BRP Inc

TSX:DOO

Earnings Call Analysis

Downbeat FY25 Guidance with Optimized Strategy

The company faced a 12% revenue decline to $2.7 billion, linked to fewer shipments and higher promotional activity after a tough winter affected snow products. Gross profit saw a 130-basis points dip to $653 million, with a margin of 24.3%. The firm expects a transitional FY25, with revenues predicted to fall between $9.1 and $9.5 billion, a focused 10-15% inventory reduction, and lower snowmobile production by 30%. Despite these challenges, a richer product mix, better pricing, and cost initiatives will help defend profitability, aiming for a normalized EBITDA of $1.37 to $1.47 billion, and EPS between $7.25 and $8.25.

Navigating Through a Year of Adjustments

The company reported a revenue dip of 12% to $2.7 billion, with challenging winter conditions impacting their snow-related business and heightened promotions. This downturn reflects broader industry trends, influenced by soft consumer demand in international markets and a weaker marine industry. Their approach to maneuvering these conditions includes reducing shipments and curbing snowmobile production by approximately 30% for the upcoming season.

Profitability Pressures Amidst a Volume Reduction

Profit generation faced a decline with gross profit marking $653 million and margins at 24.3%, slipping by 130 basis points from the previous year. The causes were multifaceted, spanning from decreased shipments to higher sales programs, however, partially counterbalanced by a better product mix and improved pricing. Earnings per share saw an 8% decrease to $11.11, alongside flat normalized EBITDA at $1.7 billion compared to the prior period.

Capital Allocation and Cash Flow Resilience

A record free cash flow of over $1 billion was generated, enabling robust capital deployments amounting to over $580 million in high-return growth-focused capital expenditures. With a substantial return on invested capital (ROIC) at 30%, and dividends rising 13%, it reflects a strategic balance of business investment and shareholder returns. For the next fiscal year, they anticipate generating around $750 million in free cash flow. With 2 million shares remaining under the NCIB, the company also signals an active stance in share repurchases.

A Strategic Approach to Product Innovation and Dealer Networks

Modular design innovations, particularly in the marine business, aim to drive similar returns to other successful lines within the Powersports group. While they acknowledge cost structure impairments, long-term revenue expectations for marine products remain confident. Efforts to bolster dealer relations involve a 10-15% reduction of network inventory levels, deemed beneficial for both the company and dealers, especially against a backdrop of rising interest rates.

Forecasting the Fiscal Year Ahead

For fiscal 2025, the guidance underpins a revenue range between $9.1 billion and $9.5 billion, acknowledging the headwinds of volume reduction but banking on product mix and net pricing to soften the impact. With a focus on right-sizing the operational structure, they project a normalized EBITDA between $1.37 billion to $1.47 billion and EPS ranging from $7.25 to $8.25. These figures illustrate a conservative yet strategic playbook designed to traverse and adapt to the evolving economic landscape.

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the BRP Inc. FY '24 fourth quarter results conference call.I would now like to turn the meeting over to Mr. Philippe Deschenes. Please go ahead, Mr. Deschenes.

[Philippe Deschênes, executive]

Thank you. Good morning and welcome to BRP's conference call for the fourth quarter of fiscal year '24. 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 risk and uncertainties, and I invite you to consult BRP's MD&A for a complete list of these.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.

[Jose Boisjoli, executive]

