Good day, and thank you for standing by. Welcome to the Q1 Fiscal 2024 Winnebago Industries Financial Results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ray Posadas, Vice President of Investor Relations and Market Intelligence. You may begin.
Good morning, everyone, and thank you for joining us today to discuss our fiscal 2024 first quarter earnings results. I am joined on the call today by Michael Happe, President and Chief Executive Officer, and Bryan Hughes, Senior Vice President and Chief Financial Officer. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news release with our first quarter results was issued and posted to our website earlier this morning. Before we start, I'd like to remind you that certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities laws.
The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain, and a number of factors, many of which are beyond the company's control, could cause actual results to differ materially from these statements. These factors are identified in our SEC filings, which I encourage you to read. With that, I would now like to turn the call over to our President and CEO, Michael Happe. Mike?
Thanks, Ray. Good morning, and as always, thank you for your interest in Winnebago Industries and for taking the time to discuss our fiscal 2024 first quarter results. I will provide an overview of performance during the quarter, then pass the call to Bryan Hughes to cover our financial results in more detail. Following Brian's comments, I will return and offer some closing thoughts before the Q&A portion of the call. As we entered our fiscal 2024 year this past September, the outdoor recreation market in North America continued to face numerous short-term challenges. Consumer confidence was unsteady, given macroeconomic factors. Affordability of the RV and boating lifestyle, while still competitive with other forms of leisure travel, had become difficult for potential new customers, and dealers were aggressively managing inventory by constraining inbound wholesale shipments.
We stated during the October earnings call that our first two fiscal quarters in 2024 would face formidable headwinds, especially as it related to dealer appetite for new RV and marine products, and that we were hopeful our last two quarters in fiscal year 2024 would show real improvement relative to an anticipated future one-to-one retail ratio to wholesale replenishment rate developing within the channels. The projection for fiscal year 2024 has proven true three months into this first half period. Retail demand is generally in line with our projections, if not a little better than anticipated in Barletta Boats and Grand Design Towables.
While dealers were very selective in Q1 with what they brought in from our premium brands and have done an excellent job in driving their inventories lower, we believe continued strong wholesale constraints during a seasonally lighter retail period of the year in December through February, and subsequent further reduced production by our businesses over the holidays, will also have a similar impact on Q2 financial results as well. Bryan Hughes will discuss this Q2 outlook in more detail later in the call. Despite these challenges, the Winnebago Industries team remains focused on two core objectives: A, the preservation of solid profitability and a strong balance sheet in the short term, balanced with the reinforcement of robust market positions, lot and retail share across our outdoor portfolio.
And B, our commitment to amplifying investments that nurture the long-term health, vitality, and value proposition for our brands and the enterprise as we prepare for what we believe will be a strong, rebounding outdoor economy in the back half of calendar year 2024, and especially into 2025. Our fiscal year 2024 Q1 SG&A numbers include elevated investments in engineering, digital asset development, and increased data and IT capabilities. These initiatives are incremental to historical spending and intentional. Overall, we maintain our bullish position on the future of the RV and marine industries, and our brands will be well-situated to participate strongly in this cyclical upswing when it occurs. Our fiscal year 2024 Q1 results demonstrate the resilience of our diversified portfolio and variable cost structure, as well as our production discipline and pursuit of operational excellence improvements.
We are also focused within the towable RV and marine segments in addressing vital considerations surrounding affordability, with multiple new product releases, while maintaining our commitment to customer satisfaction via outstanding product quality and aftermarket service. Overall, for our fiscal first quarter, we achieved $763 million in net revenues as we navigated softness in motor home, RV, and marine unit sales. Our consolidated gross margin of 15.2% was driven by strong margin performance in our towable RV segment. Overall, we delivered adjusted earnings per diluted share of $1.06. Within the RV industry, gross unit inventories across the motor home and towable segments are at historically low levels, in some cases not seen for more than a decade. Winnebago Industries field inventory turn rates have returned to pre-COVID status.
The RV industry added unit inventory for the first time in many months during October of 2023, and we do not anticipate significant further destocking industry-wide as we turn towards spring. Dealers continue to work through model year 2023 inventory during this quieter period of the year and mitigate the cost implications of higher inventory financing rates on their business. We continue to proactively manage our own capacity, output, and costs in a targeted manner, given dynamic marketplace conditions. Importantly, our consolidated RV retail market share is showing signs of stabilization, following an anticipated pullback last year in connection with broader market focus on lower price points and further rationalization of second and third-tier brand inventory. Grand Design specifically is seeing solid retail performance as we speak and has added retail share in recent SSI reports.
Last quarter, we highlighted several new RV models across our organic brands, providing customers with terrific value at attractive price points for premium products. The Grand Design Serenova and Reflection 100, as well as the new Winnebago-branded Access, are examples of these introductions. The new Winnebago M-Series trailer and Grand Design's modestly priced luxury fifth wheel Influence are also strong additions to the model year 2024 lineups. In Q2, the Winnebago brand of motor homes will officially launch the next generation of the popular Revel and Ekko motor homes. The new Winnebago Revel 44E is the next generation of the industry's first all-wheel drive Class B motor home, built on the Mercedes-Benz Sprinter chassis. The new Revel 44E boasts extended season capabilities, a Winnebago power package featuring our own Lithionics GTO battery, and upgraded interior and exterior features.
The new Winnebago Ekko 23B2, a Class C motor home, is also built on a Mercedes-Benz all-wheel drive Sprinter chassis, boasts advanced all-season features, a multi-use living space, and an advanced solar lithium battery combination. Both the Revel and the Ekko models begin shipping in January of 2024. Coming off a banner year for our marine segment in fiscal year 2023, our marine dealers, as anticipated, began to pull back on orders in the first quarter of fiscal 2024 due to elevated inventory levels and costs. This meaningfully impacted quarter one shipments and will continue to do so even more strongly in quarter two. However, we are encouraged by the retail trends we are seeing, specifically in the pontoon segment.
Our Barletta business has run positive comps to date in fiscal year 2024 and continues to gain share in the aluminum pontoon segment, reaching now above 8+ points of share in recent SSI reports. However, we are working closely with Barletta dealers, especially in the northern freshwater markets, to optimize their inventory positions as the winter months go, so that they feel more comfortable with reorder capabilities as the spring season approaches. Similar to our RV brands, our marine businesses continue to innovate with new releases for model year 2024. During the Fort Lauderdale Boat Show this past October, the Chris-Craft brand introduced the highly anticipated Catalina 28, offering customers a center console with versatile seating configurations and boasting groundbreaking Seakeeper Ride technology. Barletta has unveiled the industry's first pontoon boat with twin engines mounted in the center of the boat's transom, a patent-pending feature.
