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LCI Industries (NYSE:LCII)
Q1 2019 Earnings Call
May. 7, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the LCI Industries 2019 First Quarter Conference Call. At this time, all participants are in a listen-only mode to prevent background noise. (Operator Instructions) Later, we will have a question-and-answer session. And as a reminder, this conference is being recorded. Now, it's my pleasure to turn the call to Victoria Sivrais.

Victoria Sivrais -- Head, Investor Relations

Thank you operator. Good morning everyone and welcome to LCI Industries 2019 first quarter conference call. I am joined on the call today by members of LCI's management team including Jason Lippert; CEO and Director, and Brian Hall; CFO. Management will be discussing their results in just a moment. Supplementing our discussion today will be our earnings presentation which is available on the Investors section of our website at www.lci1.com.

I would like to inform you that certain statements made in today's conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are number of factors, many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward-looking statements.

These factors are discussed in the company's earnings release and in its Annual Report on Form 10-K and its other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

With that, I would like to turn the call over to Jason Lippert. Jason.

Jason Lippert -- Chief Executive Officer and Director

Good morning everyone and welcome to LCI's first quarter 2019 earnings call. We reported first quarter revenues of $592 million, down 9% compared to last year, representing a sequential improvement from the fourth quarter of 2018. Revenue softness this quarter was impacted by our OEM segment, where sales were down 11% to $532 million due to lower RV production environment.

As a reminder, the first quarter of 2018 was the highest ever production quarter for the RV industry. Inspite of this, we were able to substantially outperform the industry in the first quarter of 2019 when wholesale shipments were down 27% as the industry continues to normalize inventory levels. In this current quarter volume operating environment, our diversification strategy has proven critical and effective.

In fact in the first quarter, we delivered high double-digit growth in our adjacent markets, aftermarket and international markets together which now make up about 40% of our last 12 month sales. As we enter the prime retail selling season in the spring and summer, we believe that the channel inventories will begin to move toward more appropriate levels and should be close to right size as we enter Q4 this year.

In addition, we are expecting OEM production rates to remain relatively consistent with current levels through the end of the second quarter. The long-term outlook for the industry continues to be very positive with younger buyer spending more of their disposable income on the RV lifestyle. KLAs (ph) Annual Report just highlighted several positive demographics for 2018, including an increase of almost 10 million households from 2014 that are camping households. In addition, they cited that campers that camp three or more times a year has increased by 70% in the same time period. Despite near-term cyclical challenges, we remain very well positioned with respect to the camping and RV demographics.

Despite the difficult industry environment for RV, we have continued to explore content growth opportunities and capitalize on our innovative product offerings. Content per towable RV increased to $3,504 and motorhome content increased to $2,500 both year-over-year increases of 6% and 7% respectively. These gains were driven largely by organically through the introduction of new products and continued development and innovation to existing products.

Our ability to continue to grow product content in light of the OEMs scaling back across the industry is truly a testament to the value of our products at LCI as well as the strength of our innovation teams. I'm proud of the commitment that our teams have to creating value add engineered product solutions that are both functional and innovative and this commitment to excellence is allowing us to grow industry relationships and win market share. Continued innovation and market share gains in awnings, doors, furnitures, steps, slides, leveling and Furrion products that have a largest impact. At the pace we've been going, I'm confident that we can continue to grow, content per vehicle annually over the long term no matter what the wholesale environment.

In addition to content growth, one of the ways, we've been able to outperform the industry is through our continued execution on our diversification strategy as we capitalize on the significant opportunities outside of North American RV customers. As you know, for the last seven years, we have been focused heavily on our diversification strategy and expanding into what we call adjacent industries.

I'm pleased to report that we are well on our way to reach our goal of having RV OEM makeup just 40% of our total revenues by 2022. In the first quarter, we continued to capitalize on our growing marine presence. In January, we announced a new branding strategy that we will brand all current and future marine products made by both LCI and Taylor Made under the Taylor Made name, which we feel is unmatched within the marine industry.

Throughout our branding discussions, we emphasize how important it was to continue to build upon our legacy of quality, performance and superior service that the Taylor Made name has become synonymous with. Taylor Made's reputation has steadily strengthened over the last 100 plus years. So combining the excellence and engineering and design and best of products that LCI brings to the table, our marine product lines will continue to grow and evolve. Revenue in our adjacent market category for the first quarter grew 19% year-over-year illustrating strong growth as we continue to expand in this area, residential, marine, cargo, equestrian trailers, bus and commercial vehicles are all markets we are continuing working toward providing more content with window and glass products, suspensions, seating and mattresses to name a few. One of the things we've done well over the years is to modify existing products and move them into industries that are closely related recreational vehicles. These are several markets that we feel we can have an immediate impact on based on products that we are currently manufacturing and how well they fit into these new markets.

