OneWater Marine Q3 2024 Earnings Call Transcript

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Provided by Quartr
July 30, 2024

Key Takeaways

  • One Water’s fiscal Q3 revenue fell 8.7% to $542 million, with gross profit down 17% to $133 million, adjusted EBITDA dropping to $39 million, and adjusted EPS to $1.05 versus $2.15 a year ago.
  • Industry unit sales declined 15% in the quarter and 23% in June, while One Water’s units were down 6% (2% ex-Texas), reflecting severe weather in Texas; however, July same-store sales are trending flat to positive, leading to a cautiously optimistic Q4.
  • The company reduced inventory by 13% quarter-over-quarter to $599 million, achieving 20.3 weeks on hand versus an industry average of 26, through targeted exits of low-turning brands and proactive model-mix optimization.
  • Ongoing cost optimization initiatives cut SG&A by 6.2% year-over-year to $87 million, with personnel costs down and a flexible cost structure in place to accelerate further savings for fiscal 2025.
  • Management lowered full-year guidance to mid-single digit declines in unit and same-store sales, expecting adjusted EBITDA of $91–100 million and adjusted EPS of $1.50–$2.00, while keeping an active M&A pipeline and maintaining prudent capital allocation.
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Earnings Conference Call
OneWater Marine Q3 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and welcome to the One Water Marine Fiscal Third Quarter 2024 Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Jack Ezell, Chief Financial Officer. Please go ahead.

Speaker 1

Good morning, and welcome to One Water Marine's fiscal Q3 2024 earnings conference call. I am joined on the call today by Austin Singleton, Chief Executive Officer and Anthony Asquith, President and Chief Operating Officer. Before we begin, I would like to remind you that certain statements made by management in this morning's conference call regarding One Water Marine and its operations may be considered forward looking statements under security law and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which would cause actual results and events to differ materially from those described in the forward looking statements. Factors that might affect future results are discussed in the company's earnings release, which can be found in the Investor Relations section on the company's website and in its filings with the SEC.

Speaker 1

The company disclaims any obligation or undertaking to update forward looking statements reflect circumstances or events that occur after the date the forward looking statements are made except as required by law. Please also note that all comparisons of our Q3 2024 results are made against the Q3 of 2023 unless otherwise noted. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin?

Speaker 2

Thanks, Jack, and thank you, everyone, for joining today's call. When we spoke to you last, we noted same store sales trended slightly positive in April, then May trended slightly down. However, towards the end of May and into June, the sales decline got progressively worse. Also in Texas, one of our key markets, we saw significant negative impact from severe weather throughout the quarter. In the end, 3rd quarter results were below our expectations.

Speaker 2

Recent industry data indicated that the categories we participate in were down approximately 23% in June and 15% for the quarter, whereas our unit sales were down approximately 14% and 6%, respectively, including the impact from the adverse weather in Texas. Excluding Texas, our unit sales were only down 2% for the quarter. I am proud of the team for delivering results in a challenging environment that continue to outperform the industry data. On a same store sales basis, sales were down 8% for the quarter. We are encouraged to see July sales to date changing course and trending flat to positive, so we remain cautiously optimistic about the 4th quarter.

Speaker 2

While we cannot control market conditions or the weather, we continue to focus on efficient inventory management and proactive cost optimization, both of which improved during the quarter. Importantly, we made further headway on sequentially reducing our inventory in terms of dollars and weeks on hand despite lower revenues for the quarter. This is due to our focused effort to end the summer selling season with clean inventory, both in terms of units and model mix and ensure that we are aligned with demand as we prepare for fiscal year 2025. While we continue to outperform the industry in this area, we are encouraged to see weeks on hand inventory decline sequentially for the broader industry as the market adjusts to this dynamic environment. We also maintain a proactive approach to expense management that we expect to pay off considerably for fiscal year 2025.

