All participants, please stand by. Your conference is ready to begin. Nous sommes désolés de vous informer que dû à des difficultés techniques, il n'y aura pas de portion française aujourd'hui. Un enregistrement en français sera disponible sous peu. 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. Bonjour, mesdames et messieurs. Hello, ladies and gentlemen. Bienvenue à la présentation des résultats de BRP Inc. pour son troisième trimestre et l'exercice financier 2015. Welcome to BRP Inc.'s third quarter and fiscal year 2015 financial results. L'appel est sur le point de débuter. Je vais maintenant céder la parole à Monsieur Pascal Bossé. The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bossé. À vous la parole. Please go ahead.
Great. Thank you very much, Maude. Good morning and welcome to BRP's third quarter results conference call for fiscal year 2015. Joining me this morning on the call are José Boisjoli, President and CEO, and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risks and uncertainties. I invite you to read BRP's MD&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 under the investor relations section. With no further ado, I'll turn the call over to José.
Thank you, Pascal. Good morning, everyone. BRP reported this morning its financial result for the third quarter, and those confirm the expected acceleration in revenue and profitability in the second half of the year. Revenue increased 6% when compared to the third quarter last year to reach CAD 918 million. This increase was driven mostly by seasonal product and part accessories and clothing. Normalized EBITDA increased 13% from last year third quarter to CAD 134 million. Our gross margin also expanded to reach 26.1% despite the negative impact of currency exchange rate on our profitability. Finally, normalized diluted earning per share bounced 20% from prior years to reach CAD 0.60 per diluted share. Sébastien will walk you through the detail of our financial performance in a few minutes. Moving to the business highlight for the third quarter.
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 65-75 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 Sea-Doo Spark in Asia-Pacific and Western Europe. To summarize for market dynamics, we are expecting continued momentum in revenue and profitability in the fourth quarter 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. I will circle back on that subject in a few minutes. In our operation, we started production of model year 2015 for personal watercraft in Querétaro with the successful reconfiguration of our assembly line to manufacture both the Spark and traditional personal watercraft. We also started the manufacturing of the Spyder F3 in Valcourt, the Evinrude E-TEC G2 in Sturtevant, and the Outlander L ATV family and the Maverick X ds in Juarez on plan and on schedule. Now Russia on slide six. The situation has deteriorated significantly since the end of October with a steep decline in the value of the ruble. 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. The retail is becoming more challenging. Our distributor has cut his order by half for the fourth quarter as we enter the peak season for snowmobile deliveries. This will have a financial impact on our Q4 financial result. Sébastien 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 Querétaro. 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 counter season markets.
Approximately 50% of model year 2015 traditional personal watercraft will be manufactured in Querétaro this year. The other 50% in Valcourt. Next year, all our personal watercraft are expected to be manufactured in Mexico. The project is on track with a target of between CAD 20 million and CAD 25 million in margin improvement expected by fiscal year 2017. Turning to product category with seasonal product on slide eight. Sales stood at nearly CAD 453 million in the third quarter, an 18% increase when compared to the same period last year. Snowmobile shipments were the main driver of the increase. While still early in the season, the industry is up in the 20% range compared to prior year. We have a solid lineup. 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 cover thus far is similar to last year, which was a so-so winter. We are taking contingency measure to mitigate the volume losses in Russia. In personal watercraft, we ended the model year 2014 season at the end of September with Sea-Doo gaining market share in North America for the fifth consecutive year. The industry retail was up high double digits. Sea-Doo retail grew in the mid-20%, driven mostly by Spark. Looking into model year 2015, we have planned to increase production of the Spark to meet customer demand. Will continue to strategically balance allocation to dealer between Spark and traditional personal watercraft. Turning to year-round product. Revenue stood at CAD 228 million in the third 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 ds launch early September will help us regain momentum in the sport category by taking back the U.S. power lead. We have order on hand for December, January, and we are started booking February. In the Rec category, our Can-Am Commander side-by-side vehicle continued to gain market share, but the segment has contracted season to date. All in all, for side-by-side vehicle, we have tracked slightly behind the industry in the past quarters, but will continue to expand our offering in the coming years. For ATV, the industry is down low single digits for four months into the season, but Can-Am is up low single digits 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 second manufacturing plant dedicated to off-road vehicles.
We are still early on this program, but on track for production startup in about 12 months' time. Finally, for Roadster. Despite the cold and long winter and late start of the season, we ended model year 2014 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 RT 1330, a unit that sold very well. Our non-current inventory is slightly higher than our plan, but we believe the introduction of the new Spyder 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, and we are pleased of the buzz this created in the trade media.