Our aftermarket business continued to grow nicely as well with revenues rising 20%. We continue to be obsessive about building relationships with dealers and adding significant resources to our warehouses, technical training facilities and training teams and call center teams. We offer broad, strong technical training programs to dealers in the aftermarket, which we believe is a key competitive advantage over the long-term.

In addition, we have a strong technology-driven customer service platform that we feel has thus leading our peers in this area. As we continue to put over $1 billion of RV parts into OEM products each year, we believe the replacement parts business will continue to grow and add meaningful margin to our bottom line. Lastly, our international business grew 49% during the first quarter. Unlocking opportunities in Europe remains an important part of our diversification strategy. We are seeing traction with our new leadership structure in Europe and are continuing to evaluate our organic and inorganic growth opportunities in caravan, marine and the train or rail markets. The European market looks much like the North American RV opportunity that about 20 years ago as a supply base has made many small fragmented suppliers that can strategically be rolled out to create a larger and more strategic supplier with a focus on larger scale innovation to those markets.

At the same time, the OEMs can benefit from having a more sophisticated supply chain and a larger and stronger partner with innovative products and talented leadership teams. Across all categories, we continue to focus on product innovation and this is one of the ways we've been able to grow market share in content growth in this low volume environment. Because of our rapid growth, we now have 19 different R&D centers across the company and we are beginning a company initiative to leverage the teams and talent around R&D and innovation. Innovation and patents developed around existing product lines like steps, awnings and doors have produced new products that are nearly untouchable by our competition while offering our customers never before available features and benefits.

We have a few products, which we feel could be larger scale that we're excited about to announce in the launch of early Q4. So, operating margins were lower year-over-year by 110 basis points. They were in line with our expectations for the first quarter and represent a sequential improvement over Q4 2018. The main driver here continues to be the impact of material costs throughout 2018 primarily around steel and aluminum pricing. Because the pace we were getting cost increases outpace the rate at which we could successfully put price increases into place with our customers, we felt the effect of these macro factors throughout the last three quarters of 2018. LCI does not make decisions based on short-term profitability, but rather decisions that center in maintaining our strong long-standing customer relationships and I believe we've struck the right balance as we navigate this challenging environment.

As we discussed on our fourth quarter call, we implemented the most recent phase of our pricing increases relating to tariff and commodity impact on January 1st of this year, allowing us to capture some of the costs related to tariffs and commodity increases from 2018. From an M&A perspective, we remain committed to exploring strategic acquisitions in a disciplined way to follow our track record of successful inorganic growth.

We have an excess of 1 billion in realistic pipeline of strategic targets, that span all LCI diversified markets. We are focused on acquisitions that are immediately accretive with great leadership teams that bolt-on to existing product lines or expand LCI into new products with existing customers or markets.

As we have an RV in marine, we feel we are capable of establishing market leadership positions in our adjacent markets. Europe and the aftermarket through enhanced engineering and innovation capabilities. For example, this last year, we made our largest acquisition to date with Taylor Made which accelerated our transformation expansion into the marine markets.

Even at the highest revenue and volume point in our cycle, we were able to execute a larger deal acquiring a strong company with a strong history at about a six multiple on EBITDA. As we continue to track along our stated capital allocation goals to invest in the business, reduce leverage and return capital to shareholders, we remain confident in our ability to find and execute transactions that unlock value for shareholders and accelerate our growth strategy.

Last year with our large investments coupled with a sudden slowdown in the business, our free cash flow was approximately $37 million. As we are working, inventories and CapEx down significantly in 2019, we expect to increase our free cash over $200 million. In closing, I want to thank all of our teams at LCI for outperforming a tough industry environment, driving innovation, capturing operational efficiencies and successfully executing on our diversification strategy.

But we are eager to see the RV shipment environment normalize as we head into the busy season, it's the lower-volume quarters in RV that illustrate the strength and success of our diversification strategy, as we are compared to the rest of our industry peers.

I will now turn to Bryan Hall, our CFO to discuss in more detail our first quarter financial results.

Brian Michael Hall -- Chief Financial Officer

Thanks, Jason, and good morning everyone. Over the next few minutes, I'll provide additional color regarding the financial results, as well as point out highlights of our cash flows and financial position. Our consolidated net sales for the first quarter decreased 9% to $592 million compared to the prior year. The decline in year-over-year net sales reflected a 27% decrease in RV wholesale shipments as dealers continue to normalize inventory levels, partially offset by continued growth in the company's Adjacent OEM, aftermarket and international markets as well as new product introductions and continued increases in content per RV unit. Q1 2019 sales to RV OEMs declined 21% compared to the prior year due to the previously mentioned correction in wholesale shipments. However, we are continuing to see growth in other markets, as we execute on our diversification strategy.

