We are sorry to inform you that due to technical difficulties, there will not be a French portion today. A French recording will be available shortly. The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bossier.
Please go ahead.
Great. Thank you very much, Maude. Good morning, and welcome to BRP's Q3 results conference call for fiscal year 2015. Joining me this morning on the call are Jose Boisjeli, President and CEO and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward looking statements will be made during the call that are subject to a number of risks and uncertainties.
I invite you to read BRP's MD and A for a listing of those. Also during the call, references will be made to supporting slides and you can find the slide presentation on our website at brp.com the Investor Relations section. So with no further ado, I'll turn the call over to Gilbert.
Thank you, Pascal. Good morning, everyone. BRP reported this morning its financial results for the Q3 and those confirm the expected acceleration in revenue and profitability in the second half of the year. Revenue increased 6% when compared to the Q3 last year to reach 9 $18,000,000 and this increase was driven mostly by seasonal product and part accessories and clothing. Normalized EBITDA increased 13% from last year Q3 to $134,000,000 Our gross margin also expanded to reach 26.1 percent despite the negative impact of currency exchange rate on our profitability.
Finally, normalized diluted earnings per share bounced 20% from prior years to reach $0.60 per diluted share. Sebastien will walk you through the detail of our financial performance in a few minutes. Moving to the business highlights for the Q3. Our retail sales increased for seasonal and year round product by 10% when compared to last year. At the end of the quarter, our dealer inventory in the network was unchanged compared to last year, a positive outcome given the impact of inventory at the newly added dealers.
On that note, we are on track to meet our target of 65 to 75 new dealers by the end of fiscal year 2015. At international, our revenue were up 8%, driven by snowmobile shipment to Scandinavia and by strong shipment of the Seadust part in Asia Pacific and Western Europe. To summarize for market dynamics, we are expecting continued momentum in revenue and profitability in the Q4 with the benefit of several new products shipped to dealer. Meanwhile, the situation in Russia has forced our local distributor to reassess its plan for the near term and I will circle back on that subject in a few minutes. In our operation, we started watercraft in Queretaro with the successful reconfiguration of our assembly line to manufacture both the Spark and traditional personal watercraft.
We also started the manufacturing of the Spider F3 in Valco, the Evinrude Detect G2 in Strutovin and the Outlander L ATV family and the Maverick X DS in URA's on plan and on schedule. Now Russia on Slide 6. The situation has deteriorated significantly since the end of October with a steep decline in the value of the ruble and this makes all imported products more expensive for Russians, while affecting consumer confidence. Since our last earnings call in September, the purchasing power of the ruble has declined 39% and 45% since the final order were placed by our distributor in July. As a result, the retail is becoming more challenging and our distributor has cut his order by half for the Q4 as we enter the peak season for snowmobile deliveries.
This will have a financial impact on our Q4 financial result and Sebastien will cover this in a moment. As I just mentioned, we successfully started production of traditional personal watercraft, an important milestone in the expansion of our operation in Queretaro. The reconfiguration of the assembly line to support the manufacturing of both traditional personal watercraft and the Spark was completed throughout the summer. I am pleased to report that we ramp up production on time in September for contour season markets. Approximately 50% of Model Year 15 traditional personal watercraft will be manufactured in Queretaro this year, The other 50% in Valco and next year all our personal watercraft are expected to be manufactured in Mexico.
The project is on track with a target of between $20,000,000 $25,000,000 in margin improvement expected by fiscal year 2017. Turning to product category with seasonal product on Slide 8. Sales stood at nearly $453,000,000 in the 3rd quarter, an 18% increase when compared to the same period last year. Snowmobile shipments were the main driver of the increase. And while still early in the season, the industry is up in the 20% range compared to prior year.
We have a solid lineup and we are pleased that Ski Doo continue to gain market share season to date, keeping its leading position in North America. In Scandinavia, the snow coverage thus far is similar to last year, which was a so so winter and we are taking contingency measures to mitigate the volume losses in Russia. In personal watercraft, we ended the Model Year 14 season at the end of September with Sea Doo gaining market share in North America for the 5th consecutive year. The industry retail was up high double digit and Sea Doo retail grew in the mid-twenty percent driven mostly by Spark. Looking into model year 15, we have planned to increase production of the Spark to meet customer demand and we'll continue to strategically balance allocation to dealer between Spark and traditional personal watercraft.
