Winnebago Industries (WGO 2.06%) isn't fooling itself. The RV giant knows that much of its recent soaring sales growth is just temporary. Its more than 100% demand spike in the fiscal third quarter was partially powered by an unusually weak year-ago period. At the same time, stimulus checks helped convince people to buy RVs and boats in early 2021.
But management still sees a fundamentally stronger selling environment that should persist even as the COVID-19 threat fades. Let's look at why CEO Michael Happe and his team are so optimistic about the short term and long term for Winnebago.
Image source: Getty Images.
The big picture
Winnebago's early 2021 results were strong across the board. Sales jumped 139% to a new fiscal third quarter record, outpacing management's forecast and beating rivals like Thor Industries. The RV leader expanded its market share, boosted profitability, and maintained a robust production rate despite supply chain challenges.
Executives noted in a recent call with investors that some of those gains were from shoppers speeding up the timetable of their purchases, which implies slower growth ahead. But the big picture has brightened for the industry too. Over 10 million families camped for the first time in 2020, and many first-time RV buyers appear eagerly engaged in the lifestyle. These factors should support continued growth ahead. "We are long and bullish on America's outdoor recreation economy," Happe told Wall Street analysts, "and the place in that ecosystem that Winnebago will hold in the future."
The allure of premium
Winnebago's valuable brand, its portfolio of premium products, and its leading manufacturing system combined to create sparkling financial results in early 2021. The company had no trouble passing along higher prices as component costs rose. Its dealership partners are also happily reducing their discounting rates.
Like Thor did earlier in the month, Winnebago this week described output challenges that are making it harder to keep inventory moving through the system. But the company is still winning in this environment. "The craftsmanship and quality of our premium products [...] enables us to continue to grow our market share, even at historically low levels of discounting," Happe said.
About that backlog
The next few months bring a host of risks to the business, and investors are worried about a potential demand pullback, competitive price cuts, and canceled orders. Winnebago's huge backlog, after all, only implies an intent to purchase, which can change if an RV shopper gets turned off by higher prices or by delivery delays.
Executives believe most of these orders will go through, though, and they cite metrics like Winnebago's rising market share and expanding production capacity to support their claim that the business is better positioned than most of its peers.
Even that premium positioning won't protect Winnebago completely from those inevitable downswings that occur from time to time in this consumer discretionary business. But for now, the company is capitalizing on the boom times and using its extra resources to make lasting improvements -- for example, by upgrading its just-in-time manufacturing platform. These wins should support higher earnings over time as Winnebago consolidates its hold on the RV market.
