BRP Inc (DOOO) 2015 Q2 法說會逐字稿

(interpreted) Hello, ladies and gentlemen. Welcome to BRP Inc's second-quarter and fiscal year 2015 financial results. (interpreted) The call is about to begin. I would now like to turn the meeting over to Mr. Pascal Bosse. Please go ahead.

Great, thank you, Mode. Good morning and welcome to BRP's second-quarter results conference call for fiscal year 2015. Joining me this morning on the call are Jose Boisjoli, President and CEO, 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 those are subject to a number of risks and uncertainties. I invite you to read BRP's MD&A for a listing of those.

Also during the call, references will be made to supporting slides and you can find the slide presentation on our website at BRP.com under the Investor Relations section. So with no further ado, I will turn the call over to Jose Boisjoli.

Thank you, Pascal. Good morning, everyone. BRP reported this morning its financial results for the second quarter and after a soft start into fiscal year 2015, revenues bounced back to reach CAD780 million in the second quarter.

The strong 26% increase, when compared to the same period last year, was broadly in line with our plan. For the first six months of fiscal year 2015, revenue stood at CAD1.539 billion. This represents an 8% increase compared to the first six months of last year, bringing us just slightly short of the lower end of our annual guidance.

As is typically the case, the seasonality of our business and the impact of new products recently introduced are expected to result in an acceleration of revenues. We are therefore confident to reach our full-year guidance of revenue growth between 9% and 13%.

Normalized EBITDA stood at CAD31.3 million in Q2, below our plan, due to higher cost of sales program and a worse than expected currency impact on gross margins. All this resulted in net loss amounting to CAD3.6 million or CAD0.07 per diluted share.

Overall, although profitability was lower than planned, our second-quarter half is expected to be stronger in particularly the fourth quarter. As such, we are reaffirming our guidance for fiscal year 2015 and Sebastien will walk you through the financial results in more detail in a few minutes.

Moving to the business highlights for the second quarter. For North America, our retail sales increased for both seasonal and year-round products by 19%, compared to the second quarter last year. This solid performance was driven by personal watercraft in the Sea-Doo Spark, the Can-Am Spyder and side-by-side vehicles.

The strong retail was also driven in part by a catch-up from the late spring season that affected year-round product sales. At the end of the quarter, our dealer inventory and the network was in good shape for both seasonal and year-round products. We increased snowmobile shipment in Q2 due to a strong quarter book and this accounts for an estimated 5% increase of the total 2% increase in dealer inventories.

Excluding Ski-Doo, our inventories were actually down 3% in aggregate so this is a potential catalyst for the second half.

To summarize for North America, we ended model year 2014 for off-road vehicle at the end of June with Can-Am gaining market share in both product lines. At international, our sales were up 8% despite the challenges in Russia and a soft economy in South America. On that note, I wish to highlight our good performance for ATV in Europe and the commercial success of the Sea-Doo Spark worldwide.

We also began production of the Outlander L ATV family in June in (inaudible) and we are ramping up production. We started shipping units a few weeks back and deliveries are expected to accelerate through the third and fourth quarters.

And finally on new products, we launched an all new outboard engine, the Evinrude G2. This engine offers a superior technology with more power, more torque, better fuel efficiency, lower emission and lower operating cost. In addition it also offers clean rigging and unique color panels, enabling OEM and consumers to match the engine with the color of their boat. We feel very strongly that the Evinrude G2 is a game changer in the industry and this will allow us to grow our propulsion system business in the future.

With our focus on new product innovation, we have introduced again this year many new products. As demonstrated on slide six, you have an overview of the timing of the announcement and when we will start shipping to dealers. The takeaway is that all of these products will have a meaningful impact on our revenue in the second half of the year.

Given the strong market reception following this introduction, we are confident in our sales plan and our guidance for the year.

On seasonal product, sales stood at nearly CAD260 million. Snowmobile sales are usually low in the second quarter but we started production at two shift from the get-go and ramped up much faster than last year to fulfill dealer orders.

In personal watercraft, the season has accelerated with the North America industry growing in the low 20% compared to last year and Sea-Doo gaining market shares. By the end of season 14, we estimate that our sellthrough that mean unit retail and the network will be over 95% for the Sea-Doo Spark. This is one of our most successful product launches. So, very pleased with that.

