BRP Inc

TSX:DOO

Good morning, ladies and gentlemen. Welcome to the BRP Inc.'s FY '26 First Quarter Results Conference Call. For participants who use the telephone lines, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

Thank you, Joel. Good morning, and welcome to BRP's conference call for the First Quarter of Fiscal Year '26. Joining me this morning are Jose Boisjoli, President and Chief Executive Officer; and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements. The forward-looking information is based on certain assumptions and is subject to risks and uncertainties. And I invite you to consult BRP's MD&A for a complete list of this. Also during the call, reference will be made to supporting slides, and you can find the presentation on our website at brp.com under the Investor Relations section.

So with that, I'll turn the call over to Jose.

Thank you, Philippe. Good morning, everyone, and thank you for joining us. We've delivered a sound performance in our first quarter, which results in line with expectations as we continue to rightsize network inventory level in Seasonal Products and execute on elements within our control.

The operating environment remained challenging with significant macroeconomic uncertainty and a volatile tariff situation affecting consumer confidence, still driven by very solid snowmobile sales we slightly outperformed the Powersport North American industry at retail. Looking at the sales of our Marine Group, we made progress by announcing a definitive agreement for the sales of Telwater, and closing the sales of Alumacraft. The process for Manitou is following its course.

Now let's turn to Slide 4 for a key financial highlights. We ended the first quarter with revenue of $1.8 billion, normalized EBITDA of $201 million, normalized EPS of $0.47 and strong free cash flow generation of $162 million. As for retail, let's look at global trend on Slide 5. In North America, our Powersports retail held steady, reflecting a growth of 21% in Canada, fueled by a strong end of season for snowmobile, offset by a decline of 6% in the United States as we continue to see generally weaker industry trends.

From an international perspective, demand remains soft in EMEA and Asia Pacific, with retail down 22% and 13%, respectively. Once again, Latin America outperformed other regions with retail up 18%, driven by sustained momentum in ORV and personal watercraft. On a global scale, demand remains strong for high-end products compared to entry level. We also outperformed in current unit and underperformed in non-current units due to our leaner inventory position.

Turning to Slide 6 for a look at our retail performance by product line in North America. As anticipated, our Powersport retail held relatively steady compared to last year, surpassing the industry, which was down low single digit. Snowmobile retail was strong, up over 80%, driven by favorable snow condition late in the winter. As for 3-wheel vehicle, personal watercraft and switch pontoon, retail was down early in the season due to the combination of softer industry trend and a late spring.

Now let's turn to Slide 7 for a more detailed look at Year-Round Products. Revenue were down 4% to $1.1 billion, primarily driven by softer industry trends and higher sales program given the ongoing market dynamics. At retail, Can-Am side-by-side was down about 10% compared to the industry, which was down mid-single digit. We underperformed in non-current units given our healthier inventory position compared to other OEMs.

However, we continue to outperform in current units, gaining 4 points of market share in the quarter, driven by the sustained momentum of our newly introduced model. As for ATV, retail was down low single digits in line with the industry, but we had strong gain in the high-CC segment fueled by our new [ Outlander ] platform.

Looking at 3-wheel vehicle, we are very early in the season, and retail was down high 20% in the quarter, reflecting industry softness and the late spring. A few words on 2-wheel. As planned, we had our first shipment of Can-Am Pulse and Origin motorcycle to North America and Europe in the first quarter continuing in the second quarter.

We are organizing tours to get the media and consumer excited, and our dealers are also actively preparing demo ride. Turning to seasonal product on Slide 8. Revenue were down 22% to $419 million, primarily reflecting reduced shipments as we continue focusing on rightsizing network inventory level. Looking at our retail performance. We closed the North American snowmobile season down high-teen percentage, slightly lagging the industry. As I said earlier, favorable snow conditions late in the winter in North America stimulated demand with our solid lineup and retail promotion, we outperformed the industry during the quarter partially catching up on our plan for this season. In Scandinavia, it was a more difficult season and our retail was in line with the industry. More importantly, we regained by -- we remain, by far, #1 worldwide with Ski-Doo and Lynx.

The strong end of season in North America allow us to achieve a year-over-year network inventory reduction of 15%, healthier inventory level, combined with our solid lineup resulted in strong spring preorders compared to last year. Preorders are now back to a normal rate of approximately 30% of production already sold. All these elements put us in a better position for season '26. As for Ski-Doo products, retail, it was in line with our expectation in the first quarter with personal watercraft down mid-single digit and the switch down low 20%. We also continue to grow in Latin America with retail up mid-teen percent. The objective for this season is to rightsize network inventory level. And so far, we are on plan.