In addition, the new Reserve Leggera is a simplified, de-contented offering of the ultra-high-end Reserve and has released a refreshed year two version of the entry-level Aria model line as well. Affordability with a premium look and feel.... As I have often mentioned, Winnebago Industries will continue to responsibly invest, innovate, and position our businesses for long-term success through the entirety of the economic cycle. We will prioritize profitability through disciplined production and cost management, leveraging our highly variable cost structure, and collaborate closely with dealers to align on win-win inventory approaches to the market. Winnebago Industries remains well-positioned to further strengthen our enterprise capabilities, capitalize on future growth opportunities, and achieve long-term shareholder value creation goals. With that, I will now hand this over to Bryan Hughes.
Thanks, Mike, and good morning, everyone. Before I begin, I would like to refer you to our earnings release document as well as our earnings supplement document that are on our investor relations website. On past calls, I have verbally reviewed all the key financial results, and I will refrain from doing so today, and to improve efficiency, will instead focus solely on key drivers of our performance. Our first quarter consolidated revenues reflect a decrease of 19.9% compared to the fiscal 2023 period, driven by lower unit sales related to market conditions, product mix reflected by lower average selling prices, and higher discounts and allowances across all segments, partially offset by carryover price increases related to higher motorized chassis costs.
By extension, our gross profit for the quarter decreased 27.8% year over year, but we are proud to have delivered 15.2% gross profit margins despite the deleveraging impact of slowing sales, which was the greatest driver of our margin decline and higher discounts and allowances. Our ongoing profitability is the result of our variable cost structure, the strength of our relationships with our supplier partners and dealers, and the relentless pursuit of operational excellence across each of our businesses. Maintaining healthy growth margins enabled delivery of EBITDA margins of 7.1%, which includes investments in our advanced technology, digital transformation, and IT capabilities. I'll now cover our performance by segment.
Revenues for the Towable RV segment were down 4.8% compared to the prior year, as strong unit sales growth and lower ASB travel trailers contributed to an unfavorable product mix. Towable RV segment Adjusted EBITDA was down 8.8% versus the prior year period. Adjusted EBITDA margin was 10%, down 50 basis points year-over-year, primarily due to deleverage and new product startup costs. Revenues for the motor home segment were down 28% from the prior year. This decline was driven by lower unit sales as a result of current market conditions and a higher level of discounts and allowances, partially offset by favorable product mix and price increases related to higher motorized chassis costs.
Segment Adjusted EBITDA margin was 6.4%, down 440 basis points versus the prior year due to volume deleverage, higher discounts and allowances, and some operational inefficiencies. As Mike shared during our prior earnings call, we are excited by the launch of Grand Design Motorhome and look forward to seeing those new models begin to enter the market later this fiscal year. Our investment behind this initiative is reported in the corporate all other category within our financial results, and therefore will not be dilutive to our motorhome RV segment until Grand Design Motorhomes becomes operational. Overall, we anticipate that the bottom line impact to Winnebago Industries will be dilutive to our pre-tax income by about $10 million-$15 million throughout fiscal year 2024, due to sizable startup costs with limited revenue at the initial launch.
However, we believe this is a powerfully accretive strategy and financial opportunity for the company in future years. As expected, our spending was approximately $1 million in Q1, and we anticipate ramping that investment to between $4 million-$5 million by Q4. Keep in mind, we expect our investment to be accretive to our fiscal 2025 results. Let's turn to our Marine segment. Revenues were down 33.5% from the prior year as a result of a decline in unit volume related to slowed dealer demand in an elevated interest rate environment and higher discounts and allowances, partially offset by carryover price increases. Marine segment Adjusted EBITDA margin of 8.2% decreased 590 basis points versus the prior year, primarily due to volume deleverage, but also impacted by higher levels of discounting.
Backlog for the Marine segment declined 55.9% compared to the first quarter of the prior year due to cautious dealer sentiment this off-season as compared to last. Moving now to the balance sheet. At the end of the quarter, Winnebago Industries had a net debt-to-EBITDA ratio of approximately 1.2x , which is at the middle of our targeted range. Maintaining a strong balance sheet is core to the Winnebago Industries investment thesis and has continued to allow us to execute our balanced capital allocation strategy, which prioritizes digital and strategic investments in our business, like the opening of the ATG Innovation Center, for example, or strategic acquisitions like Lithionics, most recently, while also returning significant capital to shareholders.
During the first quarter, we executed share repurchases of $40 million and increased our quarterly cash dividend by 15% - $0.31 per share, reflecting the confidence we have in our ability to profitably grow revenues, capitalize on new opportunities, and gain market share over the long term. These actions further underscore our confidence in and our commitment to the long-term strength and trajectory of our business. Before turning the call back to Mike, I would like to provide more context on the previous comments Mike made about our upcoming second quarter. We anticipate Q2 consolidated sales are likely to be reduced from Q1 levels. This has historically been the pattern from Q1 into Q2 due to production utilization over the upcoming holiday period, and we expect that to be the case this year as well.
This also reflects our continued efforts to maintain a very disciplined approach to our production output during a time when dealers are steadfast in minimizing inventory during the off-season months, and as evidenced by the lower backlog with which we ended the first quarter. This preference by the dealer network this year has been further influenced by the higher interest rate environment and the corresponding high carrying costs that the dealer network has been experiencing. Negative dealer sentiment related to current inventory levels is most acute in our towable RV and marine businesses, and therefore, our current expectation is that the sequential sales performance for our towable RV and marine businesses will reflect this dealer sentiment, most notably, and will produce lower sales both sequentially from Q1-Q2 as well as year-over-year for Q2.
We are currently anticipating that Q2 profitability will be impacted by the modest sequential reduction to sales in Q2. We do not currently expect sales incentives to change materially in Q2 from what was experienced in Q1. These prior comments are specific to Q2. As we look ahead to the back half of our fiscal year, we continue to expect dealer ordering patterns to return to a relationship where one retail sale will produce one wholesale shipment. Retail activity from the last several weeks, and really the last few months, continues to support a forward-looking estimate of 350,000 retailed units for the RV industry in calendar 2024, and is consistent with the most recent RVIA estimate of approximately 350,000 shipments.
With 2023 expected to produce shipments in the range of 300,000 units, the current expectation is that the industry would therefore realize an approximate 17% increase in shipments for calendar 2024. We expect that the back half of our fiscal year will therefore realize a pro rata portion of this expected increase. With that, I will now turn the call back to Mike to provide some closing comments. Mike, back to you.