Looking into model year 2015, we have plans to increase production of the Spark to meet customer demand and we'll continue to strategically balance our location to dealers between Spark and our traditional, personal watercraft.

Turning to year-round products. Revenue increased 7% to CAD297 million, mostly driven by side-by-side and Spyder. As discussed on the first-quarter earnings calls, following a soft spring that affected sales in this slow [Bell], we launched program with a special focus on our Maverick and our Spyder noncurrent models. Our objective was to deplete inventories at the dealers to prepare for new models and I am pleased with the results.

We closed the season 14 on June 30 with Can-Am side-by-side growing in the high teens faster than the industry midteens. For ATV, our retail is slightly higher than the industry but the industry growth comes from the mid-cc segment, so the introduction of the Outlander L family will have broadened our exposure to the growing markets.

Our offering is highly competitive. We started shipping the 500 a few weeks ago and we'll accelerate shipment in the third and fourth quarter.

Meanwhile, we started to work on the announced building of [Juarez 2], the second manufacturing facility for off-road vehicle in Mexico. We are still early in this program but on track. Construction will start in October for production in the fall of fiscal year 2016. This is an important project as it will provide us with the much-needed space to accommodate for entry into new off-road segments.

Finally, despite the cold and long winter and late start of the season, Can-Am Spyder retail is up mid-single digits season to date. For June and July, our retail was nearly 40% higher than last year.

Our top-of-the-line Spyder RT 1330 is selling well and we successfully depleted noncurrent model, as I mentioned earlier, so we are in good position for new product intro.

Moving to slide nine. We announced this morning the introduction of the new turbocharged Maverick X ds, with redesigned front and rear suspension, redesigned CVT transmission and the industry first factory installed turbocharger. Rated at 121 horsepower, this product will pleased the enthusiast rider with a unique offering.

The fast-growing sport category represents over 25% of the side-by-side market in North America and the segment of our performance is the number one buying criteria. We'll start shipping the X ds early in the fourth quarter.

To get a better feel for the difference in performance, I invite you to visit YouTube and search for the clips to see firsthand performance advantage.

There have been leaks in the past weeks of the pending introduction of our new Can-Am Spyder, and this has created excitement in the social media. After six years, we know what customers like about the Spyder but we also know why some are not buying, so we are addressing those elements with a new model. We'll host a club on September 23 and I'm looking forward to the introduction of the new model that will help please new customers. We are 10 days from the official global launch. I invite you to stay tuned.

Now, turning to propulsion systems. Our sales decreased 2% compared to prior year to CAD84 million. For outboard engine, the industry season to date is up high single digits, driven mostly by the saltwater and pontoon market where we are not [past present].

As mentioned earlier, the launch of the new Evinrude Etec was successful and the feedback from our dealers, both builders and the trade media, has been excellent following the club hosted in June in Milwaukee.

From a player mainly focused on the repower market, we have high aspirations with this new engine. Our strategy is to gain market share by creating a buzz with the customer to engage with both builders. So long-term we believe we will have the sales mix that will be better balance between new boat and the power markets.

Sales from our pack business have increased 19% to CAD138 million. The growth came primarily from the good performance in personal watercraft and snowmobile pack for the upcoming season. We also have new accessories in store for the new Maverick X ds and the Spyder F3. So a good growth lever for BRP.

Let me turn it over to Sebastien for the financial review and I will come back for the outlook.

Thank you, Jose, and good morning, everyone. This morning we reported revenues of CAD780 million for the second quarter of fiscal 2015, a 26% increase from fiscal 2014 or 20% when excluding the favorable impact of foreign exchange rates. Our gross profit of CAD143 million for the quarter resulted in gross margins of 18.3%.

When compared to the same period last year, 650 basis points of reduction in margin is explained by higher sales program costs, mainly for SSV and roadster, nonrecurring costs related to our strategic initiatives, such as our Mexican manufacturing expansion projects, yard inventory depletion and unfavorable foreign exchange rates.