Speaker 2

Last quarter, we implemented a number of cost optimization initiatives and are beginning to realize the benefits. Importantly, our flexible cost structure enables us to accelerate these cost actions when necessary. Turning to M and A, the deal pipeline remains active and we are spending considerable time on strategic initiatives. We are a patient and experienced management team and we will pursue the right deal when the timing, price and strategic fit are aligned with our objectives. One Water will continue to prioritize thoughtful capital allocation and maintain appropriate levels of leverage while evaluating strategic opportunities supporting the long term viability of our business.

Speaker 2

We believe that acquisitional growth is a key part of our story just as much as it has been for the last 2 decades. On the fundamentals of the industry, I am pleased to report that we have been very encouraged by the turnaround that we've seen in July. However, given the industry wide decline that we saw this quarter and the weather related impact in Texas, we are lowering our full year outlook. Despite the lowered guidance, our focus remains on factors within our control, including our ongoing strategic inventory management, the cost cutting measures and the green shoots we have seen in the distribution business. These have positioned us very well as we prepare to turn the page into fiscal year 2025.

Speaker 2

With that, I will turn it over to Anthony to discuss business operations.

Speaker 3

Thanks, Austin. As mentioned, demand slowed during the quarter before picking up in July. Given the challenging retail environment, the sales cycle is slower and we are seeing customers delaying purchases. We were also challenged by severe weather in Texas, which forced closures of various lakes at the time when our retail locations typically experienced high volume of sales during the summer season. While we see this as a one off event, the impact of the lost sales is sizable and it's unclear if they will be recouped.

Speaker 3

For our various retail categories, premium held up well as expected and we saw pre owned sales outpacing new boat sales. Despite the challenging retail environment, the team did a great job holding gross margin, which were in line sequentially and within our expected range. The selling environment remains competitive and our teams are active, staying aggressive and closing deals with support from our manufacturing partners. To make way for the next model year, we are selling through current inventory and we are making good progress while ensuring we have appropriate levels to meet demand. Utilizing our industry leading inventory management tools, we are evaluating every make and model by location.

Speaker 3

For some locations, we have elected to exit certain brands and optimize the model mix for others. For the quarter, we

Speaker 2

ended up

Speaker 3

with 20 3 weeks on hand inventory versus the industry of approximately 26 weeks on hand. Pricing for next year's boats has moderated with model year 2025 boats expected to have low single digit price increases for manufacturers. We are looking forward to getting out and selling these boats and we believe customers will find a ton of value with all the new features in the 2025 lineup. Turning to our higher margin businesses, we are pleased that finance and insurance income increased slightly as a percentage of sales. Finance penetration is solid and we are comfortably within our target range.

Speaker 3

In our service and parts and other businesses, we saw similar trends as the previous quarter. Dealership segment sales were up when factoring out the impact of dispositions that occurred in the Q4 of 2023. Our distribution segment faced the challenge of reduced production by boat manufacturers, but they continue to see green shoots from the retail business. Overall, we're pleased with what we've seen so far in July and feel good about our inventory position heading into the Q4. The team remains focused on meeting our customers' needs and getting them out on the water.

Speaker 3

And with that, I'll turn the call over to Jack to go over the financials in more detail.

Speaker 1

Thanks, Anthony. Fiscal third quarter revenue decreased 8.7% to $542,000,000 in 2024 from $594,000,000 in 2023. New boat sales were down 10% to $333,000,000 in the fiscal Q3 of 2024, while pre owned boat sales decreased 4% to $107,000,000 The decrease in boat sales was due to demand softness in the retail environment and an outsized impact of the adverse weather in Texas. Revenue from service parts and other sales for the quarter decreased 8% to $84,000,000 Distribution segment service parts and other sales were lower largely due to reduced parts and accessories sales to original equipment manufacturer in response to industry wide elevated inventory levels. However, dealership segment service parts and other sales remained solid when factoring out our recent dispositions.