Moving on to Slide 9 with Powersports, parts, accessories and apparel and OEM engine. Revenue were up 5% to $322 million, driven by a higher volume of snowmobile parts following the strong end of season as well as the ongoing usage of our growing fleet of vehicles.

Meanwhile, accessory sales have been softer in line with the retail trend. As with units, the inventory of PA&A at dealer is getting back to more reasonable level.

With that, I turn the call over to Sebastien.

Thank you, Jose, and good morning, everyone. This quarter was another demonstration of our team's ability to execute with discipline in a dynamic environment, putting us in a good position early in fiscal '26 with results in line with our expectations. Solid free cash flow generation and continued improvement on the network and inventory front. Before getting into the numbers, please note that as part of the sales process -- the marine sales process, we decided to keep the legacy outboard engine parts business.

Consequently, we have reclassified our fiscal '25 numbers to reflect this decision. Now looking at the numbers. Revenues were down 8% to $1.8 billion, primarily due to lower shipments and higher sales program. We generated $395 million in gross profit, representing a margin of 21.4%, down from last year primarily due to the less efficient use of our assets, given the lower production volumes, higher sales programs, unfavorable model mix and foreign exchange headwinds.

These were partly offset by cost inefficiencies across our manufacturing operations and favorable pricing. Note that through the first quarter, we saw limited impact from tariffs across the cost structure. Our normalized EBITDA ended at $201 million and our normalized earnings per share at $0.47. We generated $162 million of free cash flow from continuing operations and ended the quarter with over $300 million of cash, further reinforcing our solid balance sheet and financial flexibility.

Turning to Slide 12 for an update on our network inventory. We continue making progress on rightsizing our network inventory, which is down 21% compared to last year with double-digit decline in all product lines.

Our dealers credit line usage is now just above 70%, the lowest level in over 2 years and below pre-COVID utilization rates. This should alleviate some of the inventory impact on our dealers' finances all the while providing available capacity to be able to rapidly react when our industry rebounds. Looking ahead, while there is still some work to be done, reducing dealer inventory on the seasonal product side, we expect that most of the heavy lifting across the portfolio will be done by the end of the summer, positioning us to better align wholesale with retail in the back half of the year. With this, let's turn to Slide 13 for an update on fiscal '26, starting with tariffs.

As you know, there have been a lot of movements on the tariff front since our last update at the end of March. But so far, the impact remains manageable. On the finished vehicle side, most of them remain tariff-free given that all our vehicles produced in Canada and Mexico or USMCA compliant and consequently are currently exempt from the 25% tariffs levied on these countries. However, we have seen incremental tariffs stemming from the U.S. tariff rate increase on China the new tariffs on other countries. These are primarily impacting our P&A business and some of our U.S. suppliers which in turn is impacting us. Factoring in these elements based on the current environment, we now estimate that the total gross tariff impact for our business for fiscal '26 to be between $60 million and $70 million.

We expect this impact to be manageable as we should be able to offset most of the incremental costs using different levers across our value chain. Now looking at the rest of the year. With Q1 unfolding, essentially in line with expectations, we are well positioned entering Q2, which we expect to be our last quarter of significant network inventory reduction. We have aligned our production and shipment plan in line with this objective, and we expect our financial performance for the quarter to be similar to what we delivered in Q1.

As for the back half of the year, things remain more difficult to forecast. As you know, the evolving tariff environment continues to create uncertainty and is weighing on consumer confidence. Furthermore, its full impact on the global economy is still unfolding and difficult to predict. In this context, it remains very difficult for us to properly forecast our industry and the demand for our products. And consequently, we still lack sufficient visibility to issue guidance today. Still, there are a few elements that make us optimistic for H2. First, Assuming Q2 goes as planned, our network inventory reduction efforts should be mostly completed, positioning us to better align wholesale with retail through H2.

And second, we have exciting new products coming up at our club in August, and we are planning for the initial shipments of these new products to happen throughout H2, supporting in volume growth and favorable product mix. So in a scenario where the retail environment remains consistent with what we have seen in Q1, these elements could yield double-digit top line growth along with strong improvement in normalized EBITDA and EPS compared to the second half of last year. And while the environment is difficult to predict, we believe that with our healthy network inventory levels, the strength of our lineups, especially with upcoming key product launches, our agile manufacturing footprint and our solid balance sheet with strong liquidity and long-term debt maturities that we are well equipped to face a wide range of scenarios.