Now coming back to the sales program. You will recall that the warm weather arrived late in North America and retail in Q2, in Q1 was slow. With the recent product news for SSV and Spyder, we wanted to make sure that dealer inventory levels were adequate and therefore invested more in sales programs. We are glad we met our objective and successfully reduced inventories at the dealer. Normalized EBITDA came in at CAD31.3 million and this resulted in a normalized net loss of CAD8.8 million or CAD0.07 per diluted share.

Now turning to our revenues by product categories and geographies on slide 15. 33% of our sales came from seasonal products, 38% were from year-round products, 11% from propulsion systems and 18% from parts, accessories and clothing.

In the regional breakdown for the quarter was 46% of sales from the US, 23% from Canada and 31% from international. The growth in Canada and the US was driven by strong deliveries of PWCs, especially the Sea-Doo Spark and strong deliveries of snowmobiles for the upcoming season.

Turning to the normalized net income bridge on slide 16. Volume, mix and sales program costs had a net positive impact of CAD28 million. This was more than offset by higher production and nonrecurring costs for CAD21 million, notably due to the one-time costs related to certain strategic initiatives referred to previously and absorption of overhead costs stemming from the reduction of our yard inventory.

Higher operating expenses for CAD14 million, driven in part by greater marketing expenses, iFinancing costs and income tax expense was favorable CAD5 million. As we had guided for the full year, our depreciation charge is higher and reduced net income by CAD5 million. And finally, foreign exchange ended CAD10 million unfavorable on our normalized net income when compared to last year.

Moving to the balance sheet items. We consumed approximately CAD53 million of cash when compared to end of January. In any given financial year, our cash position at the end of Q2 is generally low as we ramp up for snowmobile season. As I mentioned on our Q1 call in June, our yard inventory levels at the time were higher than planned and so we successfully reduced inventories by approximately CAD44 million.

Capital expenditures were slightly up to CAD58 million and year to date free cash flow is negative CAD70 million, slightly better than last year. We expect free cash flow to turn positive in the second half of the year.

Now for a quick update on BRP's power sport dealer inventory for North America at the end of July. When compared to the second-quarter end of fiscal 2014, dealer inventories were up 2% and this was mostly driven by higher shipments of snowmobiles in the second quarter. Given the recent product announcements and the retail we had in the quarter, we are comfortable with our dealer's current inventory position.

And now our guidance for fiscal 2015 on slide 19. You will notice that we are leaving our guidance essentially unchanged other than the expected sales growth for different product categories. So for the year, we're expecting growth in total Company revenues of 9% to 13%. We expect seasonal products to be stronger. So going from 9% to 13% to up 12% to 16%. This increase is driven by additional demand for the Sea-Doo Spark and better product mix in snowmobiles.

Year-round products guidance is going from up 9% to 13% to up 6% to 10%. The decrease is driven by lower industry growth and ATV versus our plan and despite a solid retail in Q2 for SSVs, these results were not sufficient to offset slow retail we experienced in Q1. All other metrics remain essentially the same with normalized EBITDA forecasted to grow between 11% and 15% and normalized net income forecasted to grow between 10% and 17%.

Before I turn the call to Jose, I just want to say a few words

on the distribution of our quarterly earnings. As you see on slide 20, when looking at the past three years a stronger second half is something to be expected. This is dependent upon the timing of new product launches in the year as well as other factors.

For fiscal 2015 this holds true with the majority of our new products being shipped starting in Q3 and Q4. We also had unfavorable elements which impacted the first half of the year and we are not expecting them to reoccur in the back half.

And on that note, I will turn the call back to Jose.

Thank you, Sebastien. To summarize, our first half of the year is more difficult than originally planned but our second half will be stronger than planned. In the first half, our sales were up 8% and at retail we are gaining market share in all product lines.

Clearly, our retail in the spring was soft but we cut up during summer and our network inventory is at a very healthy level today.

Our margins in the first half were affected by specific expenses. Additional promotion dollars for the spark marketing campaign and the launch of the Evinrude G2, additional sales program for the Maverick and the 2013 Spyder.