Q1 2019 sales to adjacent markets grew 19% to $170 million compared to the prior year, while our first quarter aftermarket segment sales increased 20% to $60 million, compared to the prior year. And international sales increased 49%. Acquired revenues were approximately $31 million, primarily impacting Adjacent OEM and aftermarket sales. While macro factors such as consumer confidence, interest rates and fuel prices remain favorable for RV retail, the industry continues to be hampered by the dealer overstock and adverse weather. Our sales to RV OEMs continue to outperform the industry due to increases in content per unit. Growth in furniture, awnings and Furrion products continued to be the key contributors to the increase, partially offset by the continued shift toward more entry-level product which tend to carry less content per unit for LCI.

First quarter operating margins were negatively impacted by higher fixed cost absorption on the lower RV sales volumes compared to the prior year, as well as increased material and labor costs. That being said, these operating margins represented a sequential improvement over the prior quarter as Jason mentioned. Our teams are continuing to implement cost management initiatives, which have lessened the impact of the decline in RV sales on margins for the quarter, including lean manufacturing initiatives and increased use of automation, and have been working to continuously manage labor costs while supporting the growth of the business.

As the cost of steel and aluminum have continued to decline, our material margins are lagging the market due to the higher inventories built in anticipation of much higher industry output. Improvement in material margin contributed minimally to the sequential quarter margin improvement. We are anticipating margin improvement, resulting from the decrease in steel and aluminum to continue through the next two quarters.

Non-cash depreciation and amortization was $18.4 million for the first quarter, while non-cash stock-based compensation expense was $3.7 million. Q1 2019 diluted earnings per share totaled $1.38 per share compared to $1.86 per share in Q1 of 2018, with this decline largely impacted by the year-over-year decrease in operating margin. It's also important to note the excess tax benefit from the vesting of stock-based awards contributed $0.13 per share in Q1 of 2018 compared to only $0.01 per share in the current quarter. We have maintained a strong balance sheet and cash flows over the quarter. Cash generated by operating activities was $53 million and we reinvested $24 million into the business through capital expenditures. Additionally $15 million was returned to our shareholders in the form of dividends. With our current leverage position relative to EBITDA of just over 1 times, we are keeping the business in a comfortable position to continue to take advantage of strategic investment opportunities, both organic and inorganic.

That is the end of our prepared remarks. Carmen, we're ready to take questions. Thank you.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we do have a question from the line of Greg Badishkanian with Citi. Your line is open.

Fred Wightman -- Citi -- Analyst

Hey guys, good morning, it's actually Fred Wightman on for Greg. Just to start off, I think in the past you've talked about flat retail being achievable, sort of, an industry wide level. Can you just sort of talk about if you still think that's on the table anything you've sort of seen in March, April, and maybe even early May results that would support that?

Jason Lippert -- Chief Executive Officer and Director

Yes, Fred, it's Jason. Yes, we've been seeing flat to down a few points. I think that you know we might today modify that flat to down 5%. We're definitely more toward the down 3% to 5% range. April by all accounts on our end and all the different canvassing, we've done with dealers and OEMs retail for March was decent for April was decent and again historic compared to store retail, it's good. But there is no signs so that it's going to be down further than that right now, but we're going to keep our eye on it. And now we're comfortable where it's at right now.

Fred Wightman -- Citi -- Analyst

Okay, that's fair. And then I think you'd mentioned OEM output is expected to be consistent through the end of 2Q. Are you guys talking about that on a percentage change basis or is that actual unit output?

Jason Lippert -- Chief Executive Officer and Director

Yes I think we saw the industry last year start to decline and then around May of last year, so the comps get a little bit easier as we head into summer as compared to rates in March and April versus May, June, I think where we might have a another down day or two, maybe three over the next couple of months than what we had last year. But no drastic changes in the next couple of months compared to, where we were at March and April, which were more back on track and headed in the right direction.

Fred Wightman -- Citi -- Analyst

Okay. And then, just finally, Jason, I think, maybe I misheard you, but in your prepared remarks, did you say dealer inventories would be close to right size by 4Q. I thought in the release said 2Q. But maybe I...

Jason Lippert -- Chief Executive Officer and Director

Yes, by beginning of Q4 sometime in Q3 is what we're thinking, but depends, obviously on the activity for retail and wholesale over the next quarter and a half.

Fred Wightman -- Citi -- Analyst

Okay. So throughout 2Q things will continue to improve sometime in 3Q, so you get to that equilibrium and then entering 4Q you'll be good to go.

Jason Lippert -- Chief Executive Officer and Director

Yes. As long as, as long as retail stays where it's at and -- sometimes we get noticed very quickly about wholesale rate changes either for the positive or for the worse. So we really don't know until we hit it, but right now we've got production schedules and things have normalized for the most part on the manufacturing wholesale and OEM side.

Fred Wightman -- Citi -- Analyst

Great, thank you.

Operator

Thank you. And our next question is from Kathryn Thompson with Thompson Research. Your line is open.

