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BRP, Inc. (NASDAQ:DOOO)
Q1 2020 Earnings Call
May 30, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

All participants please standby. Your conference is ready to begin. Good morning, ladies and gentlemen and welcome to the BRP, Inc.'s FY '20 First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Philippe Deschênes. Please go-ahead Mr. Deschênes.

Philippe Deschênes -- Manager Treasury and Investor Relations

Thank you, Maude. Good morning, and welcome to BRP's conference call for the first quarter of Fiscal Year '20. Joining me this morning are José Boisjoli, President and Chief Executive Officer and Sébastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call that are subject to a number of risks and uncertainties.

I invite you to read BRP's MD&A for a listing of these. Also, during the calls, reference will be made to supporting slides and you can find the presentation on our website at BRP.com under the investor relation section. So, with that, I will turn the call over to José.

José Boisjoli -- President and Chief Executive Officer

Thank you, Philippe. Good morning, everyone, and thank you for joining us. I am pleased to report that we are off to a good start for fiscal year '20. Despite challenging weather, especially in Northern US and Canada, our product line continued to drive strong consumer demand, which resulted in another quarter of robust retail growth in most of our markets. We continue executing well on our plan notably as we've delivered a very successful launch of Ryker, completed our side-by-side capacity expansion, and came to an agreement to acquire Telwater, the leading manufacturer of aluminum fishing boats in Australia. Our financial results came in line with our expectations and we are increasing our guidance by $0.05 to reflect our [inaudible] and our strong back sales in Q1. Now, let's get into the highlights of the quarter starting with the financial results on slide four.

Our revenue of the quarter were up 17% to reach $1.3 billion, primarily driven by continued growth in year-round products. All regions contributed to the growth with revenue up 19% in the United States, 12% in Canada, and 17% for international primarily driven by a very strong performance in EMEA with a 26% revenue growth for the first quarter. Our normalized EBITDA was up 16% to $147 million, resulting in a normalized earning per share of $0.54 up 4% over last year. Despite unfavorable weather in the northern portion of North America and some dynamic political and economic environment in certain parts of the world such as the Middle East in countries like Argentina and Mexico, we continue to deliver strong retail growth and outpace the industry in most of our markets. Our retail sales were down 13% in Latin and up 14% in North America, 18% in EMEA, and 5% in Asia Pacific.

Now, on to slide six. As I mentioned, weather was a big factor in North America, especially in the northern portion of the US and in Canada where experienced a cold and wet Spring season. This led some consumers to delay their purchase and as a result, our retail sales suffered as you can see for February and March particularly in the snow belt but saw a rebound in April. For the quarter our powersport retail in the snow belt excluding snowmobile grew 15% whereas, in the sunbelt where the weather was really more favorable our retail grew 21%. On a positive note, we saw retail improve as the weather got better late in April and this trend is continuing so far in May. Looking at the retail by product line on slide seven. All our product lines saw solid growth in the quarter, notably led by the three-wheeled vehicle, which was up over 110% driven by the introduction of Ryker.

Meanwhile side-by-side, ATV, and watercraft all saw robust, high-single-digit growth. And snowmobile had a good end of season with retail up mid-single digits. All our industry grew in the quarter despite unfavorable weather conditions and we continue to outpace the competition in both side by side and ATV. Watercraft is currently at the beginning of the season but showing positive growth. This shows that our consumer base is healthy and that the demand for product remains strong. Now, looking at side by side performance in more detail on slide eight. We are pleased with the continued success we have experienced with side by side this season.

Ten months into the season '19, our retail is up high-teens percent, and we are the largest market share taker in the industry with strong gains in both the utility and sports segment. The customer poll for our line up remains strong, and we had difficulty meeting the demand for the Defender due to the planned two-week production shutdown at our Juarez 2 facility. We are not satisfied with our high single-digit growth. I remind you that we are lapping a strong mid-30s digit growth for the same period last year. This year, we were affected by a combination of bad weather, our production shortage, but also strong promotions from some of our competition. We saw the trend improving late in the quarter as we had access to additional production capacity with retail growing high-teen percentage in April and this continued to be strong in May. With the additional capacity and the solid pipeline of product introduction, we have for the year notably with the eighth new side-by-side platform coming out next week we are confident in our ability to continue to drive solid growth going forward.

