The following deep dive includes the following sections:
History
Industry Analysis
What do they sell?
How do they sell it?
To whom do they sell it?
Where do they sell it?
The purpose of this first part is to explain everything you need to know about BRP’s business model.
The analysis of BRP’s financials, its future growth plan, management team and final valuation will be included in the second part of this deep dive, which will be published next week. DOO 0.00%↑ DOOO 0.00%↑
History
Joseph-Armand Bombardier was born in Valcourt, Québec in 1907. He was the eldest of eight siblings, and from an early age, he showed a passion for mechanics. In his early teens, he built various machines, ranging from miniature locomotives to miniature cannons. He later moved to Montréal, where he studied electrical and mechanical engineering.
Sadly, in January 1934, a blizzard prevented Joseph-Armand Bombardier from reaching the nearest hospital in time to save his two-year-old son, Yvon, who died from appendicitis. After this happened, Bombardier was more decided than ever to fulfill his dream of building a vehicle that could "float on snow". In 1935, in a repair shop in Valcourt, Quebec, he designed and produced the first snowmobile using a drive system he developed that revolutionized travel in snow and swampy conditions. The vehicle was steered by skis and could hold two or three passengers.
Two years later, in 1937, he patented and sold 12 of the 7-passenger "B7" snow coaches. They were used in rural Quebec to take children to school, carry freight, deliver mail, and as ambulances.
In 1941, Bombardier opened a factory in Valcourt. Later in 1942, Bombardier Inc. was founded as L'Auto-Neige Bombardier Limitée (Bombardier Snowmobile Limited) by him at Valcourt in the Eastern Townships, Quebec.
In 1947, L’Auto-Neige Bombardier produced 1,000 vehicles, including the C18, which was designed as a winter school bus. These vehicles were used across Québec, but also in Ontario and Western Canada.
However, the winter of 1947–48 brought the business some setbacks. A lack of snow caused sales to plummet, and even worse for Bombardier, in 1948, the Government of Quebec passed a law requiring all roads to be cleared of snow (snow was not cleared by the government in rural areas before); Bombardier's sales fell by nearly half in one year. Armand Bombardier, therefore, decided to diversify his business, first by producing tracked snowplows sized specifically for use on municipal sidewalks, then by making all-terrain vehicles for the mining, petroleum, and forestry industries.
In the early 1950s, Bombardier focused on developing a snowmobile for 1 or 2 passengers. A breakthrough occurred in 1957 when Bombardier developed a one-piece molded rubber continuous track with enough durability to provide snow-gripping traction for lightweight vehicles. The vehicle was called the "Ski-Dog" because it was meant to replace the dog sled for hunters and trappers. However, in 1958, "Ski-Doo" was accidentally painted on the first prototype, and immediately became the popular name.
The public soon discovered the great fun of speedy vehicles zooming over snow, and a new winter sport was born, centered in Quebec. In the first year, Bombardier sold 225 Ski-Doos; four years later, 8,210 were sold. Ski-Doo snowmobiles had become so popular that snowmobiling was often referred to as Ski-Dooing.
On February 18, 1964, J. Armand Bombardier died of cancer at age 56. Until then, he oversaw all areas of operation and controlled the research department, making all the drawings himself. Germain Bombardier, who had been groomed by his father, took over the company upon his father's death in 1964. However, he quit and sold his shares in 1966 after a disagreement with other family members. Laurent Beaudoin, the son-in-law of the founder, then became president.
The firm changed its name to Bombardier Ltd. in 1967, reflecting Beaudoin’s ambition to expand the company beyond snow vehicles. In 1968, Clayton Jacobson II invented the jet ski and the company licensed his patents to create the Sea-Doo personal watercraft.
In 1970, the company acquired Rotax, an engine manufacturer based in Gunskirchen, Austria, which was responsible for making the engines for the Ski-Doo. In the 1970s, the company began producing Can-Am motorcycles, which included Rotax engines, but they stopped the production of these motorcycles in 1987.