Brian Biros -- Thompson Research Group -- Analyst

Hey, good morning. This is actually Brian Biros, on for Katherine. Thank you for taking my questions. On the gross margin side, (inaudible) 80 basis points in the quarter, can you unpack any of the components of that and how much of that is sustainable versus kind of a one-time benefit in the quarter. I assume a lot of that is pricing gains from the January 1st price increase. But, is there anything else to think about and kind of what that look like going forward would be helpful.

Brian Michael Hall -- Chief Financial Officer

Hey, Brian, it's Brian. The biggest portion of the improvement sequentially, I would say is coming from lean investments, automation investments, really leaning out a lot of our processes for this production level. So a lot of it's tied to labor, along with the pricing adjustment that we put through effective January 1 for tariffs. So those couple of things. And then throw on a little bit of material improvement, ever so slightly, we've been continuing to kind of chip away at our inventory and I think we're down $35 million in just the last two months in inventory.

So that's helping us get to some of those cheaper material costs, but still on a quarterly basis, we've seen marginal improvement for materials and a lot of it's just been from rightsizing our business for this production level.

Jason Lippert -- Chief Executive Officer and Director

And I would just add to that, that I think we right-sized a little bit quicker than the rest of the industry, we started back in the late September early October last year, we kind of threw out a wholesale total number for the business that was probably lower than what the industry association was forecasting and what some of the other people were forecasting. So I think the fact that we got to that quickly and we still expect to see more continuous improvement projects and see our numbers get better from that standpoint. So that's why -- and I'd also add that January was atrocious there was eight total production days for us in that month and that's much lower than what we've seen in the past. So the fact that we just had a January that was real -- there was extra time off by the manufacturers and then we had several shutdown days due to winter weather. So January really weighted the quarter down and we would have normally have a little bit better month than that.

Brian Biros -- Thompson Research Group -- Analyst

Understood. And just one more from me. I guess on the content per unit, good numbers in the quarter. I think motorhome was up 7%. I mean you could see it's a little down from I think last six quarters were up like double digits. Is there anything to call out there? Is that just lapping the strong comp in Q1 2018 that I think was up 15% or is there running out of stuff to put in there the motorhome is it kind of reaching the saturation point or anything to call off of that?

Brian Michael Hall -- Chief Financial Officer

I'd tell you there's a couple of things there, one, as price increases were layered in you started to see a little bump in the content, which now we're pretty normalized there. So you see that fall off and the other thing that we've talked about a lot is that furniture has been a huge contributor to our content gains over the past, I'll call it three to five years and we have very high market share in furniture today. And so you're starting to see a little bit of that tail off, but what we're excited about is the innovation that's in the pipeline, the new products, the things that we think will continue to boost that number on a go-forward basis. So in the long-term, we talk a lot about being in the 3% to 5% range it's pretty reasonable for us to commit to and I think that we can do better than that over time.

Jason Lippert -- Chief Executive Officer and Director

And if you look at some of the opportunities we have on the table with leveling, luxury stabilization, some of the appliances that we're introducing over the next couple of quarters. There's still an excessive amount of content for us to get after and we continue -- we feel like we can continue to add mid to high single digit growth over the next several years and content growth.

Brian Biros -- Thompson Research Group -- Analyst

Got it. Thanks.

Operator

Thank you. And our next question is from Craig Kennison with Baird. Your line is open.

Craig Kennison -- Baird -- Analyst

Good morning. Thank you for taking my questions. Jason, I wanted to ask about dealer inventory turns. Just based on the work you've done to understand the retail inventory dynamic, where do you see turns today in the channel versus maybe this time last year.

Brian Michael Hall -- Chief Financial Officer

Hey Craig, Brian. I think that turns have gotten a little bit better as they worked down the inventory. Everybody always talked about that magic two turns a year number. My sense is, and I know you and I have talked about it that given the capacity that the industry has from an OEMs perspective and the shorter lead times needed that there is an opportunity for dealers to do even better there, just how quickly they can get new product.

So what that magic number is going forward. I don't know, it's certainly gotten better and as we work through, and normalized inventories. I'm sure that it'll be around that two or maybe even (inaudible) just because I think there's an opportunity for the industry as a whole to do better.

Jason Lippert -- Chief Executive Officer and Director

And in the upcoming quarter, I think that one of the biggest things to note is that the industry is phenomenal at adjusting and reacting. So sometimes we don't get the forecast, right and can't see the future as good as everybody would like us to see it. But at the end of the day, when the dealers start making adjustments, the OEMs and suppliers make adjustments, we get where we need to be in a relatively quick fashion.

So what we see out there right now is dealers pulling back on inventory, probably a little bit more than normal because of interest rates and some other factors. And just a little bit of trepidation about what's coming. But that's ultimately healthy for the business and wholesale rates are -- and manufacturing rates are adjusting to meet the new demand. And it's still going to be a fifth best year on record likely. So I think we got to keep that in mind.

Craig Kennison -- Baird -- Analyst

And then, thanks for that. Could you help us frame the environment from an OEMs perspective, what is the lead time today maybe versus this time last year, and how quickly can dealers get inventory on demand if retail comes back?