Thank you, Philippe. Good morning, everyone, and thank you for joining us. Fiscal '24 was marked by solid market share gain, successful product launches, and continued progress on our key strategic initiative. From a financial perspective, the year was more challenging than expected due to macroeconomic environment. We adapted to this situation, and as you know, we have proactively reduced our shipment to dealers. Despite unfavorable winter conditions, which impacted our snow-related business, we've delivered EPS within our guidance range.Let's turn to Slide 4 for key financial highlight for the year. Revenue increased 3% to reach $10.4 billion, a record high for BRP. Normalized EBITDA was stable at $1.7 billion, and normalized EPS was down 8% at $11.11. Our focus on cash management payoff, as we've delivered a record free cash flow of more than $1 billion for the year.As for retail, our North American Powersports sales were up 8% for the year compared to an industry of about 1%. The strong Powersports retail performance further strengthened our position as the #1 OEM in the industry, as you can see on Slide 5. With this additional growth in fiscal '24, our retail now stands 35% higher than pre-COVID level, in an industry that has been flat.We added another 2 percentage point of market share for the year, with gain across almost all product lines. We have continued expanding our leadership position as the #1 OEM in Powersports, and the only one retailing more units per dealer than during COVID. Our success comes from our ability to constantly innovate, by bringing new products to market that drive consumer demand, and we are well positioned to sustain our momentum going forward.Turning to Slide 6, for a closer look at our retail performance in the fourth quarter. Our North American Powersports retail was down 10%, as we were facing a tough comparable, due to late shipment and retail of 3-wheel vehicle, personal watercraft, and Sea-Doo pontoon in Q4 last year. And yet, this year's fourth quarter was our second strongest ever, even surpassing the COVID year, during which we had significantly depleted network inventory. Our performance was also impacted by unfavorable winter conditions, which led to a snowmobile decline in the high teen. Excluding snowmobiles, our retail for the quarter was down only 2%.Still, despite a more challenging dynamic in Q4, we are satisfied with our performance for the year. When excluding snowmobiles, our retail was up 12% compared to the industry, up low single-digits, driven by a very strong performance in off-road vehicles and personal watercraft, and market share gain across most product line.Turning to Slide 7, for an update on global retail trends. As mentioned last quarter, we started to see gradual signs that the macroeconomic environment was affecting our industry, leading to softer market conditions, especially in EMEA and Asia-Pacific. The fourth quarter played essentially in line with this view, as we saw softer demand in EMEA and Asia Pacific, with retail down 5% and 25% respectively. However, we had an excellent performance in Latin America, driven by the Brazilian and Mexican markets. Given these trends, we maintained a cautious approach entering FY '25. Our priority is to tightly manage network inventory, to protect dealer profitability.Now let's turn to Slide 8 for a Year-Round products. Revenue were up 9%, reaching $1.4 billion in Q4, primarily driven by a favorable product mix, and a return to normal shipment pattern for 3-wheel vehicles. At retail, Can-Am side-by-side had its strongest Q4 ever, being up low 20%, primarily driven by solid growth in the utility category. Our performance is even more impressive, as the first shipment of the new Maverick R occurred late in the season. This brand new platform already made its mark, by winning the King of the Hammer race in California 2 months ago, which would further stimulate consumer interest.This strong quarter concludes another exceptional year for our side-by-side business, where we grew retail at a high-teen percentage base, and gained significant market share, especially in the Utility segment. Our share reached 30%, achieving this objective a year earlier than our 5-year plan.As for ATV, our retail was down low single-digit, as we lapping a very strong Q4, last year. That said, we are pleased with the success of our new Outlander platform, which gained 4 points of market in the mid-cc segment. For the year, we gained almost 2-point, surpassing the 20% mark for the first time ever, and getting closer to the #2 position in the industry.Looking at 3-wheel vehicle, we are in the off-season and Can-Am 3-wheel retail was down high 20%. The decline is probably, due to lapping an unusually strong quarter of retail last year, as we shipped units later than normal in the season. Still, given the interest of new entrants for the category, our strong lineup and enhancement to our Spyder F3 and RT models, we are well-positioned to have a successful season.Turning to seasonal products on Slide 9, revenue were down 28% from last year to about $950 million, driven by a lower volume of products sold, resulting from a different timing of shipment, compared to last year. Looking at our retail performance, for personal watercraft, this was peak retail season in Counter seasonal market and Sea-Doo saw a retail decline of mid-single-digit in Australia, due to market weakness. This was partially offset, by impressive growth in the low 30% in Latin America, notably driven by the Brazil market.As for North America, we are in the off-season and retail was down probably, due to a difficult compatible, given late unit shipment last year. However, from a historical perspective, retail is performing well, up double-digit from typical fourth quarter pre-COVID level. This trend also continued in February, which gave us confidence for the upcoming summer season.Looking at snowmobiles, as previously mentioned, fourth quarter retail was impacted by unfavorable winter conditions in North America, leading to declines in the high-teen percentage range. I have been in the business for a long time, and saw several challenging seasons, but it is the first time that I see such difficult conditions, across North America.That said, looking at historical trends, we know that the snowmobile industry is very resilient, and typically bounce back following weaker seasons. We have a loyal and passionate customer base. Our Ski-Doo and Lynx brands are very strong and continue to outperform the industry, with retail down low single-digit for the season.Reflecting our commitment to bring innovation to market, we are strengthening our offering for model year '25, by introducing new features and technologies, across the lineup. Furthermore, we have launched 2 new Ski-Doo and Lynx electric models designed for multi-use applications, such as ski center and recreational resort. These models will also be available to consumers. With the strength of our lineup and recent addition, we expect to remain the #1 industry player.Moving on to slide 10, with Powersport part, accessories and apparel, and OEM engine. Revenue were down 23% to $291 million due to lower product shipment, to reduce network inventory level, and lower demand for snow-related replacement part.Moving on to Marine, revenue were down 32% to $84 million, due to lower volume of boat shipment, as dealers continue to be cautious about taking on inventory, given weaker demand trends.Looking at retail sales, we are in the off-season in North America, and Alumacraft retail was down about 20%, while Manitou retail was about flat. As for Quintrex, retail was down about 10% in line with the industry.Looking ahead, with softer demand in the boating sector, we are seeing more promotion across the industry. For this reason, we decided to be more conservative with our plan for fiscal year '25, in order to manage network inventory and preserve the value of our newly introduced boat. As such, we expect Marine revenue to remain about flat for the year. We are pleased with the consumer reception of the new Manitou boat, and remain confident, about the potential of our Marine business for the coming years.With that, I turn the call over to Sebastien.