Still, we look forward to our more stable and predicting operating conditions, allowing us to provide you with a clearer outlook for our business.

On that, I'll return the call back to Jose.

Thank you, Sebastien. As you know, I am always very proud of our product with industry recognition as it reflects positively on all our teams. I'm even more proud when one of our team received an important honor. Last week, our design and innovation team was crowned Red Dot Design Team of the Year 2025. a prestigious international title for design excellence. We have joined the rank of previous winners that include iconic brands such as Ferrari, Apple and Prosche. I want to congratulate our entire design team. Together with engineering, they constantly redefine our product to give our customers memorable experience. Innovation is part of our DNA, and this recognition reflects our ability to develop market-shaping products that fuel our growth. Our results for the quarter were in line with our plan despite the current context. Our diversified product portfolio enable us to outpace the North American Powersports industry at retail. We also had our highest retail sales ever for our first quarter in Canada Brazil, Mexico and China as well as in our EMEA distributor markets, reflecting sustained momentum in these regions.

Over the short term, as uncertainty is expected to continue, impacting consumer confidence, we are planning for demand to remain tough until economic conditions improve. We are looking forward to our dealer event in August to be held in Boston with exciting model year '26 product news that will continue building on the momentum of our successful lineup. You are all welcome to join us. In addition, we expect inventor depletion to be mostly completed by the end of next quarter. In this context, we anticipate a stronger second half.

BRP is known for its agility, and we are ready to take advantage of a rebound driven by a strong product portfolio, solid dealer network and leaner inventory position. Over the long term, we remain committed to pushing technology and innovation to capitalize on market opportunity and sustain profitable growth. Before moving on to the question period, I would like to say a few words. As you probably saw this morning, I am announcing today my intention to retire by the end of the fiscal year after the appointment of a successor.

After 26 years at BRP, including 22 as CEO, the time has come for me to hand over the wheel to a new leader. I am grateful that I was selected for this role back in 2003, and so proud of what BRP has become today, a diversified innovative company that is well positioned for lasting growth. You can count on me to ensure a seamless transition supported by a seasoned management team dedicated to the success of BRP.

Thank you. On that note. I turn the call over to the operator.

[Operator Instructions] Your first question comes from Sabahat Khan with RBC Capital.

Hoping you could just give us a little bit more color on the inventory situation in the channel? You indicated that by the end of this next quarter, you expect to be in good shape. Maybe just talk us through what's left to sort of rightsize how much more inventory reduction that entails? And maybe just a bit of an update on the competitive inventory situation.

Well, as you know, it's been a focus of ours over the last 12 months to rightsize network inventory we started this 12 months ago, actually. And so we're quite happy with where we are today. You saw at the end of Q1, inventories were down 21%. And we've seen double-digit inventory declines across all the product categories. So that's another big plus. In my prepared remarks, I said we still had a bit of work to do on the Seasonal Products business. We are entering into personal watercraft season. So the expectation is that we will retail more than we're wholesaling for this season and also snowmobile, this is a second year where we've had a below-average season, and so we have more inventory to reduce.

And so the expectation is that all of the work -- or most of the work will be done on the ORV business and the Year-Round Products business at the end of Q2 and a bit more work to be done on the seasonal part, and we expect Seasonal to be down about 20% at the end of the year versus where we started at the beginning of the year. So really happy with that work is being done. And actually, we have probably 70% of our dealers line of credit that are being used. So it gives us a good tailwind when things rebound.

Now as for the competition, we are -- some OEMs have been later to react in adjusting production and wholesale. And so we saw a competitive dynamic that was still aggressive and very promotional in the first quarter, and we expect it to continue in the second quarter as some OEMs still have a lot of inventory that they need to address. But coming to Q3, we are hopeful that things are more stable and everyone will be competing on a similar foothold.

Great. And just as my follow-up, I think you indicated that you're directionally expecting a better rate, too. If you can maybe just give a bit more color on the retail uptake environment. What you saw through the quarter, it sounds like it was flat year-over-year in North America on retail for you. Maybe just talk us through some of the details on what's giving you confidence on the better setup at retail for H2. .