After six 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 Spyder F3 will appeal to a broader pool of riders. All test riders agree that the experience cruising on the winding roads is very different, and 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 CAD 83 million, bringing the year-round revenue to CAD 265 million, broadly in line with the same period last year. For outboard engine, the industry season to date is up low single digits, while BRP is lagging sadly.
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 Evinrude E-TEC G2 is a game changer. Boat builder understand our unique offering to consumers, and this is why nine 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 CAD 154 million, driven by snowmobile pack for the upcoming season. Also, with the launch of the Spyder F3, we are introducing three package and over 60 accessories available from day one, which represent the largest offering we have ever made concurrent to a Spyder model launch.
We have also spent a lot of efforts in developing and introducing a new line of clothing that perfectly fits the styling of the Spyder F3 targeted customers. Sébastien will now walk you through the financial review in greater detail, and I will come back for the outlook.
Thank you, José, and good morning, everyone. This morning, we reported revenues of CAD 918 million for the third quarter of fiscal 2015, a 6% increase from the third quarter of last year. For the nine months ended October 31st, revenues amounted to CAD 2.5 billion, a 7% increase over fiscal 2014. Our gross profit amounted to CAD 239 million for the quarter, resulting in gross margins of 26.1%, a level that is much improved from the first six months and slightly above last year at 25.9%. Net income stood at CAD 37.2 million. Normalized net income stood at CAD 71.9 million or CAD 0.60 per diluted share, a 22% increase over last year. Finally, normalized EBITDA amounted to CAD 134.1 million in the third quarter, bringing the nine months ended October 31st to CAD 222 million. 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 CAD 12.9 million as a result of the following items. Volume, mix, and pricing had a net positive impact of CAD 20 million. Operating expenses were favorable, CAD 9 million, and net financing costs and income tax expense were favorable, CAD 3 million. These were partly offset by a higher depreciation charge for CAD 5 million and negative foreign exchange impact of CAD 14 million. Now moving to the balance sheet items.
We consumed approximately CAD 29 million of cash in working Cap in the first nine months, driven in part by increased inventory for the upcoming Q4 deliveries. Our long-term debt increased from year-end levels by CAD 34 million, mostly due to new financing agreements and unfavorable foreign exchange rates. Capital Expenditures increased CAD 14 million compared to prior year, and we expect CapEx to ramp up in Q4, so we are reaffirming our guidance of CAD 165 million-CAD 175 million for the year. As expected, free cash flow turned positive in the third quarter, and we expect to generate good free cash flow in the fourth quarter. Now, Slide 18 for a look at BRP's Powersports 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. Finally, our guidance for fiscal 2015 on Slide 19. As mentioned by José, our distributor in Russia has cut by half his planned orders for the fourth quarter, and this is at the peak of snowmobile deliveries. As such, we are reducing revenue guidance for seasonal products to up 10%-14%, from up 12%-16%, adjusting total company revenue guidance from up 9%-13% to up 8%-12%. We estimate the result of these reduced deliveries to impact normalized EPS negatively by approximately CAD 0.10. Therefore, normalized EBITDA is revised to an increase of 7%-11%. We are also adjusting our assumption for tax rate from a range of 26%-27%, to 24.5%-25.5% as a result of a change in statutory income tax legislation enacted in Canada.
Normalized net income is going from up 10%-17%, to up 4%-11%. Normalized diluted earnings per share is therefore reduced to account for lower deliveries in Russia, which is offset by about CAD 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 CAD 1.47-CAD 1.57 per share. On that note, I will turn the call back to José.
Thank you, Sébastien. 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 third quarter was in line with our plan. I am pleased with our result 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 65-75 new dealer by the end of fiscal year.
In Mexico, the transition to Querétaro is progressing well. We started manufacturing traditional personal watercraft alongside the Sea-Doo Spark. The Canadian dollar lost in value against the U.S. dollar. However, we also witnessed a depreciation of the euro. Overall, the CAD 29 million, or CAD 0.24 per share negative impact of currency fluctuation on normalized EPS was worse than we expected. For Russia, back in March, we assumed an approximate 20% reduction in revenue from the CAD 200 million of sales in fiscal year 2014. We trended in line with the plan for the first nine months. Unfortunately, the recent currency drop is now making imported product much more expensive, which is affecting retail. Our shipment will be down more than the planned 20% in the fourth quarter.
In light of this emerging issue that, admittedly, was difficult to forecast, we believe it is fair and appropriate to update the market. We have adjusted our guidance. 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. Our second half is expected to be stronger with a solid fourth quarter. Again, we have a good lineup. 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 question.