[Sebastien Martel, executive]

Thank you, Jose, and good morning, everyone. Our fourth quarter played out in a difficult context marked by unfavorable winter, which impacted our snow-related products, and softening consumer demand in international markets.Still, through it all, the team executed well, to tightly manage shipments and network inventory levels, sustained solid market share gains in side-by-side, and delivered bottom-line results that ended within our guidance range.Looking at the numbers, revenue stood $2.7 billion, representing a decrease of 12%, primarily due to lower shipments and higher sales program, notably as adverse winter conditions affected our snow-related business, and led to higher levels of promotions. We generated $653 million of gross profit, with a margin of 24.3%, down 130 basis points from last year.This decline was primarily, due to lower shipment volumes and higher sales program, partly offset by a richer mix of products, favorable pricing, and improved production costs.Moving further down the P&L, we generated normalized EBITDA for the quarter of $405 million, and normalized earnings per share of $2.46. For the year, we delivered normalized EBITDA of $1.7 billion, roughly flat to last year, and normalized earnings per share of $11.11, a decline of 8% from fiscal 2023, resulting from higher depreciation and finance incomes. Success in our industry comes from innovation, solid cash generation, and diligent allocation of capital, and we strongly believe this is a core strength of BRP.In that vein, as you can see on Slide 13, fiscal 2024 was our strongest year ever, with over $1 billion of free cash flow generation, representing a solid conversion ratio of over 60%. Furthermore, we continued to prioritize investments in the business, by deploying over $580 million in CapEx. These investments primarily focused on high return growth projects, aimed at sustaining our market share growth momentum, and expanding our addressable markets.Our solid ROIC of 30% for the year, reflects our unique ability to innovate, and deliver industry-leading results on projects. Given our solid cash generation, we also returned over $500 million to our shareholders, through a 13% increase in the dividend, and by capitalizing on the dislocation in the value of our stock, to repurchase about 6% of the share's outstanding.As our business is geared to generate solid free cash flow, we remain well-positioned to continue investing in the business, all the while sustaining strong returns of capital, to our shareholders.Moving to an overview of our network inventory on Slide 14. Our dealer's inventory for the fourth quarter, was up 36% from last year and up 30% from pre-COVID levels. As we mentioned last quarter, despite that we diligently improved our inventory returns over the years, our dealers are currently facing elevated inventory financing costs, due to the increased dollar value of units and higher interest rates.To protect our dealer value proposition, we have decided to support them by aiming to reduce our network inventory levels, by 10% to 15% this year. While there are opportunities for improvements across all product lines, the more pronounced decreases are expected to come from seasonal products and 3-wheel -- as they end the respective seasons with higher levels of inventory than initially planned.From a cadence perspective, Q1 network inventory is expected to remain high than last year, as it comps overall leaner inventory levels and will be impacted, by snowmobile given weather induced softer retail trends. From there, we expect a gradual improvement until year end.Now moving to the guidance for fiscal '25 on Slide 15. We are entering fiscal '25 with a solid lineup and an exciting pipeline of product introductions that are positioning us well, to sustain our market share momentum in ORV and maintain our leadership position in seasonal products.From an operational standpoint, our manufacturing sites are running smoothly, the supply chain environment has normalized, and we expect to continue benefiting from our lean initiatives, and the expansion of our modular design across our lineup.From a financial standpoint, our guidance essentially incorporates the global trends that have developed, during the second half of fiscal '24 and that we have shared with you during our last earnings call, notably, softer consumer demand in certain international markets, weaker industry trends in marine, limiting dealers' appetite to take on inventory in a more elevated promotional environment.As previously mentioned in this context, and in order to protect our dealer value proposition, we have decided to adopt a more cautious stance and our planning to reduce our shipments in fiscal '25. Additionally, given the impact of unfavorable winter on our snowmobile retail, we are planning to reduce our snowmobile production, by about 30% for next season.Accounting for all these elements, we expect our revenues for the year to be down from last year, and end between $9.1 billion and $9.5 billion. In terms of profitability, we expect the headwinds from the reduction in volume, to be partly offset by our richer product mix, favorable net pricing, and the aforementioned benefits of our cost improvement initiatives.Furthermore, we are taking the necessary actions to right-size our operating structure in line with the expected revenue generation, limiting the pressure on our margin profile. As a result, we expect our normalized EBITDA to end between $1.37 billion to $1.47 billion, and our normalized diluted earnings per share to end between $7.25 and $8.25, including a headwind of about $0.90 coming from higher depreciation and financing costs, as well as a higher tax rate.Note that we are providing a wider-than-usual guidance range, to account for the more than environment, both in terms of consumer demand and promotional intensity, especially in the context of our aim, of reducing network inventory levels.From a cash perspective, based on the above and following a prioritization exercise of our project portfolio, which led to CapEx optimization, we expect to generate in excess of $750 million of free cash flow for next year. As such, we expect to have the financial flexibility, to continue providing strong return of capital to shareholders, notably as we have announced a 17% increase of our dividend for fiscal '25.To conclude, we have provided a summary of the key drivers bridging our fiscal '24 results, to the midpoint of our fiscal '25 guidance. As you can see, most of the client earnings, is expected to come from volume and mix as a result -- of our objective of improving network inventory return, driving a net negative impact of $2.50, and from a reduction in the shipments of snow-related products following a difficult season, representing an impact of $1.25.Note that we expect most of the net reduction in volume and consequently, most of the decline in normalized EBITDA to happen in the first half of the year, with Q1 normalized EBITDA down 35%. While fiscal '25 is expected to be a transition year from a financial standpoint, at the midpoint of the guidance range, our normalized diluted EPS, is expected to end above our original M25 target that we had launched in the fall of 2019 of $7.50.Additionally, fiscal '25 is planned to be another year of exciting product introductions, and continued progress and efficiency gains throughout the business. We strongly believe that the actions we are taking, will position BRP for continued long-term success.And on that, I will turn the call over to Jose.