Now, let's turn to slide nine for the year-round product highlight. Revenue were up 19% for the quarter driven by the introduction of the Can-Am Ryker and a higher volume of ATVs sold. On the retail side, 10 months into the season 19, the North American side by side industry is up mid-single digits. As previously mentioned, our side-by-side retail is up high-teen percent over the same period. We continue to experience solid momentum, especially with the Defender which is gaining market share around the world. Turning to ATV, the North American ATV industry is also 10 months into the season and retail is down low-single digits. For the same period, Can-Am ATV is up high-single digits notably gaining share in the more profitable high-cc segment.

Now, the three-wheeled business. Six months into the season '19, the North American three-wheel motorcycle industry is up low 40% range, primarily driven by our Can-Am two-wheel vehicle line up for which retail was up over 120% for the same period. We are seeing exceptional traction with the Ryker. It has generated over 1 billion media and online impressions worldwide so far, and our website visit and build-your-own site are up over 140% and 560% respectively compared to the same period last year. The Ryker demo tour is ongoing across the US and is gathering a lot of interest with over 8,000 participant registrations so far. Ryken is also doing well in Europe and across all international markets. It is still early in this season, but we are pleased with our momentum and we are well positioned ahead of the summer season.

Turning to seasonal product on slide ten. Seasonal product revenue were up 7% primarily driven by a favorable product mix for personal watercraft. In terms of retail, the North American snowmobile ended its season '19 with retail up lower-single digit percentage. Ski-Doo retail was slightly down for the season. Our performance can be summarized by lower than noncurrent availability versus the competition and bad timing with very uneven snow conditions throughout the winter months. Still, we ended this season on a good note, and we are in a good position for the upcoming next season. Our network inventor rate is well balanced, and we had the highest level in five years of our Spring unit booking, with our presold unit to consumer. The strong results are testimony to our solid lineup. In Europe Ski-Doo and Lynx continued to perform well late into the season with this quarter retail up mid-teen percent. Globally, despite the winter conditions, we are pleased with our results as our line up remained the clear industry leader around the world.

Now, personal watercraft. The season ended strong in counter season market with double-digit retail growth in the quarter for Brazil, Australia, and New Zealand. In North America early into the retail season, the personal watercraft industry is up high single digits season to date. Ski-Doo retail is also up high single digit over the same period with strong demands for our higher end models. All signs are positive as we head into the peak of retail season in North America and Europe. Continuing with a look at Powersports PAC and OEM engine on slide 11. Revenue were up 19% in the quarter driven by sudden growth in the snowmobile part business resulting from the extended riding season due to the late spring and the higher volume of accessories for three-wheeled vehicles, side by side vehicle and personal watercraft. Another highlight of the quarter is the early success we are experiencing with Ryker accessories, which are trending about 50% higher than target per unit sold.

The key contributor to this performance is the Ryker design, which is being well received by both dealers and consumers. Our accessories business is growing at a fast pace driven by the growth of vehicle sales but also by the ingenuity of our accessory lineup, which deliver high value for our consumers. An example of this is our Lynx system, which facilitates the mounting of accessories on the vehicle and allows the user accessories across multiple product lines.

Now looking at the marine category on slide 12. Revenue were up 33% in the quarter driven by the acquisition of Alumacraft and Manitou, which were partially offset by a lower volume of outboard engines sold. Ten months into the season '19, the North American outboard engine industry is up low-single digits with Evinrude retail down low-teen percent. This decline continued to be affected by the same trend with industry growth driven by the package business where boat and motor are sold together. This is one of the principle reasons we made our entry into the boat business. For the retail of our boat brand for Q1, we estimate the retail of Manitou to be up around high-single digits and the retail of Alumacraft to be flattish versus last year.