Speaker 1

Finance and insurance revenue decreased 6% to $18,000,000 in the 3rd quarter, but was slightly higher as a percentage of total boat sales. Gross profit decreased 17% to $133,000,000 in 20.24 compared to $159,000,000 in 2023, driven by the continued normalization of gross margins on boats sold. Sequentially, gross profit margins declined 20 basis points and was in line with our expectations. Q3 2024 selling, general and administrative expenses decreased to $87,000,000 from $93,000,000 SG and A as a percentage of sales was 16%, up 40 basis points on lower sales, largely due to fixed cost inflation for rents that adjust based on CPI. On a dollar basis, SG and A was down 6.2% due to previous cost reduction actions, ongoing expense management and lower personnel costs in the quarter.

Speaker 1

Operating income decreased to $40,000,000 from $60,000,000 and adjusted EBITDA was $39,000,000 compared to $62,000,000 Net income for the fiscal Q3 totaled $17,000,000 or $0.99 per diluted share compared to net income of $33,000,000 or $1.95 per diluted share. In the fiscal Q3, adjusted earnings per diluted share was $1.05 compared to adjusted earnings per diluted share of $2.15 Now turning to the balance sheet. On June 30, 2024, total liquidity was in excess of 60,000,000 dollars including $41,000,000 of cash and additional availability under our credit facilities. Total inventory on June 30, 2024 was $599,000,000 compared to $687,000,000 at March 31, 2024. Despite lower than expected revenues in the quarter, our focus enabled us to decrease inventory 13% sequentially due to the proactive matching of inventory levels with market demand.

Speaker 1

We expect to continue to work down inventory until the fall when the seasonal inventory build begins. Now turning to our outlook. We are updating our fiscal 2024 guidance due to the challenging market conditions in the Q3. Our initial guidance for this year was built on industry expectation of unit sales flat to down mid single digits with our performance expected to be up in the low to mid single digits. Now the industry data suggesting unit sales will be down in excess of 10%.

Speaker 1

We are now expecting our unit sales and same store sales to be down mid single digit. Accordingly, we expect adjusted EBITDA to be in the range of 90 $1,000,000 to $100,000,000 and adjusted earnings per diluted share to be in the range of $1.50 to $2 To conclude, we continue to execute on factors within our control as we monitor and adapt to changing market dynamics. We remain committed to prudent expense and inventory management and we are confident in our position as we close out the year. And with that, I will turn the call over to Austin for some closing remarks.

Speaker 2

Thanks, Jack. Our resilient team continues to execute well in a dynamic environment. Given our market leadership position, we expect to continue outpacing the industry and end the year with the appropriate inventory on hand. The decision to reduce guidance is painful in the short term, but it is made thoughtfully with the back drop of a rapidly changing retail environment and adverse weather in Texas. Importantly, we do think these decisions position the business for profitable growth in fiscal 2025.

Speaker 2

We are not providing formal guidance for fiscal 2025 at this time. Our outperformance of industry sales trends, our right sized inventory, our ongoing expense management, distribution segment as OEMs increase production and hopefully a reduction in interest rates should all provide some tailwinds as we navigate into 2025. This concludes our prepared remarks. Operator, would

Operator

you The first question is from Drew Crum with Stifel. Please go

Speaker 4

ahead. With the updates that you've made to fiscal '24 guidance, is this more a function of the market challenges or just more severe relative to your forecast 3 months ago? Or is it the adverse weather in Texas? Just trying to understand the magnitude of those two factors. And as it relates to Texas, is it isolated to fiscal 3Q or does it linger through the balance of this year?

Speaker 2

Yes. So when you look at that, I would say it's probably it leans more towards just overall market conditions. When you check out the SSI data, there's been a dramatic decrease across the board for the industry. And we felt that in June. Coming out of last quarter, we spoke to April being up.

