Thor Industries, Inc.’s profits tumbled 67.9 percent on a 28.4 percent revenue decline in the fiscal fourth quarter ended July 31 but both came in well above analyst targets. The RV and camper maker predicted sales will decline about 3 percent in the current fiscal year following a 31.8 percent slide this past fiscal year.

Sales for the fourth quarter were $2.74 billion, a decrease of 28.4 percent compared to the record fourth quarter of fiscal 2022. Wall Street’s consensus estimate had been $2.44 billion.

Consolidated gross profit margin for the fourth quarter was 14.4 percent, a decrease of 310 basis points when compared to the fourth quarter of fiscal year 2022.

Net income declined to $90.3 million, or $1.68 a share, from $280.9 million, or $5.15, a year ago. Wall Street’s consensus estimate had been 94 cents a share.

During the fourth quarter of fiscal 2023, net cash provided by operations totaled $507.5 million and the company made principal payments of $300.0 million on its term loan and $50.0 million on its ABL.

“Our fiscal fourth-quarter results demonstrate a continued focus on solid execution and our ability to consistently perform through changing market conditions. Our European segment achieved another quarter of record performance while our North American operating teams made further progress with our independent dealers to reduce and rebalance channel inventory ahead of the model year 2024 rollout. As a result of the operational and commercial strategies enacted across our operating companies during the current RV down-cycle period, Thor and its independent dealers are well-positioned for both the next cyclical upturn and sustainable long-term growth,” said Bob Martin, president and CEO of Thor Industries.

“Fiscal 2023 presented a series of challenges as a result of higher interest rates, rising inflation, increased economic uncertainty, ongoing supply chain constraints and geopolitical issues. At the same time, it highlighted the strength of our experienced operating management teams and proven business model. In response to macroeconomic pressures that drove softening retail demand that persisted throughout our fiscal year, our teams successfully adapted to these fluctuating market conditions with a focus on achieving solid through-cycle profitability. Through our disciplined production approach, targeted commercial actions and adherence to our variable cost model, we demonstrated our commitment to managing through the current environment and positioning the business to excel across the business cycle. In addition, our company continues to generate meaningful cash flow which enables us to reinvest into our businesses to drive long-term growth and at the same time, reduce our overall debt balance,” said Martin.

Fiscal Year 2023 Financial Results
Net sales for fiscal year 2023 were $11.12 billion compared to $16.31 billion for fiscal year 2022, a decrease of 31.8 percent. The decrease in consolidated net sales is primarily due to lower current dealer and consumer demand in comparison to record demand in the prior-year period, primarily in the North American Towable segment.

Net income attributable to Thor in fiscal year 2023 was $374.3 million, or $6.95 per diluted share, compared to net income attributable to Thor of $1.14 billion, or $20.59 per diluted share, in fiscal year 2022.

The company’s annual effective income tax rate for fiscal 2023 was 25.1 percent compared with 22.0 percent for fiscal 2022. The primary reason for the increase in the overall annual effective income tax rate relates to a change in the jurisdictional mix of income before income taxes between foreign and domestic jurisdictions between fiscal 2023 and fiscal 2022.

Net cash provided by operating activities for fiscal 2023 was $981.6 million as compared to $990.1 million for fiscal 2022. Despite lower net income in fiscal 2023, the company generated $317.3 million of operating cash from changes in working capital in fiscal 2023 primarily due to decreases in accounts receivable with lower sales levels and a reduction in inventory levels, as compared to a use of operating cash from working capital changes of $415.9 million in fiscal 2022 due primarily to an increase in inventory.

Segment Results

North American Towable RVs
North American Towable RV net sales were down 48.2 percent for the fourth quarter of fiscal 2023 compared to the prior-year period, driven primarily by a 44.7 percent decrease in unit shipments. The decrease in unit shipments is primarily due to a softening in current dealer and consumer demand in comparison with the unusually strong fourth-quarter demand in the prior-year quarter.

North American Towable RV gross profit margin was 11.9 percent for the fourth quarter of fiscal 2023, compared to 15.2 percent in the prior-year period. The decrease in gross profit margin for the fourth quarter was primarily driven by higher manufacturing overhead and warranty percentages, partially offset by a decrease in the material cost percentage due to the combined favorable impacts of product mix changes, net selling price increases, a LIFO inventory liquidation and cost savings initiatives exceeding the impact of increased sales discounts.

North American Towable RV income before income taxes for the fourth quarter of fiscal 2023 was $55.7 million, compared to income before income taxes of $181.7 million in the fourth quarter last year, with the decrease driven by the decrease in net sales and the decline in the gross margin percentage.

North American Motorized RVs
North American Motorized RV net sales decreased 36.0 percent for the fourth quarter of fiscal 2023 compared to the prior year period. The decrease was primarily due to a 29.4 percent reduction in unit shipments but also includes a 6.6 percent decrease resulting from changes in product mix and net price per unit as our current-year shipments trended towards our more moderately-priced Class B and Class C units compared to the higher-priced Class A units.

North American Motorized RV’s gross profit margin was 8.6 percent for the fourth quarter of fiscal 2023, compared to 18.0 percent in the prior-year period. The decrease in the gross profit margin for the fourth quarter was primarily driven by an increase in sales discounts, higher material costs, primarily chassis costs, an increase in manufacturing overhead costs as a percentage of net sales due to the reduction in net sales and an increase in the warranty cost percentage.

North American Motorized RV income before income taxes for the fourth quarter of fiscal 2023 decreased to $21.0 million compared to $127.4 million a year ago, driven by the decrease in net sales and the decline in the gross margin percentage.