We are satisfied with those results, as both companies go through a transition phase with their dealers, who are responding positively. Finally, we announced earlier this month our intention to acquire 80% of Telwater the leading manufacturer of aluminum boats in Australia. This acquisition is another step in our marine strategy of buy, build, and transform. As we continue to develop a critical mass through the acquisition of high-quality boat OEMs with the objective of transforming the industry through innovation and becoming a leading global marine company. I would like to remind you this is a mid to long term strategy but with a high potential. On that note, I will turn the call over to Sebastian.

Sébastien Martel -- Chief Financial Officer

Thank you, José, and good morning, everyone. Despite unfavorable weather, we continued our growth trajectory as we delivered solid results for the first quarter of fiscal '20 notably driven by the continued strong demand for our lineup and the success of our newly introduced product, the Ryker. Our total company revenues came in at $1.3 billion for the quarter, a record for a first quarter and a growth of 17% over last year. Our gross profit margin ended at 22.5%, a decline of 230 basis points from last year's first quarter due to higher production, distribution, and commodity costs, and an unfavorable product mix, which were partly offset by higher volume of vehicles sold and higher parts and accessories sales notably driven by the extended riding season for snowmobiles. Our normalized EBITDA came in at $147 million, up 16% from last year. And our normalized diluted EPS came in at $0.54, up 4% from last year. We invested $54 million in CAPEX and generated the same amount in free cash flow.

Turning to slide 15, our quarterly normalized end income remained almost flat compared to last year as it ended the quarter at $53 million. In terms of year over year variation, we saw an increase of $54 million driven by favorable impacts coming from volume, mix, pricing, sales programs, and effects. These elements were offset by higher production and distribution costs, our depreciation expense for a total negative impact of $24 million, higher operating expenses for $25 million mainly driven by the launch of the Ryker and higher financing costs for $6 million.

Turning to slide 16 for a look at our network inventory position. Our network inventory position is where we want it ahead of peak summer retail. It is up 10% versus last year's first quarter primarily driven by fast turning products, notable the Ryker for which retail is very strong early in the season and we are seeing some dealers depleting their inventory faster than initially planned and SSV for which we are still behind demand for certain models. Despite the year over year increase in terms of inventory levels for SSV, our number of days are slightly lower compared to last year.

As for other product lines, we have the right level of PWC inventory in the network just ahead of the core retail season. Snowmobile is slightly higher than last year but is well balanced across the network and our ATV and Spyder inventory are trending in line with demand. So, overall, we are very comfortable with our network inventory at this time of the year.

Now, looking at slide 17 for an update of the guidance for the year. As I mentioned we started the year on the right track with solid Q1 results and we are progressing well on our plan to deliver our guidance for the year. We are reviewing upward our revenue guidance ranges for all product categories to reflect the impact of the stronger US dollar and the improved forecast of parts sales driven by the extended snowmobile riding season this past winter. These two elements are resulting in an increase of 2% of our total company revenue guidance range and we are now expecting revenues to be up between 9% to 13%, given that we are mostly naturally on the US dollar at the EBITDA level and these adjustments only have a minor impact on normalized EBIDTA guidance.

As a result, the low end of the guidance range has been increased and we are now expecting a normalized EBIDTA growth of 20% to 23%. With the adjustment to EBIDTA guidance and also taking into account the lower share account resulting from the shares repurchased under the NCIB, as at the end of the first quarter, our normalized EPS guidance range is increased by $0.05. And we are now expecting a normalized EPS growth of 15% to 21% for the year. And finally, a quick update on our capital allocation plan. Our capital allocation priorities have always been to one, first invest in the business to deliver on our growth objectives and secondly return excess capital to shareholders through dividends and share repurchases.