In the 1970s and 1980s, when competing snowmobile producers threatened to overwhelm Bombardier Inc., and a global oil crisis loomed, the company survived by expanding into new markets, diversifying into railway and aeronautical products and becoming a multinational corporation known as Bombardier Inc.
In 1989, the Company acquired the Finnish company Nordtrac Oy, the maker of the Lynx brand of snowmobiles, a brand they’ve kept to this day.
Bombardier began facing financial troubles in the 21st century due to poorly executed expansions and acquisitions, being forced to sell off parts of its business. In 2003, the company sold its recreational product division (BRP) to a group of investors: Bain Capital (50%), Bombardier Family (35%) and Caisse de dépôt et placement du Québec (15%) for $875 million.
Later in 2013, the company announced the closing of an initial public offering on the Toronto Stock Exchange.
Industry
BRP Inc is a member of the powersports industry, which is expected to grow at a 5%-6% CAGR over the coming decade. Powersports vehicles are high-performance vehicles intended for off-road as well as on-road use. They are designed to withstand extreme operating conditions such as shock/vibration, debris, and other environmental hazards.
These vehicles are both used for recreational and utility purposes. In terms of utility, they are especially used in rural and agricultural settings, For example, farmers, ranchers, and landowners utilize ATVs for tasks such as hauling equipment, transporting supplies, herding livestock, and maintaining large properties. The ability to carry heavy loads and navigate through challenging terrains makes powersports vehicles highly valuable for utility applications.
Historically, most of the powersports industry sales came from ATVs, mostly due to them having lesser age restrictions, lower maintenance costs than other powersports vehicles and being easier to maneuver because of their lower weight. Recently, however, they’ve been outpaced by the rapid growth of SxS vehicles.
Powersports are not limited to dirt and sand but are also very prominent on the snow. Snowmobiles are highly popular for recreational use due to growing tourist attractions, and snow recreational activities. Snowmobile tourism is keenly endorsed through trail maps and information guides by state and regional travel agencies.
According to the data issued by the International Snowmobile Manufacturers Association (ISMA), approximately USD 36 billion is expended on snowmobiling annually in the U.S. and Canada.
Besides vehicles, the powersports industry also has a big market in the accessory segment. Since powersports vehicles are used across diverse terrains for various activities, enhancing functionality using utility-oriented modifications is a top priority for powersports enthusiasts. According to the Specialty Equipment Market Association (SEMA), around 82% of powersports vehicle owners plan to purchase accessories for their vehicles within three months of purchase.
Tailwinds
Increasing demand among the youth for off-road adventure tourism and leisure activities, a rise in disposable income, clubs, and state organizations promoting powersports activities have driven and continue to drive market growth. Additionally, government policies supporting the development of recreational infrastructure have also supported the industry.
Powersports experienced a big surge in 2021. For instance, according to data published by Solomon Partners, the U.S. witnessed a 24% YoY growth of ATVs/SxS vehicles. Since the majority of the automotive industry was shut down during the pandemic, the populace shifted toward alternate means of transportation. ATVs/SxS offer a cheaper alternative to commercial vehicles for short-range goods and cargo transportation. Moreover, they offer great advantages on off-roads due to their robust build quality. Thus, the pandemic induced new and greater demand for powersports vehicles, which is expected to continue over the coming years.
Headwinds
Most powersports vehicles operate on conventional fuel and have highly polluting engines. Regulatory norms aimed at reducing the harmful impact of such vehicles and the growing consumer concern for the environment are leading to decreasing sales.
Moreover, these engines tend to be very loud, which can be disturbing in both urban and natural environments, usually leading to restrictions in certain areas. For example, a lake may ban the use of PWCs to help avoid water and noise pollution. These types of issues are expected to be counteracted by shifting toward electric alternatives, a topic which is discussed below.