[Sebastien Martel, executive]

Thank you, Sebastien. While market conditions, have softened in the second half of fiscal '24, we were proactive and quickly adapted to the new reality. As mentioned in November, we have reduced our production volume in order to lower network inventory.And now, in light of our Q4 results, we are adjusting snowmobile production for next year, and taking a more cautious approach for marine. We are known to be agile, and we never hesitate to reprioritize our investment, to find the right balance between the short, mid, and long-term growth perspective.Looking at our EV plan, we have just launched 2 new electric snowmobile model, and we are looking forward to the upcoming launch of the Can-Am Electric Motorcycle at our dealer event in August. We remain committed to electrifying our product lines, but we have decided to delete some of our EV introduction, and will provide an update in due time.In closing, I remain confident in our future. What we have in the pipeline is very exciting. As you know, the best part of my job is riding our product. I was at our test center in Florida two weeks ago, and had the chance to try many future off-road personal watercraft and both products including some of our electric models.Again, I'm very impressed with the ability of our design and engineering team, to come up with market-shaping products and I look forward to introducing them to consumers. Innovation is at the core of our DNA and will continue to position the company for long-term success by pushing the boundaries of technology.Our diversified product portfolio is a significant advantage, while our agile manufacturing network, allow us to respond quickly to evolving market conditions, and still generate solid profitability.I want to thank our strong and resilient team, for their hard work and dedication throughout the year. I also acknowledge our dealer, for their support in making us the #1 OEM in the industry, and we will continue to work in collaboration with them to further expand our leading position.On that note, I turn the call over to the operator for questions.

[Operator]

[Operator Instructions] And your first question will be from Sabahat Khan at RBC Capital Markets.

[Sabahat Khan, analyst]

I guess I think, Jose, you made a comment about sort of managing the business for short, medium and long run. We obviously have the guidance here for the upcoming 12 months, but a lot of the questions we've been getting have been around kind of the medium term outlook for BRP and the industry. Can you maybe help us think through how you view, call it calendar '25 playing out, and just your view of how the industry evolves beyond this year. And maybe address some of the questions that people have had around, how are the current year sales and earnings, compared to what might be the new run rate for the company. So maybe just some perspective on -- your forward looking views of the ORV industry?

[Jose Boisjoli, executive]

Yes. Then just to give you a sense about the trend, the retail trend in February and March so far. And I will give you the number in North America without snowmobile. Then retail is up mid-single-digit. Very good growth still in ORV. 3-wheel is doing well. Watercraft and switch is down, but we know its lapping abnormal quarter last year.And just to give you a sense of our retail momentum in beginning of the year, our retail is about 50% above pre COVID level. Then very happy with the retail trend. This is for North America. International basically no change soft in EMEA and APAC and very strong in LATAM. Then this is the trend so far in February, March.And as you remember, the -- in '24 overall, the North America industry was resilient with ORV in North America. We saw softer international and marine overall is softer than for fiscal year '25. We planning this overall trend to continue. Then we planning North America to be down low single-digit. Positive momentum for ORV and 3-wheel will outperform snowmobile, obviously, watercraft and marine.And at international, we lagging North America. Then basically, we continue the trend that we saw in Q4 and what we see in February, March is continuing for the remaining of fiscal year '25, with downward of down low single-digit in North America. Now, that being said, we have gained significant market share in the last few years.And our goal is to, still to continue to be in market share in the ORV business, and maintain our solid leadership position, on snowmobile and watercraft and continue to enter a new market segment. Then that's overall what I would say for retail trend.

[Sebastien Martel, executive]

Yes, maybe it's still early to call out what fiscal year '26 could be. Obviously, as Jose said, we've got great momentum and we've had peak retail, for Q4 and side-by-side. Just until that obviously is exciting. But for me, fiscal '25 is a correction year. And if you look at Slide 16 that we have in the in the deck, that we shared with you today.I mean, there's two elements that are for me are one-time element that are hurting fiscal year '25, which is the adjustment of inventory for $2.50. And also the impact of snowmobile. So obviously, we're disappointed with the guidance that we have. We'd like to come up with a higher guidance. And if you take the midpoint of the range of $7.75. If you add these two one-time items for me, fiscal '25 is almost more an $11.50 year than a $7.75 will work. We're doing what's right for the business. What's right for the industry, what's right for the dealers. But obviously in the midterm, we anticipate that we will be producing results significantly higher, than what we've announced today.