Speaker 2

And May kind of fell in line close to expectations, and we were expecting to have a great June in June, not only for the industry, but for us, really fell off a cliff. And so that really hurt. As far as Texas goes, it's a meaningful impact. We've got 2 of our biggest stores are in Houston and Dallas. And when you went through that, if you look at like Houston has already had the total amount of rainfall for the entire year through May.

Speaker 2

And so what we had in Texas was we had a lot of our lakes that our customers boat on that were actually closed and you weren't allowed to boat on them. So that doesn't breed really well into people getting excited about going out and buying a boat even on a sunny day. If they go buy a boat and they can't put it on their lake and use it, they're like, okay, why are we buying a boat? So I think it was isolated. I don't expect to have a pickup because we're not going to make that up just for the fact that we're rolling into the off season here in about 45 days when you look at Lakes.

Speaker 2

But it had an impact. But just overall, it was just a tough quarter. I mean, we saw just a whole industry decline and then we had to deal with that weather and it just kind of built on itself and came to life in June.

Speaker 5

Yes.

Speaker 4

I would all thanks, Austin. Go ahead, Jack.

Speaker 1

Texas will have a little bit of an impact in July, but it did seem as we kind of got to mid July, things started opening up and kind of going back to normal.

Speaker 4

Okay, got it. And then just on the cost optimization initiatives and the reduction you reported in the SG and A line during the year or a percentage of revenue you're just trying to understand if fiscal 3Q is indicative of what you hope to achieve going forward?

Speaker 1

Yes. I would say that's based on the cuts we made at the end of March. That's kind of where it's lining up. When you peel back the layers of the onion, you can see personnel costs as a percent of sales was actually down in that 20, 25 basis points that we were looking for on SG and A. When we have things like rents and whatnot that are tied to CPI that just makes that fixed line, fixed expenses going up even in a time when sales are going down.

Speaker 1

So we'll continue we're focused through the June quarter and right now on selling boats, right, it's the season. And we'll continue to monitor what happens at retail and we'll react accordingly.

Operator

The next question is from Joe Altobello with Raymond James. Please go ahead.

Speaker 6

So just want to follow-up on the demand inflection that I think you guys saw from June to July. Is that timing related perhaps and we should look at those 2 months sort of as one period?

Speaker 2

Joe, the 4th July fell in the middle of the week here and a lot of people come in.

Speaker 1

Hey, Austin, we're losing you there a bit. Maybe I'll

Speaker 2

Can you hear me?

Speaker 1

No, we lost you, Hayao. Hey, Joe, just I don't think so. I think that what Austin was getting at was the 4th July shifted kind of late in the week on Thursday. That may have caused something. But I think as we move forward, I wouldn't it wasn't like we saw June down a lot and July up a lot, right?

Speaker 1

July is looking to be flat to slightly down. So I don't think there's any sort of timing or pushing back and forth from 1 month to the next.

Speaker 6

Okay, got it. And maybe a question on the guidance. If I look at the midpoint of your EPS guide, it does imply Q4 is roughly flat with last year. What's driving that improvement in trends from Q3?

Speaker 1

Yes. I think there's some going on with EPS. Focused a bit more on EBITDA. When you look at the EBITDA, there is some differential there. But when you look at the where taxes are coming in at, where interest is coming in at, we see some hopefully some improvement in the back half there on rates.

Speaker 1

But I think they're all largely in line.

Speaker 6

Okay. Got it. Thank you.

Operator

The next

Speaker 7

question

Operator

is from Michael Swartz with Truist. Please go

Speaker 8

ahead. Hey, good morning, guys.

Speaker 5

Just a point of clarification, Jack, I think you had just said that July sales are running flat to down, but in the prepared remarks, you said flat to positive. I just wanted to clarify which one it is?

Speaker 1

I apologize, it's flat to up slightly up, I'm sorry.

Speaker 8

Okay, perfect.