Major Trends
Similar to what has happened in the automotive industry, powersports are also expected to majorly shift toward electric models over the coming decade. Major OEM manufacturers are aiming to introduce their electric variants, which is expected to reduce fossil-fuel dependence, as these vehicles consume fuel at a higher rate than conventional cars. Thus, major players are focusing on developing EV models of their vehicles to promote green energy and sustainability.
Some OEMs have begun to release their electric products, but they tend to be considerably more expensive than their ICE alternatives. Another factor that limits EV adoption is that, since these vehicles tend to be used in off-road settings, their current limited range and lack of charging infrastructure also hinder their attractiveness to consumers. (You definitely don’t want to be left stranded in the middle of the woods with no charge) Powersports enthusiasts, such as those engaged in long-distance trail riding or extended water-based activities, often prefer gasoline-powered vehicles for these reasons.
What do they sell?
BRP is a brand of choice for powersports and boating enthusiasts. BRP’s products are recognized for their great designs, powerful and efficient engines, and the incorporation of advanced technologies.
Below is a chart depicting BRP’s sales per product line in the last two years.
Powersports
The powersports segment is further divided into 3 divisions:
Seasonal
Year-Round
PA&A and OEM engines
Seasonal
The seasonal segment consists of products that are mostly used in specific seasons such as:
Snowmobiles, which are mainly used during the winter, with sales to dealers concentrated from September to January.
PWCs and pontoons, which are mainly used during the summer, with sales to dealers concentrated from January to June in North America.
Snowmobiles
Market Share position: #1
Latest Season MSRP: BRP snowmobiles (excluding youth models) range from approximately US$6,399 to US$22,599 in the United States
Snowmobiles are used in various snow-covered riding environments, including on- and off-trail for deep snow, trail, performance, touring and utility purposes.
BRP snowmobiles are sold primarily in North America under the Ski-Doo brand and in Europe under the Lynx and Ski-Doo brands. In 2021, the Company started selling snowmobiles under the Lynx brand in North America.
PWCs
Market Share position: #1
Latest Season MSRP: BRP’s PWC models range from approximately US$5,999 to US$20,999 in the United States.
PWCs are sold under the Sea-Doo brand name. They are designed to accommodate one to three riders and are used primarily for recreational purposes, with a small proportion being used for utility purposes such as marine patrol and rescue.
In terms of entry-level products, the Spark model ($6,000-$8,199 USD) is usually 30% of retail watercraft sales.
BRP currently leads every segment of the PWC industry in North America.
Pontoons
Market Share position: #2 (US)
Latest Season MSRP: Sea-Doo Switch pontoons models range from approximately US$21,799 to US$42,099 in the United States.
Before its release, the Sea-Doo Switch was known as “Project M”:
“Project M, you saw some bits of it. It's about creating an entry-level product that brings value to consumers and leveraging the know-how that we have. And so we believe that could be a good driver of growth for us.”
—Sebastien Martel, CFO
The Sea-Doo Switch offers a modular design made of tiles that can be re-configured easily; it is powered by a Rotax jet propulsion engine, maneuvered by a handlebar steering system, and is sold via Sea-Doo dealers.
The Sea-Doo Switch comes in two upgrade package options: the Cruise and the Sport, with lengths ranging from 13 to 21 feet.
The launch of the Switch had the strongest reach ever for a BRP product, generating over 2.3 billion impressions (2.3x times the impressions generated by the Ryker launch) and over 3 million website visits in the first 30 days. Bookings for the 2023 model were 3x higher than the production of the 2022 model and it won the 2022 Silver Edison Award for its affordable price, innovative concept and design, as well as its unique modularity.
Year-round
Year-Round Products consist of BRP vehicles that are sold and used throughout the year in most climates. All products within the Year-Round Product category are sold under the Can-Am brand.
ATVs
Market Share position: #3
Latest Season MSRP: BRP’s ATV models (excluding youth models) range from approximately US$6,699 to US$17,599 in the United States.