Despite our solid track record of delivering robust growth and the fact that the business is well positioned to sustain that growth trajectory going forward our stock is currently trading at its lowest level in over three years. We are disappointed with evaluation of our stock and we believe that repurchasing shares at the current level represents a good way of enhancing the return we provide to our shareholders. Therefore, we have decided to employ the strength of our balance sheets and deploy additional capital toward share buybacks. So, we have announced this morning the launch of a $300 million substantial issuer bid to repurchase and cancel some of our outstanding shares. The SIB expected to be completed by July and will be funded with a combination of cash on hand, drawing on existing credit facilities, and planned incremental term loan issuance. Our major shareholders have announced their intention of participating through the SIB on a proportionate basis. We believe that this capital allocation plan will enhance the return we provide to all shareholders while preserving our financial flexibility to continue investing in our growth and providing solid returns to our shareholders. With this, I'll turn the call back to José.

José Boisjoli -- President and Chief Executive Officer

Thank you, Sebastian. Once again, we are very happy with our first quarter results and solid financial performance. Leading indicators show that the economy is doing well with steady growth, low unemployment, and little inflation. During the quarter we had experienced strong retail momentum in North America and in Europe with all our sectors trending positive and we are very satisfied with our year over year revenue growth of 17% even while operating in a dynamic political and economic environment. We continue to outpace the competition and are positive about the outlook for the rest of this year as we are entering the peak of our retail season for our summer products in North American and Europe.

We are confident to meet our increased guidance of EPS growth of 15% to 21% for fiscal year '20. Given the state of our business, our financial capacity and flexibility, we are also pleased to announce the launch of the SIB to purchase for cancellation up to $300 million of BRP share. Our strategy of diversifying our product portfolio, our geographic sales, and our manufacturing footprint has proven itself again and again over the years and will continue to do so in the future. Moreover, we are very proud to be able to count on the effort of our employees at all levels of the company, our greatest competitive advantage.

...

On that note, I will turn the call over the operator for questions.

Questions and Answers:

Operator

Thank you. Please press *1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Craig Kennison from Baird. Please go ahead.

Craig Kennison -- Baird-- Analyst

Good morning. Thank you for taking my question. I wanted to go to slide six. You had commented on weather being a factor and how the snowbelt had underperformed. I'm wondering if at some point you should expect snowbelt markets to outperform sunbelt markets as that demand catches up with the weather.

José Boisjoli -- President and Chief Executive Officer

Difficult to say. I would say that -- Our dealer network is more developed in the snowbelt because of our snowmobile [inaudible] that it is in the sunbelt. I think if the weather turns out, we could see that trend. But it's very difficult to predict. I would be cautious about this.

Sébastien Martel -- Chief Financial Officer

When the summer weather picks up in Northern US and Canada PWC retail will obviously pick up as well here in these regions and so there might be some lapping that's being done versus the sunbelt on PWC and Ryker as well.

Craig Kennison -- Baird-- Analyst

Yeah, that helps. I'm just trying to understand whether you think these sales have been lost for the season or simply deferred into a future period this month, this year.

José Boisjoli -- President and Chief Executive Officer

Yeah. We don't think the sales are lost. We've talked to many dealers in the snowbelt who were affected, and everyone believes that customer just delayed the purchased or take deliveries of their unit.

Craig Kennison -- Baird-- Analyst

Thank you and then respectively to the tariffs being considered in the US and imposed on China. How is BRP positioned on Chinese tariffs relative to maybe other competitors in the Powersports space?

Sébastien Martel -- Chief Financial Officer

We estimate that the recent price-or the recent tariff increase that was announced from the US, China trade dispute not to be significantly materially to us, less than $5 million. And so, I can understand that there could be questions as to why it's so immaterial for us. And it's not necessarily a question of manufacturing strategy but it's much more a question of sourcing and how you source your components. And as you know we do put a lot on emphasis and pride in designing the best products in industry, putting a lot of technology and obviously high quality.

In order to do so, we are very diligent in how we source our components. And the factors that we consider in sourcing are obviously supplier know-how, quality, lead times, pricing that get for those components and also the existing free trade agreements that are out there in NAFTA and UFTA. And therefore because of those criteria, we actually source only a small percentage of our components from China. And there, the extent to which we are impacted from the trade dispute has a lot more to do with our sourcing strategy versus where we've decided to establish our manufacturing plants.