Speaker 5

And then just I mean, we've kind of talked about this kind of inflection in July, but if we look at guidance and what's implied for the Q4, is it something like a comp store sales are still down pretty significantly, but you're calling out July flat to up. I'm trying to understand how you get to down if July is flat to up just given the fact that and maybe you can help us understand like July is probably a significant portion of the quarter. Yes. I mean any color around that?

Speaker 1

Yes, 100%. As you're working through the seasonality of the business, right, July is the biggest month, right? And then so it's going to slow after that. There's also a lot of uncertainty in the market right now. So I think we're just trying to take a reasonable position for the quarter and have a conservative number out there, right?

Speaker 1

We've this is our we haven't adjusted guidance since we put it out at the beginning of the year. We tried to share with you guys last quarter that we were leaning towards the low end of the range. And then just as June kind of came through, we kind of fell through that. So we're trying to put a number out there that makes sense. We tightened the range up for you a little bit just to kind of reflect the fact that we only have 1 quarter left.

Speaker 1

And so hopefully, that helps narrow the where we think the results are coming in at.

Speaker 5

Got you. And then just with gross margin, and I think you said on a consolidated basis was kind of in line with your expectations. I guess how did that play out by different reporting segment? I mean your boat margins new boat margins, I think they stepped down about 150 basis points. Was that the expectation?

Speaker 5

Or did you were you kind of forced to discount a little more given the softness that you encountered in the quarter?

Speaker 1

Yes. I'd say it's while you're correct on the step down when you look sequentially, right, we stepped down 20 basis points from last quarter on new boats. So I think that's kind of more kind of aligned with our expectations. It felt like a change in trend. And so we started we kind of paced that forward through the remainder of the year.

Speaker 5

Okay. And just a final one for me on the cost side. Is there any way to frame based on the actions you've taken this fiscal year, maybe how much annualized cost you've removed from the system and how much of that will be variable versus how much of that's kind of more structural in nature?

Speaker 1

Yes. So as you know, our expense structure is typically about 50% fixed, 50% variable. And we look to take I think we said last quarter, it was about $10,000,000 to $15,000,000 on an annual basis and looking to receive about half of that, which I think worked out to be about a quarter point of SG and A as a percent of sales that we had kind of shaved off. And so we saw that coming in this quarter on the personnel line in particular. Some of the other lines came down a little bit, but we were focused a little bit in those cuts in March on personnel.

Speaker 5

Okay, great. Thank you.

Operator

The next question is from Craig Kennison or excuse me, Kennison with Baird. Please go ahead.

Speaker 7

Hey, good morning and thank you. I think Anthony mentioned that consumers were delaying purchases. I'm just curious, does that mean they're shopping at your stores or dealerships, but they're just pushing back on price or is there another factor that causes you

Speaker 1

to believe it's just a delay?

Speaker 3

I just think they're shopping more is what I think they're doing, what it appears.

Speaker 8

Okay. And then as it relates yes, go ahead.

Speaker 1

I'd just say too, like we get a lot of questions in around interest rates, right? Our F and I as a percent of sales ticked up a little bit in the quarter. And so it doesn't seem like financing is a challenge. I think consumers keep adjusting to the new rate environment, certainly wouldn't hurt us if the Fed gave us some relief.

Speaker 7

Thanks. And how would you frame the promotional environment today versus maybe this time last year or even what you thought in the winter?

Speaker 2

I will jump in real quick on that. I mean, I think the manufacturers have done a great job of continuing that on. I mean I think everybody knows that inventories got to be clean as we roll into 2025 model year. And I think the manufacturers, how do they make money, they got to build boats. And so they know that they've got to help clear the channel and that channel seems to be getting better and better month by month.