ATVs are four-wheel vehicles where the seats are designed to be straddled by the rider who steers using handlebars.
ATVs can be broken down into four main categories:
Sport
Recreational-sport
Recreational-utility
Youth.
BRP first entered the ATV market in 1998. In May 2007, Bombardier rebranded their Bombardier ATVs to the Can-Am brand.
Side By Side
Market Share position: #2
Latest Season MSRP: SSV models range from approximately US$12,399 to US$35,599 in the United States
SSVs are driven much like a car, using a steering wheel and pedals. They are equipped with seat belts and rollover protection bars and sit the driver and passenger side-by-side. Certain models also include one or two rows of additional seats to accommodate up to six passengers.
SSVs can be divided into two categories:
Recreational SSVs.
Utility SSVs.
The utility category of the SSV market remains strong, but in the last decade, the SSV market has been transformed by the introduction of vehicles designed primarily for recreational purposes.
BRP first entered the SSV industry back in 2010, with the introduction of the Can-Am Commander, aimed at the recreational segment.
They then entered into the Utility segment with the Can-Am Defender in 2015 and later joined the Sports segment with their Maverick X3 model in 2016.
3WV
Market Share position: #1
Latest Season MSRP: Spyder models range from approximately US$18,499 to US$30,999 in the United States. Ryker models range from approximately US$8,999 to US$13,899 in the United States.
In 2007, BRP announced the launch of a new three-wheeled roadster called the Spyder. This is the first vehicle from BRP to go on the road.
In 2018, the Can-Am Ryker was launched as a simpler, cheaper and more easygoing counterpart to the Spyder.
While many jurisdictions have implemented distinct licensing requirements for three-wheeled vehicles that are generally less expensive, demanding and lengthy to obtain than for traditional motorcycles, certain jurisdictions still apply the same licensing requirement for the Spyder and Ryker 3WVs as for traditional motorcycles. Other jurisdictions require only an automobile driver’s license.
The Ryker tends to attract a younger customer base compared to the Spyder because of the price point. And as of FY24 sales between the Ryker and Spyder were evenly distributed (50-50 split)
Brief Summary Thus Far
PA&A
BRP sells a broad range of Powersports PA&A (Parts, Accessories & Apparel) to complement each of its product lines, providing a stable revenue stream with high profit margins, along with increased brand exposure.
PA&A products enhance the overall consumer experience and lifestyle associated with powersports products.
The parts sold by BRP include consumables (e.g. oils, lubricants and cleaning products), wearable components (e.g. brake pads, tires and transmission belts) and replacement parts (e.g. pistons, clutches and suspension components).
The accessories include, for example, bumpers, windshields, rims, winches, passenger seats, covers, racks and cargo boxes.
Their apparel portfolio includes a range of products such as shell jackets, insulated jackets, technical riding pants, gloves, boots, helmets as well as hoodies, t-shirts and caps.
Most accessories are designed by BRP, including a tool-less system for near-instant installation of accessories named LinQ. The accessories designed with the LinQ system are compatible across product lines, incentivizing brand loyalty among consumers.
Rotax Engines
With their recognized performance, fuel efficiency and emissions profile, Rotax engines represent a core component of BRP’s industry-leading product performance. They power almost all of BRP’s vehicles except for some boat models.
Rotax engines are also sold to distributors and OEMs that manufacture products to be used for civilian recreational purposes and that are not in direct competition with BRP’s products. When sold to such third parties, the engines are used to power karts, small recreational aircraft and fire pumps.
BRP has developed a comprehensive line-up of compact Rotax engines with engine specifications varying from one to four cylinders, 2-stroke and 4-stroke.
Marine
In 2001, BRP acquired the outboard engine assets of Outboard Marine Corporation, which included the Evinrude and Johnson brands. In 2013, after a decline in global sales of sport boats, BRP decided to exit the boat business and instead focused on selling its marine engines to third-party boat manufacturers.