Turning to year round product. Revenue stood at $228,000,000 in the 3rd quarter. In side by side vehicle, as we've said on the last earnings call, we are disappointed with the Maverick retail year to date. However, we believe that the Maverick X DF launch early September will help us regain momentum in the sport category by taking back the horsepower lead. We have order on hand for December, January and we are started booking February.
In the recu category, our Can Am Commander side by side vehicle continue to gain market share, but the segment has contracted season to date. So all in all for side by side vehicle, we have tracked slightly behind the industry in the past quarters, but we'll continue to expand our offering in the coming years. For ETV, the industry is down low single digit 4 months into the season, but Can Am is up low single digit driven by the Outlander L that drove market share gain in the mid CC category. Meanwhile, we broke ground for the construction of Juarez 2, our 2nd manufacturing plant dedicated to off road vehicles. We are still early on this program, but on track for production start up in about 12 month time.
Finally, for Roaster. Despite the cold and long winter and late start of the season, we ended Model Year 14 at the end of October with Can Am Spyder Retail up mid single digit better than the industry low single digit. The growth this year for Can Am Spyder came from our top of the line Spyder RT1330, a unit that sold very well. Our non current inventory is slightly higher than our plan, but we believe the introduction of the new Spider F3 will create good momentum in the coming months. On Slide 10, we hosted a club in Connecticut in September where we launched the Spyder F3 F3 and we are pleased of the buzz this created in the trade media.
After 6 years, we know what people like about the Spyder, but we also know why some people would not buy. Offered with unique features such as the cruiser type adjustable riding position called UFit and a bold muscular look, the Spider F3 will appeal to a broader pool of riders. All test riders agree that the experience cruising on the winding roads is very different. This is why we claim that riding is believing. We feel strongly that the Spyder F3 is opening up a new segment for the traditional motorcycle market and will help us accelerate sales growth in this category.
Now turning to propulsion system. Our sales stood at $83,000,000 bringing the year round revenue to 2 $65,000,000 broadly in line with the same period last year. For As I mentioned on previous calls, the industry growth is driven mostly by the saltwater and pontoon markets, where we are not as present. The introduction of the Evenro DTECH G2 is a game changer. Both Builder understand our unique offering to consumers and this is why 9 of them have already teamed up with us to develop hero package with color matches to their own offering.
Building on this momentum, we have confidence that we can grow our market position with a product that is superior in technology, performance and unique by design. Slide 12. Sales from our pack business have increased to $154,000,000 driven by snowmobile pack for the upcoming season. Also with the launch of the Spyder F3, we are introducing 3 packages and over 60 accessories available from day 1, which represent the largest offering we have ever made concurrent to a Spider model launch. And finally, we have also spent a lot of efforts in developing and introducing a new line of clothing that perfectly fits the styling of the Spider F3 targeted customers.
Sebastien will now walk you through the financial review in greater detail and I will come back for the outlook.
Thank you, Jose, and good morning, everyone. This morning, we reported revenues of 9 $18,000,000 for the Q3 of fiscal 2015, a 6% increase from the Q3 of last year. For the 9 months ended October 31, revenues amounted to $2,500,000,000 a 7% increase over fiscal 2014. Our gross profit amounted to $239,000,000 for the quarter, resulting in gross margins of 26.1%, a level that is much improved from the 1st 6 months and slightly above last year at 25.9%. Net income stood at $37,200,000 Normalized net income stood at 71 $900,000 or $0.60 per diluted share, a 22% increase over last year.
And finally, normalized EBITDA amounted to $134,100,000 in the 3rd quarter, bringing the 9 months ended October 31 to $222,000,000 Turning to our revenues by product categories and geographies on Slide 15. 49% of our sales came from seasonal products, 25% were from year round products, 9% from propulsion systems and 17% from parts, accessories and clothing. In terms of regional breakdown, 38% of sales this quarter were from the U. S, 26% from Canada and 36% from international. Now for the normalized net income bridge on Slide 16.
Normalized net income increased by $12,900,000 as a result of the following items. Volume, mix and pricing had a net positive impact of $20,000,000 Operating expenses were favorable $9,000,000 and net financing costs and income tax expense were favorable $3,000,000 These were partly offset by a higher depreciation charge for $5,000,000 and negative foreign exchange impact of $14,000,000 Now moving to the balance sheet items. Consumed approximately $29,000,000 of cash in working cap in the 1st 9 months, driven in part by increased inventory for the upcoming Q4 deliveries. Our long term debt increased from year end levels by $34,000,000 mostly due to new financing agreements and unfavorable foreign exchange rates. Capital expenditures increased $14,000,000 compared to prior year and we expect CapEx to ramp up in Q4, so we are reaffirming our guidance of $165,000,000 to $175,000,000 for the year.