Brian Michael Hall -- Chief Financial Officer

Well, because of the excess capacity the dealers can get product pretty quickly and everybody's got extra capacity. So they have, kind of, their pick and they're ordering behavior reflects that. So I can't tell you the time frame. But when you look at last year first quarter when people were worried about getting their products, say if I order it now maybe I'll get it in 6 to 10 weeks depending on the product at the manufacturer today, they can get it you know easily in a couple of weeks if they need it probably.

Craig Kennison -- Baird -- Analyst

And then my last question is on the aftermarket and your strategy there. If we just look at new and used RVs trends in retail, in the last few years. The mix has been decidedly in favor of new product. But we're seeing some dealers shift their emphasis to used as well. To what extent do you used transactions create an opportunity in the same way that new transactions create an opportunity in the context of your aftermarket business.

Brian Michael Hall -- Chief Financial Officer

Yes, so with respect to aftermarket content we have -- you look at our trade happens, dealer gets used product, if they want a good chance of selling. And from what I understand in talking to a lot of dealers margins on used are every bit as good as new for the most part.

So if they want to get that margin and get that opportunity, they are typically looking and addressing some of the things up in the RV and a lot of those products be interior or exterior LCI products, you look at furniture, you look at mattress, mattress is probably the first two things that you're going to change in RV to freshen to look up and make it look a little bit newer. On the exterior whether it's you know adding other products like jacks or leveling, anything like that, we have those products.

And we are trying to access more non-traditional products for LCI through the aftermarket channel because at the end of the day, the dealers and the wholesale distributors, they have hundreds of thousands of SKUs, because they're not just trying to buy components for new products or trying to buy components for products that have been on the market for a decade.

So they've got a whole lot more SKU and it's in their best interest to consolidate the supply base there. So we tend to take on more product lines and opportunities there because they just want to deal with fewer suppliers. So we love the used opportunity and a lot of our products play right into that strategy. And there's a significant market there. Obviously the used market is I think almost a sizable as a new markets.

Craig Kennison -- Baird -- Analyst

Thank you.

Operator

Thank you. Our next question is from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore -- CJS Securities -- Analyst

Good morning, thanks for taking the questions. Wanted to maybe switch gears a little bit, Jason to Europe and just update us on the health and outlook for growth in the caravan market, number one. Number two, are you seeing any pickup in acceleration, in penetration, or opportunity set for slide out penetration and I guess third is you've learned more about the market and expanded some of the offerings. Has the total addressable market changed over the last year or two?

Jason Lippert -- Chief Executive Officer and Director

Yes. So start with the European caravan market in general, it feels like the the wholesale activity has kind of slow down to a flattish type growth right now which is still decent. The opportunity for us is that it's a new market for us, much like RVs 20 years ago for LCI even in the slower times, we grew because there was lots of acquisition opportunities and lots of organic growth opportunities and the same holds true for Europe right now for us. With respect to slide outs it's still one of those things that we're continuing to work with the industry and industry players over there on slide out technology and we're are making gradual progress. I think that the fact that Thor owns Hymer over there now is a big opportunity for us because we now have somebody that owns a substantial player in Europe that is very familiar with slide out technology. So those conversations have commenced and we'll see where that goes, but it's a lot better opportunity for us with Thor owning Hymer than just trying to penetrate the Europe market without a North American owner in there.

And then finally R&D in general, one of the things we've done is we've started to roll up some of the supply base over there to start R&D. So we have many projects going on inside and outside the RV business with respect to currently our Italian manufacturing base. So we've got slide outs and we've got bike racks and we've got -- we're actually working on some beds for some cruise ships over there. So just having an R&D based in Europe, we're transitioning a lot of the know-how and the R&D growth path and trajectory that we had in the U.S. over there, we think that we'll see some good fruit from that over the coming years.

Daniel Moore -- CJS Securities -- Analyst

Helpful. And then, Brian, late last quarter you gave us a little bit of, kind of, a bracket of gross margin improvement sequentially as we look from Q4 to Q1, given where shipments are still working through some high cost inventories any cadence with regard to gross margin improvement or just the sequential trends as relative to Q1?

Brian Michael Hall -- Chief Financial Officer

Yes, I mean I think that we've put forth a lot of effort to get a lot of the line items on the P&L in line with these production rate. So I don't anticipate a lot of change there. Any volume one way or the other is obviously going to help or hurt us from a fixed cost perspective. But I do see the one movers going to be materials. We've just been steadily chipping away at that and you know it's been -- on a year-over-year basis, we've talked about it being 20 basis points better and then 40 basis points better. This quarter from Q1 versus Q4 sequentially, it's got a little bit better. So I expect that to continue during the next couple of quarters, somewhere in that range of call it somewhere around 50 basis points to 30 basis points of margin improvement. So we're slowly getting there, but that's kind of what I'm seeing the next couple of quarters.