[Operator]

Next question will be from James Hardiman at Citi.

[James Hardiman, analyst]

Really like sort of the layout of that Slide 16. I think it tells us a lot. So maybe using that. Is it -- 3 months ago, you guys gave us your initial view on fiscal '25. And I think most people landed on about a $9 earnings per share number. Is it as simple as to say that since then that $1.25 is really what's incremental in terms of the impact from the snowmobile related products? And then, you talked about that $2.50 also being one-time-ish, is the entirety of that just inventory drawdown, or wouldn't there also be some sort of market related, demand weakness that ultimately gets worked into that $2.50 number as well. Just trying to make sure I understand how I should think about more of a normalized earnings number in a year, where there isn't significant inventory drawdown?

[Jose Boisjoli, executive]

Yes. Well, on your first question, yes, you're correct. Which change versus when we talked last November is the snow season, and so that's the added headwind that we're seeing of $1.25. So if, I would say '25 is aside from snowmobile is in line, with what our views that we had a few months ago. And obviously in the $2.50, there's a combination of inventory, which is the big one makes us favorable. That's going to help obviously market share gains as well. But the bulk of the $2.50 is, us being proactive and managing network inventory, and protecting the [ DVP ].

[Sebastien Martel, executive]

Maybe we'd like to add -- when we had the call in November. We were ahead of our planning for the snowmobile retail, and the momentum was good till Christmas time. And really the retail fall off in mid-January about, and it never really catch up. This is the main reason of our adjustment.

[Operator]

Next question will be from Martin Landry at Stifel.

[Martin Landry, analyst]

I would like to touch on the snowmobile inventory in the channel. What's the retail increase in inventory for snowmobile year-over-year, and how long do you think it's going to take to flush out this success inventory?

[Jose Boisjoli, executive]

Just maybe to give you some highlight on the snowmobile season. If you look at the data of the last 15 years, basically we saw a few bad winter in those 15 years. We say we estimate about 3 bad winter. And what is interesting is the snowmobile is very resilient. Customer are passionate about it. They accept now, to trailer more to go to find snow.And Canada is about stable. Maybe less -- retail in the East, but more in the West. United States is slightly down. But if you look at the snowmobile business over the last 15 years, it's vary between 95,000 units and 105,000 units per se per year. In Scandinavia, in Europe, and in Europe and Europe is mainly commercial. It's about stable in the last 20 years at about 20,000 units.Then the point is after a bad year, the industry typically remain quite stable, because there is a lot of non-current into the pipeline. And there is customers that are happy to buy a new snowmobile at a discount. Then we -- it's sad to have this this bad winter. It didn't affect us on the wholesale, but obviously affected our sales program, and our part and accessories and apparel. But we are confident that next year, the industry will remain quite stable.

[Operator]

And next question will be from Joseph Altobello at Raymond James.

[Unknown Analyst]

Good morning. This is Martin on for Joe. A quick question about the revenue decline in your guidance. It's a little bit steeper than you implied 3 months ago. Was that the primarily delta? I'm sorry. Is that primarily the snowmobiles? And can you remind us of how big, as a set of sales in your snowmobile business?

[Sebastien Martel, executive]

Well, yes, you're right. When we look at the seasonal products business, obviously impacted by snowmobile. When we -- the impact of the production adjustment that we're doing the 30% that we talked is going to be about a $350 million impact on our top line. Next year, when you look at the other elements of the guidance where we miss the P&A business was off guidance that's driven by the software snow season where we sold less accessories, less parts as well because people were riding less. And oddly enough as well, we sold less winter accessories for our ORV business, such as track kits and plows that go in front of the ORV.In the other business where we miss the guidance with the marine business, where we are still seeing softness in the marine market, as we've seen in the last say 12 months. And dealers finish the season with more inventory, and therefore they are more hesitant, especially early in the season, to take on additional inventory. And so that's why the volume impact, resulted in a shortfall on the guidance.

[Operator]

Next question will be from Robin Farley at UBS.

[Robin Farley, analyst]

Just circling back to your inventory goals you mentioned. Do you want to reduce it by 10% to 15%, it sounds like that was mostly in the snow and 3-wheel. I don't know if you clarified what you hope to do with side-by-side and ATV dealer inventory. And then also on the retail side, just specifically for the side-by-side and ATV, what assumption are you working on, for kind of industry retail as you're trying to manage, whatever inventory target you're about to tell us for ORV?