As expected, free cash flow turned positive in the 3rd quarter and we expect to generate good free cash flow in the 4th quarter. Now Slide 18 for a look at BRP's powersport dealer inventory for North America at the end of October. Worth noting is that dealer inventories are flat compared to last year despite increased deliveries of snowmobiles and of the new Outlander L family of ATVs. As such, we are comfortable with our current dealer inventory position. And finally, our guidance for fiscal 2015 on Slide 19.
As mentioned by Jose, our distributor in Russia has cut by half his planned orders for the Q4. And this is at the peak of snowmobile deliveries. As such, we are reducing revenue guidance for seasonal products to up 10% to 14% from up 12% to 16% and adjusting total company revenue guidance from up 9% to 13% to up 8% to 12%. We estimate the result of these reduced deliveries to impact normalized EPS negatively by approximately $0.10 Therefore normalized EBITDA is revised to an increase of 7% to 11%. We are also adjusting our assumption for tax rate from a range of 26% to 27% to 24.5% to 25.5% as a result of a change in statutory income tax legislation enacted in Canada.
Normalized net income is going from up 10% to 17% to up 4% to 11%. Normalized diluted earnings per share is therefore reduced to account for lower deliveries in Russia, which is offset by about $0.02 per share for a lower consolidated income tax rate. This results in a normalized EPS expected to grow between 4% and 11% to between $1.47 to $1.57 per share. And on that note, I will turn the call back to Jose.
Thank you, Sebastien. BRP has a short history as a public company, but a long heritage as a leader in the powersports business. We communicated early in the year that our financial performance was typically stronger in the second half of the year and our results are confirming this pattern. The Q3 was in line with our plan and I am pleased with our results year to date. We have launched new products and they have been well received by our dealer and by the end consumer.
Our dealer expansion plan is on track. We had several prospective dealers in attendance at the club in last September, where we successfully signed the majority of them. We are confident we'll meet our 65 to 75 new dealers by the end of fiscal year. In Mexico, the transition to Queretaro is progressing well and we started manufacturing traditional personal aircraft alongside the Sea Doos part. The Canadian dollar loss in value against the U.
S. Dollar. However, we also witnessed a depreciation of the euro. Overall, the $29,000,000 or $0.24 per share negative impact of currency fluctuation on normalized EPS was worse than we expected. And for Russia, back in March, we assumed an approximate for Russia, back in March, we assumed an approximate 20% reduction in revenue from the $200,000,000 of sales in fiscal year 2014 and we trended in line with the plan for the 1st 9 months.
Unfortunately, the recent currency drop is now making imported product much more expensive, which is affecting retail and our shipment will be down more than the planned 20% in the 4th quarter. Light of this emerging issue that admittedly was difficult to forecast, we believe it is fair and appropriate to update the market and we have adjusted our guidance. So to summarize, we manage well the thing under our control. Our first half of the year was weak with a long winter and a late spring, but our second half is expected to be stronger with a solid Q4. Again, we have a good lineup and we'll keep bringing innovative and exciting new product to further grow our business.
I very much look forward to the next quarters. I thank you for your time and support and I will turn it back the call to Pascal for questions.
Great. Thank you very much, Jose. Simon, we are now ready to take questions and we would ask our participants to ask only a couple of questions at a time and return to the queue to allow for the maximum number of participants.
Thank you, Mr. Our first question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Good morning, gentlemen. First question, thanks for updating the FY 2015 guidance. I'm wondering, I know it's still early, but could you maybe provide more color on any trend we might see in fiscal 2016 in terms of potential margin expansion and the impact of new products introduction?
Good morning, Benoit. Unfortunately, today we won't be providing you any information on fiscal year 2016 guidance. We'll keep that for when we publish our Q4 results. And as you can appreciate in terms of product introductions for next year, we'll for sure we'll have some product announcements as we do on a yearly basis, but we'll keep that as well for next year.
Okay. And specifically for the propulsion systems, you mentioned good comment about the pontoon and also the saltwater. Just wondering if there are some customers waiting for the G2, so it creates kind of a vacuum in the short term?