Speaker 2

And I think June was a little bit of a, oh boy, and then it's kind of started to come back alive in July and that's not just one water, that's the industry as a whole. You know talk to Wells Fargo who's the leading floor plan lender in the space and they saw a huge drop in June but it picked back up in July also. So manufacturers are doing what needs to be done, and the promotional activity is still continuing. And I expect that to continue through the end of the year, probably in the next year's boat shows. I think your dealers, us everybody is going to be a little bit tighter and a little bit more conservative on reorders and stocking up and that's not what the manufacturers want or need.

Speaker 2

So they're going to continue to help and they've proven that out month after month.

Speaker 7

Got it. Thank you.

Operator

The next question is from Fred Wightman with Wolfe Research. Please go ahead.

Speaker 9

Hey, guys. Good morning. In Anthony's prepared remarks, he was talking about model year 25 boats, model year 25 product more in a future sense, but I thought that there was a handful or a majority of 25 products was coming out earlier in June. So can you give us a sense of sort of what the mix of 25 product is on your inventory now versus what that would look like normally?

Speaker 2

Yes. So Jack can speak to that. But I think when dealers put out 25 boats in June, all they're doing is changing the serial number. They're not bringing the new product out. They're not changing the old product to the updates because that's a whole changeover in production.

Speaker 2

So a lot of manufacturers talk about bringing 2025s out in late May June, depending on the year to try to do that. And it's because if you think about it, who wants to take a 24 boat the 2nd week of June when the new boats will be out in 2 weeks that have all the changes to them. So when you go to an NADA book and you look at the value of the boat, the serial number dictates the value. And so if it's 2025 and it's titled as a 2025 and the same boat was a 2024 that came in the day before, there's a different value on that boat on the pre owned, according to the book. And so you have to be really good as a dealer, not just to rely on that book, but to rely on that.

Speaker 2

So there's a little, little working around the stuff on that. 2025s are rolling in, but the majority of those after the changeover July 4, those will start rolling in really as we get into next month. So I don't think he was talking about future tense like October. We're just we haven't seen a ton. I mean, Anthony, you know better than that than probably Jack.

Speaker 2

I mean, we're taking truckloads of boats a day that are going to be 25 as we clear out our 2024s, right? Correct. They're coming now. Correct.

Speaker 3

They're coming now, yes.

Speaker 1

It's just a low percentage of our inventory, right? They're right, manufacturers are shipping so many boats. They can only produce so many boats a week, right? That's why we have to build so much inventory through the winter is because we have to stock through the winter to have supply for the summer. And so there's while they're starting to ship now, right, they're starting to ship 1s and 2s to various dealers across the country and no one has a real supply.

Speaker 1

And like Austin said, especially when you start talking about new models and things like that, mean, those are very hard to come by.

Speaker 9

Makes sense. And then Austin, last quarter, you sounded really upbeat about the M and A pipeline, sounded pretty upbeat again in the prepared remarks again today. So can you just give us an update on sort of the outlook for deals, velocity of inbound, sort of how you're thinking about M and A at a high level?

Speaker 2

Yes, I mean the cadence has been pretty much about the same. I mean even pre COVID, through COVID, I mean it's not like the spigot turns on and off as far as deal flow to us or opportunities to us. I think right now we've got plenty of opportunity in the pipeline. I mean like I've said it numerous times decades. And it's just right now it's looking at what's going to happen.

Speaker 2

I think that we expected to see some struggles last winter and it didn't seem like it took place. With the field inventory at 26 weeks across the industry, you've got dealers that are heavier than that, some that are lower than that. So that's an average and I think that the realization of 10% plus interest rates for the majority of your mom and pops, this really come to bear through the winter. So I think we're just going to sit back and we're very opportunistic. We're looking at several things and it's something that we want to do.

Speaker 2

But then again, we're going to continue to make sure that our leverage stays where we want to. We're going to use free cash flow to do deals. And so we're going to be very selective especially in what felt like things were starting to deteriorate till we got into July. It kind of put us up and made us a little bit more cautious. But we're actively in the market, we're actively working deals and we'll just see how that flushes out over the next 60 to 180 days.