Personal watercraft transferred to Mexico and the transfer of Sherbrooke distribution center and an unfavorable mix of foreign exchanges. However, the second half will be better than originally planned. Our snowmobile orders are strong with a very rich mix in terms of product. Also a high proportion of our dealer orders are already presold to end customers.

We are ramping up production of a series of new products. The Outlander L ATV family, the new Maverick X ds, the new Spyder F3 and the Evinrude G2. All of these new products are well-received by our customers and show a good potential for growth.

Our two ongoing Mexican projects, the transfer of personal watercraft from Valcourt to Queretaro and the construction of the new factory for off-road vehicle in Juarez are on track.

We are carefully monitoring the situation Russia. Since July, we have been ramping up snowmobile delivery and it's going in line with our plan. The economy in South America is difficult but business in that region is still growing at a good pace.

The Canadian dollar was stronger in the second quarter than what we had anticipated in June but at today's level, we are still within guidance. Because of all of these elements, we are confident we'll meet our year-end guidance and have a good year.

So with that, I will turn the call back to the operator for questions.

(Operator Instructions) Benoit Poirier, Desjardins Capital Markets.

Good morning. Just for the Spyder. Your sales season to date, the retail sales were up mid-single digit. Obviously, this was facing tough weather at the beginning of the year. But is it running below expectation or I know you made a lot of push on the marketing side. Do you think people are kind of awaiting the new model to be launched?

Good morning, we were behind planning in the spring. Retail was soft in April and May and there was a lot of customer, I believe, were on the fence between old RT with the twin engine and the new RT with the three cylinder. And that's why after April and May we decided to increase the rebate on noncurrent from CAD3,000 to CAD4,000, which is about 15% discount. And in June-July the retail took off and we -- our retail in June-July was 40% higher. More than 40% higher than last year.

And I believe there was a lot of customers on the fence in the spring and when the good weather came, the sales really increased. Right now, we're happy overall because we are mid-single digit. The industry in the high cc motorcycle is flat this year. We are a bit behind what we had planned originally but, overall, the inventory in the network at the end of the season will be in good shape, and we are very excited with the new product that will be introduced in 10 days.

Okay and second question just in terms of rebates, I understand that the inventory management is very important, especially when you launch new products. But what is your feeling about the industry? Do you think we are going toward an industry where the rebates will be more typical or is it more temporary at this point?

I would say that I think overall for normal product evolution, the rebates are probably a bit on the high side versus what we had a few years ago for all the OEMs. In our case, we increased the rebate on two products. We increased the rebate on the maverick because we knew that the X ds was coming and after the soft spring, we decided to increase the rebate.

That being said, the rebate on the Maverick was increased to CAD2,000, which is 12% and that is typical in the industry at this time of the year and the Spyder.

And then we had I would say richer rebate on those two products. For the rest, I believe we are slightly on the high side but overall within the norm.

Okay, thanks for the time.

Robin Farley, UBS.

Thank you, I have two questions. The first is when you look at the seasonal increases in Q2, can you give us a little color on how much of that was more snow product shipping a little bit earlier versus how much of it was actually the watercraft and the Spark shipping in Q2 that sold through?

And then my second question is a wonder if you could give us a little bit of insight here into Q3, since August is a completed month. For the two areas where you had to be a little more promotional specifically the side-by-sides and the Spyder, a little bit of insight into how August looked for you versus the market?

Hi Robin, this is Sebastien. When you look at our seasonal products, revenues were up about CAD120 million in the quarter. FX probably accounted for approximately CAD10 million. So about CAD110 million up. Basically two drivers of the revenue growth for seasonal products and it's both product lines, I would say 50-50.

Snowmobile as you know, we've had a great winter season last year so dealer orders are strong and consumer orders also very strong. And therefore we increased the rate of production this quarter in order to meet demand. So about 50% of the increase comes from snowmobile and the other 50% is personal watercraft. Two items driving it.

You'll recall that we took some wholesale shipments from Q2 -- from Q1 into Q2. And the other element is the demand for Spark is also very strong so we produced Sparks later in the season and shipped those in the second quarter. So that would be the main drivers of the revenue increase.