Great. Thank you very much, José. Maud, we are now ready to take questions. 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. Bossé. Please press *1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yeah. Good morning, gentlemen. First question. Thanks for updating the FY 2015 guidance. I'm just wondering, I know it's still early. 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. As you can appreciate in terms of product introductions for next year, for sure we'll have some product announcements as we do on a yearly basis. We'll keep that as well for next year.
Okay. Specifically for the propulsion systems, you mentioned good comment about the pontoon and also the saltwater. Just wondering if there's 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, the enthusiasm is quite good. We started production in November in Sturtevant, we're ramping up at a high pace in December, January. That's why we'll have a lot of G2 deliveries in Q4. We're shipping to both dealers and also boat builders to prepare for the upcoming season. Definitely, our focus is to improve our performance in the saltwater market and the pontoon market, we believe the G2 will help this going further.
Okay. Last question, if I may. Just in terms of fuel environment, I'm just wondering if you see positive comments from a consumer, given they have now more discretionary spending.
Let's say that we think this is overall positive. The impact of lower fuel price is threefold. First, there is an impact on consumer and the cost to operate the product. Just to give you a sense, a typical snowmobiler will spend CAD 400 in fuel during a season, about half for someone who use off-road, and we don't think this is a big impact. The second impact is cost reduction on our cost overall. Transportation and some component like plastic should go down in cost in time if the oil price stay where it is. Finally, and you're totally right, we believe the largest impact is the increase of disposable income. There is some market 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.
We view this trend favorably.
Okay. Thanks for the time.
Thank you, Benoit.
Thank you. Our next question is from Robin Farley from UBS. Please go ahead.
Great. Thank you. Just looking at your guidance for year-round product, which is unchanged. Year to date, year-round product is down 5%, your guidance unchanged is implying maybe a 50% increase in Q4. I just struggle with trying to understand what would be such a significant driver in Q4. I wonder if, since we are halfway through Q4, if you could, on this sort of public conference call, as kind of your opportunity to give investors some assurance about what you've already shipped in Q4 maybe, I know you don't normally do that, but 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. We're not happy with the model year 14 Maverick momentum. We've been successful during the summer and the fall to deplete inventory at a very good level. In Q4, we have heavy shipment of the Outlander L family that is gaining traction right now in the network. Also the Maverick X ds. We started production, I think, the last week of November. I was in Juarez and URI a month ago, and the line was full of Maverick. It's a heavy quarter for Maverick X ds shipment that we introduced last September, and we're shipping worldwide. The third element is the Spyder F3.
We started production in December in Valcourt, we'll be starting shipment in January. For all those product we have for North America order on hand. For international, those product are popular, we believe that our planning is reasonable for Q4.
With the North American orders on hand that you mentioned, 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. Was there any variation between orders and what you ultimately shipped in the quarter just reported?
Yeah. Hi, Robin. It's Seb. Our numbers for Q3 were actually in line with our plan. We had a strong Q3 for seasonal product snowmobile shipments. We didn't see any variation versus what was anticipated from our North American market. That's why, again, we're confident for our Q4 numbers and their ability to deliver these units to our dealers and distributors in the fourth quarter. 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. 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 product. I know the seasonal, the snow product in Q3, there was no variation in dealer orders. 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 Arthur from RBC. Please go ahead.
Thank you. First, just to clarify, the outlook for snowmobiles coming down in Q4, is that all related specifically to the Russian situation? 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 Valcourt this week, in fact, middle of the week. By the end of next week, all the snowmobile produced in Valcourt will be shipped, and we have order on hand for North American dealers. We have Russia, we've discussed about it. Our distributor done a dealer meeting on November 17 and 18. This is typical in their country. At that time, the ruble had 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. There is some risk in Scandinavia. Scandinavia, the winter is so far, but winter is long. 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, in mid-January. We decided to produce all those units, because typically, we end shipment in Russia at the end of January. Here, we believe that some dealers could take some of those models in February and March because the winter over there is quite long. You need to understand that right now in Russia, some banks are squeezing the credit line of some of our dealers. This is putting pressure on the inventory buildup that we do typically at this time of the year. Because of all those situations, that is 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, looks like gross margins for Q4 needs to be in the 27%-28% range. Does that sound reasonable, that math? That's higher than we've seen before, and just wanted to gauge your comfort level with that kind of a margin level.
Yeah. Again, the plan for Q4 is a strong quarter. Yes, when you look at the midpoint of the guidance, it is actually quite strong. Volumes will be high and therefore that usually drives better margins. You should see a considerable appreciation in the margin compared to what we've had since the beginning of the year.