Daniel Moore -- CJS Securities -- Analyst

Very helpful. And lastly for me, and I'll jump back. Given our pullback in wholesale, any changes in the OEMs willingness or pushback on price increases or is that relationship generally held steady with historics?

Jason Lippert -- Chief Executive Officer and Director

Yes, that happens on a pretty regular cadence stand. So some of it's timing through index agreements and things like that, that we've got set up on multiple products and the rest of it just based on when we get rid of higher priced inventory and move into some of the lower priced stuff and vice versa. I did want to mention to you not to go back to the year.

But we also made the announcement earlier this year that we hired a German leader that was actually an ex Hymer executive. So we did that strategically to make sure that we transition that relationship probably better than we would have trying to operate out of Italy. And then we are looking at a German-based manufacturers in RV, rail and marine businesses in Germany as well, having German leadership or having a German leader in that space will help us, start to navigate and make good on some acquisitions and business development there as well.

Daniel Moore -- CJS Securities -- Analyst

Got it. Appreciate it.

Operator

Thank you. And our next question is from Scott Stember with C.L. King. Your line is open.

Scott Stember -- C.L. King & Associates -- Analyst

Good morning and thanks for taking my questions also.

Jason Lippert -- Chief Executive Officer and Director

Sure. Hi Scott.

Scott Stember -- C.L. King & Associates -- Analyst

Jason. If you just go back to your comments, you had said that March and April were decent. So I'm just trying to get a sense, are we talking -- and again, you probably would have to frame this a little bit just because you're not out in the front lines yourself, do you think they were up a little bit, down a little bit or are we thinking anywhere between down a couple and up a couple of percentage point.

Jason Lippert -- Chief Executive Officer and Director

You're speaking about wholesale?

Scott Stember -- C.L. King & Associates -- Analyst

Retail.

Jason Lippert -- Chief Executive Officer and Director

Retail. It's hard to say cause we just don't have the number. All I can tell you is that, it feels like again maybe flattish to down five from where we were last year this time. I mean, I have a gauge that on is just canvassing dealers and OEMs. The bigger OEMs have been pretty positive about retail. So I tried to say I think the retail numbers come out maybe even today for March. We look for the big differentials, whether there are concerning going down or just they're overly optimistic and retail is exploding that and we're just waiting kind of for the other shoe to (ph) drop when inventory corrects. And then we wait to see that the dealers are going to invest back in inventory, that's kind of what we're waiting for and we don't anticipate having to see some of that activity around those decisions until later in the next couple of quarters.

Scott Stember -- C.L. King & Associates -- Analyst

Got it. And Brian, on the SG&A front, up 190 basis points, but it seems like it was probably something more than just lost leveraging in there, because the absolute dollar figure on 10% lower sales than last year was up about $5 million. So was there any R&D related costs in there, any one-time items in there that we could try to get a sense of where we can look for SG&A to be for the rest of the year, or at least on the quarters coming up?

Brian Michael Hall -- Chief Financial Officer

Yes, I mean, I think if you go back through 2018 and look at on a just a pure dollar basis at those production levels it was, I want to say approximately $80 million to $85 million per quarter. Q4 was a little different they had some unusual things going on but, so kind of $80 million, $85 million range is where I have expected to be. Now, I would say, Q1 is a little high. We had some one-time things some couple of things, it's really a culmination of about four different things. So, looking at some acquisition costs, some relatively higher IT costs with some licenses, et cetera, and little bit some bonus adjustment there but none of them individually all that material but you put them all together and you're maybe getting a $3 million to $4 million of higher SG&A costs. So I would expect a little bit of that to come out going forward, but still kind of the stay within that range.

I mean we've maintained the structure. We're focused on the long-term. We've got a lot of acquisitions in the pipeline and opportunities there. So a lot of those costs, we've elected to not pull back on some of those more strategic items. So I expect it to remain within that range, but relatively consistent throughout the year.

Jason Lippert -- Chief Executive Officer and Director

To Brian's comment, our plan is still to continue to grow especially in all the markets that we're already heavily growing in aftermarket Europe and the adjacent markets. So we got to have some backbone there and we still got to build in some areas. So yes.

Scott Stember -- C.L. King & Associates -- Analyst

All right. Just lastly, talk about the end markets in your adjacencies. You mentioned a whole slww of areas that you're growing in right now, whether it's both store (ph) or whatnot -- maybe just talk about how the end demand in some of those bigger markets are?

Jason Lippert -- Chief Executive Officer and Director

Sure. So, on the adjacent side of the business, you look at marine, it's still a big opportunity for us. We made the Taylor Made acquisition last year, which is our largest acquisition that's presented a ton of opportunities for us because it just introduced us to a lot of the customers that we didn't have any correspondence with before.