European RVs
European RV net sales increased 26.3 percent for the fourth quarter of fiscal 2023 compared to the prior-year period, driven by a 23.1 percent increase in the overall net price per unit due to the total combined impact of changes in foreign currency, product mix and price and a 3.2 percent increase in unit shipments. The overall net price per unit increase of 23.1 percent includes a 5.7 percent increase due to the impact of foreign currency exchange rate changes.

European RV gross profit margin was 19.0 percent of net sales for the fourth quarter compared to 18.9 percent in the prior-year period. This slight improvement in the gross profit margin for the quarter was primarily driven by a decrease in manufacturing overhead costs as a percentage of net sales due to the increase in net sales.

European RV income before income taxes for the fourth quarter of fiscal 2023 was $101.7 million, compared to net income before income tax of $74.9 million during the fourth quarter of fiscal 2022. The improvement in income before income taxes was primarily driven by the increase in net sales.

Management Commentary
“Building off our fiscal third quarter performance, our fiscal fourth quarter results reflect the continuation of strong financial performance in our European segment and disciplined execution in our North American RV segments to close out fiscal 2023. Despite a challenging operating environment across the fiscal year, we delivered consolidated net sales of $11.12 billion, consolidated gross profit margin of 14.4 percent and net income attributable to Thor of $374.3 million,” said Colleen Zuhl, senior vice president and chief financial officer.

“In North America, our operating companies displayed continued progress in solidifying the level and mix of channel inventory as their respective teams fully transitioned to model year 2024 production in July. Given our prudent production approach over the course of the prime RV retail selling season, our teams assisted independent dealers in destocking approximately 25,500 units of Thor products from channel inventory during the fiscal fourth quarter and reducing the number of prior model year units to more appropriate levels entering our fiscal 2024. In addition, our teams maintained a firm control on our cost structure and positioned our product portfolio to assist our independent dealer partners in meeting current retail demand,” said Todd Woelfer, senior vice president and chief operating officer.

“Meanwhile, our European segment reported its highest quarterly income before income taxes at $101.7 million on record quarterly net sales of $1.02 billion. These record results reflect the benefits of pricing actions previously taken to offset material and other input costs, improvements in chassis supply necessary to further restock dealer inventory levels of motorized products as well as operational efficiencies. We are extremely pleased with the continued efforts of our European team to strengthen the segment’s operations and profitability. Our fiscal 2023 results demonstrate our commitment to enhancing the long-term profitability profile of the European business across the economic cycle,” continued Woelfer.

“Net cash provided by operating activities for fiscal year 2023 totaled $981.6 million, including $507.5 million provided in the fourth fiscal quarter, highlighting our highly cash-generative business underpinned by our proven variable cost model. Over the course of fiscal 2023, the company further strengthened its balance sheet by paying down $402.4 million on the Term Loan B and $100.0 million on the ABL amid a challenging market and higher interest rate environment. We ended the fiscal year with total liquidity of $1.4 billion, including cash and cash equivalents of $441.2 million and $940.0 million available under our ABL, and we remain committed to maintaining a strong balance sheet,” added Zuhl.

Outlook
“Our operational performance in the second half of fiscal 2023 provides a solid foundation as we enter fiscal 2024. Despite mixed economic data and consumer trends that are expected to continue into fiscal 2024, our experienced operating management teams and proven business model continue to give us an advantage in navigating uncertainty. As we demonstrated in fiscal 2023, we will continue to take a very disciplined approach to production planning while employing our variable cost model to prioritize profitability in the coming fiscal year. Furthermore, our strong balance sheet and cash generation profile enable us to invest in growth initiatives and drive enhanced shareholder value,” said Martin.

“Long term, we continue to be very optimistic about the growth trajectory of the RV industry. We believe strong underlying RV lifestyle interest and demographic trends will drive the market for years to come, and we are well-positioned to execute against this tremendous market opportunity. We continue to invest in automation projects that enhance product quality and drive labor efficiencies without sacrificing our variable cost model. Additionally, we continue to pursue and build out supply and aftermarket strategies aimed at improving the experience for the end consumer. Lastly, through strong strategic partnerships and organic R&D, we continue to take a thoughtful approach to investing in innovation to ensure we stay ahead of the industry and consumer demand. Overall, we are focused on leveraging our global scale as the worldwide RV market leader to support our long-term growth strategies, and we remain committed to achieving our fiscal 2027 financial targets,” concluded Woelfer.

Fiscal 2024 Guidance
In planning for fiscal 2024, current mixed macroeconomic data and cautious dealer sentiment serve as a reminder that the retail environment, though showing signs of improvement over the course of the summer selling season, continues to be challenging. As a result, the company continues to be cautious on the global economic outlook and associated impacts on consumer demand and appetite for discretionary purchases. Against this backdrop, the company remains committed to driving gross profit margin improvement while enacting strategies to reduce its wholesale pricing to drive consumer demand and ensuring channel inventory of Thor products remains appropriate. Additionally, we continue to pursue and build out supply and aftermarket strategies aimed at improving the experience for the end consumer. Lastly, through strong strategic partnerships and organic R&D, we continue to take a thoughtful approach to investing in innovation to ensure we stay ahead of the industry and consumer demand. Overall, we are focused on leveraging our global scale as the worldwide RV market leader to support our long-term growth strategies, and we remain committed to achieving our fiscal 2027 financial targets,” concluded Woelfer.

For fiscal 2024, Thor Industry’s full-year guidance includes:

  • Consolidated net sales in the range of $10.5 billion to $11.0 billion, down 3.3 percent at the midpoint year-over-year.
  • Consolidated gross profit margin in the range of 14.5 percent to 15.0 percent compared to 14.4 percent in the prior year.
  • Diluted earnings per share in the range of $6.25 to $7.25, down 2.9 percent at the midpoint against $6.95 the prior year.

Photo courtesy Thor Industries