But first, like Sebastien just explained, we believe the non-current inventory will be at a more normal level by the end of Q2. And I think on the back half of the year, it's all OEM introduced model year '26. And we have a strong lineup to be announced in August. And we're confident that with the product news with the dealer network that is in better shape in terms of inventory, also the all the momentum that we had in the last few quarters on the current unit, we are -- and the inventory position that is, look, we are in better shape than others, and we're confident for H2.

Your next question comes from James Hardiman with Citi.

So obviously, a lot has changed since we last heard from you, although,I don't know, based on yesterday's announcement, maybe not as much has changed. But maybe walk us through sort of what you were seeing at retail over the course of the quarter. And then specifically, I mean, around Liberation Day, sort of as we think about April, was that sort of the worst of it? And what, if anything, can you tell us about trends in May? Obviously, the more current we can get, I think the better as we try to tease out sort of the consumers' response to some of the macro factors, particularly the various tariff announcements.

Maybe, obviously, the macroeconomic is very volatile and very pretty difficult to predict. But to be honest, we saw lots of -- a lot of ups and down, but there is no big change in the trend versus the last few quarters.

To give you some numbers, the new entrant is -- we -- in Q1, our new entrant purchase product was at 21%, and we're back to pre-COVID numbers like we give you, this is basically the same number we gave you in the last few quarters. And we saw the same trend. The premium vehicle selling better than the entry-level product. I'll give you some numbers. In the watercraft category, our entry-level Spark was down in 15% when the high end was about flattish.

The Switch was down 24%. The Ryker, the entry-level 3-wheel vehicle was down 40%. And on the side-by-side, the premium was up 16% when the value was down 34%. The utility side-by-side flattish and the export down 9%. And as you can see, there is no global trend, and we believe that the higher income customer is still interested and is still buying. The lower income customers, obviously, who finance is more difficult, and they are squeezed with the inflation, the interest rate that is still on the high side, and they are on the fence to buy. This is basically what we see, and it's very difficult to predict where all of this is going.

Got it. And then obviously, everything is difficult to predict. But as I think about the tariff environment. Obviously, most of your production is Canada and Mexico, at least up through yesterday, China was getting penalized significantly more. And so you talked about a gross tariff headwind that you think you'll be able to offset. I guess my question is on the competitive environment. Your biggest competitor has a much higher tariff burden as we think about what they're getting directly from China into the United States, assuming that this is the tariff scheme, right, 30% on China 10% on the rest of the world. Can you talk about what potential -- if any competitive advantage that, that creates that you're in a relatively favorable tariff environment.

It's a long question. Let's say that obviously, every OEM face different situation. And I believe that with time, every will find a ways to mitigate the tariff or reduce the impact of the tariff. And if I'm talking by ourselves, you know when we had our call in March, a situation was more difficult. Now Sebastien mentioned growth of $60 million to $70 million which is less than 1% of our revenue, which is manageable. But we are working right now with Tier 1 supplier, Tier 2 supplier to change the origin of some components, some time to change the location of assembly to avoid the tariff, then so far, we've been quite successful to reduce the existing tariff for our vehicle. And as you know, all our vehicle made in Canada and Mexico are USMC compliant.

Then I think if you look at the big picture, everyone, every OEM has its own reality, but I believe that every OEM will find ways to mitigate those additional costs. That being said, I think the biggest risk for all of us in the industry is the uncertainty that it creates into the customer confidence and many are on the fence and they're waiting to have a better visibility before they will buy our products that are discretionary. Then that's in a nutshell our view on the overall situation. But like we said in March and we're repeating this change day by day.

Your next question comes from Benoit Poirier with Desjardins Capital Markets.

Congrats Jose and well-deserved retirement after 22 successful years. Sebastien, you mentioned about the potential to reach top line growth double-digit in the second half. So obviously, in this powersport volume matters, how should we be thinking in terms of EBITDA margin, should we expect EBITDA to grow even further than the double digit. And what type of kind of EBITDA margin should we be looking for given this potential tailwind in the second half?

Well, the tailwind Benoit comes from, obviously, the product launches that we're doing, also the fact that retail is going to be matching wholesale. And so when I look at where the market is in terms of consensus, it's certainly something that I'm comfortable with. And so generally, yes, the EBITDA margin is going to improve, but we're going to be away from what we are targeting in terms of overall EBITDA margin in the long term. But overall, we're still going to be underutilizing our assets. There's going to be more programs. So there's going to be some compression there. But obviously, with the added volume, it's certainly going to bring some tailwind on the margin side.

