Craig Kennison: We get a lot of questions from investors about guidance and really the expectation for retail to be flat. We’ve got a potential recession, and we also have potential tighter credit, although you’re not seeing it. What gives you confidence in that flat outlook? Is — are we underestimating the product cycle — or are we underestimating the impact of product availability and your ability to actually fulfill demand in a bigger way?
Mike Speetzen: Yes. I would say it’s a few things, Craig. I mean, one, the utility side of our business, which for Off-Road makes up about 60% of the volume, the demand there remains stable. In fact, on the commercial side, it’s very strong. And so that gives me confidence as we get availability into the channel, we are seeing those products retail out or sell-through. And so there’s obviously an element there that as long as that market continues to hold up and frankly, we’re not seeing anything that tells us anything differently, that gives us confidence. The second is we talked about it. We’re not expecting growth in our recreational category from the existing products. So we’re anticipating things to continue to be a little slow there.
just given that, that’s a far more discretionary purchase and consumers are obviously impacted by what’s going on. Even if credit is available, the cost of credit is obviously a strong consideration. But I do think the new product elements, both for recreational and utility that we have coming out later this year, probably are being a bit underestimated. They’re largely not a cannibalizing product. So they’re redefining segments or defining new segments. And we’re really excited about what we believe that means for the business. When you add on top of that, we didn’t talk about it, but we had considerable growth in our international markets, pretty much across the board, particularly strong in our Indian Motorcycle brand but even growth in off-road and growth in PG&A that comes as a result of organic but also with those new products, we are, at the same time, launching a number of PG&A options.
So for example, when we launched the all-new RZR XP. They were close to 100 accessories that came out literally at the same moment that vehicle did. And so when you add all those factors together, we believe that puts us in a pretty good environment to at least execute on a flat retail environment.
Bob Mack: The other thing to keep in mind is as you think about ’22 retail, which is the comp everybody is looking at, ’22 was still not a normal retail either year from either a cadence perspective or an inventory availability perspective. And it was a good bit lower than 2019. So we’re not comparing — if you think of 2019 as the last sort of normal cycle for this industry, the 22% comp relative — full year comp relative to ’19 is not a Herculean number. So we’re already kind of down from where we were prepandemic, if you look at it from a unit standpoint versus ’19?
Craig Kennison: If I could just follow up. Are you able to track sort of the average retail selling price and given dealers have to be sharper on their pricing. Are you actually seeing maybe the monthly payment for a like-for-like unit tick down given maybe a more competitive price from dealers?
Bob Mack: So you’ve got two dynamics at play there. Price obviously and interest rate. I would say that the increase in both promo across the whole industry as well as the dealers, to your point, maybe shepherding their pencils a little bit, taking a little bit less margin. Obviously, during the pandemic people were doing pretty much full op margins. That brings the finance rate down a little — the finance amount down a little bit. I would expect most of that good news is offset by kind of the rates that have ticked up kind of quarter-by-quarter. So I don’t know that that’s having a huge impact yet. But if rates stabilize, that will start to maybe have a small impact. But we don’t get — the feedback from dealers is that the dollar per month isn’t really the big driver.
It’s the headline shock of the rate when people are financing the products. They’re just not used to seeing a rate that’s kind of in the 7 plus range, and that’s more the driver on people’s hesitancy to buy.
Mike Speetzen: Yes. And when we were out with the marine dealers, they were looking for some help from us, not necessarily financial help, but helping how do you articulate to consumers that, that headline rate may be higher, but the impact from a monthly payment standpoint really is not significantly impacted in — so they’re happen to think differently about how they’re selling. The other thing I’d went out is the comments that we’ve made around the high end of the business, and that’s true, whether it’s on-road off-road or marine, that the customer remains very strong and — our — we don’t talk about it really much anymore, but that presold order book obviously has come down from the heights that we had now that inventory is better.
But it’s still up pretty significantly relative to where it was before the pandemic. And really, that’s centered around areas like the Ranger North Star, where we’re still not at optimal inventory levels. And that just tells you that customers are still anxious to get that product, that’s good for dealers because whether it’s the Turbo R, the Pro R or the North Star Ranger, the amount of discounting that they have to do is minimal, and that tends to be a more affluent customer that maybe not as sensitive to the financing rate. So we feel pretty good about where those dynamics stand right now.
Operator: The next question is from Robin Farley with UBS. Please go ahead.
