Winnebago (WGO -0.62%) just kicked off its new fiscal year with a bang. The recreational vehicle (RV) giant, which has widened its portfolio to include more luxury motorhomes and towables, along with several boating brands, is capturing a bigger portion of this growing industry. Earnings are soaring because of rising prices, low inventory levels, and strong demand for outdoor lifestyle products.
CEO Michael Happe and his team predicted more good news ahead for the rest of fiscal 2022 mainly thanks to a record order backlog that might take more than a year to satisfy. With that bright big picture in mind, let's zoom in on the latest quarter's results.
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Sales trends
Winnebago's sales trends remained strong. Organic revenue, which strips out recent acquisitions like the Barletta boating franchise, jumped 38% year over year in the latest quarter. However, that's essentially unchanged from the robust growth the company reported three months earlier at the close of its fiscal 2021 year.
The company still struggled to keep up with demand and largely failed to improve the historically low inventory at dealerships around the county. Its towable product sales were up 43% for the quarter, but backlog more than doubled over the prior-year period. The motorhome division booked 31% higher sales, but backlog jumped 41%.
Yet management was happy with the production pace they reached, given the supply chain challenges. Happe highlighted Winnebago's growing market share, which expanded to 13.3% of the RV industry from 12% a year ago, as evidence that the strategy is working.
Raising prices
The tight dealership inventory levels provided Winnebago room to be unusually aggressive with price increases. In many cases, these boosts were implemented before expected component cost increases, management said, rather than following these cost spikes.
As a result, profits are jumping. Gross profit margin for the full business rose by 2.5 percentage points to 20% of sales. And adjusted earnings roughly doubled to $3.51 per share. Executives said they were thrilled to see Winnebago reach record profitability "even in the face of ongoing supply chain constraints and increased input costs."
The 2022 outlook
Winnebago's soaring backlog isn't a perfect reflection of future sales because the orders can be canceled at any time by dealerships. Thus, the company's biggest challenge today is ramping up production so that it can turn more of those prospective sales into actual sales. That's why investors should be watching for progress at closing the gap between sales growth and backlog increases over the next few quarters.
Meanwhile, it's great news for the business that Winnebago is gaining market share and finding room to raise prices. That pricing power is partly thanks to its dominant industry position and valuable brand. It's also a testament to management's strategy in recent years of venturing into more outdoor-lifestyle niches and focusing on luxury brands.
Winnebago is firmly positioned in the consumer discretionary category, exposing it to sharp growth downturns during economic slumps. But there's no hint of such a drop on the way right now as the RV leader sets its sights on reducing its record $4.6 billion backlog of orders to be filled over the next six months.