Thanks, Brian. And now a few closing comments before we get to the Q&A session. As many on this call are aware, and as Brian just stated, the RV Industry Association recently revised their expectations for calendar 2024 RV shipments to a mid-range estimate of 350,000 units. We are aligned with that projection at this time and believe this number will closely correlate with calendar year industry retail as well. As we assess the implications of the upcoming 2024 retail season, we will provide the investor community with an update to our long-range financial and operational targets, originally provided during our 2022 Investor Day, during our second quarter earnings call in March.
On our last earnings call, we announced significant news concerning the pending launch of a Grand Design motor home lineup, offering a strong, complementary set of products to our current Winnebago and Newmar motor home brand portfolios. Grand Design continues to reinforce its reputation as one of the most successful RV brands ever created, receiving the RV Dealers Association Dealer Satisfaction Index Award for every one of its core product brands this past fall, an honor they have never failed to receive. We have no doubt this excellence will carry on to their new motor home lineup, which will be unveiled later in fiscal year 2024, with anticipated shipments beginning in our fiscal fourth quarter. Also in the first quarter, Winnebago Industries opened our Advanced Technology Group's new innovation center, which will serve as a center of excellence for Horizon 2 and 3 engineering efforts within the company.
In the years ahead, the center will support the design of a new generation of RV and marine products that will harness and apply emerging technologies. Our integration of Lithionics Battery continues to go well, roughly eight months following this important strategic vertical technology acquisition. Lithionics is expanding its electrical products offering, penetrating the Winnebago Industries product portfolios with its exciting battery packs and battery management system offerings, expanding business with other outdoor mobility OEMs, and preparing its catalog of products for application into the marine industry. While the top-line sales impact to Winnebago Industries from Lithionics will be modest for a few years, the profit dollars and yield impact will be more significant. In addition to the value of building a knowledge base here at the company on portable power technology across our businesses. Very importantly, Winnebago Industries released last week its fifth annual corporate responsibility report.
The report aligns with the Global Reporting Initiative universal standards and features an index aligned with recommendations from the Task Force on Climate-Related Financial Disclosures, as well as the company's first Sustainability Accounting Standards Board's index. Highlights of Winnebago Industries' corporate responsibility progress include submitting the company's first CDP Climate Change Questionnaire, representing another large step toward enhancing their climate-related disclosures. Progressing towards the company's waste reduction goal, improving to 62% diversion from landfills across our enterprise. Initiating a strategic partnership with The Nature Conservancy to promote conservation and protect the outdoors. A 20% reduction in the company's absolute Scope 1 and Scope 2 greenhouse gas emissions since 2020. Reduced total recordable incident rates by 16% compared to fiscal year 2022.
Provided more than $3 million in financial, product, and volunteer contributions to the communities Winnebago Industries serves in fiscal year 2023, an increase of 20x in giving since 2016. Introducing new innovations that will support sustainability efforts, including the all-electric concept boat from Chris-Craft, further upgrades to an all-electric RV prototype, the eRV2, and the acquisition of a lithium-ion battery manufacturer, Lithionics Battery. Increased board gender and racial diversity from 14% women and no directors of color in 2015 to 30% women and 20% directors of color in 2023. Lastly, I would like to extend my gratitude to the entire Winnebago Industries team of employees for their continued hard work and dedication. They have faced a significant amount of change in the past many years and continue to demonstrate resilience and agility as we navigate very dynamic market conditions.
We have a tremendous team here, and I wish each of them and their families a safe and happy holiday season, and those same wishes are extended to all of you listening in on this call as well. That concludes our prepared remarks this morning. I will now turn the call back over to the operator, who will open up the line for your questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Michael Swartz with Truist Securities. Your line is open. Please go ahead.
Hey, good morning, guys. Maybe just to drill down into the second quarter commentary that you made. I mean, obviously, it sounds like revenue will be down sequentially versus the first quarter, which I don't think is a big surprise given it's a seasonally smaller period anyway. But I just wanted to maybe dig down on the margin outlook and maybe even EPS. I mean, are you trying to get across that sequentially EPS will be down quarter-over-quarter?
Yeah, Mike, good morning. This is Bryan. With the deleverage we've experienced, that's been the biggest driver by far of our margins, you know, versus last year and even sequentially. And as I said in the prepared remarks, the allowances and discounts aren't going to be meaningfully different. So I think you should interpret the comments as such, that the lower sales volume will deliver, through deleverage, a lower profit number. You know, obviously, we're doing a lot of things to manage the expenses, the cost. We leverage our variable cost structure to the extent that we can, but that's the message we're conveying.
... Gotcha. Okay. Thank you. And then second question, just, and I think, Mike, you were discussing this in your in the preamble, just in terms of the retail environment, maybe in the past 30-60 days, I sensed, I guess, a little more maybe optimism versus where we were when we last talked back in October. Could you just give us maybe a little more flavor or color of what you've actually seen on the retail environment, you know, both in the RV and the marine industries?
Yeah. Good morning, Mike. You know, as my comments indicated, you know, we aren't seeing a lot of surprises in the retail environment right now. It has generally been tracking on both the RV and marine side to the internal projections that we have had for both calendar 2023 and sort of the trend line that's headed towards, obviously, calendar 2024 here in the coming weeks. I did mention that we are seeing positive retail from both Grand Design RV and Barletta. And when I say positive, I mean positive over same weeks the year prior, so truly positive. The other businesses are again trending as we expected and are you know gradually improving in a comp standpoint versus the year prior.
As Brian and I both indicated, if we are to reach, you know, that 2024 retail level of 350,000 units approximately, we'll have to gradually see an overall trend of RV, you know, retail comps closer to ultimately, you know, flat to maybe later in calendar 2024, positive versus the year prior. So, no surprises on the trends that we're projecting internally. And, you know, the bigger challenge in the current short term is, you know, dealers just continuing to very carefully manage their own inventories.
Great. Thank you.
Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Craig Kennison with Baird. Your line is open. Please go ahead.
Hey, good morning. Thanks for taking my question as well. I wanted to follow up on Mike's last question. Just, it would seem to me that RV affordability has improved significantly, given, you know, model year 2024 prices and the move in interest rates. I'm just curious if you're hearing anything from your channel partners that suggest, you know, any movement by consumers based on that, math?
Yeah. Good morning, Craig. You know, I think any movements to that end would be very subtle at this time. You know, we are trying to address the affordability challenge in the marketplace for new consumers of RVs and boats through a variety of tactics. Certainly, some of that includes support for units in dealer inventory that are either aging in place or may be particularly pressured from a price standpoint. We have also introduced, as we said in the script, several new models within a few of our brands that we believe will be more attractive to consumers shopping for lower price points.
And then, you know, the last thing that we're definitely doing is we are passing on the benefits of reduced inflation, or in some cases even disinflation to deflation to our dealers as well. You know, our businesses are being fair at the time, where we have a bill of material that is going the right direction in terms of a lower cost of goods. You know, those products are seeing that benefit pass through to the dealers as well. But, you know, this time of year, Craig, retail-wise, difficult to see a significant movement by consumers reacting to affordability easing in the marketplace.