Benoit, good morning. Definitely, the G2 is gaining traction right now. We have a tour right now in the United States and some other country where we let the customer try the G2 and the dealers and the enthusiasm is quite good. We started production in November in Surfin and we're ramping up at a high pace in December, January. That's why we'll have a lot of G2 deliveries in Q4 and we're shipping to both dealers and also builders to prepare for the upcoming season.
And definitely our focus is to improve our performance in the saltwater market and the pontoon market. And we believe the G2 will help this going further.
Okay. And last question, if I may, just in terms of fuel environment. I'm just wondering if you see positive comments from consumer given they have now more discretionary spending?
Let's say that we think this is overall positive and the impact of lower fuel price is threefold. First, there is an impact on consumer and the cost to operate the product. But just to give you a sense, a typical snowmobiler will spend $400 in fuel during a season, about half for someone to use off road and we don't think this is a big impact. The second impact is cost reduction on our costs overall, transportation and some component like plastic should go down in cost in time if the oil price stay where it is. But finally, and you're totally right, we believe the largest impact is the increase of disposable income.
Is some markets like Russia or Western Canada that could have some negative impact. But we believe worldwide, this is a positive driver and that could be positive on the demand for our product. So we view this trend favorably.
Okay. Thanks for the time.
Thank you, Benoit.
Thank you. Our next question is from Robin Faraday from UBS. Please go ahead.
Great. Thank you. Just looking at your guidance for year round product, which is unchanged, so year to date year round product is down 5% and your guidance unchanged is implying maybe a 50% increase in Q4. And I just struggle with trying to understand what would be such a significant driver in Q4. And I wonder if since we are halfway through Q4, if you could on this sort of public conference call, kind of your probably
the
it's probably the only time you can make a public comment once a quarter to sort of give investors comfort that there is something so significantly different happening right now with your shipments than kind of what we've seen year to date? I just struggle with that the difference in Q4 versus the rest of the year.
Good morning, Robin. Obviously, I won't go in the detail you're asking for, but I will give you some colors. If you remember, we had a slow start in North America with the long winter for off road sales. And we're not happy with the maverick, the Model Year 14 maverick momentum. But we've been successful during the summer and the fall to deplete inventory at a very good level.
And in Q4, we have heavy shipment of the Outlander Health family that is gaining traction right now in the network. And also the Mavic XDS, we started production I think the last week of November. I was in Queretaro and Juarez a month ago and the line was full of Mavriq. Then it's an heavy quarter for Maverick XDR shipment that we introduced last September and we're shipping worldwide. And the third element is the Spyder F3.
We started production in December in Valcour and we'll be starting shipment in January. And for all those products, we have for North America order on hand. And for international, those products are popular and we believe that our planning is reasonable for Q4.
So with the North American orders on hand that you mentioned, for in Q3, was there any change from the orders you had on hand for Q3? And what you ultimately shipped in Q3? Just to sort of think about how much risk could there be to Q4 given that you have the orders? Is there was there any variation between orders and what you ultimately shift in the quarter just reported?
Yes. Hi, Robin. It's yes, the our numbers for Q3 were actually in line with our plan. We had a strong Q3, 4 seasonal products, snowmobile shipments and we didn't see any variation versus what was anticipated from our North American market. And that's why we're confident for our Q4 numbers and their ability to deliver these units to our dealers and distributors in the Q4.
Also maybe if I can add just a bit of color, what's driving also a bit of the growth is propulsion systems will have a strong quarter as well in Q4. And that's driven by the deliveries of the new G2 Evinrude engine to our dealers and OEMs.
I guess I was just trying to understand specifically for the year round products. So I know the seasonal the snow product in Q3 was there was no variation in dealer orders. But just trying just to clarify, dealer orders for year round product in Q3, was there any variation from orders on hand for dealers for year round product in Q3 versus what you ultimately shipped?
No. There was no material variance.
Okay. Thank you.
Thank you.
Thank you. Our next question is from Steve Harcher from RBC. Please go ahead.
Great. Thank you. First just to clarify the outlook for snowmobiles coming down in Q4, is that all related specifically to the Russian situation? So there's no indication of orders being pulled back elsewhere across the network or inventories building further than you wanted?
Good morning, Steve. To give you a bit colors on how snowmobile seasonality work, we ended production in Velcro this week, in fact, middle of the week. And by the end of next week, all the snowmobile produced in Valco will be shipped and we have order on hand for North American dealers. We have Russia. I mean, we've discussed about it.