Craig Kennison -- Baird-- Analyst

Thank you.

Operator

Thank you. Our following question is from Robin Farley from UBS. Please go ahead.

Robin Farley -- UBS -- Analyst

Great. I wanted to clarify a couple of things. One is if you're higher EPS guidance. Does that include the impact of the $300 million share cancellation or not yet since you don't know the specific terms of that yet? I'm just wondering if any of that's factored in yet. And then also, I think previously you talked about a split between first half and second half profit growth that had kind of implied a decline in first-half profit just given that the split would be more like year fiscal '18, You had mentioned that last quarter. I'm just wondering if that is still the case with your expectations for this year. Thanks.

Sébastien Martel -- Chief Financial Officer

Yeah, good morning, Robin. On your first question, no the guidance does not factor in any impact coming from the SBI that we announced this morning. We'll adjust for guidance based on the results. That's expected to close in July. So, when we talk in August, we'll have the final numbers. And on the distribution of our profitability, we're not expecting any big changes versus what we communicated in March when we talked about the Q4 results more.

Robin Farley -- UBS -- Analyst

Great. And if I could add just one more. Do you have any color you could share on average selling price change for your off-road business and any color around mix or promotional levels impacting that change in ASP?

Sébastien Martel -- Chief Financial Officer

Yeah, ASPs, when I look globally the ASPs were relatively flat full year, side by side a bit higher year over year in the in low single digits. Obviously, Ryker impacting ASPs downward. So, the year-round product was flat. Ryker offset more than the increase that we saw in side by side. And on the seasonal ASPs were also up. We had a richer mix on personal watercraft, and that helped ASPs. So, overall, we're flattish year over year, down year-round, and up seasonal.

Sébastien Martel -- Chief Financial Officer

On the current promotional inventory, we would say that the situation is improving. Two, three years ago some OEM had a lot of noncurrent inventory and promotion was very aggressive. Right now, the network inventory is in better shape than in the last few years. And I would move with the rate at this point, the promotional environment for off-road vehicle normal. For watercraft one of our competitors has some noncurrent in the south more than we had. But overall, we qualify it as normal.

Robin Farley -- UBS -- Analyst

Okay, great. Thank you very much.

Operator

Thank you. The following question is from Mark Petri for CIBC. Please go ahead.

Mark Petrie -- CIBC -- Analyst

Good morning. With regards to the snowmobiles and the highest level of snow checks in five years, what do you attribute that to? Is it the lineup? Is it sort of the long kind of tail end to the season? Is it the lack of noncurrent last year? What are the factors that you think drive that?

José Boisjoli -- President and Chief Executive Officer

The three that I just mentioned. No, I think the long season. I mean we've been doing this for many years. Every year that the winter is long it's like the snowmobilers stay in the snow mindset and they are more interested to learn about the new product and they are excited to I would say finalize their purchase for the following season. The other thing is we launched two quite big product news in the summit, the mountain category. We came out with a summit exert. It's a package that is unique in the industry right now and it was quite popular. And the other one is in the more utility segment, rec utility I would say. the new platform, all the newline models on the gen four platform is replacing models that were 10 years old. This is why we had very strong slow check like we call it.

Mark Petrie -- CIBC -- Analyst

Okay. And then on the gross margin, you called out mix as a factor. Can you just walk through the puts and takes there and then how you expect that to play out in Q2 and for the full year?

Sébastien Martel -- Chief Financial Officer

Yeah, the margins were down as I mentioned 230 basis points. Volume and mix offset each other. And then the other elements impacting negatively, we had currency for both 60 basis points, depreciation expense was 40 basis points, production costs as we talked for the past few calls, we're seeing higher increases in commodity year over year, some tariffs et cetera. So, that's about 80 basis points. And as you might recall, we did close the plant down for two weeks in February in Juarez for side by side production and so the whole production ramp up, cost absorption both for those two week periods is about a 50-basis point headwind on the margin.

