MRAA/Baird Marine Retailer Pulse Report · Robert W. Baird, in partnership with Marine Retailers Association of the Americas (MRAA), is pleased to present the May 2016 Marine Retailer

June 14, 2016

MRAA/Baird Marine Retailer Pulse Report May 2016

Craig Kennison, CFA [email protected] 414.765.3870

Matt Gruhn President, MRAA 763.333.2421

PLEASE REFER TO APPENDIX – IMPORTANT DISCLOSURES AND ANALYST CERTIFICATION AT END OF DOCUMENT

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Robert W. Baird & Co. Inc. Marine Retailer Pulse Report

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Overview

Robert W. Baird, in partnership with Marine Retailers Association of the Americas (MRAA), is pleased to present the May 2016 Marine Retailer Pulse Report.

We recently surveyed 43 marine retailers to assess recent trends in North America.

Thank you to each of the retailers who participated in this survey.

If you have any questions or comments that you would like to direct to MRAA, please contact Matt Gruhn, President of MRAA, at 763.333.2421.

If you have any questions or comments, would like additional research on the marine industry, or are a retailer and would like to participate in our next survey, please email Senior Analyst Craig Kennison [[email protected]].

Note: This is not a scientific survey, rather it is meant to give investors an indication of current industry trends. Some quotes have been edited to protect the anonymity of respondents.

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Table of Contents

Marine Retailer Pulse Report

Retailer Profile 5

Retailer Sentiment 6

Retail Trends 7 – 9

Comments 10 – 11

Inventory 12

Financing 13

Winning the Next Generation of Boaters 14 – 15

Additional Comments 16

Key Statistics

Macro Overview 17 – 19

U.S. Powerboat Retail 20 – 22

U.S. Retail By Category 23 – 25

Brokerage Trends 26

Stock Seasonality 27

Disclosures 28 – 33

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Retailer Profile

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43 retailers from the United States and Canada participated in the MRAA/Baird Marine Retailer Pulse Report.



Retailer Sentiment

We have established the first Marine Retailer Sentiment Index, capturing both current and longer-term (3-5 year) retailer sentiment. Marine retailer sentiment based on current conditions improved relative to last year (69 vs. 63) – and remains near an all-time index high for the current conditions metric. However, the 3-5 year outlook declined slightly year-over-year (65 vs. 68), as a slightly more optimistic current outlook suggests that some retailers may be preparing for trends to slow. For context, sentiment readings can range from 0-100, with 50 providing a “neutral” outlook. Net, the MRAA/Baird Marine Retailer Sentiment Index indicates continued dealer confidence.

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Retail Results May Retail Growth Estimates

Our retailer checks indicate that U.S powerboat retail increased MSD% at best in May. Based on our checks, 73% of retailers reported an increase in retail during May compared to just 15% that reported retail declines. However, we note that our sample size this month was smaller than normal and tends to have a positive bias, suggesting our results may have a higher-than-normal variance due to sample composition. Retailers reported an increase in used boat retail in May, as 55% of retailers reported an increase in used boat retail, compared to 27% that reported a year-over-year decline.

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Retail Results May Retail Growth Estimates

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Retailers report particularly strong retail trends in the outboard, aluminum, and pontoon categories, but also note growth in the ski/wake category. Notably, retailers reported modestly positive trends in sterndrive. Seasonally, May is a key month in the annual retail season, comprising ~16% of annual sales.



Retail Demand Factors May Retail Growth Estimates

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According to retailers, the economy, new products, promotions, and access to credit were all positive contributors to retail demand in May. Retailers indicated that the economy and new products had the largest impact year-over-year and on an absolute basis. On the negative side, retailers reported that competition, regulations, and government action/inaction were all demand headwinds during the month. Weather and trade-in activity were essentially non-issues during the month.



What’s Working Comments

“ New products. Nationally advertised pricing.”

“ Just about everything is right now.”

“ Still working with bottom feeders.”

“ New upscale, high-end models.”

“ Robalo Boats.”

“ Social media.”

“ Industry boats for sale sites.”

“ Used inventory, especially pontoons.”

“ Outboard powered boats.”

“ Price, aluminum, service, used boats.”

“ In-house promotions.”

“ Bayliner brand is really working for hourly-type workers – seeing a nice resurgence of this buyer.”

“ Demos, on water skills training, sponsored on water activities.”

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√



X What’s Not Working Comments

“ Value brands not doing well. Middle of the market has not recovered. High net worth buyers are fueling our growth.”

“ Bad weather does not work.”

