Boat sales more challenging than expected

DENVER and SAN FRANCISCO – Boat sales results over the next six weeks will be a major determining factor in the boating industry’s overall performance this year. But so far, analysts agree that 2006 has fallen short of expectations.

Indications are that “overall season-to-date retail sales of boats have remained somewhat more challenging than originally expected entering 2006,” A.G. Edwards & Sons analyst Tim Conder reported following a recent conference call with a retail lender that holds a 10- to 12-percent share of the U.S. boat market.

RBC Capital Markets analyst Ed Aaron agreed in a recent report on MarineMax, stating that “the overall boating environment has become more difficult.”

This environment has led to a hesitancy in dealers’ replenishment of boat orders, added Conder. This has some boat builders concerned over inventory levels and considering financial incentives.

“We believe the largest channel inventory issues remain skewed toward the Formula, Silverton and Carver brands,” he reported. “While not immune to the sluggish YTD retail start, we believe Brunswick is gaining share, especially in larger boats.”

Conder broke down the industry’s performance by region, suggesting that boat sales in the Great Lakes, Northeast and Northwest have been weak. The Northwest has been hit buy wet stormy weather, which has also resulted in a slow down over the past four weeks in Southern California. Texas and Florida are tracking expectations, he added.

Big boats up or down?

Where the two analysts disagree is in the health of the high-end boat market. While Conder reported that small boats continue to perform better year-on-year compared to larger boats, he admitted this goes against expectations.

“YTD smaller boat sales have been the bright spot of the market with larger and especially medium-sized boats lagging,” he stated. “As consumer confidence is highly correlated with boat unit sales (especially small and medium size boats) we would expect strength in this part of the market (potentially to yet be tempered by higher gasoline prices eating into discretionary income). However, as relative strength of the equity markets are a primary determinant of larger boat sales, following a good 1Q06 we would anticipate larger boats to be showing more strength than they are currently.”

Aaron, however, believes big boat sales are on an upward path.

“… the high end boat market (greater than 30 feet) continues to strengthen, in our opinion,” he commented.

Certainly, MarineMax leadership has indicated that a focus on big boat sales has helped boost its results – but MarineMax also has a history of outperforming the market.

Ultimately, though, it’s the second and third quarters that will paint the most accurate picture. Conder reported that only 13 percent of annual boat sales typically take place during the first quarter of the year. The second quarter usually accounts for 35 percent, while the third quarter makes up 30 percent and the fourth quarter, 22 percent. Sales of boats priced under $100,000 are concentrated during the second and third quarters in particular.

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