Our distributor when our distributor done a dealer meeting on November 2017 2018. This is typical in their country. And at that time, the ruble has declined significantly and that's why they called force majeure and they said we need to drop the deliveries for Q4, but we're comfortable with the 50% drop that we're planning. And there is some risk in Scandinavia, but Scandinavia, the winter is so, so, so far, but winter is long. But we feel overall okay with our snowmobile planning for Q4.
With that 50% drop in the order, did that come early enough that you were able to adjust production? Or did that mean extra units were produced?
No. What we decided to do because all the raw material is in the pipeline, we decided to produce the vehicle production typically in Finland and mid January. Then we decided to produce all those units because typically we end shipment in Russia at the end of January. But here, we believe that some dealers could take some of those model in February March because the winter over there is quite long. And you need to understand that right now in Russia, some bank are squeezing the credit line of some of our dealers.
And this is putting pressure on the inventory buildup that we do typically at this type of the year. Then all of this because of all those situation that is very, very difficult to plan or predict. That's why we decided to drop our shipment in Q4.
Okay. Understand. Secondly, just a different topic. Just looking at the earnings outlook, if we're doing our math correctly, to be at roughly the midpoint of the full year earnings outlook, it looks like gross margins for Q4 needs to be kind of in the 27%, 28% range. Does that sound reasonable that math?
And that's higher than we've seen before. And just want to gauge your comfort level with that kind of a margin level.
Yes. Again, we're going to be the plan for Q4 is a strong quarter. And yes, when you look at the midpoint of the guidance,
it is
quite strong. Volumes will be high and therefore that usually drives better margins. And so you should see a considerable appreciation in the margin compared to what we've had since the beginning of the year. Okay. And final point Your range is fair.
Okay. And the final point just we saw in the MD and A a $7,000,000 severance charge for the quarter to I think it said optimized workforce. Just wanted to understand a little bit about the nature of that. And is that complete? And what kind of a cost impact should that have?
Yes. It is complete. It's something we announced in October. We had been looking at it over the last few months and then so making the preliminary plan. So in October, we made the announcements.
All of the costs are related to I'd say over 90% are related to severance costs and all the employees were advised in October. And it should be all of it very little cost in Q4 below $1,000,000 if there's anything that's going to be recorded. So all of the costs were recorded in Q3.
Is that a number that we should see some impact on overall operating expenses or?
Looking forward next year, again, we're a growing business. I don't I would not expect to see a saving in operating expenses next year. As the business is growing, you'll see our overhead increasing. So I wouldn't necessarily model that in your financials for next
year. Understand. Thank you.
Thank you. Our next question is from Martin Landry from GMP Securities. Please go ahead.
Good morning. So I wanted to touch on Russia a little bit just to be clear. You mentioned today that the decrease in your guidance is roughly $0.10 related to Russia. And at the beginning of the year, you had also indicated that the headwind in Russia was costing you another $0.10 So is it fair to say that on a year over year basis for the full year Russia is probably impacting your EPS by $0.20
Hi, Martin. Yes, you're absolutely right. When we look at it on an annual basis compared to fiscal year 2014, dollars 0.20 is the number we have in terms of Russia impact for fiscal year 2015.
Okay. And can you help us understand what's the seasonality of the business in Russia? Could you give us maybe the proportion of sales per quarter? Because I'm just trying to assess a little bit how does that going to roll over into next year?
Yes. I don't have the numbers right off here, but I can tell you that Q3 and Q4 are probably in the range of let me see if we can pull it out, probably in the range of about 70%. But I'll give you full precision probably offline or once I get them. But Q3 and Q4 are the big quarters because snowmobile is a big market for us in Russia.
Okay. And switching on your inventory levels in North America, you're saying that it's flat on a year over year basis because and then saying that you do have expanded your dealer network. Any chance we can have your inventory levels per dealer that we can better assess where does it stand?
Again, it's not the type of information we want to share. We have some big dealers and some smaller dealers, so there's a lot of variability in the inventory level they hold. And there's also seasonality in where they're located geographically that's going to impact that number. So I mean we disclose the in our financials the value of that inventory in the network and you could divide by the number of dealers we have which is about 1,000 if you want to create that proxy for you.
