BRP growth skids in pandemic

Ski-Doo maker reports $226M loss

Ski-Doo maker BRP Inc.’s high-growth trajectory skidded this spring due to the coronavirus pandemic that eroded demand for some of its recreational products as dealerships closed their doors to follow lockdown orders.

On Thursday, the Quebec company reported a net loss of $226.1 million in the three months ended April 30. The loss was driven by a $171.4-million writedown in its marine division, which will stop producing outboard engines given existing troubles exacerbated by COVID-19.

But BRP executives said sales across all products and geographies are up about 35 per cent in May so far compared to this time last year as people look for activities closer to home. In the United States, BRP’s largest market, sales even increased 4.8 per cent in the first quarter.

“With the new travel restrictions and vacation at home trend, our retail is returning strongly and showing very positive signs,” BRP chief executive José Boisjoli said in a statement.

Despite the optimism that COVID-19 could actually be good for business and continued strength in the U.S., BRP estimates revenue will fall 40 per cent in the second quarter compared to the same period last year and drop between 10 and 20 per cent in the second half of the year.

Analysts are also skeptical that May’s sales volumes are sustainable.

“This is likely driven by consumers foregoing travel and instead planning staycations with powersports, an ideal activity to respect social distancing,” National Bank analyst Cameron Doerksen noted to clients Thursday.

BRP has been on a tear over the past several years, with its market value eclipsing that of its former parent earlier in 2020 before the pandemic took hold. But it could be difficult to continue on its growth trajectory as millions of people lose their jobs across North America. Disposable income for expensive products like personal watercraft has historically taken a hit during recessions.

“Given that consumer demand for powersports is ultimately driven by broader economic conditions, we do not believe this retail performance will continue,” Doerksen noted.

BRP stock plummeted from an all-time high of $74.80 per share in mid-February to $19.75 by the end of March, but has rallied higher since then. The stock closed $48.81 per share, down 3.75 per cent, on Thursday.

National Bank raised its price target to $55 from $40 to account for BRP shedding its outboard engine division, which was struggling to compete against the dominant industry player and dragging down profitability.

Still, BRP managed to gain market share from its competitors during the pandemic, particularly in its relatively new side-byside utility vehicle division. Doerksen expects this trend to continue as BRP has the financial strength to invest to keep investing in new products during a downturn.

Boisjoli acknowledged the COVID-19 crisis significantly disrupted business, but said the company was able to successfully adjust its plans.

BRP temporarily stopped or slowed down all of its marine and powersports manufacturing operations due to government restrictions during the pandemic. It implemented temporary layoffs and permanently cut approximately 900 positions around the world. Most of its manufacturers and dealerships have since reopened, including its snowmobile plant in Valcourt, Quebec.

But the pandemic led BRP to permanently stop building outboard engines, a move that will result in 650 job losses globally. It will repurpose its facility in Sturtevant, Wisconsin and permanently shutter its plant in Arkadelphia, Arkansas as part of the reorganization.

“This business segment had already been facing some challenges and the impact from the current context has forced our hand,” Boisjoli said in a separate announcement Wednesday.

BRP will concentrate instead on the pontoon and aluminum fishing markets.