So it’s really about which product lines and segments require support. The other thing that we’re cognizant of, obviously, is some of our models will be significantly changed at model-year, some less significantly changed at model-year. So the ones that are being significantly changed, obviously, we would add more promotional support to move out the prior model-year product. So those are more the kind of targeting things that we’re talking about. I think broadly, discounting promotion is not different to plan just higher than prior year.
Megan Alexander: Understood. Thank you. That’s helpful. And maybe just one quick follow-up. FX and incremental headwind, nice to see that you think you’ll be able to offset it with tax rate and good to see the higher share repo. But just given what’s gone on with the Fed and the uncertainty, understanding it’s early in the year, was there any thought to lowering the full year guide or maybe you can give us some context around how you thought about that?
Dave Foulkes: No, not really. I think when we gave ourselves some space in the guide at the beginning of the year. I think the $7 to $8 is a pretty decent amount of space. If we thought that was under threat, obviously, we would have considered it. But we don’t think it is at the moment. Yes, certainly, there are some ups and downs. And I’m very pleased that we were able to cover even in Q1 the FX headwind. I think it’s obviously given the market today particularly it’s good to be in the market with more share repurchases. We’re obviously biasing to the first half of the year. On that, so no consideration of changing guide at the moment.
Megan Alexander: Okay, great. Thank you so much.
Operator: Our next question is from the line of Craig Kennison with Baird. Please proceed with your questions.
Craig Kennison: Yes, thanks. She just asked my first question. So maybe I’ll just pivot. Dave, you mentioned the Atlantic speed limit proposal, which has gotten a lot more attention lately among the analyst community. But you also mentioned, I think, a possible technology based solution that might supplant a regulatory based solution. Just I’m wondering, do you have innovation in the pipeline? And could that be part of the solution? And do you think regulators might listen if you have that sort of pitch to offer?
Dave Foulkes: Yes, I think we’ve been very active in promoting existing and potential near future technological solutions. The proposed rule is really a huge overreach and completely ineffective way of approaching this. I think that it’s basically a placebo. But it is what it is. So I think first of all, the negligible evidence of a lot of boats, 35 feet and above contributing to whale deaths in any significant numbers, we could trace one in the last 20 years of a whale with an ID. So this is really a — it’s complete overreach. If you really wanted to try and address this, then we have to combine boats and infrastructure, for example, with AIS systems or tracking or sonar or vision systems, there are a lot of ways to do this in a much more effective way than is currently being proposed.
Concerning the rule, we don’t exactly know what the rule is. We know what some of the kind of drafts were, but we don’t see it until it gets published, if it gets published. And I would say the impacts are somewhat difficult to project. I think one of the analysts did an analysis based on 60,000 boats affected with a life of 20 years, which gives you a replacement of 3000 boats and then without market share. But there are a couple of factors to consider here. One is that the proposed rule that we saw has the limits effective in the off season, basically, from November through April, which is mainly off season for boats in that part of the market. And the assumption would be that somebody would say a 37-foot boat wouldn’t replace it with a 34-foot boat.
So I think it’s really difficult to project how this kind of plays out. But we’re concerned about it really because of the precedent it might set as opposed to the necessarily specifics of this particular implementation. It’s just a huge overreach.
Craig Kennison: That’s helpful. Thanks, Dave.
Operator: Our next question is from the line of Mike Swartz with Truist Securities. Please proceed with your questions.
Mike Swartz: Hey, good morning, guys. First question I may have missed it, but did you say what global either weeks on hand or pipelines were at the end of the quarter? And then just as it pertains to the full year guidance, what are you assuming are either weeks on hand or pipelines by the end of the calendar year?
Dave Foulkes: Weeks on hand at the end of the calendar year is the 37-ish range?
Ryan Gwillim: Down a couple of weeks at the end of the year.
Mike Swartz: So 37 by the end of the year?
Dave Foulkes: Yes, that’s right. It’s 36 right now. And we expect about 37 by the end of the year. That is what we are planning our production around, I would say, maybe more correctly at the moment.
Mike Swartz: Got you. And then just a second question. We get a lot of feedback on this from people in the industry, but I guess what are you doing to address affordability? I mean, I would assume there’s things you can do around pricing, things you can do around content, but maybe at a high level, what things are you addressing through affordability maybe with your model-year 25 product line?
Dave Foulkes: Yes, certainly. I mean, I think the — when you’re thinking about making a boat affordable, there’s lots we can influence in terms of base content. So we might adjust base content. We might, I think a couple of things. One is we offer versus pretty much everybody else, the broadest possible product line. We have boats, as we said, that sell for $1,000 and boats sell for more than a million dollars. So there are lots of ways to enter the market with us as it is. We can certainly control base content so that we make sure that we offer maybe a wrong on the ladder that wasn’t typically available. But there are broader considerations about resale value and other things that consumers are very aware of. There are certainly some boats that you just don’t want to decontent.