Okay. Perfect. And now when we look at the free cash flow generation, working cap, you've done a good job. So what should we be looking for in terms of working cap for the full year and how you would characterize the best opportunities in terms of capital deployment right now?

Again, we're not providing guidance this morning. But in a context where we're expecting a good second half of the year that is going to drive good free cash flow generation as well, provide us with some -- obviously, some flexibility. But in the short term, with the uncertain context that every company is facing today, we prefer to be prudent before committing to any capital deployment. The priority is going to be focusing on organic growth of the business. Obviously, we've increased our dividend back in Q1, and we're going to continue paying the dividend. But in terms of buybacks, we're probably going to be on the sideline for the foreseeable future until we get a better view as to where all of this is going to end and how the economy is going to bounce back.

Your next question comes from Craig Kennison with Baird.

Seb, you described a $60 million to $70 million gross tariff impact. I'm wondering if you can help us unpack that and give us a sense of what it would look like mitigated and then what it might look like on an annualized basis since you haven't faced all of these tariffs all year?

Yes. As I mentioned, the impact in the first quarter was minimal because all the costs that we've incurred were most of them were inventory as that raw material is going to be used in the second and third quarter. And so the full year impact is, as I mentioned, $60 million to $70 million on a gross basis. Full year, you're probably going to add an extra, call it, $30 million on a full year basis. As Jose mentioned, we're working very closely with our suppliers to mitigate that impact. And about half of the impact comes from our P&A business. And probably, let's say, half of that is the China impact, tariffs that are being imposed on China. Obviously, we're running our numbers with the current assumptions, which is the relief that was given a few weeks ago on the China tariffs.

And so that's why when we're reporting our numbers today, it's significantly lower than what our competitors reported a month ago. And how do we alleviate? So as I mentioned, obviously, suppliers is one strategy, relocation, driving efficiency in the organization. And as we do every year, we do price increase. And so we will be revisiting our pricing for the new model year '26. which we'll be announcing in August, and that's going to help alleviate some of the headwinds that we're seeing.

And maybe as my follow-up, I'll just ask Jose, congratulations on just an extraordinary career. I'm wondering if you would just reflect on what maybe gives you the most pride or satisfaction during your tenure.

First, I'm not gone yet, then we can discuss later. But for me, what I'm the most proud of is what BRP has become. We had two product lines profitable, two were not profitable in 2003. Today, we have seven profitable product line. And we have a diversified, obviously, product portfolio, international manufacturing footprint and very happy of where we are.

Your next question comes from Robin Farley with UBS.

Jose, congratulations on a fantastic run. My question is going back to your expectations that it will only take maybe one more quarter for retail and shipments to kind of be aligned. It seems like there's like an implicit retail assumption there. And just sort of are you assuming that the demand sort of recovers to flat? Or is it up slightly? Or just maybe help us think about what your retail assumption is there and kind of what underpins that?

It's Seb. When we talked back in March, I referred back to the assumption that we had in January, where we were assuming a flat industry. When you look at the Q1 retail and industry numbers, we reported the industry being flat, but a lot of that was driven by the snowmobile, a very strong snow season, especially in February and March, drove good retail. But when you exclude snowmobile, the overall industry is down 5%. And so obviously, with the ongoing threat of tariffs, the volatile environment, we are seeing consumers hesitant to purchase. And retail has continued to be choppy in the month of April, in the month of May, and it's obviously depending on weather, the latest news and also how people are feeling about where the economy is going to head. And so it's difficult to forecast any industry demand.

And for May, we're seeing the continued trends there with ORV, some OEMs being aggressive on promotions and the ORV industry being down year-over-year in May. And the seasonal business as well, personal watercraft, the weather hasn't been great in the last few -- in the last month, and so we're seeing softer retail. But even in a context where retail is declining, we expect to have a good second half of the year because the inventory is already corrected and we'll have retail matching wholesale in the back half of the year and because we've also have great new product launches that will be announced in the next month or so, where the dealers and consumers will certainly be interested in receiving them.

Okay. Great. That's very helpful. And just as my follow-up, it sounded like the comment a moment ago that you would revisit price increases to think about helping alleviate tariffs, and I know you'll have more to say on that in August. But maybe if you can just give us what your thought is on if the retail environment is challenging at current prices, which are also being impacted further by promotions, right? So the average price even lower given the promotional environment. Is there really the opportunity to increase price without kind of further impacting demand?

