Please ensure Javascript is enabled for purposes of website accessibility

Winnebago Says It Can Meet "Incredible Demand" for RVs

By Demitri Kalogeropoulos - Jun 24, 2021 at 9:21AM

Key Points

  • The RV giant's backlog is surging as dealerships continue to sell out of towable and motorhome products.
  • Profitability is rising despite extra manufacturing costs.
  • Management sees elevated demand running at least into the start of the new fiscal year.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The RV leader flexed its manufacturing muscles this past quarter.

Investors had some good reasons to expect solid sales numbers from Winnebago (WGO 3.55%), especially after peer Thor Industries (THOR) described a booming RV market earlier in the month. But Wall Street was worried about manufacturing and supply chain challenges, and about a potential slowdown as the pandemic threat fades.

Winnebago put most of those fears to rest in its recent fiscal third-quarter report, which points to a sustained sales boost and surging profits on the way as travel picks up.

An RV with bicycles on the back parked by a lake.

Image source: Getty Images.

Winning share

Winnebago's sales more than doubled as compared to the year-ago period, which was impacted by temporary retailing closures. Yet revenue set a new third-quarter record and edged past most investors' expectations.

Towable products made up the bulk of Winnebago's gains in rising 194%. And its more expensive motorhomes nearly doubled sales volumes.

Overall, the company's market share improved to over 12% from 11.5% last quarter during an unusually strong period for the industry. "We capitalized on the prime spring selling season to gain share and drive higher consumer engagement," CEO Michael Happe said in a press release. The CEO praised his team for its ability "to maintain our commitment to manufacturing excellence amid incredible demand."

Protecting profits

Thor Industries noted major supply chain issues that were holding up production rates for RVs, just as they have been for many automakers so far in 2021. But Winnebago's manufacturing rates were strong this quarter, likely reflecting its wider portfolio and larger base of production.

The combination of higher prices and low dealership inventory, meanwhile, allowed Winnebago to increase prices even as more customers opted for premium products. As a result, gross profit margin jumped to 18% of sales compared to 8% a year ago.

WGO Gross Profit Margin Chart

WGO gross profit margin data by YCharts.

That metric stood at 16% in the third quarter of 2019, before the pandemic, but now appears set to move toward 20% of sales. Executives said Winnebago maintained its production standards through soaring demand, and credited that success for "producing continued, strong profitability." For context, Thor's gross profit margin is sitting at 15% of sales.

Looking ahead

Winnebago's backlog continued to swell, with towable product orders crossing $1.5 billion and motorhome orders jumping over 300% to $2.2 billion. It would take several quarters of the manufacturing chain operating near capacity to fill all of those needs and get dealership inventory levels back to normal.

These orders aren't firm commitments, which means investors can't count on backlog metrics to translate directly into sales, especially if an economic downturn strikes. Yet Winnebago is expecting the industry boom times to continue into the foreseeable future, mainly because shoppers are eagerly shifting spending toward outdoor recreation.

Winnebago's manufacturing base gives it better positioning than its peers in meeting that rising demand, which now appears likely to run through at least early 2022.

Unfortunately, the company will have to pay more for many components and labor, and is directing plenty of cash toward its supply chain today. Yet, this quarter's report shows that Winnebago can boost profitability even as it makes these long-term investments. That's a formula for impressive shareholder returns that aren't dependent on industry boom times continuing indefinitely.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Winnebago Industries, Inc. Stock Quote
Winnebago Industries, Inc.
$66.41 (3.55%) $2.28
Synthorx, Inc. Stock Quote
Synthorx, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.