Thanks, Mike. Then could you comment on the freshness of dealer inventory, basically like the mix of model year 2024 units versus prior year models and, you know, how that would be compared to, you know, prior years at this time? Thank you.
Yeah, Craig, I can speak to that. I won't get into any specifics by brand, but we feel we are in good relative condition to the rest of the industry. When we look across all of our businesses, RV and Marine, we think that, you know, less than 5% of our inventory at the end of quarter one was model year 2022. We believed somewhere in the neighborhood of, you know, 40%-45% was model year 2023, and subsequently, that means about half of our inventory was model year 2024. If you compare that to previous fiscal years at that point in time, end of Q1, we are a little bit heavier on prior model year inventory.
In this case, that would be model year 2023, and a little bit lighter on current model year inventory, that being model year 2024. The numbers that I just quoted, generally, the RV numbers as part of that are a little bit lower, you know, in a positive way, you know, meaning we have less, you know, prior model year inventory. In the marine side, we probably have a little bit more prior model year inventory that we're working through. I've seen some notes from some of the sell-side analysts that are probably on the call today, that have probably done some scrapes of, you know, online dealer inventory. And it appears that we are in good shape versus the rest of the industry in terms of inventory position.
So a little elevated, but not anything that is causing us, you know, great consternation at this time.
We do think that that is one of the things that will impact Q2 as well. You know, I mentioned, as did Mike, the dealer sentiment having an impact on Q1 and ordering patterns into Q2. That, that's certainly one of the things that we hear from dealers, is that they, you know, want to minimize model year 2024 purchases until they see more progress, you know, industry-wide on those model year 2023s on their lots.
That's very helpful. Happy holidays.
Thank you, Craig.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Brett Jordan with Jefferies. Your line is open. Please go ahead.
Hey, good morning, guys.
Morning.
Could you talk a little bit more about the incremental SG&A investment? I think you talked around sort of engineering data, IT. Could you give us a bit more color there and you know, how we should think about that in sort of 2024?
Yeah. Good morning, Brett. This is Mike. I'll begin, and then Brian will probably add some additional context as well. You know, I had felt candidly through the last month or so that the street was modeling our SG&A a little lower than what we had been planning. Our SG&A for quarter one actually came in lower than what our management plan on SG&A was for quarter one. So the SG&A is a little bit different in its variable cost nature than really the manufacturing side of our business, and Brian can probably speak to that a little bit more articulately than I can.
But as we returned to a new fiscal year, you know, you saw some things roll over as, as, one example would be the reset of, of bonuses for, you know, certain employees, you know, in the organization. But I'm going to speak to the specific things I referenced in the call. Engineering, being one of them. You know, we, we are spending intentional dollars around the development of new products, around, you know, work in the advanced technology area on topics like electrification. And even within our businesses, our businesses are, are keeping their foot to the pedal in terms of new products that will be introduced in later in this fiscal year or future fiscal years. I talked about digital assets.
You know, the world is changing from a, you know, brick-and-mortar analog environment, you know, to more of an online digital world. And we are investing in numerous tools within our businesses that will help us compete effectively in the future from a digital engagement standpoint with consumers. And lastly, IT systems. You know, Winnebago Industries, when I joined the company now almost eight years ago, just was not modernized in the way we did business, and particularly the foundation of IT systems. And we continue to travel along that path, and we are making intentional investments in ERP systems, in customer service, phone systems. We're making investments in financial systems. We're making investments in customer relationship management systems, all with the intention of obviously modernizing the business and setting the stage for success in the future.
So, you know, we've probably had a little bit of a misalignment with the street this quarter on, you know, that impact of both resetting SG&A, but also adding in some of those investments. But, you know, now you guys are aware of our approach on that. Bryan, any other context?
Yeah, I'll give you a little more context, Brett. You know, we have historically talked about our cost structure being 85% variable. SG&A is clearly a really small part of our cost structure, but it's much more fixed. I would use more of a 25% variable as a high-level estimate. So that might help some of the modeling. We've also added Lithionics, obviously that business unit SG&A since last year, not since Q4, so not sequentially, but versus last year, that's an add, as well as the purchase accounting impacts from that deal. Mike mentioned the investments we're making, all very intentional. He also mentioned the bonus plans and the variability that that might cause from one quarter to the next.
So in general, you know, you got to also appreciate that SG&A is more subject to volatility from one quarter to the next, as we deal with some non-recurring type items as well. So, we'll continue to provide commentary around those types of things as they occur. But I guess that's the additional context I would add.
Okay, great. Thank you. And then a quick question, I guess. The last couple of years, the RVIA started out pretty high and ended up, you know, substantially lower, and it seems like they've taken the number down a little bit already for 2024. You know, I guess it's in line with your forecast. I guess, do you think that's substantially de-risked? I, I guess, what would you see that could happen that would, that would cause the RVIA number to come in 20%+ below the initial forecast as it has the last couple of years? Or are they conservative enough at this point, do you think?
... You know, Brett, we have members of our leadership team that participate in the process with RVIA on the Market Statistics Committee to help set that number. So, you know, and that's a good thing that you know, OEMs and suppliers are working with RVIA to try to come up with a collective projection for shipments. The element that comes to mind when you ask that question for me is timing. You know, I think that the question here is when will dealers, you know, begin to feel more confident in trending towards that one:one, you know, retail to wholesale replenishment ratio that, you know, that not only Winnebago Industries has referenced, but some of our peers as well.
And I think, you know, we're not anticipating a large retail difference in calendar 2024 versus calendar 2023. We think it'll be a relatively flat environment. And so it really comes down to channel confidence in terms of, you know, taking more inventory to put on their lots to support, you know, a you know a healthy retail environment with consumers. And I think the timing of that sort of, you know, channel shipment flow trend will be what, you know, ultimately determines the shipment number. Certainly, if retail is positive, if the Fed cuts interest rates, if consumers, you know, feel some easing and start to return to spending, you know, in the, in the RV and, and marine industries, you know, that, that retail boost or energy could, could certainly also, you know, help deliver that higher confidence to our dealers.
So, I think it's timing, and I think the RVIA shipment number is probably more balanced in terms of upside and downside at this new 350 number.
Okay, great. Thank you.
Thank you. One moment as we move on to our next question. Our next question is gonna come from the line of Tristan Thomas-Martin with BMO Capital Markets. Your line is open. Please go ahead.
Hey, good morning.
Good morning.
Has your view on ASPs for the full year changed since last quarter?