Now in terms of looking into the second half of the year, as we've mentioned our second half will be backloaded and we manage the business on an annual basis as we've said before and not managed the business on a quarterly basis. I won't go into the specifics in terms of numerical response, but we are going to see a good improvement on the Q3 results versus Q2; and Q4 is expected to be very strong as Jose highlighted. A lot of our new product launches are going to be delivered in Q4.

Maybe Robin to add to Seb's comments, in terms of retail, it's clear that we had soft retail in the spring because our business is a lot snow build. But we caught up in Q2. In August, I would say that if I look at every product line, we are back on track and tracking with some plus and minus but overall we are tracking according to our plan.

And then we had like a blip in the spring and catch up in the summer -- this and again there's only 1.5 months in Q3 but so far we are tracking on plan.

And I understand you're thinking longer-term than just a month. I guess I'm just wondering kind of the environment that you are in so far in the quarter for the year found product. Is there just sort of a general -- because the year has been a little bit volatile in terms of how the retail sales have come in.

So I guess would you say just sort of a general industry comment, and not your specific numbers but just in general, do you feel that the on road and the side-by-side business in August are healthy from an industry perspective? Or is it maybe some more of the volatility that we've seen so far this year?

Yes, when we look at the Q3 is usually a slow retail period for on road motorcycle. A lot of the retail happens in Q2. So in terms of Q3, there's not a lot of activity happening for us, for roadster is not a big period.

In terms of overall industry, as I've mentioned we saw that we're seeing the ATV industry not as high as we anticipated and that's reflective of what we are seeing in the third quarter for ATV but SSV is still strong.

Okay, thank you.

Cameron Doerksen, National Bank Financial.

I guess maybe just a couple of questions on the costs. I wonder if you could maybe talk a bit about on the operating expenses selling and marketing and R&D, should we expect the second half -- those costs to be sort of similar to what you did in the second half of last year?

Well, when we look at the marketing spend in the first half of the year was stronger this year because of -- we had a big club for the launch of the new Evinrude and we also had more intense marketing with the Spark as we wanted to make sure that Spark was a success.

So we are seeing the expenses probably being tapered stronger in the first half of the year than in the second half of the year for those reasons, Cameron.

Okay and then on the R&D was also up year-over-year. Should we expect that to be down in the second half relative to the first half?

No, year-over-year we should see an increase in R&D. We are continuously investing in the R&D and that investment will continue to grow.

Okay and just thinking about the seasonality, if I look at all of the new products that you're going to be rolling out here in the second half of the year and some starting in Q4, is it fair to say that as we look ahead to Q1 -- I know you won't want to comment on next fiscal year. But if you look ahead to Q1, should we expect that because you are introducing all these new products that Q1 year-over-year next year will be higher than what we saw this past Q1?

Obviously, we'll not comment on next year. But maybe what we can say on this, for sure the new Spyder will start shipping in Q4 and will be continuing next year. Obviously, we believe the new F3 will cannibalize some of the existing model but right now we're finalizing our plan.

I think one product line where you will see a lift is the Evinrude Gen 2. And again, we introduced the Evinrude Gen 2 in June. We'll start delivering in Q4 because we need to involve the boat builder to put the engine into their boat. But you will see definitely a propulsion system increase next year because of the Gen 2 introduction.

For the rest, the Outlander L family, we're starting ramping up in Q3, Q4. This had an add-on to our existing product line. That's why we are very confident; overall when you look at our business because of all of those new products we believe we can continue our momentum but it's obviously difficult to manage on a quarterly basis.

On a yearly basis, that's the way we manage the business. On a quarterly it's more difficult, depending of seasonality and what is at the planning.

Okay, fair enough, thanks very much.

Anthony Zicha, Scotiabank.

Jose, with reference to higher program costs -- is there any manufacturing execution risk that could spill over into Q3? I know you did mention you're on track but is it -- ?

I mean, how can I say -- ? I was thrilled to see the retail going up in the second quarter because the inventory depleted very quickly for the Spyder and on current and the Maverick. And after a soft spring, we decided not to take any chance and go maybe for the extra dollars. And the retail spike, probably like I said on my introduction another customer was on the fence during the long winter and when the summer came, the retail spike.

So far in the fall, I would say that it's normal. I think we caught up most of what the lag that we had at the beginning of the year for most of the product line and now I would say that the fall is normal.