Okay. Okay. All right. And then just lastly, is there any is your distributor in Russia taking some steps to mitigate the foreign exchange? Is he hedging his purchases?
Or is there any steps that these guys can take to mitigate the huge fluctuations in the ruble?
There is they don't edge because typically and we sell to them in euro and they convert it in ruble because in the past, in the history, there was quite a good correlation between the ruble and the euro and they were able to go together and it was easier to manage. They don't edge. Obviously, in those situation, we try to help them. Then we give them some discount on some model to help them to absorb and to take more time to increase the price at the end consumer. They also chip in on their side, but it's a difficult situation.
And at the end, those power loss in purchasing power loss will end up in the price of consumers. And all other OEM, imported product in Russia right now is going through the same drastic change.
Okay. Thank you very much.
Thank you. Our next question is from Derek Dley from Canaccord Genuity. Please go ahead.
Yes, thanks. Hi, guys. I was just wondering if you could give us an update on some of the feedback on your guys' new products that you've gotten from the dealers? Are the products resonating well at the dealer level?
We're very happy, Derek, with the overall. The Mavriq EDS review is good. We're starting delivering right now we started to deliver early December and so far it's going well, extremely well received in some region like North America and the Middle East. The Outlander, the Spyder F3, it's received as expected in North America because the North America is a big cruiser market for motorcycle than ISAX expected in North America. To be honest, better than expected at international.
You know that the cruiser market in Europe or in Australia are not as popular as in North America. And so far the consumer there don't make the link between the F3 and the Cruiser motorcycle market. They just say it's a new spider fun to ride. And we're very, very enthusiastic about this. The Outlander L is doing well.
You know, we had less than 5% market share in the mid CC category. And so far, we're tracking at a good pace and we increased momentum since we started to deliver the product. Even though G2, very happy about the reception and there is more and more builders that we're signing, more and more boat builder do package and so far reception is good then. And the snowmobile lineup that we introduced in February that is very popular then. When I look at all of this, I'm very happy because on the product side we have executed extremely well and the reception from customer is good.
Okay. Thank you for the color there. And then just in the at the dealer channel, can you just comment on the level of promotional activity? Is it down year over year? What are you guys seeing on that front?
Let's say that each product line is different. For give you some examples, snowmobile right now on our side, we don't have much program because the industry is up by about 20%. We're gaining share then the momentum is very good. On the off road side, there is I believe, a bit more program than typically. And we've just launched what we call right now our holiday blitz, our Christmas program in U.
S. And Canada for a side by side and ETVs and there is some different program versus depending of the model then I would say on off road it's a bit heavier than we typically see. On the rest of the lineup it's I would say it's typical. Then a bit less on snowmobile, a bit more on off road, the rest typical.
Okay. Thank you very much.
Thank you.
Thank you. Our following question is from Anthony Zikar from Scotiabank. Please go ahead.
Yes. Good morning. Susie, can you give us a bit of an update in terms of your international operations, especially Latin America? And any change in consumer demand in Europe ex Russia, of course?
Okay. Let's say if we start with Western Europe. To be honest, I mean, it's growing at a low pace, but still growing every quarter. If you take France, Germany, Italy, UK and you do the average of all this, it's a growing at a low pace again, but growing well. Latin America is difficult.
You know that Brazil, that the economy is difficult right now. And I would like to highlight, I believe we're still growing there by high single digit, but it's lower than what we had planned originally at the beginning of the season, but we're still growing there. Argentina is very difficult. They don't authorize much product to go in into the country, then it's significantly down versus 2 years ago. But we believe long term, Argentina will come back.
And Australia, New Zealand, China, overall as planned, a good growth. And if you take our overall international sales year to date, we're growing 7% including Russia. And if you exclude Russia, we're growing at 13%, which is a pretty good rate considering all the ups and downs that we see worldwide.
Okay. And when we look at the competitive landscape, how have some of your Japanese competitors reacted with advantage currency?
We see some of them being more aggressive lately mainly on the outboard business. They're getting more aggressive. It started a few months ago outside North America and now some of the competitor are more aggressive on the outboard business. Overall, for the rest, I think it's still within what I see a reasonable range. They are aggressive, but we don't see big drop in MSRP because of the yen fluctuation.
Okay. Well, thank you, Jose.
Thank you. Our following question is from Mark Petrie from CIBC. Please go ahead.