You know, on the towable side, what we're seeing is probably a stronger shift in mix, Tristan, at least in the near term, in Q1, and probably to be continued in Q2, towards travel trailers versus fifth wheels, as consumers migrate to a more affordable product. I think mix will continue to have a bigger impact on ASP than what we have conveyed. You know, and I think as recently as last quarter, we conveyed a number. On the motorized and marine side, pretty consistent, Philip, from what we're seeing in terms of ASPs. The towable ASP being much more influenced by mix versus a like-for-like rate reduction. You know, we still see that probably on the rate side and the low to mid-single digit decline for ASPs on towables.
Okay, so just-
Not a like for like, okay? So the mix impact that drove the reduction here in Q1, that was much larger.
Okay. In the last quarter, didn't you say down mid to high single digits on a mix neutral basis? So now down low to mid, is that what you're saying? Sorry, just trying to clarify.
Yeah, I'd say it's moderating. We're seeing, you know, inflation that's quarter to quarter, pretty neutral at this stage.
Okay. And then just one more thing to square. Your total shipments were much greater than the industry, at least over the two months of reported industry data. What was kind of the delta there, you versus the industry?
Tristan, this is Mike. You know, I think we continue to, I'm assuming you're referencing the RV industry. You know, we've continued to see some benefit, you know, from the towables, you know, business, particularly Grand Design, reestablishing, I think, a solid lot share foundation. You know, we had talked for several years, it seemed, on this influx of second and third-tier brands that, you know, dealers took on during the COVID frenzy. You know, that issue is largely, you know, gone now. And, you know, a brand like Grand Design has, you know, really worked hard with its dealers to reestablish, you know, the right share of lot, you know, from that standpoint.
You know, I would say our Newmar business has also done a good job working with its dealers to make sure that stocking inventory levels are where, you know, we think are appropriate. So, you know, I don't think our lot share has swung in an unhealthy way, you know, based on, you know, shipments the last couple of months. I think it's back to where we think it needs to be. And we're starting to see some retail share benefits as well, we think, from some of that activity.
As I mentioned on the call, particularly with Grand Design RV, you know, their retail has not just stabilized, but started to take some small ticks up in the right direction, which we think is, you know, a sign of more positive things to come in on that brand.
Okay, I'm going to sneak one more in, if that's okay. Can you remind everyone your stance on building open orders? Thank you.
Well, our stance on open orders, you know, has certainly evolved through the years. Many, many years ago, the Winnebago brand of motor homes used a predominantly open order position. But as we've added quality businesses and as we've improved our production planning processes, as most of you on the call know, we shifted to largely a non-open order production planning cycle. Now, that's been challenged in a number of different ways as the cycles have happened and, you know, supply chain challenges have happened. You know, at this current time, our intention is still to minimize the number of open production units that we build to a reasonable number. So each of our business probably still builds a small percentage of their production, that is, you know, that is open.
But we are working hard with our sales teams to stay far enough ahead of our business to have, you know, to have, orders when we begin that unit on the production line. As you saw from our backlog, you know, working its way down, our sales teams have to, you know, work hard and effectively to, to make sure that we have, you know, orders that we can match, to, to the production process. So, we're gonna, we're gonna be as disciplined as we can, both in terms of quantity of production, but also, you know, trying to manage, open order production to a, to a reasonable amount. We are not building lots full of open units, waiting for spring to happen and dealers to take those units.
That's not generally been our approach, and that's why we have some extended downtimes here over the holidays in some of our plants.
Okay, thank you.
Thank you, and one moment as we move on to our next question. Our next question is gonna come from the line of Joe Altobello with Raymond James. Your line is open. Please go ahead.
Thanks. Hey, guys. Good morning. First question on travel trailers and the midshift away from fifth wheels. How does that, coupled with the improvement in your expectation for base pricing on towables overall impact, you know, segment margins? Do you guys still expect to see margin expansion in towables this year?
Yeah, Joe, this is Bryan. You know, the I think as I mentioned, the towables business will continue to show in the near term here, Q1, Q2, will continue to show growth that outpaces the fifth wheel. I think that's just where the consumer is at right now, and the preference for a lower priced unit. I think that as we continue to see some of the positive developments, and some of them have been mentioned already on the call, you know, interest rates perhaps showing a more dovish approach, consumer confidence improving, you know, fuel costs that seem to be, you know, on a downward trend, certainly moderating inflation, both broadly speaking and the impact that has on consumer wallets as well as specific to our products.
I think as we continue to see those things, some of that will normalize in the go-forward periods. In other words, we'll see, you know, a more consistent growth pattern between towables and fifth wheels. So, that's the current expectation. You know, I think your question really gets to, you know, does gross margin differ materially across our price points? I guess the message I would send there is, no, it really doesn't. You know, there's a little bit, as there is in all product categories and other industries, ours is probably not an exception there. But, you know, we really build units from a bill of materials perspective and price them to deliver a pretty consistent margin from the lower price to the higher price. I'd say we're always striving for innovation and differentiation.
In products where we think that we have, you know, a better position than our competition, we might realize some higher margins than the average. You know, so more differentiation or innovation driven versus price point driven. But that's how we approach things, and that's what you should assume in the modeling.
Okay, that's helpful. Maybe on motor homes, you called out some operational issues in the press release. Is this the same issue or issues that you saw last quarter, or are they new issues?
I'm sorry. I'll start, Mike, and then you can add. You know, a lot of similar things. We did have in Q1, though, we had some rework that was associated with some recall activity that was necessary. We did see some lower productivity on some of the newer products that we have going down the line right now, so that was occurring. There was some flex workforce or some additional workforce in certain verticals that might have had a bit of an impact as well. And I'm speaking really to the motor home margins specifically here, okay? And then just generally some higher warranty costs associated with some specific recall activity. So those are probably the call-outs.
Altogether, you know, an EBITDA margin impact of 1-1.5 points, in that range. Certainly not as big as the deleveraging impact in the, you know, allowances and discounts that we've called out as the primary drivers, but it was still, I thought, worth calling out, as an EBITDA margin impact in the quarter.
Okay, great. Thank you, guys.
Thank you. One moment as we move on to our next question. Our next question comes from the line of Scott Stember with Roth MKM. Your line is open. Please go ahead.
... good morning, and thanks for taking my questions, guys.
Good morning, Scott.
Mike, can you maybe just talk a bigger picture? I know it's hard to tell right now what's going to happen, but obviously, a lot has changed in the dynamics for the dealers, the cost of carrying product. Are you hearing through any discussions that maybe the order patterns will change materially going forward, meaning more of a just-in-time, that's kind of scenario, versus the prior, you know, big chunks of orders that you would see? And if so, do you have to adjust your cost structure at all to handle that?