[Jose Boisjoli, executive]

Well, we -- the bulk of the decrease in the inventory, is going to come from seasonal business or personal watercraft, Sea-Doo pontoon, and also snowmobile. We will also be making greater adjustments on 3-wheel. And -- on the ORV side, obviously we have a very good momentum on ORV as you saw our retail performance in the fourth quarter was quite amazing. And so yes, we will adjust the inventory downward, but not as meaningful.It'll be in the probably the low single-digits adjustments for ORV. In terms of industry, usually give a bit of color as well. The industry is in good shape for side-by-side. Obviously there's been a lot of product innovation, and that's driving good retail, but we were expecting a softer industry this year. Then we had, but obviously market share gains will compensate and we expect retail to be up for side-by-side this year.

[Robin Farley, analyst]

So you're saying industry ORV retail has been good so far in the year, but you expect the full year to come in down year-over-year?

[Jose Boisjoli, executive]

To be a softer than we -- what we had in the last year, yes.

[Operator]

Next question will be from Cameron Doerksen at the National Bank Financial.

[Cameron Doerksen, analyst]

I expect questions on capital allocation. So I just want to confirm that that you'd sort of indicated that you expect, to generate something like $750 million in free cash flow in the year. So just want to confirm that number and assuming that's the case, just wondering about your capital deployment decisions here. Obviously if you've redone your debt, just thoughts about NCIB substantial issue bid. It would seem to me that you would have some excess capital. If you do generate $750 million of free cash?

[Sebastien Martel, executive]

Yes, for yes, for so for the record, I confirmed that I did say $750 million this morning. Obviously -- we'll be generating strong EBITDA, CapEx in the range of $500 million. So obviously that will allow us to generate solid free cash flow. I'm not expecting any headwind, or tailwind from working cap. There are still some opportunities, but with the management of the network inventory will probably see a bit more volatility on the working caps on the tailwind there.But nonetheless solid cash generation, which allows us to continue providing good returns to shareholders. As we have announced this morning, the dividend is increasing by 17%. And we will certainly be active on the NCIB. That's our intention. We still got over 2 million shares that we can buy under the NCIB. So, we will obviously want to deploy that capital towards that, because we expect a certain dislocation in the share value in the current -- in the next few quarters.

[Operator]

Next question will be from Craig Kennison at Baird.

[Craig Kennison, analyst]

Seb, I think you mentioned some actions to address your overall cost structure in light of the difficult year ahead. I'm just wondering if you can help us quantify those actions. And then maybe where they're targeted, whether it's in cost of goods sold, or in your SG&A line?

[Sebastien Martel, executive]

I will take the question. As we said to the investor over the years that, when the slowdown happened, we prefer to be ahead of the game and be very agile to readjust. And like I said in my remark, in my script, I mean, we reprioritize many programs into the company. Then basically we feel that with the softer demand, we're better to be prudent.That being said, I'm very confident that we have everything in line to be able to continue, to gain market share in -- our key product line. But basically we've done an exercise, to reprioritize our project. And -- that's how we achieve lower OpEx than what was originally planned a few months ago.

[Operator]

Next question will be from Xian Siew at BNP Paribas.

[Xian Siew Hew Sam, analyst]

Maybe also looking at Slide 16, you kind of mentioned pricing net of sales programs, the $0.50 benefit. I guess, given a kind of more cautious outlook for the consumer, potentially, retail is down, what gives you the confidence on pricing?

[Sebastien Martel, executive]

Well -- obviously the inflation is still part of the business, and running the business. And so, we're seeing cost inflation happening. So we want to compensate that with some pricing. We will not be as aggressive and we don't need to be as aggressive on pricing, as we've been in the past. The inflation is coming down, but every year, we do adjust pricing upward.We do expect the promotional environment, to be more competitive this year. And so, we factor this in the guidance. We factored a, this year we've had a tailwind of about 200, headwind of about 200 basis point coming from promotion. We expect another 50 basis point next year. So that's the net pricing and promotion.But again, we're not thinking that the environment is going to be like fiscal '24. We're expecting it more competitive, and there's more non-current inventory in the network that needs to be addressed as well.

[Xian Siew Hew Sam, analyst]

Got it. Let me just so one quick one. Just on gross margin versus SG&A, how are you thinking about within the guidance, the EBITDA margin? Is it, it sounds like it's mostly expense de-leveraged? Is that how we should think about it?

[Sebastien Martel, executive]

There's some expense de-leveraged plan, but if I look at the lower end of the guidance range, you're probably going to lose 100 basis points on gross margin, probably coming from a bit more promotional and obviously the volume impact. And at the higher end of the guidance range, I'd say gross margin, flattish to what we had in fiscal year '24.

[Operator]

Next question will be from Tristan Thomas-Martin at BMO Capital Markets.

[Tristan Thomas-Martin, analyst]

A lot of talk about the snow headwinds. Is the potential of maybe a less snow, warmer weather, and early start of season to tail in for some of your businesses?