Yes, good morning. I just wanted to come back to the year round products and the outlook there and inventory numbers that the dealers have been tracking down. It looks like low single digits kind of Q1 through Q3. But can you just talk about what your expectations for dealer inventories in year round are for Q4 and maybe the first half of next year?
Yes. We'll see again because of the strong deliveries we're doing in Q4, we'll see an increase in year round product inventory at the dealer network. We're building inventory for the upcoming Roadster season. And it's a strong retail period in spring for ORVs and therefore that's why we need to make sure that we have adequate products in the field. However, our plan is to manage the inventory tightly and that's why we've seen our days of inventory or our overall inventory levels remain quite flattish despite a growing business and expanding dealer network because again we want to manage appropriately the levels there and avoid unnecessary non current inventories in the field.
And progressively we're reducing the number of days of future retail of ORV units in the field.
If I can add some color, Mark, there. You know that our dealer network is very strong in the snow belt area, a bit weaker in the south and that's why we're focusing more there in the new dealer sign up. And that's why it's normal for us to ramp up deliveries of year round product in Q4 to prepare for the upcoming spring. And maybe we're a bit more skewed in the spring than some of our competitor who are weak or stronger than us in the South.
So should we expect dealer inventories to be up low single digits, mid single digits? What's a reasonable range?
I wouldn't be able to comment this morning. Again, we're managing to make sure that they have sufficient units in the field. There should be a natural increase as we're expanding the dealer network, but that increase is going to take it won't happen over a quarter. It's going to take several quarters for that to happen. As we're introducing new products as well down the road, we will be seeing our inventory build up as well with the Can Am, Outlander L that we introduced.
That is for sure increasing the level of inventory because it increases the offering. And as we increase our offering in side by side and Spider as well that will naturally have an effect on the inventory levels.
And can you give some sense on order of magnitude in terms of the days
of inventory change at the
dealer level? Not this morning, no. Okay.
Number of
days and what's going to be the impact
going forward. Yes. Okay. The number of days and what's going to be the impact going forward. Yes.
Okay. And then just in terms of Russia just cycling it sounds like basically year to date or sorry for this year, Russia is going to be down about 30% with that obviously accelerating in the back end. How should we think about 2016? I mean is there any reason to be sort of more optimistic than what we're going to see in Q4?
Well, if you recall, the 1st 9 months of the year, we're tracking as planned. We had forecasted a 20% reduction in Russia year over year. And so we were tracking as planned and with what we announced today for Q4, obviously, we're going to be below that 20%. So is that Q4 event going to materialize for full year next year and we're going to be 30% to 40% down? Today, I would say it's too early to call.
We'll see how the situation evolves. We'll see how the retail goes as well with the dealers in Russia, what's the inventory level at the end of the season and then we'll be able to make a more educated guess as to what the impact is going to be for fiscal year 2016.
Okay. And then just a broader question coming back to the guidance and the guidance ranges. Given that we are so far through the year and we really only got 7 weeks left in the full fiscal year, did you think about tightening the guidance range in terms of revenue growth or earnings growth? And why did you decide not to do that?
Yes. It's something we discussed around the table and whether or not we wanted to bring it narrower. However, if you look at our guidance, we're planning to deliver a high level of EBITDA for the quarter. And therefore, with those levels, we felt that the existing guidance range was adequate, considering again we're a global business and we're sometimes influenced by externalities that we do not fully control such as foreign exchange rates. We felt that it was appropriate to remain at that level.
Okay. Thanks very much.
Thank you.
Thank you. Our next question is from Gerrick Johnson from BMO Capital Markets. Please go ahead.
Hey, good morning. Can you just discuss gross margin? Give us some of the pluses and minuses in the quarter? And also I think I saw in your MD and A something about a $3,200,000 inventory revaluation if you can talk about that too. Thank you.
Yes. In terms of our gross margin impact, volume and mix were 2 favorable items, probably be bringing you around 1.5% to 2% improvement in gross margin. And the other impact, which is negative is FX. We got good impact on top line. However, in Q3, we're short U.
S. Dollars, so we don't see the benefit on the gross margin. So that brings gross margins down by about 110 basis points and then depreciation for about 50 basis points. It's what would drive the bridge in gross margin. And in terms of inventory adjustment, it's something we do on a recurring quarterly basis.
We again, we have a lot of parts inventory. And when a season ends, we see what's remaining, especially on the clothing side and then do the inventory true up and adjustments that are required per GAAP. So nothing out of the ordinary, Eric, for the $3,000,000 adjustment this quarter.