Thanks, Scott, for the question. So, yeah, a couple elements there. You know, I mean, dealer ordering patterns have certainly changed in recent months. You know, and, and I think your observation that dealers, you know, have a higher sense of confidence that they can get new product more quickly, that they don't have on their lots at the present time, or if they have a retail customer who orders something that's not on their lots, that they can secure that. I think that's generally correct in terms of, you know, dealer anticipation that the lead time for new product from OEMs, you know, is going to be shorter.
I think we all have to be careful in the industry about how aggressive we get to that end, because on certain products, particularly motorized, but even, you know, a few of the towables, and certainly some of the boats as well, there are elements of the supply chain which are still, you know, just have longer lead times as well. So I think there'll be some natural friction that will put that pendulum in, you know, a good place going forward.
Obviously, our comments today around Q2, you know, should certainly be viewed as a confirmation that, you know, the order base that we see for, you know, that particular period of shipment months, you know, we believe will be, you know, more moderate and more constrained in the very short term. I think dealer ordering pattern change in the future will really depend on any spike of positivity, you know, at retail and the dealers potentially, you know, gaining confidence at the same time and beginning to compete again for that OEM production capacity. Certainly, your second—the second part of your question around, you know, looking at the cost structure, we've been doing that all along.
As we've talked about the variable cost nature, that is part of the dial that we use. Unfortunately, that has obviously, you know, resulted in less manufacturing employees being needed within our businesses. You know, we had a peak of, you know, 7,700 employees, you know, at one point, and we're running roughly at about 6,100 employees at the end of the first quarter. But we are also looking at, you know, cost structure from a, from an infrastructure standpoint, and a more systemic standpoint as well, should we have a sort of permanently low growth environment develop here over the next, you know, several years?
So we have to be prepared for any of those scenarios, and we'll certainly update our investors appropriately with any news if we decide to change, you know, the cost structure of the business in a, you know, very material and meaningful way above and beyond, you know, the variable playbook that we've used through the years.
Got it. Very helpful. And then last question, just on cash flow. I know you guys don't guide, but how should we look at 2024 from a free cash flow perspective? Higher or lower than the last couple of years, and, you know, the deployment of capital, how should we look at that as far as profits?
Yeah, I'll take a first stab at that, Scott, and Mike can add on. You know, historically speaking, Q1, Q2 has. You know, they've not been cash-generating quarters for us, you know, and the same is likely to be the case this year, particularly with the, you know, the dealer ordering patterns that we were just talking about for Q2. One of the things that we have continuously been challenged by is the management of working capital in this difficult environment. You know, you have production plans, long lead times, as Mike mentioned, earlier, that certainly impact that in a negative way, when you just don't see the top line getting the traction, and you have to curtail your production as a result. So that's what we're fighting right now.
We expect that as Q3, Q4, as we start to get into the season, as those volumes start to tick up, that we'll be in a position of managing working capital a little bit more aggressively. So it's working capital that we're really focusing on. Scott, I think your question might be getting a little bit into, you know, capital deployment, more broadly speaking. And, you know, we had some pretty aggressive share repurchase here in Q1, which we thought was the right thing to do, all things considered. And we'll continue to use that as a mechanism of returning cash to shareholders as well. So those are the comments that I would add.
... Great. That's all I have. Thanks, guys.
Thanks, Scott.
Thank you, and one moment as we move on to our next question. Our next question is gonna come from the line of Fred Wightman with Wolfe Research. Your line is open. Please go ahead.
Hey, guys. Just one quick one. If we think about the back half improvement that you guys are talking about for calendar 2024, are you assuming rate cuts? And then how quickly do you think if we do see cuts, that could impact retail and potentially wholesale?
Hey, good morning, Fred. You know, we put our management plan together for our fiscal year, you know, back in the July, August time period. And we felt at that time that the back half of fiscal year 2024 had an improved chance, you know, of an upward swing, especially on shipments, than the first half. And as we've indicated, I don't think that stance has changed. Although I would say, you know, a couple things probably are working to maybe balance themselves out. One is, you know, dealers appear to be probably even more disciplined than we anticipated, you know, on bringing inventory in in advance of the spring retail selling season.
You know, particularly, and we haven't talked about it much yet in the Q&A, but, you know, the pontoon dealers are being, you know, very, disciplined as well. Even though we have probably the most preferred brand of choice right now, you know, in that category, the dealers are still, you know, taking care of their businesses, you know, by managing inventory. So that has been a little bit bigger of a headwind versus, you know, our management plan expectations. To your point, though, we did not factor in any rate cuts specifically, you know, into our fiscal 2024 planning. And so the comments, obviously, that the Fed delivered, you know, a week or so ago about probably an increased chance of rate cuts in calendar 2024, you know, certainly is a positive sign.
I think the relation of a rate cut to retail will depend on the degree of the cut and the frequency of cuts, you know, quantity-wise, and just the general, you know, economic view by consumers going forward. You know, certainly the equity market bouncing back helps with, you know, certain consumers in terms of spending power in the future. But, you know, as of this point, I think we're still generally holding, you know, to what, you know, we believe our management plan is in the third and fourth quarter, but watching carefully, given that Q2 is going to be more pressured, you know, than we had hoped.
Makes sense. Thank you.
Thank you. One moment as we move on to our next question. Our next question is gonna come from the line of James Hardiman with Citi. Your line is open. Please go ahead.
Hey, good morning. Thanks for taking my questions. So I just wanted to clarify a previous line of questioning. Bryan, last quarter, when we talked about sort of the ASP changes, I think we were saying that all-in towables were gonna be down mid- to high-single digits. Motorized were gonna be up modestly in terms of ASPs. Where do those numbers stand today, if I'm factoring in both the apples-to-apples changes and then the mix shift?
Yeah, the like for like, you know, one product priced today versus what it was a year ago on the towables business, I'm seeing like for like down low- to mid-single digits right now. All in, we had, I think, a 13% decline in ASP for towables. So the large portion of that reduction in ASP driven by mix. I think that's probably the right go-forward assumption sitting here today, knowing what we know. As I mentioned, we're seeing some stability quarter to quarter in our bill of material or our costs. And so we'll see what the consumer shift might be as it relates to impacting that mix. You know, I'm not intending to provide any commentary sitting here today that we expect a mix shift.
I'll let Mike comment on his expectations for mix. But that's kind of what I'm seeing on the towable side. For motor home and marine, I think we'll continue to see, you know, some increases related to specifically motorized chassis cost increases that we continue to need to price for. And likewise, some inflationary pressure still on motors within marine. So I guess those are the clarifying comments I'd make. Mike, anything to add on?