“ New 18-20 ft. fiberglass IO boats.”

“ Conventional advertising (print, TV, radio).”

“ Cruisers, cabin boats slow.”

“ I/Os slow.”

“ Lack of qualified technicians starting to hurt big time.”

“ Small bowriders.”

“ Most promos are the same. Need cooperative effort to get boats out to different venue such as fairs, festivals etc.”

“ PWC, sterndrive, jet boats.”

“ Cruisers are still struggling against the used market, as are Meridians.”

“ Lame engine manufacturer rebates.”

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Inventory

Retailers reported that new boat inventory ticked down sequentially and is slightly higher than last year. 15% of retailers believe that inventory is “too low” compared to 39% that think inventory is “too high.” Still, 45% of retailers think that inventory is “about right” – and we consider inventory levels to be within a “normal” range. Used boat inventory remains very lean, as inventory levels appear well below levels for the same period last year. Indeed, 67% of retailers report that used inventory is “too low” versus just 9% that report inventory is “too high.” We continue to believe that a limited supply of quality late-model used boats will eventually force consumers to consider new boat purchases.

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Financing

We continue to believe that retail and wholesale credit remain broadly accessible. Indeed, 53% of retailers indicated that they believe retail credit conditions are “favorable,” while another 35% of retailers report that credit availability is “unchanged.” Wholesale credit trends continue to be within a normal range as well, as 56% of retailers reported “favorable” credit conditions.

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Winning the Next Generation of Boaters Comments

“ Continue to make the ownership experience easy and affordable. I also think the new generation buyer is more of a one price shopper.”

“ I'm not sure we can. There will always be boaters just not as many as we've seen in the past. Younger people prefer no hassle and boating is a lifestyle that, by nature, requires some hassle.”

“ Controlling cost of boating must be a major concern.”

“ Better entry-level boats, or a solid certified pre owned program.”

“ Design, build, and implement a ‘boat sharing’ opportunity.”

“ Get ‘em out on the water. Rent, produce affordable boats, sponsor ‘real deals,’ educate youngsters.”

“ Learn to properly serve the existing boaters, then worry about the 'next' generation.”

“ Lower prices for boats. New boat prices are not affordable for many people.”

“ Make it more affordable and figure out ways to promote to next generation.”

“ Sell the fun and togetherness of boating.”

“ Keep prices as neutral as possible moving forward.”

“ The cost of boating is quite expensive. Time, it appears, is a factor limiting their time for boating when compared to your activities. Boat Clubs may be the alternative.”

“ Work on methods to get them on the water experiencing it so they can get a taste.”

“ Educate!”

“ Manufacturers raise prices because of the historic business model of them making more than retail. Retail should make more mark-up due to higher cost of net to operate per dollar of gross revenue. Still too many dealers because of too many manufacturers. No way largest dealer sells more than smallest manufacturer. Does not happen in auto, RV, etc.”

“ Need more entry-level priced boats.”

“ Sell the lifestyle.”

“ Provide low maintenance, easy and low-intimidation solutions to ownership. Create experiential demand...”

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Winning the Next Generation of Boaters Comments

“ Units that are easier to use and trouble free. They like ample USB ports and Blue Tooth.”

“ Technology, ease of access.”

“ Increase Grow Boating contributions to advertise the boating lifestyle to more non-boaters.”

“ Engage and get them on the water.”

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Additional Comments Comments

“ In Texas it needs to quit raining for a little bit. Raining every day and flooding is hurting our summer.”

“ Thank God for the one-percenters!”

“ Industry must make a concerted effort to set up education and training, and in particular, to provide for an influx of qualified technicians. We simply can’t put out what we have sold this year with any efficiency, and when things break, there is a ridiculous wait time for customers. People are being driven from boating!”

“ Weather causing lake closings, probably thru 4th. Washington and liberal policies kill business. Interest rates on floor plans are ridiculously high. Entire retail and wholesale pricing, credit scoring, is not explainable by banks or credit scoring companies!”