Mark Petrie -- CIBC -- Analyst

Okay. Thanks. And then just the last one. Seb, I appreciate the comments on capital allocation and the shares are as you said good value. But at the same time, there's clearly more uncertainty in the market than there was the last time you employed the SIB and you have been more active on M and A as well. So, could you just walk through sort of how you and board arrived at the decision of a SIB as opposed to just fully leveraging the NCIB and maintaining greater flexibility?

Sébastien Martel -- Chief Financial Officer

Yeah. Obviously, the strength of a balance sheet is a very high priority of shall we say myself and the board. And that's the number one factor that we considered. But we do have a strong balance sheet today. And the reason why we have a strong balance sheet is we have very -- a good capital structure in terms of debt that matures in six years. It's coming at light. So, we're not necessarily restricted if there was to be an economic slowdown. Also, we have a $700 million revolving credit facility. And that provides us the necessary cash flow if needed if an economic slowdown was to happen. So, we are comfortable with increasing leverage more to do an SBI, especially where the valuations are. Yet, still having that financial flexibility if there was to be a downturn of a slowdown in demand for products. But obviously, it was top of mind in our decision to go ahead with the SBI.

Mark Petrie -- CIBC -- Analyst

And how do you think about M and A from here?

Sébastien Martel -- Chief Financial Officer

Well, as you know, we're going to be closing on the Telwater. We should be closing on the Telwater acquisition the second quarter. We've done acquisitions but they're not very significantly material. They're important but not necessarily jeopardizing or putting any extreme pressure on the balance sheet. Going forward were obviously be proactive and see if there are any opportunities. But we're happy with the assets we have now in North America and in Australia for the marine strategy. And we don't see the need to do any, again, material acquisition in order to execute on that marine strategy.

Mark Petrie -- CIBC -- Analyst

Okay. I appreciate all the comments. Thanks a lot.

Sébastien Martel -- Chief Financial Officer

Thanks.

Operator

Thank you. Our following question is from [inaudible] Capital Markets. Please go ahead.

Analyst -- Capital Markets

Yes, thank you very much and congratulations. First question is on the side by side market. Before the investor day, you were talking about bringing the market share up from 10% to 20%. Now that you're kind of in the middle what could we be thinking in terms of potential market share target? And what would be the timeframe you see given the success that you've been experiencing so far?

José Boisjoli -- President and Chief Executive Officer

Good morning, Bernard. We're very happy with our momentum with the side by side business. If you look at the season to date, we are growing high double-digit and we're lapping very strong season '18 season. We are getting closer to the 20% but we still have room to grow. We will introduce our model year '20 lineup next week and we have continued product news coming. And again, filling out the subsegment that there is in that industry. We will give you more color about our long-term plan when we meet you at the analyst date later this Fall. But for the time being, we are focusing. We just finished the capacity increase in Juarez 2. We were missing some product in Q1. We hoping to catch up by the end of Q2, but the focus is really to fill up that capacity as fast as possible. And we will give you more color in October.

Analyst -- Capital Markets

That's pretty good color. And when we look at the three-wheel vehicle market, obviously Ryker very strong performance so far. Could you talk a little bit about how the S3, the Spyder is doing and whether it is in line with expectation or not?

José Boisjoli -- President and Chief Executive Officer

I would say at this point, first very happy with the Ryker. It does everything we were hoping for. It's too early to say that we're repeating the Spyder story. But I will say it's still good. In terms of our Q3, definitely the retail was affected by the bad weather in the snow belt, but we're quite confident where we are early into the season. what we like about the momentum we have with the Ryker; it brings a lot of customers into the dealership. And some are definitely buying the Ryker, but others are looking to S3, not so much the RT but to the S3. It is too early to conclude anything but we're quite happy with the start of the Ryker retail.

Analyst -- Capital Markets

And for Telwater, could you talk a little bit about your current exposure to Evinrude and also the agreements that Telwater is having with the other engine outboard manufacturers, José? And also talk to a little bit about the progress with the growth project. I understand it's a long-term strategy but if you have any color that would be great.