But for sure, we're sensitive to price increase in this global macroeconomic situation. And like we've just said, growth impact of tariff as of now is $60 million to $70 million. We will continue to work Again, with our supplier to reduce it, we have already announced our network that there will be no price increase on every model year '25 that is selling at the moment. There will be some price increase on P&A that will happen in June. P&A is more difficult to avoid because it's 60,000 different SKUs, about 16,000 are affected by the tariff, and there will be some price increase on P&A.

And model year '26, Robin, it's too early to say. Again, we don't want to charge more for the tariff than what it cost us. But at the end of the day, we will continue to work on the mitigation plan, plus the rule can change any days like it did yesterday. I don't know yet the consequence, but we will minimize the price increase because of tariff on our model year '26, obviously.

Your next question comes from Xian Siew with BNP Paribas.

Congrats Jose and best of luck in the next chapter. Maybe on the current versus non-current you kind of mentioned how current is doing better. Maybe you can give us an update of what the mix is of non-current inventory for you and maybe versus the rest of the industry and how that maybe evolved over the last 90 days?

But it's -- it's a bit difficult because the industry data for current, non-current and depending of the country where you are, but I would just give you some numbers to give you a sense.

On the U.S. [ ATV ] in Q1, the industry was down 26% versus last quarter, which is an improvement -- a significant improvement. The side-by-side, it was down 15% in Q1 versus last quarter. on ORV, we are down 21%. And I think this is off-road vehicle on snowmobile basically for the upcoming season. We will have about 1/3 of the non-current inventory when we have about 2/3 of the market share, and we're well positioned on the snowmobile front. And on watercraft, the goal is to deplete significantly the inventory this summer. We're tracking on our plan. But it's a very moving environment with different product lines and different competition, different OEMs in each product line. But I think the industry is definitely getting in the better position overall. And like we said, it should be back to normal level at the end of Q2, and we -- that's why we're confident to regain momentum in H2.

Got it. That's helpful. And maybe following up on that, your current inventory is doing well. And like you said, we are one of the first to kind of start the destocking. How is dealer feedback? So if inventories are kind of clean going into the back half, are they kind of saying like we want to maybe expand and then buy more or gain share with BRP? Or I guess like how are you thinking about market share gains into that environment?

But I think right now, we will switch from model year '25 season to model year '26 in a few months, depending on the product line. And I think right now, the dealers are in a mindset to reduce their inventory of any OEM as fast as possible. We call that the great pressure.

But I think, like I said, the inventory of non-current -- the level of noncurrent inventory is back to a normal level for this time of the year. This is where we bet with our product line, existing product line and the new product line we'll introduce in August, plus the strength of our dealer value proposition, better margin, better profitable for the dealers and Obviously, our inventory level that is lower than the competition. We believe we are in the best position in the industry to bounce back quickly in H2.

Your next question comes from Martin Landry with Stifel.

Jose, congrats on an exceptional quarter and good luck on the next steps. I would like to talk about new product introductions. You've called this up a couple of times during the call. What can you see? I know they're going to be introduced in August. So I don't expect you're going to reveal too much. But how would you characterize this year? Is it a strong innovation year?

Do you have more models that are being introduced, more SKUs, what are the price points looking at? Are you skewed towards higher price points, lower price points? Anything you can give us in terms of color on the new product lineup and new product introduced would be great.

As you can imagine, we cannot disclose much on what we will introduce. That would be too interesting for our competition. The only thing I can say, we -- obviously, every year, we look at our lineup, and we try to be as competitive as possible in each product category. And there is some platform some model than the older than the other. And this fall it's a strong product intro for Can-Am. But also watercraft, we have a very strong lineup on watercraft with 65-plus percent market share worldwide. But obviously, we feel good about what we will introduce to the dealers. And that's why the combination of the product introduction, the value proposition for the dealer where they have better margin selling our product than other OEMs plus our inventory that is in good shape, we are well positioned to gain in H2. I cannot tell you more.

That's helpful. And Jose, I mean, you've been through several industry cycles. And I was wondering, how do you see the cycle? How does it compare? And how does it differ from previous cycles? And how can that inform you on the length of the cycle and the timing of demand stabilization and recovery?