Okay. Final point-
Your range is fair.
Okay. The final point, just we saw in the MD&A a CAD 7 million 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?
Yeah, it is complete. It's something we announced in October. We had been looking at it over the last few months, then making the preliminary plans. In October, we made the announcements. All of the costs, over 90%, are related to severance costs, and all the employees were advised in October. It should be very little cost in Q4, below CAD 1 million, if there's anything that's going to be recorded. All the costs were recorded in Q3.
Okay. 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 would not expect to see a saving in operating expenses next year. As the business is growing, you'll see our overhead increasing. 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. I wanted to touch on Russia a little bit, just to be clear. You mentioned today that the decrease in your guidance is roughly CAD 0.10 related to Russia. At the beginning of the year, you had also indicated that the headwind in Russia was costing you another CAD 0.10. Is it fair to say that on a year-over-year basis for the full year, Russia is probably impacting your EPS by CAD 0.20?
Hi, Martin. Yes, you are absolutely right. When we look at it on an annual basis compared to fiscal year 2014, CAD 0.20 is the number we have in terms of a Russia impact for fiscal year 2015.
Okay. 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? I'm just trying to assess a little bit how does that going to roll over into next year.
Yeah, 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%, I'll give you full precision probably offline or once I get them. Q3 and Q4 are the big quarters because snowmobile is the big market for us in Russia.
Okay. Switching on your inventory levels in North America, you're saying that it's flat on a year-over-year basis, you're saying that you do have expanded your dealer network. Any chance we can have your inventory levels per dealer so 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. There's also seasonality in where they're located geographically that's going to impact that number. We disclose 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. All right. Just lastly, 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?
They don't hedge. We sell to them in EUR and they convert it in ruble because in the past, in the history, there was quite a good correlation between the ruble and the EUR, and they were able to go together, and it was easier to manage. They don't hedge. Obviously, in those situation, we try to help them. 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. It's a difficult situation. At the end, those purchasing power loss will end up in the price of consumers. All other OEM, all imported product in Russia right now is going through the same drastic change.
Okay. Thank you very much.
No problem.
Thank you. Our next question is from Derek Dley from Canaccord Genuity. Please go ahead.
Yeah, 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 Maverick X ds review is good. We're starting delivering right now. We started deliver early December, 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. Is as 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. 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 Spyder, fun to ride, and we're very enthusiastic about this. The Outlander L is doing well.
You know we had less than 5% market share in the mid-cc category. So far, we're tracking at a good pace, and we increase momentum since we started to deliver the product. Even the G2, very happy about the reception, and there is more and more builder that we're signing. More and more boat builder who do Hero package, and so far, reception is good. The snowmobile lineup that we introduced in February, that is very popular. When I look at all of this, I'm very happy because on the product side, we have execute extremely well, and the reception from customer is good.
Okay. Thank you for the color there. Just 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, the momentum is very good. On the off-road side, there is, I believe, a bit more program than typically. We've just launched what we call right now our Holiday Blitz, our Christmas program in U.S. and Canada for side-by-side and ATVs, 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, I would say it's typical. 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 Zicha from Scotiabank. Please go ahead.
Yes, good morning. José, 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, it's growing at a low pace, but still growing every quarter. If you take France, Germany, Italy, U.K., and you do the average of all this, it's growing at a low pace again, but growing well. Latin America is difficult. You know that Brazil, the economy is difficult right now. 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 into the country, then it's significantly down versus two years ago. We believe long term, Argentina will come back. Australia, New Zealand, China, overall as planned, a good growth.
If you take our overall international sales year-to-date, we're growing 7%, including Russia. If you exclude Russia, we're growing at 13%, which is a pretty good rate considering all the ups and down that we see worldwide.
Okay. When we look at the competitive landscape, how have some of your Japanese competitors reacted with the 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. Now some of the competitor are more aggressive on the outboard business. Overall, for the rest, I think it's still within what I'd say a reasonable range. They are aggressive. We don't see big drop in SRP because of the yen fluctuation.
Okay. Well, thank you, Susie.
Thank you. Our following question is from Mark Petrie from CIBC. Please go ahead.
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. 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?
Yeah. 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. 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 Snowbelt area, a bit weaker in the South, and that's why we're focusing more there in the new dealer sign up. That's why it's normal for us to ramp up deliveries of year-round product in Q4 to prepare for the upcoming spring. 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.
Should we expect dealer inventories to be up low single digits, mid single digits? What's a reasonable range?
