Investors were bracing for bad news from Winnebago (NYSE:WGO) in its third-quarter report this week because its retailing operations were closed through most of the period. On Wednesday, the recreational vehicle giant did announce a brutal sales shortfall and modest losses. But management also revealed increasing market share while pointing to a few metrics that suggest a sharp rebound could be in the cards over the next few quarters.

Let's jump right in.

A bad quarter for the business

Fiscal Q3 covered the sales months of March, April, and May, and so it was heavily impacted by COVID-19-related social-distancing efforts that closed dealerships around the country. As a result, Winnebago reported a painful 41% sales decline compared to a 13% increase in the prior quarter. "Our third fiscal quarter was a uniquely challenging time," CEO Micheal Happe said in a press release.

An RV parked near a lake.

Image source: Getty Images.

Winnebago still managed to outperform the RV industry, with market share up by nearly 2 full percentage points to 12%. That improvement rate is consistent with recent quarters and implies steady momentum for the leading RV producer.

The sales hit was more pronounced on the towable side of the business, which tends to be its most profitable unit. That trend cut gross profit margin in half to 8% of sales. Other operating costs were pressured by the collapsing sales volumes, leading to an operating loss of $8 million, or 2% of sales, compared to net gains of $49 million, or 9% of sales a year ago.

Better trends on the way

Winnebago's forward-looking metrics were much more encouraging. Backlog to dealers, which represents contracted but not yet delivered units, jumped 87% for towable products and surged 99% for its motor homes. Management noted a "strong rebound in dealer demand" during the month of May. Without venturing any detailed projections, executives suggested that the pandemic may be turning consumers' attention to outdoor entertainment activities. "As states navigate the reopening of their communities," Happe said, "people are increasingly looking toward RVing and boating as ways to socially distance in a safe and memorable way."

Investors will have to wait until Winnebago's fourth-quarter report for confirmation of that favorable outlook. That announcement should also include the company's first detailed outlook for the following fiscal year that starts in September. Until then, Winnebago is in no danger of an immediate cash crunch. Cash holdings improved to $152 million this quarter from $37 million a year ago. That gain relied entirely on new debt, which rose to $451 million from $245 million as the company took a defensive posture at the start of the pandemic.

But Winnebago should return to its prior path of robust cash generation now that it is back to producing and delivering RV products to its dealership network. Looking further out, it's possible that the industry leader will see a sustained demand lift as people shift vacation habits toward more local, outdoor-focused activities. That boost in discretionary spending would depend on some unpredictable factors, though, including a sharp rebound in economic growth rates over the next few quarters.