Operator

The next question comes from Noah Zatzkin with KeyBanc Capital Markets. Please go ahead.

Speaker 10

Hi, thanks for taking my question. Maybe this is a little tough to answer, but kind of any working hypotheses around what kind of drove industry softness in June? And then when you think about July, would you say you think the improvements more idiosyncratic, more industry driven improvement or like how do you kind of frame up I guess how much of that you guys are controlling?

Speaker 2

Yes, I don't think we can really speak to what happened. I mean, I don't know, it kind of blindsided us. But I think the pickup in July, well, I know the pickup in July has been across the board. So when I talk with Wells, we don't get into individual dealers by any means, but we talk about the industry as a whole and the amount of payoffs. They track a lot of the payoffs by day and by week compared to the previous years.

Speaker 2

And so they know when there's an uptick in payoffs, there's an uptick in sales. And that's across the board for the industry and that's what they saw. They saw a decrease in payoffs in June, which matched the SSI data and now they've seen an uptick in payoffs. So the SSI data should match that also. Now it's not like July is a rebound from June as far as if June was down, whatever it was 23% for the month or whatever it was across the industry, they expect to see it 23% up, but it has improved significantly compared to June from an industry standpoint.

Speaker 2

But I don't know what happened in June. It just I can't really put my finger on it. Most of for us, we do a lot of the hook and rolls. And what I mean by that is it's people that research, they come in on a Wednesday, Thursday, maybe on a Friday, set up a demo the following week and then take delivery of it for the next weekend. And so then we still have pre sold boats coming in that we that's the majority of the stuff the hook and rolls, the stuff that people kind of made a decision on in a week's time or 10 days is what really went soft on since June, but I can't tell you what led to that.

Speaker 10

That's really helpful. And then

Speaker 5

I think you kind of

Speaker 10

touched on this, but just in terms of your sense of dealer health across the broader industry, like point in time, anything to call out kind of coming on the heels of a softer June?

Speaker 2

Yes, I don't really think health is the right word. I think it's motivation. And what we've seen, what we saw at the very beginning of COVID was you had a lot of mature dealers out there that were like, oh boy, what is this leading to, I'm not going to go through another 'eight, 'nine something like that. And I think what ends up happening or I say this a lot, when we started this whole thing, me and Anthony, it was the exit strategy. What's the exit strategy for the premier dealers in the country that are in there 60 to 64 years old.

Speaker 2

Well, that was 10 years ago. And so what you end up looking at or what I think we'll end up seeing and we saw a couple of these already this year, if you're going to have some more mature dealers that from maybe an age perspective, regardless of what the number is, they're going to be like, all right, I'm just not going to fight through this again. I will just take my chips off the table and they won't be as many as I could have gotten during the middle of COVID or in 2017 or 2018 or something whatever and they're just going to say, okay, now is the time. And it's not health as much as just tightness and having to really work through and survive a winter versus the last 3 years have been pretty simple through the winter. I'm not really worried about the health of the industry as a whole or as a majority because again I thought the wells all the time and they're very comfortable with where inventory is, the trend where inventory is heading And I think we're all in really good shape to set up for 2025 and I think that's what's kind of a little bit of excitement for us is that this quarter wasn't good.

Speaker 2

The quarter we're in right now is probably going to be flat, slightly down, slightly up. It's not going to be a game buster. And probably the Q1 of going in through the winter is a tougher quarter for us now that it's gone back to more seasonality. But by the time we roll into boat show season next year, inventory will be in the right spot. So we expect to see some sort of margin uptick on new boats.

Speaker 2

And then there's a bunch of other green shoots that we talked about in the script. It kind of has us really looking forward and think in 2025 is going to be a little bit of a rebound

Speaker 7

year.

Operator

The next question is from Griffin Please go ahead.

