What happened
Shares of MasterCraft Boat Holdings (MCFT 0.10%) were down 15% as of 10:22 a.m. ET after the company posted lower sales and a weaker outlook for the near term.
Net sales were down 15% versus the year-ago quarter as higher interest rates made it more expensive to finance a new boat. Weak top-line results weighed on profitability, with net income from continuing operations falling 31% year over year.
Compounding the concern for investors, management said industry retail unit sales could fall by a mid-teens percentage this year. The stock is down 17% year to date and hasn't moved higher from its share price five years ago.
So what
For the fiscal year ending in June, CEO Fred Brightbill said MasterCraft performed "extremely well" in the context of a difficult operating environment. He noted the company generated record operating cash flow of nearly $134 million, but the uncertainty over near-term demand is weighing heavily on the stock.
Higher interest rates and tightening credit standards are making it difficult to sell boats. The near-term demand visibility is cloudy, but that could mean the worst is not over yet. Inventory sitting at dealerships is piling up, which will weigh on the company's sales and profits in fiscal 2024.
Now what
The good news is that MasterCraft has a strong balance sheet, with over twice as much cash and short-term investments than it holds in debt. This gives the company plenty of financial flexibility to weather the storm.
Obviously, retail demand won't always be weak, so investors who keep a long-term perspective shouldn't panic. The shares trade at a low forward price-to-earnings ratio of 5.5, but this is consistent with the stock's trading range in recent years.
MasterCraft will have to recover from this downturn and then report sustainable revenue growth to deliver meaningful returns to investors.