This is very similar to a car. If you want to sell it again after three years and it doesn’t have some key piece of content on it, then the resale is going to be lower. And I think people are smart enough to know that the consider resale when they’re buying something. So yes, we have a broad product line that will certainly, in some cases be adjusting some base content to maybe add a wrong on the ladder that wasn’t there before. But really, the product line, there’s a lot of the heavy lifting for us, I think.
Mike Swartz: Okay, thanks Dave.
Operator: Our next question is from the line of Matthew Boss with JPMorgan. Please proceed with your questions.
Matthew Boss: Great, thanks. So Dave, just to follow up on wholesale, could you just elaborate on the visibility today that you have in the second quarter relative to the back half wholesale orders? And just maybe how best to think about the drivers behind the OEM caution that you cited today relative to the sequential wholesale improvement that’s expected throughout the year?
Dave Foulkes: Yes. Well, I think the drivers, as I mentioned earlier, really are retailers not wanting to hold more current model-year inventory than they really have to support sales before the change-over, which will, for most people, be in June, because they have to apply typically additional discounting or promotions to some kind to move prior model-year product. So as soon as somebody is in the showroom of a dealer in June and they’re faced with a ’25 model-year and a ’24 model-year, on the floor, the dealer’s typically going to have to apply more promotional activity around the ’24 model-year. So I think that’s what’s driving it. I think also there’s just general caution at the moment around how the consumer is going to behave?
Is there a difference in behavior versus recent experience? I think we — at the moment, we don’t have a huge amount of insight into dealer orders in Q3 for our smaller product particularly. For our larger product, like the premium, like the bigger boats, the bigger Harris’s, the Whalers, the Sea Rays, the orders are much more visible to us. And it takes a long time to build one of those boats anyway. So if you want it in June or obviously in Q3, you’re already ordering it essentially. And we know that Q3 orders are already strong for those brands. So it really depends. The visibility we have is less for value product and more for premium product, I would say.
Matthew Boss: Great. And then maybe, Ryan, to follow up, just given the caution on overall first half wholesale orders, could you speak to how you’re managing costs in the expense base to offset the related absorption, headwind?
Ryan Gwillim: Yes. Obviously, our first quarter kind of speaks for itself, right? We took $11 million of OpEx out versus the same quarter last year. And all of our business units played a part. It wasn’t just one unit or corporate. So we have cost programs throughout the entire company, both to launch manageable costs, so things like spending on travel and things like that, but also making sure that we’re keeping our gross margins as strong as possible, right? It’s a two-part story. You can only take out so much OpEx at a time, but if you keep your gross margins stronger, that obviously plays a big role over time. And we’ve shown the resoluteness of those margins here over the last several quarters. So we will continue to be very mindful of cost as we progress.
But obviously, as new models come out with the model-year and other new products come out, where product margins continue to grow, that will help the gross margin line as well. So all of that is kind of ingrained in everything we do today.
Matthew Boss: Great. Best of luck.
Operator: Our next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Fred Wightman: Hey, guys, I’m hoping we could just put some of the retail and wholesale discussions about the first half and the back half in the context with the 2Q guide that you put out there. So, on the earnings specifically, it looks like that’s a little bit below the street. And you’ve talked about some of the difficulties predicting OEM build schedules. So if we look at that 2Q number today, is that sort of where you thought it would be at the start of the year? Or are you assuming a little bit more back half-weighting, just given the fact that it sounds like people are holding off until model year ’25 start to hit? How should we think about the cadence, I guess, versus where it was three months ago?
Dave Foulkes: Yes, I think 2Q is maybe a touch lower. But if you look at the first half of the year, and you think we basically hit Q1, I think the street consensus with Q2 was like 203 in the middle of our guidance range is 195. So in the fall of the first half, we’re $0.08 different. So it’s really not a big delta here. But yes, for some of the factors that I just mentioned, I think we wanted to put a — we always want to put a range in there that is achievable in a range of potential scenarios. So that’s what we were considering. Ryan?
Ryan Gwillim: Yes, most of the $0.08 could be derived from FX. That is obviously playing a little bit bigger of a role. And just we did have a comment earlier about tax rate versus FX. The FX impact is more negative than the tax rate goodness is positive. So tax rate can play a little bit of a role, but in and of itself won’t get all the way there to cover FX if it continues to be as strong of a dollar as it has been the first 15 weeks.