So we're able to cross sell some of our other products into those markets and really we've amped up R&D there as well for Taylor Made, and have used some capital for R&D projects. They have some divisions over in Europe. So that's helped us, get in the marine over in Europe and start doing some things over there. And then you look at cargo trailers, which we've been in, any kind of trailer product that's tow behind the vehicle, cargo equestrian landscape.

Otherwise, we've got a pretty significant growth in that market as well around steel and suspension products. Buses are still a growing area for us. And then you look at rail. We purchased a company several years ago in Italy that was connected to all the train manufacturers and building windows. So as the rail projects expand across all continents, really India, U.S. there's significant rail activity going on.

We're getting looks at all those projects and several in North America even because of the name, brand of the company that we bought the windows -- the window manufacturer from several years ago. So each time we get to into a new market or a new customer through an acquisition, we're able to apply synergies and some of our resources that we've got in other parts of the business to help grow those businesses even more.

Scott Stember -- C.L. King & Associates -- Analyst

Got it. That's all I have. Thanks.

Operator

Thank you. And our next question is from ]Bret Jordan (ph) with Jefferies. Your line is open.

Bret Jordan -- Jefferies -- Analyst

Hey, good morning guys.

Jason Lippert -- Chief Executive Officer and Director

Good morning.

Analyst

On the U.S. aftermarket, could you sort of maybe frame that size and growth rate, is it benefiting from the sell in of a number of years of record new volume trailing six years or seven years?

Brian Michael Hall -- Chief Financial Officer

Yes. I mean, we certainly look at that opportunity in the aftermarket business, which isn't very well defined because we've got millions of units out there being used and it's been tough to figure out what the true opportunity is for us, but we've talked about it as being close to $1 billion opportunity, and certainly I think that given the age of lot of those units and the replacement cycle, that's -- we benefit from that. So you know when you carve out acquisitions and things that have impacted the growth for us over the years, we still continue on an organic basis to click off anywhere from a 15% to 20% year-over-year growth rate within that space. And the more product we put out there, the more new products that we introduce that are aftermarket in the design plans where we didn't used to do that, it just creates more opportunity.

Jason Lippert -- Chief Executive Officer and Director

Yes, I think you just have to keep going back and looking at $1 billion and a close to $1.5 billion of RV OEM components going into new vehicles every year, a substantial amount of those components will wear out and need replacement parts and we're the only replacement choice in a lot of those cases and like I mentioned earlier, in some other comments we are constantly working with all customers in the OEM space to take on more of that volume, even stuff that we're not traditionally manufacturers of because they just would prefer to simplify the supply base as complex as that is for millions of SKUs over decades of production for all sorts of component parts and that's just RV.

So if you look at Marine and rail and buses and cargo trailers and some of the other OEM businesses that we're in, all those businesses have aftermarkets and our growth in those markets while small today, or some of those numbers are small today as they continue to get more meaningful like the RV business has, the aftermarket is going to grow and our influence in those aftermarkets will be all that more meaningful and our margins are bigger there. So I think it's an awesome opportunity for us like Brian mentioned, we kind of talk about it hard to know the exact size of all those aftermarket so we kind of talk about it as a $1 billion opportunity here with meaningful margins.

Bret Jordan -- Jefferies -- Analyst

Okay, great, thanks. And Brian, I think you commented about eight production days in January. How many lost to weather versus scheduled loss in that month?

Brian Michael Hall -- Chief Financial Officer

I want to say weather was 3 to 4 days.

Bret Jordan -- Jefferies -- Analyst

Okay, great. Thank you.

Operator

Thank you. (Operator Instructions) And our next question is from Steve O'Hara with Sidoti & Company. Your line is open.

Steve O'Hara -- Sidoti & Company -- Analyst

Yes, hi good morning. Thanks for taking the question. I think I get a bad connection, but I'm just curious if you talked about your content per unit in marine and maybe if you haven't broken that out yet, when you might expect to and have maybe how that's progressed?

Brian Michael Hall -- Chief Financial Officer

Thanks, Steve. Brian, we haven't really put out anything specific on it. But I can tell you we have looked at it and the content growth over the last four years is pretty substantial. But if you think about, lot of these furniture sets and what we put into the pontoon space, which is over 50,000 units a year, we're easily in excess of a couple of thousand dollars per unit. It's just making sure that we define the units appropriately. So there'll be more to come on that.

Steve O'Hara -- Sidoti & Company -- Analyst

Okay, thanks. And then maybe I mean it seems like again if you said it, I apologize, but in terms of your expectations for full year retail in RV, could you talk about that at all in terms of what you expect the year to be?

Brian Michael Hall -- Chief Financial Officer

Full year retail?

Steve O'Hara -- Sidoti & Company -- Analyst

Yes.

Brian Michael Hall -- Chief Financial Officer

I think what we said pretty consistently is flat to down 5%. So that's where we're at today, might change next quarter, but the next couple of months will really tell us a lot about summer retail activity, which is typically the busiest part of the year for retail.

