Demand for boats is sinking now that the COVID-19 pandemic’s outdoor-recreation boom is coming to an end, Wall Street analysts warned Tuesday.
Demand is cooling in the North and in the South, D.A. Davidson analysts wrote in a research note on Tuesday, and dealers are starting to cut prices more aggressively, setting the stage for a 2023 that could look a lot like prepandemic times. In response, the analysts downgraded boat builder Brunswick Corp. BC, -4.51% to neutral from buy and cut their price target on the stock to $90 from $82.
“Higher interest rates and inflation have had a greater impact on the lower-end boating consumer, [who] is more likely to finance their boat purchase,” the analysts wrote. “Contacts also noted they’ve seen a significant increase in used boat listings recently, which is another impediment to new boat demand.”
Demand for boats rose in 2020 and 2021 as COVID-19 restrictions on indoor activities inspired people to find things to do outside. Last year, total spending on marine gear reached a record $56.7 billion, helped by a wave of first-time boat buyers, according to the National Marine Manufacturers Association. However, the industry group said in October that new powerboat sales from the beginning of this year through July were down 18% when compared with the same period in 2021.
D.A. Davidson analysts said recent markdowns were greater on boats smaller than 30 feet. Dealers told the analysts they expected their inventories would be back to “normalized levels” at some point in early or mid-2023, as demand cools and supply-chain bottlenecks ease. Discounts were running as steep as 26%, based on a sampling of price tags at dealerships.
The analysts also noted that the availability of Yamaha Motor Co. Ltd. 7272, +1.02% engines has also increased. Last month, they said, boats that used Yamaha engines began arriving with those engines attached, after boats had arrived without them in previous months.
“When asked about expectations for 2023, dealers we spoke with voiced expectations for retail to be in line with 2019 levels, which would be about a -10% decline vs. 2022,” the analysts said. “Contacts cited rising rates, used boat demand, boat-sharing clubs vs. ownership and a potential pull-forward of demand throughout the pandemic as reasons they were cautious on 2023.”
Even as analysts worry about the effect of inflation on demand for leisure products, Brunswick, in its second quarter, reported sales that were higher than at any point over the last two decades, according to FactSet data.
When the company reported its third-quarter results last month, Chief Executive David Foulkes said on the earnings call that customer demand remained “resilient.” Chief Financial Officer Ryan Gwillim said the company had pushed prices higher on parts and accessories.
Shares of Brunswick fell 2.3% on Tuesday and are down 25% so far this year. The S&P 500 index SPX, +0.87% has fallen 16% over that time. Of 14 analysts tracked by FactSet, 10 have a buy rating on Brunswick stock.