Okay. Okay. And then in your MD and A, you mentioned that year round retail in the quarter declined low single digits. In the presentation, you talked about season to date. So I was hoping you could talk about your year round retail and break it out in between off road and on road and how those performed at retail in the quarter?
In the quarter? Let's say, if we took ATV, the ATV in the quarter was down mid single digit and we're about flat and we're gaining momentum caused mainly by the Outlander L. If we look side by side, the industry was up high sorry, mid double digit and we were slightly below that growth, because we started to shift the Maverick. I mean, we're doing good in the Commander, but the existing 14 Mavriq has lost momentum and we started to ship the Mavriq XDS in December. And on the roster side, I mean, it's very, very low numbers.
We are within the industry range, but very, very low activity in Q3.
Okay. That makes sense. Thank you.
Thank you. The following question is from Craig Kennison from Robert W. Baird. Please go ahead.
Good morning and thank you for taking my question. You have addressed many of my United States is looking to create additional safety rules around side by side vehicles. Maybe tell us what your position is on some of those changes and how you might expect that to affect your sales environment?
Yes. Rova of which BRP is a member has indeed had many discussion with CPAC lately on defining an appropriate construction standard for the side by side vehicle. I would say the dialogue as positive and we are confident that we will find a solution between the association, CPSC and the OEMs. In parallel, our engineers are close to following the situation to ensure that we'll comply with the result of the side by side construction standard. And so far, we feel okay about the situation.
Is there a timeline you expect to unfold as this comment period comes to a close?
Very difficult to say, Craig. I believe we can see something firming up probably in the next 12 months, but that don't mean it will be enforced right away. Sometime those agency gives a period of time for OEM to adjust. But this is a very difficult one to predict. That's why we're still very close and see if we have some gap and try to find solution to make sure we're following the regulation.
Great. Thanks for taking the question.
Thank you. Thank you. Our next question is from Mark Torrente from Wells Fargo. Please go ahead.
Hey, this is Mark Torrente for Tim Conder. We were just wondering if you could provide any color on your U. S. Dealer base goals for fiscal 2016 and 2017? And then also given you guys are seeking more of a balance between the OEM and repower market for outboards.
Are you expecting to gain share with your new G2 outboard?
First, we are on track with our dealer plan. And if you remember, the optimum goal, we believe the sweet spot is about 12 50 dealer in North America by the end of fiscal year 2017. And we still are within that range for our long term goal. Then on this, we are on track. We're on track year.
We're on track this year. And we believe we'll be on track for the next 2 years to reach the 12.50 in North America for recreational product dealer. On the other side, the outboard engine, we've been flattish at about 10% market share worldwide with our outboard business in the last few years. Obviously, as we explained before, we're strong in the Depower, but that portion of the segment declined in the last few years. We definitely believe now that with the Evenro G2 and that was the goal of that program that we are gaining momentum with both OEMs.
And definitely one of our goal is to increase our market share going forward in the outboard business. And so far, I would say, we wanted to come out with a new type of outboard engine that would be different enough to make a difference in the industry. And so far, I mean, the G2 is delivering.
Okay. Thank you for taking our questions.
Thank you.
Thank you. Our following question is from Gerrick Johnson from BMO Capital Markets. Please go ahead.
Hey, hello again. The jet boat market has been a strong one so far this year. Are you seeing growth in jet propulsion to your boat OEM partners?
Yes. Well, it is a growing market. Year, as you might be aware, we're working with 2 partners, Rec Boat Holding and Chaparral, our 2 primary partners we're working with in North America for development of boats. We had good shipments to them this year as they were ramping up the business. Rec Boat started earlier.
So we had deliveries in fiscal year 2014, strong deliveries this year. The retail went okay, but they have a bit more units than they like in the field. So we're not necessarily seeing a growth next year in terms of deliveries to our partners. And Chaparral is doing also a good job, launched several new boats with the with our jet power pack in them. And they are now starting to retail these boats and orders for next year are also good, but not necessarily a big growth for us next year in terms of wholesale shipments.
Great. That's helpful. Thank you very much.
Thank you, Garrett.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to you Mr. Bossier.
Great. Thank you very much, Maude. So this concludes today's call. I want to thank all of our participants for their interest and support and invite you to join us for our Q4 earnings call to be held at the end of March. So thank you very much and wishing you all a happy holidays.
Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.