Steve O'Hara -- Sidoti & Company -- Analyst

Okay. And in terms of the, I mean, I guess, if you think about the progression of the inventory issue and I mean there was some debate about it last year in terms of whether there was an inventory issue and then -- I think generally for the industry. And then now we've kind of move to the fact that yes, there is an inventory issue in correction. I'm just wondering what confidence do you have that this is that and not a demand-driven issue that the dealers are seeing and maybe they're not being as forthright about or something like that. I guess, I'm just wondering are we progressing to that type of an issue or are you still very confident that it's an inventory issue? Thanks.

Jason Lippert -- Chief Executive Officer and Director

Yes, I don't think. Yes, we don't believe it to be a demand issue and a lot of it's just because the dealers are telling us they're reducing inventory significantly again due to interest rates and some of the other things that they're dealing with today that they haven't in the past. And if you look at retail compared to the last couple of years, it's relatively in line and we're talking about some of the best retail years the industry has had.

So I think, against the backdrop of a really strong retail and really strong wholesale, we have to temper the environment, the way we look at the environment we're in today, because again, we're looking at a fifth best year on record this year, which is something I think we all can feel pretty good about. Still some opportunity out there and the industry continues to stay really solid at finding new opportunities and new products to fill some of the entry-level demand and continue to bring more people into the market through entry-level products that will eventually pull them in on mid to higher level use. I talked to a retail owner this morning that has owned 12 RVs over the last 30 years and everybody gets in through an entry-level product, that's what gets people into the business and the industry and the OEMs and the dealers are doing a great job of marketing the younger consumers and families and pulling them into the lifestyle.

Steve O'Hara -- Sidoti & Company -- Analyst

Okay, all right thank you very much.

Brian Michael Hall -- Chief Financial Officer

Thanks, Steve.

Operator

Thank you. And our next question is from Tristan Thomas with BMO Capital Markets. Your line is open.

Tristan Thomas -- BMO Capital Markets -- Analyst

Hi, good morning.

Jason Lippert -- Chief Executive Officer and Director

Good morning.

Tristan Thomas -- BMO Capital Markets -- Analyst

Just had one quick question and I apologize if I missed this. I was just wondering, could you maybe talk about the potential impact of the China tariffs increasing 25%? Thanks.

Jason Lippert -- Chief Executive Officer and Director

Sure, well, Tristan your guess is as good as ours. I think he is playing a game right now, but we just have to wait and see. All I can tell you from a business perspective is we have already had the conversations with our customers, it was last Q3 or Q4 as we started to implement some of the 10% tariff. So if they do and do you go to 25% then we've had a lot of those conversations, none of us in the industry want to see that because it's ultimately bad for the consumer prices and we'd have to make a lot of adjustments in the business to make sure that prices are price-right for the retail consumers, but at the end of the day, everybody in (inaudible) ready for the possibility we won't have three months or four months of conversations with customers to figure this out because we've already had them. So does that answer your question?

Tristan Thomas -- BMO Capital Markets -- Analyst

Yes, I guess I was also kind of wondering what the 10% tariff, what that impact it was on retail and potentially what incremental price increases could further impact retail?

Jason Lippert -- Chief Executive Officer and Director

I think it was probably -- we probably, as an industry mitigated 50% of that through just looking at other options and alternatives for components and some of the de-contenting that happened on the OEM side, where they just -- to keep the price points normalized, they just took some of the bells and whistles and features out of the RVs, stuff that maybe the consumer wouldn't really notice that much, but enough to keep the price point stabilized, so that they didn't feel that impact. I'd say 50% or greater was mitigated.

Tristan Thomas -- BMO Capital Markets -- Analyst

Okay. So roughly 50%, and roughly 5% of the tariff was a price...

Unidentified Speaker

Yes, half of the tariff impact or better.

Tristan Thomas -- BMO Capital Markets -- Analyst

Got it. Thank you.

Jason Lippert -- Chief Executive Officer and Director

Yes.

Operator

Thank you. And this ends our Q&A session for today. I would like to turn the call back to Jason Lippert for his final remarks.

Jason Lippert -- Chief Executive Officer and Director

Everybody thanks for joining on the call today. We'll be excited to talk next quarter when we announce Q2 earnings. Thank you.

Operator

And with that ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.

Duration: 52 minutes

Call participants:

Victoria Sivrais -- Head, Investor Relations

Jason Lippert -- Chief Executive Officer and Director

Brian Michael Hall -- Chief Financial Officer

Unidentified Speaker

Fred Wightman -- Citi -- Analyst

Brian Biros -- Thompson Research Group -- Analyst

Craig Kennison -- Baird -- Analyst

Daniel Moore -- CJS Securities -- Analyst

Scott Stember -- C.L. King & Associates -- Analyst

Bret Jordan -- Jefferies -- Analyst

Analyst

Steve O'Hara -- Sidoti & Company -- Analyst

Tristan Thomas -- BMO Capital Markets -- Analyst

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