José Boisjoli -- President and Chief Executive Officer

Telwater. We've known Telwater for many years. We've been a supplier ­ With Evinrude we've been a supplier to them since we acquired Evinrude in 2001. And we know Paul Phelan, the owner, for many years. Telwater with the brand Quintrex has over 50% of the market in Australia and New Zealand. They have about 180 dealers between in those two countries. With Evinrude, we have 75 dealers. But the dynamic in those regions is very different than what you have in North America. Telwater is selling boats to those dealers.

We've been rigging Evinrude engine on their boat at the factory for the last three, four years, but the other OEMs we don't sell directly to Telwater. They sell to the dealer. Then the dynamic is very, very different than what exists in North America where engine OEMs sell to dealers, but also sell to boat builders. And we believe that what happened with two of our competitors in North America cannot happen in Australia and New Zealand. We're very happy -- and again, it's not closed, but we're very happy with the agreement we have with Telwater. Maybe one last comment like Sébastien mentioned.

You know, the boat industry is a very large industry. But we are happy because we are focusing for now on aluminum product where we have know how. We believe we can bring some synergy between those brands and our know how. And we believe we have the critical mass to develop a better-integrated engine into the boat. Lowrider is unplanned. Sorry, the growth project is unplanned, and we'll tell you more as we evolve into the next few years.

Analyst -- Capital Markets

Perfect. Thank you very much. Thanks for the time.

Operator

Thank you. The following question is from Jamie Kanz from Morningstar. Please go ahead.

Jamie Katz -- Morningstar -- Analyst

Hi. Good morning. Just wanted to follow up on a prior question on Ryker. Do you guys have any insight into what the demographics of what that buyer looks like relative to the Spyder and maybe how that has changed?

José Boisjoli -- President and Chief Executive Officer

Good morning. Again, very early into the season but the customer right now is about ten years younger than the customer who was buying an RT and F3. Our target was to attract even younger people, but we are happy so far with the trend. But I would say one thing that is very interesting is we are attracting a lot more culture, different nationalities around the world with the Ryker because it's a very younger image. Our marketing campaign is very upbeat and we attracting a lot of people who never had a Powersport in their life. So far, very happy with the trend but again very early to conclude anything at this point.

Jamie Katz -- Morningstar -- Analyst

And then on the marine segment, the gross margins at least in my model look like they were significantly lower than last year. And I know it's seasonally sort of smaller quarter. But I'm curious how you guys think about where the gross margin goes for that business longer term. Is it closer to a mid-teens pace or could you maybe even escalate that gross margin than that as you scale?

Sébastien Martel -- Chief Financial Officer

The margin this quarter was impacted by lower volume on [inaudible] and higher production costs versus a year ago. And obviously with the boat business margin profile of these businesses is lower than let's say the engine business. On the long term with the marine strategy, our objective is to bring the marine business at least at par with the powersport business and the strategy behind that is bringing more technology, more innovation to the marine business having more integrative packages for which the consumer sees value and is ready to pay for it. And that should bring the margins more in line with what we're seeing in the powersports side.

Jamie Katz -- Morningstar -- Analyst

Excellent. And then lastly, I think that two segments that had trailed the industry retail sales on your side were personal watercraft and snowmobiles. Is there anything, in particular, to call either discounting or promotional wise that maybe would've impacted or current versus noncurrent inventory, which I know you had mentioned for snowmobile that made the BRP sales slightly slower than the industry sales.

José Boisjoli -- President and Chief Executive Officer

To be honest, for both the product line is the noncurrent situation. We ended season '18 with very, very little noncurrent compared to our competition. And we've lost market share all season in that product category. On watercraft is the same phenomenon. Last year was our first year of our new three-seater platform. And we ended the season '18 with no inventory. Some of our competitors had high inventory in that product category. And now we're catching up with supply. But the phenomena are somewhat the same. Now, I would be careful to conclude anything. I think the strength of our lineup in those two product lines for us is very, very strong. We have very solid market share.