I don't -- difficult to predict at this point what the weather or the retail will do when the competition will do. So far I would say the fall looks normal.

Okay and can you give us an update on the competitive landscape like how does it compare this year over last year and have you noticed any change in the consumer behavior?

I would say that there is quite a lot of product news in the offered business. I still believe that we have very competitive product and with the Maverick X ds again, we want to take back the leadership position in the sport category.

There is quite a lot of new products, ATV and side-by-side coming into the industry. We still are outpacing the industry growth. The industry, the side-by-side was increased last year by mid-single digits and we outpaced the industry. And then overall, more new product introductions in the [offered] business.

In terms of program, again we were bit more generous than what we had planned originally on the Maverick but that was for a specific reason. I would say if you average all the OEM, we're probably on the high side compared to previous year but I would say we remain within the normal zone.

And probably the other thing I would add in terms of competitive landscape. On the ATV industry we are seeing a shift from the high cc segment to the lower t mid cc segment category. So that would be another element of the competitive landscape.

Yes.

Okay, and you are well positioned in that now?

Yes.

Yes.

Okay, well, thank you very much.

Martin Landry, GMP Securities.

You're obviously quite confident in the outlook for the back half and you probably do have some visibility or very good visibility on some of the sales and that's what I would like to know. What's the proportion of your sales for which you have very good visibility for the back half of the year?

I think if you look overall on snowmobile in North America, we have the order on hand. In Europe, in Scandinavia we have the order on hand. Russia, like I said in the intro, is going at plan so far since we readjust our plan in March. Russia is going as planned. Obviously, there is a lot to be shipped in the fall because snowmobile in Russia is important but so far as planned.

For the rest of all the product lines, you need to understand that we are starting the model year 15. And typically when you have risk is on the tail end of the season and most of the product line, the season and in the summer. In the year, we're ramping up in all product lines the model year 15 and our network inventory is very clean. And that's why we are confident to have a very strong second half.

Okay and would you be able to talk a little bit about your new Spyder that you're seeing that you are trying to target a new market with that? Did you tell us exactly who you are trying to aim -- who you are trying to seduce with that new product?

As I said, Martin, in my intro after six years selling Spyder we know why customers buy but we also know why some customers hesitate or don't buy and will be introducing the vehicle in 10 days. By respect to the thousand dealer will be in Connecticut in 10 days, I cannot tell you more about that this morning. Because we want the dealers to come and we'll explain to them who is the customer and the specific -- specification of the product. But we convinced that the F3 will open up the larger customer base

Okay, well, good luck on that. Thank you.

Gerrick Johnson, BMO Capital Markets.

So, we know Spark has been strong. Can you talk about the rest of the PWC lineup? How did that do at retail?

Spark, very happy with that like you said. The rest was as planned I would say. To be honest, outside North America we had very good momentum overall with the rest of the lineup. In North America, some of our competitors were very aggressive to try to compete against the Spark. The price gap is too wide to compete against the Spark and that's affected some of the traditional watercraft but we are very close to what we had in our plan.

If you remember, Gerrick, we always saw about 10% cannibalization. And retail was stronger than what we had planned. And overall, we are very close to what we had planned originally in the business case.

Okay, I think part of the overall plan was to get people more excited about personal watercraft drive traffic into the dealers and re-energize the category. Do you think you have succeeded there?

Yes, no doubt about that.

Okay.

For us, we see dealer who typically in the middle of the summer had watercraft lineup in the back of the store and this summer we saw a lot of dealer putting more focus on watercraft. And we also saw some dealers -- we saw many customer coming in for a Spark and going out with a GTI or GTS. And also I have to highlight the pack of Spark was very successful.

You know we had the graphic kit and people, it's funny, people buy the Spark, it's a lower price point product but they have had quite a lot of accessories which is good for the business case.

Yes, okay. And on the 19% retail growth that you guys saw in North America, can you quantify how much of that may have come from discounted products that you might not have sold if they weren't discounted? I know it's a tough one to answer but maybe ballpark?

Oh, boy. I would say, Gerrick, obviously we believe that Spyder noncurrent and the Maverick have sold more because of the increased promotion.

