What happened
Recreational vehicle (RV) specialist Thor Industries (THO -0.16%) beat the market this week. The stock was up 15% through Thursday trading, compared to a 0.3% increase in the S&P 500. That rally put the stock well above the market so far, according to data provided by S&P Global Market Intelligence. Thor is now up 25% in 2023.
The rally was sparked by the company's fiscal third-quarter earnings update, which showed positive earnings despite a contraction in the RV industry.
So what
The company revealed on Tuesday that sales fell a painful 37% in the selling period that ended in late April. RV demand continues to slump compared to soaring results over the past two years thanks to the combination of slowing consumer spending and rising interest rates. "Market conditions continue to be challenging," CEO Bob Martin said in a press release, "and consumers face increasing pressures from the macro environment."
Yet Thor still managed to generate solid profits in the period. Higher prices, plus cost reductions, helped net income land at $121 million, or 4% of sales, compared to $348 million, or 8% of sales a year earlier. The company's cash flow trends remained strong as well.
Now what
These factors suggest that Thor can navigate through the current cyclical downturn while avoiding aggressive price cuts or significant losses. It is also good news that the company has cleared out older inventory from its dealership partners, lessening these risks even further. Progress here will support the rollout of its model year 2024 RVs in the coming months.
Thor Industries is still likely to book lower sales this year than in the previous two fiscal years, and profitability will decline further from the high that shareholders saw during the pandemic. But Thor has driven through industry recessions before and is positioning itself for a solid rebound once the RV market starts expanding again.