Speaker 8

Yes, thanks. So I guess as we look for

Speaker 2

the fall, what do you think

Speaker 8

the playbook will be for you guys in terms of building that inventory with moly or 25 units? And then just maybe the magnitude that you guys plan to build that inventory given where retail is at?

Speaker 2

Well, I mean, the goal right now is and the mandate for the team is we need to sell 2024s. We need to get rid of the 2024s at whatever it takes to get

Speaker 7

rid of them in this tough environment and replace that

Speaker 2

with a $100,000 boat and we have a 15% margin on it right right take $100,000 boat and we have a 15% margin on it right now because you're going into the end of the season. You sell the boat, this is not exact math, you make $15,000 Well, if we hold that boat to next March, it's only going to probably bring a 10% margin, but it's going to have interest carry. So you're going to make $10,000 on $100,000 boat, but you're going to pay $4,500 in interest carry or whatever that number is. And that doesn't even take into consideration what we refer to internally as lot rot. How many times you got to move it, how many times you got to clean it, all that stuff.

Speaker 2

So the mandate is to get that stuff clean, even at and sold clean that inventory up and sold now and replace that with basically an interest free boat to next spring. And that's where with the flipping of the inventory, we will start going down continually go down in weeks on hand, but then it's going to start building once we get towards the end of August or the 1st part of September with the 2025 to come in, which we're fine with because those are basically all of them are interest free. So I think that's the playbook for us is get the inventory clean, get the interest free boats on our floor plan, save all that interest money and get ready for next year. Anthony, Jack, you want to add anything to that?

Speaker 3

No. No, just exactly right is getting the inventory in the right spot and that's what we're previously working at to make sure that we are. So we'll have a very successful 25.

Speaker 8

Got it. Makes sense. And then can you comment on the brands that you guys like did throughout the quarter and maybe the categories that those were in and then just kind of the rationale around those exits? Thanks.

Speaker 2

Well, I don't think we want to do that. I mean we can talk to what we did as a deep dive with our inventory tool, which we've done, but we went a little bit deeper. Things are a little bit different today at 8.5% interest rates versus 4%, 4.25%. And so you look at things a little bit different. Some brands have had higher price increases than other brands.

Speaker 2

Some brands have not brought the innovation that the other brands had. But when you look at COVID, we made a decision as a company to take on some of these other brands because we needed inventory. We were selling everything we could touch and we couldn't sit, we were going to be short of inventory and not have things. So we've analyzed everything from basically location to model to options and then tying that back to the manufacturer. And so we have key brands, it's easy to go to our deck and look at that, that we have in the majority of our stores or during the majority set in a region.

Speaker 2

So there's a lot of inventory sharing. But some of the one off brands that we got that you can't move to 5 other locations or 10 other locations that maybe didn't have the innovation that needed and kind of just rode the COVID wave up and now nothing's really changed. Those are the things that we looked at and said, okay, we're not going to tie up floor plan dollars with these brands when we can buy more from the premium guys now that things have kind of normalized and gotten back. It's a point out Pursuit, their number one brand. In the high there were certain models that we were sold out for 2 years.

Speaker 2

Well, that's not happening anymore. Now it's back to the normal cadence of dependent on the complexity of the boat, 14 to 30 weeks. And so and there's not like we're only going to get 7 of these next year. You're going to get 25 of them if you want them. So there's some just some brand stuff from a manufacturer that we looked at and said, okay, this doesn't make sense when you put it in the entirety of One Water.

Speaker 2

We would rather spend more money with like a Pursuit so that we have 20 locations instead of 4 that we can move the inventory around as we go through a season and make quicker adjustments. So there wasn't a lot of them, Anthony, less than a dozen, probably less than 10. Yes. It wasn't like it's and it wasn't when you look at it from a dollar perspective, especially when you look at it from a profit perspective, it was easy to do.

Speaker 8

Got it. Thanks, guys.

Operator

This concludes the question and answer session and the conference. Thank you for attending today's presentation. You may now disconnect.

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