Yeah, James, I would say our business has not yet seen the full impact at retail or certainly at shipments of the new products that our towable businesses are introducing. And so the Winnebago brand, with the Access stick-and-tin trailer, with the M-Series travel trailer, Grand Design with the Reflection 100, the Influence fifth wheel with the Serenova trailer, all of those are really in the very early stages of being produced and shipped to the market. And so from a mix standpoint, we will be putting into the market products we've never had before in our line at ASPs and price points that ultimately retail, that are more competitive than some of our, you know, historical products.
And so, you know, I think, you know, we'll have to watch that trend over future quarters. And that, you know, that's why we're, you know, reasonably optimistic about our ability to continue to hold and fight for market share in the future our new product launches like that on the towables side.
Got it. But just to clarify, the clarification here, I apologize. Brian, when you say that all in towables down 13% ASP, that's the right go forward assumption. Are we saying that for the full year, we should expect something down double digits in terms of ASPs? Or should I think about that as call it a $42,000 ASP is a decent assumption for the rest of the year? Just making sure we're on the same page.
Yeah, I think a double-digit decline in ASP is a reasonable assumption going forward for the towables business at this stage.
Got it.
- considering the mix shift as well as the like-for-like pricing.
Got it. Very helpful. And then, Mike, you've mentioned that when you looked at the Street models, we were not modeling SG&A correctly. That's certainly helpful. And then, obviously, with a lot of your commentary, where you're directing us for Q2, is substantially beneath where the Street was. I guess as we look to the second half, and I don't expect guidance here per se, but the Street is, you know, after, you know what, sounds like it's going to be about $2 of earnings or less in the first half, the Street is modeling $4 roughly of earnings in the second half. Is there anything that jumps out at you, in terms of where the Street is positioned? Do you think that's too high, too low, just right?
Any help with how the Street is currently positioned for the second half?
You know, James, you know, we appreciate the question. You know, at this time, you know, we're not going to offer, you know, commentary on the full year, you know, at this point. You know, we may choose to change our position in the future on annual guidance, you know, commentary. But, you know, at this time, we're going to focus our, you know, our comments to you all on Q2. There's a bit more certainty, certainly considering timing around that period. And so I just won't offer any additional comments at this time about the back half of the year and subsequently what that full year would then mean.
Fair enough. Let me ask the question this way then. You made the comment about... And some of this, you know, sort of overlaying the calendar year and the fiscal year, right? But ultimately, when things stabilize and ultimately improve, you know, you're talking about retail and wholesale getting better mid- to late calendar 2024, which is really fiscal 2025 for you guys, effectively. But then there was a comment in the prepared remarks where you said that you thought the second half of your fiscal year would realize at least a pro rata portion of this expected increase, right? The industry is, you know, the shipment assumptions from RVIA do assume a meaningful increase in shipments. Can you just clarify all of that?
It sounds like you're still saying you think wholesale is going to be up materially during the second half of the year, but I just want to make sure.
At this time, you know, we have stated for calendar year 2024, a retail to wholesale, you know, equity number of 350,000 units. As I mentioned in a question that was asked earlier, I think it's about the timing of when dealers begin to move more aggressively towards that one-to-one ratio. I think dealers are waiting on both the RV and marine side for some of these early spring retail shows to happen across the country. We have Tampa coming up in a few weeks, which is obviously one of the bellwether RV shows. We have some large marine shows, including the Minneapolis Boat Show, you know, coming up here in about a month, a month and a half.
You know, I think some of the dealers are waiting to see some green shoots of retail stability, you know, as we're going into the year. But if you do the math on, you know, historical turns, and even if the dealers want to run their business at slightly elevated turns, they would need to begin to, you know, managing their inventory, you know, to a, you know, a little bit higher level going into, you know, the, the meat of the retail season, you know, in that, that March through July, period. So we do anticipate that some of our fiscal year 2024 will see the benefit of this movement back towards a one to one. And as Brian said, in calendar 2024, I think a 17% increase projected in wholesale shipments.
Timing will be the wild card as to how much of our fiscal year gets the benefit of that. But, you know, we do anticipate seeing a lift in shipments in quarter three and quarter four, you know, that is material. Obviously, if that doesn't develop, you know, we'll manage our business accordingly to continue to be disciplined and patient to that end. But that is, you know, that is what we're planning for, is a, you know, is a rebound here this next late spring and summer.
Got it and understood. Thanks, guys.
Thanks, James.
Thank you, and one moment as we move on to our next question. Our next question is going to come from the line of Noah Zatzkin with KeyBanc Capital Markets. Your line is open. Please go ahead.
Hi, thanks for taking my question. Most of my questions have been asked and answered, but, you know, given the move in steel prices in recent months, just wondering if there's any way to think about the margin implications, maybe the size of the impact as you see it in the second quarter or the back half? Thanks.
Yeah, we've seen easing in a lot of our key commodities, steel being one of them, certainly, aluminum, lumber as well. You know, typically what we're going to do in this environment, you know, Noah, as we experience some easing of some cost inputs that might have ties back to commodities, we're gonna manage our margin very carefully. Obviously, as we've talked about earlier in the call, we're doing all that we can to pass along any kind of price reductions that we can realize to the end customer, as well as to the dealer network, so that they're able to price more aggressively to the end customer. I think that's the best way of thinking about some of those commodities easing. You know, we talked about like-for-like AFP reductions, for example, in the towable space.
That would be one example of how we intend to handle any kind of commodities easing and our cost inputs easing as a result. But I think that's my guidance to you would be that we're gonna manage margins to the extent we can, but try to pass along to end customers any cost favorability.
Helpful. Maybe, you know, not to put too fine of a point on the second quarter, but I think you kind of mentioned to expect quarter-over-quarter decline in profit. Is it a quarter-over-quarter decline or even another right way to think about it?
Yeah, certainly, we've been clear that we expect a top line that's a little softer in Q2 relative to Q1, so sequential decline. I also mentioned that there's going to be the usual deleverage associated with that and pretty consistent allowances or discounts from Q1 to Q2. So net-net, you know, through those comments, I guess I'd be guiding you towards a slightly lower EBITDA margin in Q2 versus Q1.
Thank you.
Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Brandon Rolle with D.A. Davidson. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions here. Just first, on the inventory destocking you're seeing in the environment right now, could you comment on what you're seeing in the towables space versus motor homes and kind of the timeline for those two segments?
Yeah, good morning, Brandon, and thanks for the question. Yeah, they're definitely, they're definitely moving a little bit differently. I think, the motor home category still has potentially a little bit of destocking left to do in some places, and some of that certainly will depend, as we've talked on, on retail. But, if I were to pick, you know, a couple places where we could see further inventory destocking on the motorized side, it would probably be, you know, Class A, you know, some parts of that, you know, particularly potentially Class A diesel and then, and then some parts of the Class B category as well. You know, as all of you know, the Class B category's been very frenetic from a competitive intensity standpoint.
