MRAA/Baird Marine Retailer Pulse Report

February 8, 2016

MRAA/Baird Marine Retailer Pulse Report January 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 January 2016 Marine Retailer Pulse Report.

We recently surveyed 80 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

Inventory Restocking Plans 14

Comments 15 – 16

Additional Comments 17

Key Statistics

Macro Overview 18 – 20

U.S. Powerboat Retail 21 – 23

U.S. Retail By Category 24 – 26

Brokerage Trends 27

Stock Seasonality 28

Disclosures 29 – 34

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Retailer Profile

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80 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 increased slightly year-over-year (69 vs. 67). However, the 3-5 year outlook declined slightly year-over-year (70 vs. 72). Still, retailers generally remain optimistic about marine demand fundamentals. 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 January Retail Growth Estimates

Our retailer checks indicate that U.S. powerboat retail increased high-single-digits percent in January. 46% of retailers indicated that new boat demand increased during the month, compared to 26% of retailers that reported a decrease in retail. It is early in the season (January represents just ~3% of annual retail), so we would not expect retail to provide a material catalyst until late spring. Retailers reported flattish used boat retail, as 35% of retailers tell us used retail increased in January compared to 23% that reported a year-over-year decline in used retail.

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Retail Results January Retail Growth Estimates

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Retailers report particular retail strength in the pontoon, outboard, inboard – ski/wake, and jet boat categories during January. However, trends were more muted in the aluminum and PWC categories – and retailers reported declines in the inboard – cruiser and sterndrive categories. Seasonally, January contributes just ~3% to annual retail.



Retail Demand Factors January Retail Growth Estimates

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According to retailers, weather was the demand factor that showed the single-most improvement year-over-year. Notably, retailers also indicated that the economy represented a modest benefit to demand this year, rather than a headwind to demand, as seen for the prior two years. Conversely, retailers highlighted competition, trade-in activity, regulations, and government action/inaction as headwinds to demand during the month.



What’s Working Comments

“ Bryant Boats’ new WT1 [is] certainly turning heads at the boat show with a price tag of $40,000 for an inboard with wakesurf and board. Overstaffing was good with the amount of traffic at shows this year.”

“ Surf capable boats. Fishing boats. New Electronics.”

“ Big premium dual consoles and tritoons.”

“ Boat show was very successful for us this year. Traffic was up as well as sales.”

“ Boat shows good so far. We had an earlier than usual one for us, which proved to be better than expected. Milder than usual January weather was a bonus as well.”

“ Loose flat-bottoms and portable outboards.”

“ New models [and] dealer promotions.”

“ New, innovative products.”

“ No positive effect in January.”

“ Not much. Whatever you stock, they want a different color or model.”

“ OEM incentives. Provide customer/prospect a very positive interaction, whether they purchase or not. Quality of product and service is key for success.”

“ Rain/snow.”

“ Robalo "reel deals" [and] internet marketing.”

“ E-blasts.”

“ Hard to answer most of these questions, as we are a seasonal business and are closed for the month of January. Very little business done in January.”

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X What’s Not Working Comments

“ Had lots of snow then lots of rain. No boat shows in January. Economy was slow as well in our region.”

“ I would like to see more grow boating campaigns to non-boaters.”

“ I/O's are soft for us at the moment.”

“ New boat packages.”

“ Parts and accessories are in serious decline. People with money are buying new boats, not fixing the old ones. People who buy those older boats fix them themselves and purchase parts online, not at a traditional dealership.”

“ Poor quality products coming from mfg.”

“ Sterndrive fiberglass.”

“ Still not selling sport boats or cruisers.”

“ The stock market affects our sales and the current market is not helping much!”

“ Weak builder promotions [and] longtime unchanged models.”

“ Commission sales.”

“ Government on all levels.”

“ Press and politicians.”

