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The pandemic led to a boom in boat sales, but Wall Street fears the anchor is about to drop

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Demand for boats is sinking after the COVID-19 pandemic’s outdoor-recreation boom, Wall Street analysts warned Tuesday.

D.A. Davidson analysts wrote that demand was cooling off in the North and the South in a research note on Tuesday, contending that dealers were starting to cut prices more aggressively, setting the stage for a 2023 that could look a lot like prepandemic times. In response, they downgraded boat-maker Brunswick Corp.
BC,
-4.22%
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, which is more likely to finance their boat purchase,” D.A. Davidson analysts wrote. “Contacts also noted they’ve seen a significant increase in used boat listings recently, which is another impediment to new boat demand.”

Boating demand rose in 2020 and 2021, after COVID-19 restrictions for indoor activity inspired more 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, an industry group. However, the group in October said 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 heavier on boats that were smaller than 30 feet. Dealers told the analysts they expected their inventories would be back to “normalized levels” at some point early or mid-2023, as demand cools off and supply-chain bottlenecks open up. Discounts were running as steep as 26%, based on a sampling of price tags at dealers.

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The analysts also noted that availability for Yamaha Motor Co. Ltd.
7272,
+1.02%
engines had also increased. Last month, they said, boats that used Yamaha engines began arriving with those engines attached, after receiving boats without them in prior 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 inflation’s impact on leisure demand, 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 third-quarter results last month, Chief Executive David Foulkes, during Brunswick’s earnings call, said 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. Brunswick stock is down 25% so far this year. The S&P 500 index
SPX,
+0.98%
has fallen 16% over that time. Of 14 analysts tracked by FactSet, 10 have a buy rating on Brunswick stock.

Credit: marketwatch.com

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