A lot of new brands and players getting into the game. A lot of motorized chassis have become available, you know, as as the overall demand for van chassis around the world has has been reduced. So I think there could be a little bit more destocking on the the motorized side in certain subsegments. The towable side, our hope is that the destocking is largely finished, and if you look at October you know, RVIA shipments and the SSI results we actually feel as if some towable inventory was added back into the channel during that that month. But you know, we'll see how quarter two fiscally for us plays out.
You know, I think dealers are gonna try to, you know, kind of hold in place through the end of the calendar year here, these last couple weeks, and then, and then we'll see how January and February play out. But we don't anticipate, as our comment said, you know, meaningfully, you know, material destocking continuing on towables here, you know, as we begin calendar 2024. But we'll, we'll watch that carefully.
Great. Just, one last quick question. You had talked about addressing affordability through different tactics. Could you touch on, if you're able to, your conversations with your suppliers and maybe any additional price concessions that you might feel are coming down the pipeline as you negotiate pricing? Thank you.
Yeah. Our purchasing teams on a daily basis within the businesses and our strategic sourcing team here at the enterprise level, that really works, you know, to leverage our scale and realize synergy across the portfolio. We've been very honest with our suppliers about, you know, the fairness needed in dealing with any deflation that's happening in the marketplace, and that we need to realize some of that. We do have some contracts that are commodity based and thus sort of index based in terms of where those lower costs and how they're just go and where they're distributed. And then in some other relationships, you know, that's more of a negotiation based on the transparency of the supplier.
I will say we remain consistent that one source of bill of material pressure will continue to be motorized chassis. You know, that category is not seeing the deflation that some of the other categories are across our RV and marine businesses. We are working carefully with all the major automotive chassis suppliers on how they can manage their costs to make sure that we can work with our dealers and end consumers on affordability there, as well. We're a premium manufacturer. You know, our strategy is not to strip or decontent our motorhome products to the bare minimum in order to keep the business flowing.
So we need, we need some help from our suppliers on the motorized chassis side to continue to navigate some of the pressures that that they are seeing.
Great. Thank you.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of John Healy with North Coast Research. Your line is open. Please go ahead.
Thank you. Just one kind of off the trail kind of question here. Mike, I think you mentioned in the prepared remarks at 2Q that you guys would give kind of an update to the longer-term view of the business or, you know, financial profile of it. You know, given that you guys laid that out maybe 18-24 months ago, just kind of curious what's prompting the update on that, and if there's anything you might kind of steer us to thinking about that, you guys might be evaluating as it relates to those items?
Yeah, thanks, John, for the question. In November of 2022, we communicated financial and operational targets relative to the end of our fiscal year, 2025. So it was a three-year long range set of targets. And given that the marketplace has changed dramatically since we were together, we're investors in November of 2022, we felt it was time to formally update those, and we'll work to do so during our March 2024 earnings call. And I think what you'll see during that call, we'll probably have a little bit longer time range. We probably won't talk about fiscal 2025 in terms of long-range targets. We'll, we'll probably be a little further out from that. And you'll see an updated and refreshed set of financial and operational targets based on our best assumptions.
Candidly, we're just trying to be helpful to our investors and to especially you, the analysts, with some longer range guidance, you know, for purposes of modeling and where we think, you know, especially the organic business can head in the future. So stay tuned. We'll give you an update in March.
All right. Thank you, guys.
Thank you. One moment as we move on to our next question. Our next question is going to come from the line of David Whiston with Morningstar. Your line is open. Please go ahead.
Thanks. Good morning. I wanted to go back to the SG&A buckets you laid out, Mike, in terms of just the incremental spending. Basically, some of that is very customer-focused and product-focused, and some of that is more your internal systems. And I'm just curious if you could talk a little bit more about how much, at a very high level, how much is more of it going to the product side or just the internal side? And you mentioned ERP. I mean, you guys have been doing ERP upgrades, I think, for years. Is this a new upgrade or the ongoing one that was a multi-year one in the first place?
Yeah, thank you, and good morning, David. I'll, I'll talk about ERP here real quickly. We continue to finish you know the long project we've had around our Winnebago-branded businesses and, and some of our enterprise functions relative to an ERP system there. And there is a light at the end of the tunnel here, you know, over probably the next, you know, probably the next 18, you know, to 24 months in terms of that project. But we have now other ERP systems that we've obviously inherited through acquisitions of the other brands. And, you know, we have to do some moderate upgrades to those from time to time.
And there's one, you know, particularly here in the short term, and I won't get into the specifics, but, you know, we will, you know, we are working on. I would say, you know, probably the balance of the SG&A investments we're making about around those three areas, engineering, digital asset investment, and IT systems, is probably relatively evenly balanced. You know, the SG&A impact on an annual basis is definitely, you know, eight figures, incremental to what we have historically planned. But, you know, we think it's the right thing to do, to be competitive and prepare the business for, you know, the future.
So we're obviously being as disciplined as we can, and we're spreading those out across, obviously, each of the quarters. But you know, it's eight figures of incremental spending on an annualized basis that we're you know, we're adding here. Now, if the business faces tougher market conditions, we will turn the dial as we can on those as well. So just so everybody knows, you know, we are gonna be very prudent and reasonable as we make investments in those areas.
Thanks. And just going back to capital allocation discussed earlier, can you say if buybacks or M&A would be a priority between those two in fiscal 2024?
I guess, broadly speaking, you know, the M&A environment-
... I guess continues to cure out the dislocation that we've seen over the past couple of years. As you can appreciate, at the peak, companies in our space wanted to sell, you know, off that peak with very high prices, and then you hit a trough, and then companies wanna sell on a forward view. It's just really hard to find that price that both buyers and sellers can agree to. I think as we start to see some normalization on retail, and get a clearer view of, you know, the year ahead and what the right multiple would be to pay, we'll see some better M&A environments, I'd say, to allow us to, you know, weigh certain targets and, you know, hopefully make some additional investments in that area.
So, share repurchase is clearly a function of our success on the M&A front. Without some bigger targets that we can execute on, we've had some elevated share repurchases over the past 2-3 years. Our goal is to continue to prioritize growth. We have stated that historically. That's still the case. We're gonna prioritize growth in the form of both organic investments, Mike just talked about some of those, as well as inorganic investments. So that will be our priority. We'll continue to use share repurchase as a great mechanism of returning the cash to shareholders in the absence of M&A.
All right. Thanks very much.
Thank you, and I would now like to turn the conference back over to Ray Posadas for closing remarks.
That is the end of our first quarter earnings call. Thank you, everyone, for joining us. We hope you all have a safe and happy holiday season. Enjoy the rest of your day. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.