Robin Farley: Just to clarify a little bit. I know the April retail has already asked about. I wonder if you could just indicate though, whether when you say it’s strong. Is it positive year-over-year? Or did you just mean that you were continuing to grow share? And just thinking about that in the context of your expectation for retail to be flat for the year. It seems like Q1 was going to be the quarter that would have been up modestly. And so is there a quarter later this year then — I don’t know if it would be Q2 here or Q3, where you’re now expecting to see that kind of that retail up year-over-year?
Mike Speetzen: Yes. So I would say this. April is tracking with our expectations. It is up versus last year. And obviously, that’s 1 of 3 months that we’ve got to execute on. So at this stage, we feel pretty good about it. I think we’re going to probably steer clear of trying to make commentary around the quarters on retail. The first quarter, the difference between what happened in our expectations. Really, there are a couple of things. One, as you well know, — we had a fair number of our recreational products on shipment holds or retail holds. We did clear those. But as it happened later in the quarter, I’m sure that there was some of that, that was still caught up and getting the work done on them. And then the second point that I made earlier is we’re still not where we need to be from a Ranger inventory standpoint.
And so we know when we get that product in at retail, and we know that, that’s an area where we fell short of some of our expectations, and it was purely around having that product at the dealers. So a lot of timing effects that go in there. But I think the key message is weather cleared up product availability both correlate to improving retail, and we’ve seen that continue to improve, not only relative to our expectations but also sequentially as we came out of the first quarter.
Robin Farley: No, that’s very helpful color around Q1. Just a quick follow-up on the commentary about your retail financing partners. Just given what’s going on in the broader environment, there’s concern about how much credit would be available for consumer financing. Do you have an annual contract with your retail finance partners? Is there like a particular time of year when the terms of that get revisited where if they had a change in view about how aggressive they want to lend in different parts of the consumer space where those new terms would come into play?
Bob Mack: Yes, Robin, it’s Bob. There are — I mean, there are 4 partners and the contracts are all multiyear Obviously, they expire and renew at different points. But part of the benefit of having those 4 partners is that not only are they competing with the credit unions for business, but they’re competing with each other. And so I think that, that helps us keep strong credit availability and solid approval terms and the appropriate level of aggressiveness with the finance group. And we meet with them all monthly team meets with a more frequently than that, but I speak with them monthly. And we feel good about where they are. They’re not signaling any lack of commitment to the market. They’re not changing their credit standards. Our FICO scores have remained very consistent. Our average consumer earns well over $100,000, and their income is up 16% versus 2019. So it’s a pretty strong consumer group to finance in the banks like the business.
Mike Speetzen: Robin, we’ve talked about it before. The thing I like about the setup we have, which we’ve obviously expanded from what we used to have with really only 2 partners — is there are thresholds in the contracts that incentivize performance as well as the separation, as you’ve heard me say in the past, of church and state, so that we’re not pushing them to go down a path that puts their balance sheet in a compromised position and they’re not playing it too conservative. We think it puts us in a very balanced middle of the road. And I think that’s why you see them picking up their penetration rates and it provides a really good opportunity for our customers.
Operator: The next question is from James Hardiman with Citi. Please go ahead.
James Hardiman: I had a question on the quarter and then maybe a question on the outlook. I guess, as I think about the retail performance and then the reported sales performance. I was hoping you could maybe bridge that gap, particularly on ORV or off-road, right? ORV retail was down 10 reported whole goods sales were up 25%. Obviously, that’s pretty big death. It’s not apples-to-apples. It never is, but maybe sort of walk us through the big contributors to that, maybe start with the ASP number. I think you mentioned snowmobiles probably helped increase that gap as well. And then there was obviously some channel fill. I’m assuming a good chunk of that call it, $150 million was ORVs. But I just want to make sure I’m not sort of missing any of the key components with regard to that sort of gap.
Bob Mack: Sure. This is Bob. I’ll take that broad question and a couple of pieces here. So if you think about the quarter, and you think about retail relative to ship, we made up some ground really on the ATV side. We started shipping — we’re just starting to ship now, the new range or the new razors but we did make some progress on Pro R and Turbo R are get some more inventory out there in those high-demand vehicles in the quarter. And as Mike said, we didn’t make the progress we had hoped to make. And so for Ranger, shipments and retail were relatively close, made up a little bit of group, but not a lot. So it’s — part of it is getting better channel inventory out there, getting that out there ahead of the season, primarily on ATVs, and like I said, a little bit on Ranger.
The snow was a piece of it. AFPs are another chunk. We had the — this is the quarter where we had most of the carryover from last year. So our last price increase — major price increase was in early Q2 of last year. So we do have more carryover on the pricing side. So are up double digits in off-road and mid-single digits in on-road and marine.