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Inventory

Retailers reported that new boat inventory ticked down sequentially, through remains slightly higher than this time last year. Still, 49% of retailers consider inventory “too high” compared to just 11% of retailers who believe inventory is “too low.” Used boat inventory declined significantly on a sequential basis, as retailers report leaner inventory levels than during the comparable period last year. 52% of retailers report that used inventory is “too low” versus 18% 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, 58% of retailers indicated that they believe retail credit conditions are “favorable.” Wholesale credit trends continue to be within a normal range as well, as 59% of retailers reported “favorable” credit conditions

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Inventory Restocking Plans

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We believe inventory in the marine space is generally appropriate for the environment, but emphasize that order growth slows without the benefit of a restocking cycle. To that end, we as retailers to share inventory restocking plans for C2016. Restocking plans vary widely by category. In categories that are experiencing secular growth – like the ski/wake market – retailers are choosing to order above retail demand. Conversely, in categories experiencing secular decline (e.g., sterndrive), retailers are choosing to destock somewhat.



Inventory Restocking Plans Comments

“ Deplete inventory as fast as possible before floorplan interest chews up what little profit we make and then not re-stock until the boat manufacturers kick-off their 2017 interest assist programs.”

“ Use caution – watch days on hand closely, despite what manufacturers tell you.”

“ We think we are going to hang low on inventory for I/O powered boats. That is a rough area on LI. Concentrate on our Sea Pro line.”

“ We will be cautious. Dealers don't go broke for not enough inventory, but go broke for having too much inventory. Err on the side of caution.”

“ Due to sluggish economy in our region we have ordered less inventory.”

“ First two quarters will determine order intake for next model year.”

“ Have our inventory for the spring in stock.”

“ Higher stocking levels required by Boston Whaler.”

“ If economy tanks my orders will become next to zero.”

“ If you are committed to growth, you must ‘order more than sold.’ ”

“ Intend to maintain balance.”

“ It’s an election year. We will be more conservative moving forward. Would like to see an increase in inventory turns.”

“ Like most Marine Retailers in the Northeast, we build inventory in March and April and let it tail off for the rest of the year!”

“ Sell one then buy one.”

“ So far so good - but it is not yet crunch time. We will see if the manufacturers actually have what we need, when we need it!”

“ Very concerning. Low traffic count, walk-in, internet and phone.”

“ Watching it very closely.”

“ We see smaller boats moving faster than anticipated; we will run short if we can’t get inventory soon.”

“ Wish I never had to order another sterndrive.”

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Inventory Restocking Plans Comments

“ Trying to sell the non-currents before we bring in any ‘17s.

“ Added new line for 2016.”

“ As boats sell, I will re-order.”

“ Be very careful!!”

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Additional Comments Comments

“ High wholesale floorplan interest rates are too high for the margins that manufacturers force us dealers to sell by. Mass advertised boats at 15% margins and then [our lender] hits us with 7.25-9.20% rates. No point in stocking any boats outside of interest assisted programs. I would like to see manufacturers work on such low margins!”

“ Too many little dirt lot dealers popping up again in this time of prosperity. This industry just recreates its mistakes every business cycle. Low barriers to entry create weak competitors that take business away from the dealers that have invested money in facilities and training to excel, as builders requested.”

“ Consumer attitude seems fragmented.”

“ Economy seems to have buyers on edge. Weather is helping.”

“ Hope to see improvement as weather improves.”

“ Interested as to which states collect no sales tax on private party transactions, but charge full state and city sales tax if a dealer sells the same used boat? This is a big disadvantage to dealers, over 8% in Arizona and Nevada.”

“ Need less big box stores [dealers].”

“ The uncertainty of the national election could do great harm to our economy. Folks might become fearful and postpone big-ticket purchases.”

“ U.S. government needs to get it together.”

“ We were closed for first half of January which has skewed our report.”

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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 4% -2% 0% -5% -7% -12% -5% 6% -2% 3% -3%

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

2008 17% 17% -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% 14% 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%

10-Year

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

% of Years

Outperformed60% 70% 50% 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.

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Robert W. Baird & Co. Incorporated and/or its affiliates have been compensated by Brunswick Corporation for non-investment banking-securities related services in the past 12 months.

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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.

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Distribution of Investment Ratings. As of January 29, 2016, Baird U.S. Equity Research covered 714 companies, with 52% rated Outperform/Buy, 47% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 14% of Outperform/Buy-rated and 5% 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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Other Disclosures

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Documents

MRAA/Baird Marine Retailer Pulse Report