Well, 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 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. As we increase our offering in side-by-side and Spyder as well, that will naturally have an effect on the inventory levels.
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. I wouldn't be able to give you any strong appreciation as to the number of days and what's going to be the impact going forward.
Yeah. Okay. Just in terms of Russia, just circling back. It sounds like basically year-to-date or, sorry, for this year, Russia's going to be down about 30%, with that obviously accelerating in the back end. How should we think about 2016? Is there any reason to be sort of more optimistic than what we're going to see in Q4?
Well, if you recall, the first nine months of the year were tracking as planned. We had forecasted a 20% reduction in Russia year-over-year. We were tracking as planned, and with what we announced today for Q4, obviously, we're going to be below that 20%. Is that Q4 event going to materialize for a full year next year and we're going to be 30%-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's going to be for fiscal year 2016.
Okay. Just a broader question, coming back to the guidance and the guidance ranges. Given that we are so far through the year and we've really only got seven 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?
Yeah, it's something we discussed around the table on 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 it 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. Also, I think I saw in your MD&A something about a CAD 3.2 million inventory revaluation, if you can talk about that, too. Thank you.
Yeah. In terms of our gross margin impact, volume and mix were the two favorable items, probably be bringing you around 1.5%-2% improvement in gross margin. The other impact, which is negative, is FX. We got good impact on top line. However, in Q3, we're short U.S. dollars, we don't see the benefit on the gross margin. That brings gross margins down by about 110 basis points, then depreciation for about 50 basis points. It's what would drive the bridge in gross margin. In terms of inventory adjustment, it's something we do on a recurring quarterly basis. 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.
Nothing out of the ordinary, Gerrick, for the CAD 3 million adjustment this quarter.
In your MD&A, you mentioned that year-round retail in the quarter declined low single digits. In the presentation, you talked about season to date. 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 were about flat, and we were gaining momentum caused mainly by the Outlander L. If we look side by side, the industry was up mid-double digit, and we were slightly below that growth because we started to ship the Maverick. We're doing good in the Commander, but the existing 2014 Maverick has lost momentum, and we started to ship the Maverick X ds in December. On the Roadster side, it's very, very low numbers. We are within the industry range, but very low activity in Q3.
That makes sense. Thank you.
Thank you.
Thank you. Once again, please press star one at this time if you have a question. The following question is from Craig Kennison from Robert W. Baird. Please go ahead.
Good morning. Thank you for taking my question. You have addressed many of my questions already, but I wanted to ask about the regulatory environment. It's our understanding that the Consumer Product Safety Commission in the U.S. 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.
Yeah. ROHVA, of which BRP is a member, has indeed had many discussion with CPSC lately on defining an appropriate construction standard for the side-by-side vehicle. I would say the dialogue is positive, and we are confident that we will find a solution between the association, CPSC, and the OEMs. In parallel, our engineer are closely following the situation to ensure that we'll comply with the result of the side-by-side construction standard. 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, that don't mean it will be enforced right away. Sometimes, those agency give a period of time for OEM to adjust. This is a very difficult one to predict. That's why we stay 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 Turenne from Wells Fargo. Please go ahead.
Hey. This is Mark Turenne for Tim Conder. We were just wondering if you could provide any color on your U.S. dealer base goals for FY 2016 and FY 2017. 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. If you remember the optimum goal, we believe the sweet spot is about 1,250 dealer in North America by the end of FY 2017. We still are within that range for our long-term goal. On this, we are on track. We're on track last year, we're on track this year, and we believe we'll be on track for the next two years to reach the 1,250 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 power, but that portion of the segment declined in the last few years.
We definitely believe now that with the even new G2, and that was the goal of that program, that we are gaining momentum with boat OEM. Definitely, one of our goal is to increase our market share going forward in the outboard business. 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. So far, 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's been a strong one so far this year. Are you seeing growth in jet propulsion to your boat OEM partners?
Yeah. Well, it is a growing market. This year, as you might be aware, we're working with two partners, Rec Boat Holdings and Chaparral, are our two 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. They probably have a bit more units than they'd like in the field, so we're not necessarily seeing a growth next year in terms of deliveries to our partners. Chaparral is doing also a good job, launched several new boats with our jet power pack in them.
They are now starting to retail these boats. Orders for next year are also good, not necessarily a big growth for us next year in terms of wholesale shipments.
Great. That's helpful. Thank you very much.
Thank you, Gerrick.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to you, Mr. Bossé.
Great. Thank you very much, Maude. 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 fourth quarter earnings call to be held at the end of March. 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.