[Jose Boisjoli, executive]

I mean, I think we're obviously we're not the expert in the weather and it's not our job. But like I said in my answer a few minutes ago, when you look at the snowmobile industry, it's quite stable. And if you look at the last 15 years, there was three bad snow season, and the industry was quite stable between 95 and 105,000 units in North America and very flat in Scandinavia and in Europe, at about 20,000 units.Then for us, it's a bad winter, typically the following year, because of the non-current ratio available for consumer. The industry is quite stable. But it remained that -- we happy to be more diversified than 20 years ago, because obviously we have more product line. But snowmobiles remain a very good business for us and our dealers, and we'll go to a bad season and we'll bounce back after.

[Sebastien Martel, executive]

And I'll just add on Jose point. So and as he mentioned, the beauty of our business is, yes, we are diversified. And so, if a product is not going as good, we are seeing an uptick in other products. And anecdotally, we've had some dealers say, what my snowmobile business has slowed down significantly in February, March, but consumers are walking in and buying ORV product instead. So yes, we've seen some of that. And again, the beauty of being diversified.

[Operator]

Next question will be from Fred Wightman at Wolfe Research.

[Frederick Wightman, analyst]

Just a quick question on the implied EBITDA margin. I think it looks a little bit lower than what you guys had alluded to last quarter. Is that just a matter of the incremental deleverage from the softer snow and marine performance, or is there something else going on there?

[Sebastien Martel, executive]

It's mainly related to the volume impact and the revenue decline. So yes, the snow impact is having a ripple effect on the overall margin. But nonetheless, we're still, when you look at the guidance range, we're still looking to deliver EBITDA margin in the mid-15 percentage points, which is significantly higher than what we had versus pre-COVID. And so, it's still very strong performance financially on our side. And we still see opportunities as we get through these one-time elements to continue improving our EBITDA margin down the road.

[Frederick Wightman, analyst]

Okay. And then Seb, you talked about just from a cadence perspective, a softer first half with a stronger back half of the year. Are you guys assuming rate cuts in that outlook? And can you maybe talk about how quickly you think potential rate cuts could start to either catalyze consumer demand, or dealer orders if floor plan rates come down?

[Sebastien Martel, executive]

We've -- always said that we're not an economist, so we're not predicting any rate cuts in our guidance. We've assumed the current rates as they are today. If they happen, well, that'll be good news for our dealers, good news for our consumers. And hopefully, we'll benefit from it as well with higher wholesale. But currently, no rate cuts.

[Operator]

Next question will be from Benoit Poirier at Desjardins.

[Benoit Poirier, analyst]

Could you maybe provide more color on marine, even the impairment charge that was taken and the adjustment? Just wondering how much of a drive could it be right now, either in terms of EPS, or how diluted would it be in terms of EBITDA? And just trying to gauge kind of the rebound we might see in terms of contribution going forward as you continue to grow that business beyond fiscal year '25?

[Sebastien Martel, executive]

Well, the marine industry has had its struggles in the last year. We've obviously seen softer consumer demand and less demand from the dealer network. That obviously impacted our profitability. And we had our issues as well with the ramp up in the marine -- and with the new Manitou, which obviously impacted profitability. And that is what drove the impairment charge we took this year.Obviously, our plan is to bring the marine business to a much more profitable level. And so, I won't necessarily go into the details of the impact of that. But we do when we look at how we've designed this boat for a modular point of view, and a more industrialized process of making these boats. Our expectation is that the marine business should drive similar returns than some of the product lines that we have in the Powersport group.

[Operator]

Next question will be from Jaime Katz at Morningstar.

[Jaime Katz, analyst]

I just want to clarify something on that last question. It sounds like the impairment was more focused on the cost structure of the marine business rather than what you guys think about is the long-term revenue opportunity set. Is that right?

[Sebastien Martel, executive]

That's correct. When we look at the overall results that we've delivered in the last few years, the softness in the industry and the expectation for next year as well. That obviously is below our initial expectation. And that's the main driver of the impairment.

[Jaime Katz, analyst]

Okay. And then the -- a lot of the expense deleverage that we're seeing this coming year, is a function of sales decline. So, if we get back to, let's say a low single-digit top line growth rate in the following year, there's nothing really holding back expense leverage, from accruing. And theoretically, we should go back towards where we were. Is that the right way to think about it?

[Sebastien Martel, executive]

Well I mean, we're diligent in how we -- deploy our projects and where we increase our overhead. And so as the business, as the volume comes back next year and we increase revenue, obviously, we'll have more flexibility in deciding, which projects we do and which projects we don't. We'll increase overhead costs, yes, but we'll be selective in where we decide to increase it.

[Operator]

Next question will be from Luke Hannan at Canaccord Genuity.

[Luke Hannan, analyst]

Maybe just going back to the target to bring down network inventory levels by 10% to 15% for the year. Was that the number that you'd established internally what you felt like the dealers would be comfortable with, or is that a back and forth? That's what the dealers felt, they'd be more comfortable operating with -- in the network going forward?