We have good momentum in both product lines. But you have those seasonally effect from time to time. And again, very happy about our snowmobile season, how it ended, and how we positioned for next year. And very happy about our position for season '19 for the watercraft season that is upcoming in North America and Europe.

Jamie Katz -- Morningstar -- Analyst

Thank you. Very helpful. Thanks.

Operator

Thank you. Once again, please press *1 at this time for any questions or comments. Our following question is from Tim Conder from Wells Fargo. Please go ahead.

Tim Conder -- Wells Fargo-- Analyst

Thank you. Good morning, gentlemen. A couple here. Seb, on the sales guidance I'm anticipating these are rather small numbers. But can you quantify the increase from the recent acquisitions? And then from a competitive perspective in off-road and in snowmobiles over the last several years, you've seen several, let's just call them, secondary competitors fade even more in share as the industry appears to be consolidating. What would be, José, your outlook over the next three to five years for the potential exit of some of those competitors from the off-road and then the snowmobile market?

Sébastien Martel -- Chief Financial Officer

Good morning, Tim. On the boat company acquisition, we haven't factored in the Telwater acquisition into our guidance. We'll do that when we meet in August. But on the two acquisitions we did last year, Alumacraft and Manitou both of them would drive about 1.5% to 2% of annual revenue growth for BRP.

José Boisjoli -- President and Chief Executive Officer

Tim, this is a very tough question. I mean, obviously, for slow and ORV some of our competitors had a lot of inventory for different reasons in the last two, three years. And they were very aggressive for cleaning up the inventory. That being said, like I said, in the previous question the situation right now in network inventory is healthier than in the last few years. I think the promotional development should get better getting forward. And for the rest, for the second part of your question, I would not comment on what could happen to the industry. I'll let you guess.

Tim Conder -- Wells Fargo-- Analyst

Okay. Very diplomatic answer, sir. Lastly, again, I think there's a little confusion in the market on the capacity that you now have available to you in Mexico. So, I think you've stated before but please correct me if I'm wrong here. But you feel that that's going to be sufficient for you over the next three years maybe even a little bit longer. So, there are no plans to immediately fully utilize that in the next year or so. Could you just maybe remind us or correct if any of those assumptions are wrong.

José Boisjoli -- President and Chief Executive Officer

First, let's explain the capacity increase for this year and next year. This year we shut down the factory for two weeks. And on top of it, when we restarted the production because we didn't want to mess with quality, we started the production at the line rate lower than what we were operating before. But now after six weeks -- after we already started after six weeks, we are back to what are the new capacity levels. Then for stage one this year, our additional capacity is about flattish because of that shutdown and that six-week ramp up to make sure, again, that we deliver on quality.

For stage two we will have full 50%-line rate capacity. That means an average for this fiscal year we have a capacity or volume -- production capacity increase of 25%. In fiscal year '21, next year, there will be an additional 25% compared to this year. I hope this explanation clarifies a bit more where we stand. In terms of planning in the future and obviously for competitive reasons we won't -- we have plan, but we already just had 50% of side by side capacity. We have great momentum. Our hope is we'll need another increase in the near future. But at this point, we're pretty happy with how we executed that capacity increase and how we are well positioned to continued to grow our side by side business.

Tim Conder -- Wells Fargo-- Analyst

Great. Thank you, gentlemen.

Operator

Thank you. We have no further questions at this time. I would now like to turn the meeting back over to Mr. Deschênes.

Philippe Deschênes -- Manager Treasury and Investor Relations

Great. Thank you, Maude and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again on August 29th for our second quarter conference call .thank again and have a good day.

...

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

Duration: 48 minutes

Call participants:

José Boisjoli -- President and Chief Executive Officer

Sébastien Martel -- Chief Financial Officer

Philippe Deschênes -- Manager Treasury and Investor Relations

Craig Kennison -- Baird—Analyst

Robin Farley -- UBS -- Analyst

Mark Petrie -- CIBC -- Analyst

Jamie Katz -- Morningstar -- Analyst

Tim Conder -- Wells Fargo—Analyst

Analyst -- Capital Markets

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