However, over time, the boat industry began being driven by the package business, where boats and motors are sold together (As opposed to being sold separately, as was commonly done before).
This is one of the main reasons BRP decided to discontinue the production of its Evinrude E-TEC outboard engines and reenter the boat business through the following acquisitions:
In June 2018, completed the acquisition of Alumacraft Boat Co, a recreational boat manufacturer with one manufacturing facility located in St. Peter, Minnesota (US).
In August 2018, completed the acquisition of Triton Industries, Inc., a manufacturer of pontoon boats under the Manitou brand with a manufacturing facility located in Lansing, Michigan (US).
In August 2019, completed the acquisition of 80% of the outstanding shares of Telwater Pty, Ltd, and bought the remaining 20% on September 1st, 2021. Telwater is a manufacturer of aluminum boats and trailers under the brands Quintrex, Stacer, and Yellowfin with a manufacturing facility located in Coomera (Australia).
Marine Engines
Marine propulsion systems for recreational power boats are comprised of outboard engines and inboard engines.
Outboard engines are designed to be affixed to the outside of a boat transom and tend to be lighter, less expensive and more easily replaceable than inboard engines.
Inboard engines are designed to be integrated within the boat by the boat builder as part of the production of the boat.
They are generally sold to independent boat builders that in turn resell the engines and related rigging as part of a boat package, and to independent dealers and distributors.
BRP currently manufactures Rotax inboard jet propulsion engines, which offer boat builders an alternative to traditional inboard sterndrives and other inboard engines.
Boats
Market Share position: Telwater is #1 in Australia, while Alumacraft and Triton are still in the early stages of their growth.
Latest Season MSRP: Quite varied, ranging from $1,500 to $317,000 USD.
The Company competes in the recreational boats segment with recreational fishing boats, pontoons and bowriders and also offers PA&A to complement these products.
The Company’s Alumacraft fishing boats are 21 feet or less, generally used in fresh water, made of aluminum and are generally outboard powered.
The Company’s Quintrex, Stacer and Yellowfin fishing boats range from 7 to 23 feet long, used in offshore salt water and made of aluminum.
The Company’s Manitou competes in the pontoon category, which are leisure boats made in aluminum, almost exclusively used in North America on fresh water, and are generally outboard powered.
Bowriders are generally designed for recreational use such as day cruising or watersports, and come in a variety of styles. The Company’s bowriders, which are made of aluminum only, are sold under the Quintrex, Stacer and Yellowfin brands.
Warranties
BRP offers product warranties which generally cover periods from six months to five years for most products. In certain circumstances, it provides extended warranty coverage as a result of sales programs, under certain commercial accounts, or as required by local regulations.
During the warranty period, the Company reimburses dealers and distributors the entire cost of repair or replacement performed on the products (mainly composed of parts or accessories provided by BRP and labor costs incurred by dealers or distributors).
Where are these products manufactured?
The manufacturing of the Company’s youth Can-Am ATVs and youth Ski-Doo snowmobiles, as well as the production of most of its accessories and apparel, is outsourced.
In January 2023, the Company announced an additional boat manufacturing plant in Chihuahua City (Mexico), intended to increase its manufacturing capacity and capabilities to meet the demand for its Marine Products. Production on this plant is expected to begin in 2025.
How do they sell it?
BRP, depending on the region, sells its products either directly to an established network of independent dealers or through independent distributors who act as intermediaries with their own dealers. These dealers and distributors are typically provided with marketing and after-sale service support as well as training for service technicians. BRP normally recognizes revenue when products are shipped to dealers or distributors from the Company’s facilities.
As of the date of this writing, BRP has over 2,950 dealers spread across over 130 countries, with whom it has enjoyed a longstanding relationship. In China, the Company distributes products through a joint venture with Smooth Marine Equipment Ltd., and BRP has a majority ownership stake in this joint venture.