I think like you said, so many cycles over my career, but every crisis or slowdown is different from one to the other. I think what is a bit unique in this one as we had high inflation in the last few years, high interest rate. And everyone was expecting the inflation to go down. Now it's not going down as fast as we were hoping for. The interest rates are somewhat higher than what everyone was anticipated. And this tariff war, I mean, created a lot of uncertainty and slow down everything and affecting consumer confidence.

And I believe that, to be honest, a lot of customers are interested to buy our product and to enjoy life. But I think at the minute that we see some clarity on the tariff in terms of the impact, but also in terms of stability, the industry will bounce back quickly. And I feel we are in a very good position to be the best OEM to bounce back quickly.

Your next question comes from Mark Petrie with CIBC.

I'll echo my congratulations to you, Jose, on your leadership and track record of growth. It's been a pleasure to interact with you over these years and certainly wish you all the best in your next chapter. Many of my questions have been asked. I did want to ask, I guess, I know it wasn't formal guidance previously, but would you say that the dynamics around competitor inventory and competitive dynamics or consumer demand have just changed materially your view from the [ $4.50 to $5 ] range as you were sort of thinking about coming into the year. Has that -- have any of the assumptions around that sort of have changed materially up or down?

Well, versus the [ $4.50 ], yes, there's been some change. And the two changes are one, tariffs because the [ $4.50 ] tariffs were not there, so that impact of tariffs is certainly one element. And the other one is the industries. As I've mentioned earlier, if you exclude snowmobile, industries are down 5% in Q1. And we are seeing that softness continuing in May. And so that would be the other big driver of us holding back before issuing any guidance until we get tariff details on these two elements.

Okay. So versus the [ $4.50 to $5 ] the consumer demand environment is softer?

Yes. And there were no tariff impacts on the $4.50 .

Your next question comes from Joe Altobello with Raymond James.

This is Martin on for Joe. I just wanted to really quickly touch on the big beautiful bill. There is a provision there, which essentially allows buyers to write off interest on products where the final assembly is in the United States. So compared to your some competitors, would that put you at a disadvantage? Or is there an any kind of read-through we can get from this bill?

Well, obviously, it is a bill that has yet to be enacted, and there's a lot of provisions in that bill that may or may not go through. It's certainly something that we are taking a look -- a close look at. Obviously, there are some caps that are being put in there in terms of total deductibility in a year. income levels as well, so not necessarily addressable to all income levels, and we tend to attract people that have higher levels of income. .

And so even though it might apply to some of our products, it might not apply to these individuals, and also do people -- will people use the itemized deduction or the available deductions that are available to anyone when they file their tax returns to be seen, but certainly something we are paying close attention to. And obviously, and in the end, it will certainly be part of discussions when Canada, Mexico and U.S. sit down and talk about tariffs and subsidies that are provided to industries by local government, either directly and indirectly. And you could almost qualify this as a subsidy and so still early. I think we're in the first inning of this big beautiful bill, and we'll see where things end. But as usual, we'll be responsive and adapt our business accordingly.

Congratulations on your retirement.

Your next question comes from Cameron Doerksen with National Bank Financial.

Congratulations from me as well, Jose. Just on that, I mean, just I think you can provide as far as like a time line or, I guess, the search process for a new CEO candidate? Just wondering what kind of, I guess, time line we should expect and whether the Board is looking at internal versus external candidates? Just any color you can provide there would be great.

I mean, obviously, I was discussing with the Board twice a year about my plan, we came in the last few weeks to an agreement that it was time for me to move on. The Board -- you know we have a very experiment longtime board members that know the business very well, then they have already started this morning, the process with headhunter, it will be, obviously, a global search considering internal and external candidate and it could take anywhere between 3 to 9 months. That would be the normal time line. And I obviously committed to stay and to ensure a good transition until the new CEO is found.

Okay. No, that's helpful. And maybe just a quick follow-on for Seb, just on the, I guess, the decision to keep the marine like accessories business, or parts and accessories business. So just wondering why that was decided. And is that business profitable?

Well, as part of the decision to exit the Marine business. Obviously, we've put all the assets up for sale. It is a good business because it's part of the legacy Evinrude business. We generated last year over $70 million of revenue, almost a 25% EBITDA margin from this business because it's captive parts, but we were not able to get an acceptable price for this business. And so we decided to keep it. It's a low maintenance internally, not very disruptive and it's generating free cash flow. So that's what drove the decision to keep it.

