Unit sales down 5 to 7 percent

DENVER – The boating industry’s retail dollar sales are roughly flat so far this year, compared to the same period of time last year – improving upon estimates last month that they were down about 3 percent – while unit sales are down 5 to 7 percent.

That’s the conclusion reached by A.G. Edwards analyst Tim Conder following by a conference call with a major retail boat lender (10 to 15 percent U.S. market share).

The Pacific Northwest is showing the most strength (up slightly), while Florida and California are the weakest markets (down), compared to most other markets (flat), he added.

“Florida has seen boat sales weaken since the Ft. Lauderdale and St. Petersburg boat shows in fall ’06,” reported Conder in a recent statement. “Florida unit boat sales sell 5 percent in ’06, and are on track for a solid double digit decline in ’07 (this is not favtoring in the possibility of hurricanes or poor weather). Reasons cited for weakness in Florida are declining home prices and the resultant impact on consumer’s perceived wealth, higher insurance rates and higher property taxes.”

Conder reported that retail activity in April and early May was slightly stronger than expected, but that had not influenced the outlook for the year because of the current pipeline of loan applications for retail boat deliveries through the rest of May and early June.

“Dealer inventories remain heavy,” he wrote in his report. “We believe pipeline inventories greater than 12 months old remain at three-year highs, which continues to be cause for concern. Our lender indicated that dealers have become more aggressive on pricing as manufacturers and lenders have stepped up rebates and interest rate buy downs earlier than the normal end of May period in an attempt to clear heavy inventories, especially ’06 model boats.”

Conder commented that channel inventories remain heavy, but added that large boat builders like Brunswick had cleaner pipelines than its smaller competitors because they began cutting production earlier.

The upper end of the cruiser market, made up of boats priced from $150,000 to $450,000, is the softest market segment so far this year, Conder stated, with smaller boat sales steady at the same low levels seen in ’06.

While he said that consumer credit quality remains solid, Conder explained it’s because the “marginal buyer” is not buying boats right now.

Looking ahead, the industry’s 2007 retail dollar sales are currently expected to be down 5 percent, while units are likely to be down about 10 percent, he concluded. This outlook didn’t change Conder’s believe that Brunswick can hit its $1.65 to $2.00 EPS guidance.

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