In general, distributors are contractually obligated to offer the Company’s products on an exclusive basis. However, many of the dealers through which the Company sells its products also carry competing product offerings and most dealers who sell the company’s products exclusively are not contractually obligated to continue to do so and may choose to sell competing products at any time.
The company currently operates a build-to-order process, under which it adjusts production schedules on a weekly or monthly basis to precisely tailor production to incoming orders and market conditions.
This has made it so that, today, they are taking off-road orders for deliveries every month, which is very different to 2008, when they only had approximately two order periods every year. This allows them to manage their inventory more effectively.
Due to their snowmobile origin, BRP’s dealer network is more developed in the snowbelt than it is in the sunbelt.
They are also very diligent when adding dealers. One of the key differentiating elements between them and other OEMs is their lower number of dealers, which leads to less intra-dealer competition.
The Company typically enters into agreements with dealers, under which they are required to stock service parts and perform warranty and out-of-warranty repairs and other services. Most of these contracts, however, do not require a dealer to market the Company’s products on an exclusive basis.
BRP usually provides support to its buyers in the form of various sales programs consisting of cash and non-cash incentives.
The cash incentives consist mainly of rebates given to dealers, distributors and consumers, volume discounts to dealers and distributors, free or extended coverage periods, and retail financing programs. The cost of these cash incentives is recorded as a reduction of revenues.
The non-cash incentives mainly consist of extended warranty coverage or free PA&A. The cost of the free PA&A is recorded in cost of sales.
These incentives tend to increase when:
General economic conditions are difficult.
Changing market conditions require the launch of new or more competitive programs.
Dealer and distributor inventory is above appropriate levels
Since most of BRP’s products are big ticket items, 60% to 70% of the units it sells are financed. The company, most of its independent dealers and some of its independent distributors are parties to agreements with third-party financing service providers (Huntington Commercial or Wells Fargo depending on the region). These agreements provide financing to facilitate the purchase of the company’s products and improve the Company’s working capital by allowing an earlier collection of accounts receivable from dealers and distributors.
Under these agreements, in the event of a default of a dealer or distributor, BRP may be required to purchase, from the finance companies, repossessed new and unused products at the total unpaid principal balance of the dealer or distributor to the finance companies.
Below are some comments BRP’s CEO made on their dealer strategy:
“We like to have the BRP space in the dealership space. This is one of the strategies we put together, we want when you enter in a dealership, you have the BRP DNA flavor. Right now, we’re forcing dealers, let me give you an example of the Sea-Doo Switch. When we gave to the dealers the switch line, they needed to commit to a certain amount of space of floor to display the product. Then this is a type of thing we’ve done, and we will continue to do. But this is part of our strategy, first to sign the best dealers and second, to continue to gain floor space. And to be honest, because we have a strong product line because we have a good value proposition, they’re making more money with our product than with most of our competitors. I would say it’s a good value proposition, it’s a business discussion and it’s not too complicated to convince dealer.”
In this deep dive in particular, I wanted to extend the “How do they sell it?” section to include some ways in which BRP drives interest to their products.
Experience Offerings
In July 2020, in an effort to promote access to its products and allow more people to enjoy unique recreational experiences, BRP launched the Uncharted Society program in the United States, offering packaged adventures using powersports vehicles in several locations in the United States through partnerships with local “outfitters”.
As you can see, these initiatives not only bring more attention to BRP’s products, but they are also revenue accretive on their own.
In 2022, the Company enhanced its experience-based offering by opening the very first BRP Experience Center in Quebec in partnership with Le Chateau Montebello and expanding its Uncharted Society program into Canada
Riding Schools
In order to promote its three-wheeled vehicles, BRP offers various riding courses in schools throughout NA. Since their initial launch, more than 30,000 courses have been completed, with a better-than-anticipated conversation rate into new/used units of over 45%.