Next question comes from Tristan Thomas-Martin with BMO Capital Markets.

Congrats Jose to the [indiscernible]. You kind of called out right, dealers are at 70% credit line usage. What signs do you think they're looking for to maybe order a head of any retail inflection? Or do you think they're just going to wait until we begin to see retail improvements to begin ordering and kind of more volume?

Well, there still -- again, we were one of the OEMs that reacted quickly. And based on the experience that we have in the business, we knew that when you see a potential slowdown happen might as well react quicker, it will be more beneficial in the long term for everyone, which was the right decision to do. But we have some OEMs that have more inventory out there. And so I think dealers need get that inventory out, liquidate that inventory, see where the consumer is, see where the whole economy is going to land where the tariff situation is going to land as well. before we see some confidence. Obviously, they'll want to order the new products, the latest innovation, that's why we're excited about the second half of the year. But before we see a strong inflection in demand, I think dealers are going to want to see more door swings and continuous store swings as well before stepping on the gas and ready for the next wave of growth.

And just one more one. Are you seeing any changes in buyer credit approvals or credit scores or credit availability, anything?

In terms of the people applying for credit, we haven't seen any changes in terms of FICO scores, people who are granted credit as well. We haven't seen big changes. Where we've seen is the, I guess, the lower tier financiers that are more selective in providing credit to lower credit scores. So entry-level products like the Ryker is suffering a bit from a lower acceptance rate. This is something that we've seen in the last quarter. .

[Operator Instructions] Your next question comes from Brian Morrison with TD Cowen.

Seb, I wanted to appreciate the color on the second half outlook. I want to understand it a little bit better. So this quarter, you've got sales down $150 million EBIT and EBITDA down about $109 million. So there's a 70% decline in the sales change. That's far greater than decrement. So I was telling me that promo and mix played a very big role. So I think decrement are typically 35%. Can you just confirm that? And then break down the components of this decline because I want to know as inventory improves, what gets alleviated. So I understand the back half outlook better.

Okay. That's a big question for the final one of the day. But if I look at the margin at the in Q1, again, obviously, gross margin was hit pretty hard in Q1 by almost 500 basis points. And the drivers of that are mix were significant. Sales programs were significant as well. Mix was about 170 basis points down, program, 120 basis points down. fixed cost absorption, also 190 basis points as well impact. So quite a big impact on the profitability and offset by a bit of efficiency and pricing as well that we were able to build in the overall plan.

So when I and obviously, retail higher than wholesale in this quarter. And so that's obviously a big impact. Looking at the back half of the year, as I've mentioned earlier, for sure, the new product introduction is going to be a big element. And the other thing we have as well is wholesale matching retail, which I've already covered. So the big drivers of the second half. If I look Q3 to Q4, Q3 potentially could be flattish year-over-year. Yes, there's going to be some -- obviously some top line growth. I'm still expecting a better program, but certainly a margin improvement in Q3. And the big margin improvement is going to be happening in Q4. where we could expect volumes up significantly almost easily a 5% -- more than a 5% increase in volume, probably got in the range of $300 million, $400 million of volume increase in Q4. Margin improvement because the mix is going to be rich as well. That's certainly going to be a big uptick. And so that's how we see the back half of the year. Certainly, less programs, certainly better volume and also a better mix with asset utilization.

And that's largely the new product introduction, correct?

Largely to new product introduction and also largely to wholesale equal retail. Last year, we were reducing side-by-side and ORV inventory. And so we were wholesaling less than we were retailing. .

Okay. And then just on that last question, ORV sales I think you said you maintained the path of this mid-single-digit decline for the industry. But that has been helped with heavy promo on aged inventory. So should we expect it to soften more with just current priced inventory or assume that, that's offset with the new product introduction? .

In the back half of the year, you could expect that you'll have an offset with the new product introductions. Don't forget the -- you will be transitioning into a non-current season in Q3 and Q4. And so the model year '25s will become non-current, OEMs should have discounts on these. And so that should help sustain a certain level of demand also in the back half of the year. .

There are no further questions at this time. I will now turn the call over to Mr. Deschenes for closing remarks.

Great. Thank you, Joel, and thanks, everyone, for joining us this morning and for your interest in BRP. We look forward to speaking with you again for our second quarter conference call plan for August 29. Thanks again, everyone, and have a good day. .

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.