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Consumer Recovery

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Wealth Effect

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Percent of Peak

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U.S. Powerboat Retail Dollar Sales

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U.S. Powerboat Retail

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U.S. Powerboat Retail

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U.S. Retail by Category

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Brokerage Trends

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Brunswick Monthly Excess Return versus S&P 500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 -7% -12% -5% 6% -2% 3% -3%

2007 6% -2% -3% -1% 2% -3% -11% -11% -13% -4% -1% -16%

2008 17% -10% -1% 0% -19% -14% 23% 6% 2% -56% -13% 55%

2009 -25% 22% 3% 64% -28% -7% 59% 26% 25% -19% 1% 25%

2010 -12% 5% 33% 29% -8% -23% 29% -20% 11% 0% 1% 11%

2011 4% 12% 11% -11% -6% -4% 9% -22% -4% 15% 6% -4%

2012 14% 8% 5% 3% -10% -2% -2% 6% -7% 6% 9% 12%

2013 19% 0% -10% -9% 4% -3% 13% -1% 7% 9% -1% -2%

2014 -6% 4% 0% -12% 5% -4% -3% 3% 0% 9% 4% 4%

2015 9% -5% -3% -4% 1% 2% 2% 0% -1% 4% -2% -2%

2016 -16% 8% 6% 0% -2%

10-Year

Average1% 4% 4% 6% -6% -7% 11% -2% 3% -4% 1% 8%

% of Years

Outperformed60% 60% 60% 30% 40% 10% 60% 50% 50% 60% 60% 50%

Source: FactSet, Baird research

assumes reinvested dividends

Stock Seasonality

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Appendix – Important Disclosures and Analyst Certification

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Robert W. Baird & Co. Incorporated makes a market in the securities of BC and MCFT.

Robert W. Baird & Co. Incorporated and/or its affiliates managed or co-managed a public offering of securities of BRP, Inc. and MCBC Holdings, Inc. in the past 12 months.

Robert W. Baird & Co. Incorporated and/or its affiliates have received investment banking compensation from BRP, Inc. and MCBC Holdings, Inc. in the past 12 months.

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Robert W. Baird & Co. Incorporated and/or its affiliates expect to receive or intend to seek investment-banking related compensation from the company or companies mentioned in this report within the next three months.

Robert W. Baird & Co. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions in foreign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information.

Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.

Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges.

Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report.

Distribution of Investment Ratings. As of May 31, 2016, Baird U.S. Equity Research covered 705 companies, with 51% rated Outperform/Buy, 48% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 14% of Outperform/Buy-rated and 4% of Neutral/Hold-rated companies have compensated Baird for investment banking services in the past 12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months.

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Analyst Compensation. Analyst compensation is based on: 1) the correlation between the analyst's recommendations and stock price performance; 2) ratings and direct feedback from our investing clients, our institutional and retail sales force (as applicable) and from independent rating services; 3) the analyst's productivity, including the quality of the analyst's research and the analyst's contribution to the growth and development of our overall research effort and 4) compliance with all of Robert W. Baird’s internal policies and procedures. This compensation criteria and actual compensation is reviewed and approved on an annual basis by Baird's Research Oversight Committee.

Analyst compensation is derived from all revenue sources of the firm, including revenues from investment banking. Baird does not compensate research analysts based on specific investment banking transactions.

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Analyst Certification

The senior research analyst(s) certifies that the views expressed in this research report and/or financial model accurately reflect such senior analyst's personal views about the subject securities or issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report.

Disclaimers

Baird prohibits analysts from owning stock in companies they cover.

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.

ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST The Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available.

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Copyright 2016 Robert W. Baird & Co. Incorporated

Other Disclosures

The information and rating included in this report represent the Analyst’s long-term (12 month) view as described above. The research analyst(s) named in this report may at times, discuss, at the request of our clients, including Robert W. Baird & Co. salespersons and traders, or may have discussed in this report, certain trading strategies based on catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report. These trading strategies may differ from the analysts’ published price target or rating for such securities. Any such trading strategies are distinct from and do not affect the analysts’ fundamental long-term (12 month) rating for such securities, as described above. In addition, Robert W. Baird & Co. Incorporated and/or its affiliates (Baird) may provide to certain clients additional or research supplemental products or services, such as outlooks, commentaries and other detailed analyses, which focus on covered stocks, companies, industries or sectors. Not all clients who receive our standard company-specific research reports are eligible to receive these additional or supplemental products or services. Baird determines in its sole discretion the clients who will receive additional or supplemental products or services, in light of various factors including the size and scope of the client relationships. These additional or supplemental products or services may feature different analytical or research techniques and information than are contained in Baird’s standard research reports. Any ratings and recommendations contained in such additional or research supplemental products are consistent with the Analyst’s long-term ratings and recommendations contained in more broadly disseminated standard research reports.

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Documents

MRAA/Baird Marine Retailer Pulse Report · Robert W. Baird, in partnership with Marine Retailers Association of the Americas (MRAA), is pleased to present the May 2016 Marine Retailer