[Jose Boisjoli, executive]

When we look at the inventory, we look at it internally, we look at it at days of inventory. And we want to have a good turn of inventory at the dealer level. And we believe that we had set a target to ourselves during the COVID time, not to go back to the pre COVID level. And this is why we were proactive. And on top of it, you have the pressure of the high interest rate for the dealers.Then we're working hand-in-hand with the dealers, to try to maximize obviously our business, but also their business. And this is a decision we've taken. We believe to protect value proposition of the dealers, the money they're making, the margin they're making with our product. We believe it's the right thing to do, to continue to work hand-in-hand with them and continue to grow overall. And it's an internal target that we put together, because we believe it's healthy for the dealer and us.

[Luke Hannan, analyst]

And maybe a sort of a follow-up to that then, is just broadly speaking. How is the, we'll call it the financial health of the dealer network as we stand today?

[Jose Boisjoli, executive]

The financial health of the network is very good. The interest cost that they have to bear is an important cost, but it's not the bulk of what's driving their profitability. It's an important component, but not the bulk. For them it's obviously volume. And as you see, the retail is still going strong, especially for their side-by-side and ATV. And during COVID, the dealers made a lot of money.And so financially, they're in a good situation. The interest cost is higher, because the value of the units are much higher than pre-COVID. The mix of the products is more side-by-side. The Sea-Doo Switch pontoons so from a dollar value per unit is much higher. And so, they see a much higher interest cost. And that's why we want to be diligent. But we have no concerns that we work hand-in-hand with our floor plan partners, looking at the dealer health that there's a high risk in that area.

[Operator]

Next question will be from Brian Morrison at TD Securities.

[Brian Morrison, analyst]

Just Seb maybe what are you seeing in terms of pricing from your competitors, across your verticals in general, because dealer inventory in dollars is up 60% since the pandemic units. I think you said 30%. So that indicates very strong pricing over that time, which takes inflation to account. But the question is, are competitors remaining disciplined right now? As within your guidance, I'm just trying to reconcile price increases and market share gains in what's an increasingly competitive environment?

[Sebastien Martel, executive]

It's obviously yes, it's competitive. And we've been in this business for well over 50 years. So, we know this industry very well. We know how to operate within these dynamics. But I think we're still below pre COVID levels. There is discounting happening on non-current inventory. There's discounting happening on current models.But it's obviously a factor of higher interest rates where in order to stimulate retail, you want to offer certain promotions to bring the consumer in the store, and give them a reason to buy the product and financing the interest rate, by subsidizing it is certainly something that is helping to move the needle. So both us and other OEMs are using this as a tool to stimulate retail. And it's working.

[Brian Morrison, analyst]

So you're not seeing any competitive intensity heating up at this time?

[Sebastien Martel, executive]

Again, it's a healthy battle. There is discounting that's happening, but nothing I think nobody wants to buy market share. And so, I think there's a good level of promotional activity happening, but it's nothing crazy.

[Operator]

Next question will be from Mark Petrie at CIBC.

[Mark Petrie, analyst]

I don't know if you're able to or willing to, but could you quantify or give us a sense of the materiality of the revenue contribution of the new product introductions in the second half of fiscal '25. And just as a related question, I think Jose, you mentioned you had planned to delay some of the innovation, or introductions you had planned on electric vehicles. I'm just curious the driver there. Is that is that an internal constraint, or is that reflection of not wanting to overburden the dealers at this time, or what was the thought process behind that decision?

[Jose Boisjoli, executive]

Yes, I think you nailed it, in your last part of your question. I mean, right now we -- obviously we've looked at all the new product we are introducing. And you need to understand that the dealer right now focusing on reducing their inventory. But many of them are catching up on the growth of recent year. During COVID, they grew significantly. Some of our [indiscernible] shop is too crowded for the new reality. And the dealer are -- our need to focus on their day-to-day operation. And on our side, obviously, like I said, in the previous question we reprioritize many program. And at the end of all this, when you look to be successful in a new product launch, the dealer need to train his salespeople, his service people. He needs some space in the showroom.He need to invest in the new product line. And when we look at the workload of the dealer and what was reasonable, that's why we decided to introduce in August the Can-Am 2-wheel -- that is I think will be very successful. And we decided to push the rise at a further date. And obviously this morning we don't want to go into much detail. But basically, this is what we've done. It's a question of balancing the workload of the dealers with -- to make sure that we have a successful intro.

[Sebastien Martel, executive]

And on the new product introductions that will every year Mark, where and as you've been following us for now 10 years. We always have a lot of product news. And that's the intention this year. The majority of the new products will be delivered in the fourth quarter. And so that's why in the gating of the earnings this year we're seeing a higher back half loaded earnings adjustment and inventory of course in H1.But obviously new product especially in the fourth quarter. So that will hit the fourth quarter. A lot of exciting stuff to come, but as usual we like to keep our cards close to our chest, and will surprise the market in a few quarters.

[Operator]

We have no more questions at this time. I will turn the call to Mr. Deschenes, to close the meeting.

[Philippe Deschênes, executive]

Thank you, Sylvie. And thanks everyone for joining us this morning and for your interest in BRP. We look forward to speaking with you again on May 31, for our first quarter conference call. Thanks again everyone and have a good day.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. We ask that you please disconnect your lines.