plan financing for them in the interim?
Now what happened, Gerrick, we've been quite good in the last 2 to 3 seasons to sign our ratio of spring break units, snowmobile that are already the customer gave a deposit on it. Our ratio in the last two seasons have been extremely high and the dealer has till the end of October to deliver the unit. Then last year, we had dealer who had a few 100 units to deliver in a month and a half and it was a complaint from many dealers. Then that's those snowmobile that we're trying to ship earlier and that's what we've done in Q2. We ship earlier to help the dealer not to have the bottleneck in the shop.
Okay. So we shouldn't anticipate that that would increase your costs in terms of helping these guys floor plan itself?
No, no, because the customer paid for it and typically will pick it up end of October, early November.
Yes. Okay. That makes sense. All right. My last one here, you explained that there's some unfavorable trends in rec youth in the side by side business.
Why do you think that is? What's exactly going on there in your mind in rec youth?
I mean, 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 sheet 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, but I wanted to follow-up on dealer inventory. You mentioned that inventory growth is partly due to the timing of shipments of seasonal products that you covered with Garrett. But 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? And then how much of that would be tied to an increase in the number of dealers?
The what I can give you is I can give you color on the, 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. And what will be driving that growth will also be on the seasonal product side, not expecting the 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 more with sparks on inventory. So that is still going to be there at the end of January. But overall picture for January is going to be dependent on the snow season.
So it's kind of tough to call today. Thank you. And lastly, just could you give us some color on the age of inventory or the level of non current inventory?
Yes, it's something we do track on a monthly basis. And 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. So 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. Your thoughts, if you had the 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 YXC just coming out, we're getting some very good early things about that from at least the dealers. And then the line that Honda has brought.
Who would you be if you had to rank those 3 competitors, who would you be most worried about and then least worried about given the broader new product launches here this year?
I mean, obviously, Tim, the OEM has the biggest share is Polaris. And this is definitely the one that can influence the most the industry up or down with their move. But 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. And if you look in North America, the side by side industry is still growing at a good pace and it's somewhat normal that the coming in more aggressively. Now, each OEM has its own DNA, I would say.
Obviously, Honda is more a bit more utility side. That's their DNA. Yamaha has a broad range of product. And 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. And then gentlemen as it relates to the outboards, Jose, 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, type of product, is that we are seeing the gains or is it fresh water, is it balanced, is it coming from other main competitors out there Yamaha, Mercury, Honda, Suzuki, any tilt one way or the other where you're seeing that share come from?
I mean, it's a bit early, Tim. We entered we've been shipping G2 since in big volumes since December. Then we had a good 1st year. I will say right now, we're gaining momentum everywhere in the world with the G2. And 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 and so far it's working. But it's just the beginning. We don't have a full delivery season yet Then happy overall, but I would say we're gaining overall right now.
Okay. And then lastly, gentlemen, I think just a brief illusion earlier in the call, but El Nino, some especially in the U. S. A lot of a little bit of news coverage there and some comments there. But your thoughts of implications here and I guess more importantly, your flexibility to respond to any potential disruptions in the market created by El Nino?
I mean, I've been with this business many, many years and we had year like this year when they talk about El Nino and Alina and Almanac, Farmer Almanac. I mean, there is not much we can do. We took the order from the dealer late spring. We adjusted our production and everything is running. And as you know, the retail is very short in snowmobile.
You are delivering the spring break model in October, November and the non spring break in season model will be November, December, January. And there is not much we can 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 and 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. But for the year, everything is rolling. We would adjust with the program if we see that the snow is not there.
And that could potentially benefit some of your more other products, correct? If you have a bad snow season, it could be better for the off road vehicles.
Yes, yes. And earlier spring and better for year round.
That's the beauty of multi line products.
Okay. We'll see you gentlemen in a week here then. Thank you.
Thank you.
Thank you. Our following question is from Robin Farley from UBS Securities. Please go ahead.
Great. Thank you. Just thinking about your full year revenue guidance unchanged, is that up 5% to 9%. If we look at the U. S./Canadian exchange rates moved about 7% or 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 in 5 times, but I guess what's happening on a on a shipment basis currency neutral?
Sure, Robin. When you strip out foreign exchange from the guidance, foreign exchange probably has a positive impact of over 6% in our guidance number. So if you remove that foreign exchange impact, then you would have a on a constant dollar basis year over year growth.
And are you saying that 6% referring specifically to just the change since you last gave guidance or you mean
No, year over year.
Year over year. So I'm thinking then about your is there a way to think about your is there a change in guidance just since you last gave it in July?
No, we haven't changed guidance since we last gave it. But when we did give guidance initially in March, the U. S. Was ended January trading quite high. U.
S. Canada, we finished the year out almost at $1.30 So that was implied in our initial guidance. So yes, the currency is strong now, but it was strong as well at the beginning of the year.
Yes, that's great. That's helpful. We couldn't
forget that, but it's won quite a bit in the
year. We have no further questions registered at this time. Would now like to turn the meeting back over to Mr. Boisjoli.
Thank you, Maude. So 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 Q3 earnings call that would be held on December 11. So thanks again everyone and have a good day.
Thank you. The conference has now