Racing Events
Another way BRP gains recognition for its brands is through races, rallies and other events. For example, the Maverick X3 won the Dakar Rally in 2019, where first place to 17th were all Maverick X3, which means that their closest competitor finished 18. They also recently won the 2023 Dakar Rally, making it their 6th win in a row.
The Can-Am brand benefited from this success, continuing to strengthen its image.
To whom do they sell it?
Most of BRP’s sales are B2C. The majority of their products are sold to customers who intend to use their vehicles for recreational purposes, while certain products, primarily ATVs and SSVs, are also used for utility purposes, such as for agriculture, construction, and other commercial applications.
One of the main characteristics of BRP’s customers is their higher-than-average household income. To demonstrate this, 65% of the population in the US has a household income below $100,000, while all of BRP’s products have customers with an average household income above that figure, with ATV being their lowest at $115,000.
The main reasons behind this are:
The powersports industry usually lends itself to people with deeper pockets.
BRP’s product lines are mostly focused on the premium segment, especially their side by sides.
Most of BRP’s sales usually come from customers replacing their old vehicles or adding a category to their garage. (For example, someone who has a Can-am ATV decides to buy a Sea-Doo)
Since the beginning of 2020, BRP has placed a lot of effort into expanding its customer base, as shown in the image below.
Where do they sell it?
BRP sells its products in over 130 countries, with its two most relevant markets being the US and Canada. Management decided to exit Russia during Q4 FY22, which was a business of about $200 to $250 million. However, they don’t expect to lose this revenue, as mentioned by their CEO: “The good news is we’re able to reallocate these units to other markets that are in need of units. So we’re not expecting a negative financial impact from our decision to pause shipments in Russia.”
Over time, BRP has shifted away from Canada (-10.7 pp) and International (-6.6 pp), transitioning most of its sales into the US market. This was mostly caused by the growth of its SxS product line.
Cyclicality/Seasonality
Cyclicality
As big-ticket, durable items the consumer demand for Powersports Products and Marine Products can be highly influenced by macroeconomic conditions, product life cycles and the introduction of new features, technologies and products.
The industry’s performance overall is closely tied to consumers’ disposable income levels. Although BRP’s customer base has a considerably higher than average income, which helps them cushion the impact, this doesn’t make them invulnerable to economic downturns, where people may decide to service their old vehicles as opposed to buying new ones.
For example, during the 2008 GFC BRP saw its revenue decline by 27%, and although today it has a much more varied product portfolio, and it’s an overall more resilient business, it would inevitably suffer during a downturn. We could even argue that as the marine business grows as a % of revenue, BRP will become more susceptible to cyclicality. For example, during the GFC powerboats saw a 54% decline in sales, compared to a 40% decline for the off-road industry. This is most likely due to boats’ higher ticket prices.
The only stable source of revenue BRP has during economic slowdowns is its PA&A segment. This is because, even if there is a downturn, people are still using their vehicles, which means they’ll need to buy parts in order to maintain them.
Seasonality
With a business segment called “Seasonal Products”, it is quite evident that BRP suffers from seasonality, as the leader in the snowmobile and PWC industry.
Sales tend to be skewed toward H2 for BRP, period where they tend to introduce new products, and PWC (summer) and snowmobile (winter) production is going at full capacity, as shown below. (Numbers from F21 and F22 are somewhat distorted from the pandemic, and F23 is more representative of normal business conditions.
In general, retail sales of the Company’s products are highest in their particular season of use and in the immediately preceding period. For example, retail sales for snowmobiles will be highest in fall and winter, retail sales for PWCs will be highest in spring and summer and retail sales for boats will be highest in winter and spring.
Closing
And that’s all for the first part of this deep dive! Hopefully you found this helpful in order to understand everything about BRP’s business model.
In the second part of this deep dive, which will be published next week, I’ll be digging into the numbers (margins, returns, expense management, valuation). Make sure to subscribe below if you don’t want to miss it👇🏻
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