Sure.

The rest was normal. That being said it was -- for us it was a way to secure the second half after a soft April and May. But it's very difficult to quantify.

Okay, thank you, guys.

Craig Kennison, Robert W. Baird.

Good morning, thank you for taking my questions. On the dealer expansion plan, could you give us an update on your progress there and maybe tell us how some of your new dealers are performing so far?

To be honest, it's on track. This year, we believe we are tracking well to deliver the 65, 75 that we have as a target. We signed during the first half some dealers. There is -- a high number of dealers who is come in the club in September. And typically a dealer is ready to sign sometime in June-July would prefer to wait in September to see us live. To meet the management, to try the product. There will be a good number of new dealer or potential dealer will come at the club in Connecticut in 10 days but overall we are on track.

In terms of sales per new dealers, we are also tracking slightly above our plan. But overall I would say that we are on plan.

Thank you, are you signing new dealers who previously were not dealers or are you signing dealers that previously carried other brands? And if so maybe where are you seeing the most opportunity, which brands are moving to BRP?

We are signing -- there's many different combination or many different situation. Obviously like I said in a few time, when you sign a dealer who is selling already and is, let's say, dropping another brand is taking the BRP product, this is quickest ramp-up. Because typically the showroom exists. They send a technician for training and they are up and running quickly.

When you start the dealer from scratch, it takes longer time between the time you sign and the time that is ramping up. But it's very difficult for us to give you some statistics because there is a lot of different situations. But overall, we are following our plan and we're trying to make sure that we cover open point that we have in North America.

Thank you.

Tim Conder, Wells Fargo Securities.

Thank you. Jose, just follow on Craig's question there. Can you maybe characterize the percentage of your new dealers that are -- already carry competitive brands or are in that camp of the ability to ramp up fast versus basically new to power sports?

To be honest, I'm not comfortable to guess here. If it's something that you're looking for, something that we can probably give you a sense going forward but this morning it will be very difficult for need to give you a sense on that one.

Okay and then Jose, regarding, I guess, Europe in general. Clearly the year last year was negatively impacted by the warm weather that impacted the sled business. Yet you guys seem to be doing okay there. And now in general what we've seen over the last several months is on the margin. Europe is slowing from an economic perspective.

Granted, probably part of that is to do with what's going on with Russia and Ukraine. But can you give us any color what you're seeing at retail over the last several months, particularly in ORV and in anything you're doing with Spyder there over the, say, since the last -- over the last 90 days.

I would say Russia is a special situation, very difficult to predict. But as I said, right now going as planned.

If I look at Scandinavia, Scandinavia is, I would say, flattish. And last winter the dealer -- like you said the winter was quite warm then but our retail was good overall and the dealer -- there's many customers who don't have much mileage on their sled and we anticipate a good -- normal season I would say in Scandinavia.

What surprised us lately is Western Europe. Western Europe. if you take France and Germany, all of the small countries -- Belgium, UK -- the retail is solid. The number have shrank a lot since the recession but the retail is growing constantly quarter after quarter and we're quite happy with the momentum. And it's all product line almost that is growing there.

There are some areas that are very, very encouraging. Asia Pacific, Australia, New Zealand, China is doing quite well. To be honest, better than planned. That being said like I said on my opening, LatAm, if you take Brazil, Chile and Argentina it's growing. A bit slower than what we had planned originally.

And overall like I said on my opening, we are growing at international 8% despite the Russia situation which is lower than last year like we said in Q1 we are planning Russia to be down 20% versus fiscal year 2014. And we are quite happy with the performance of our product line at international.

Great, thank you.

Mark Petrie, CIBC.

Most of my questions have been answered but I just wanted to ask a bit about the Spark business and, specifically -- what you touched on earlier. But specifically about the gross margin mix as it relates to lower gross margin on the product but a higher gross on the pack business or better sellthrough on the pack business. How should we expect that to evolve over time as Spark continues to grow?

Hi, this is Seb, Mark. When we are looking at overall Spark you'll recall that when we launched the Spark we talked about expected revenues this year about CAD65 million to CAD70 million and we saw we adjusted our guidance upward in seasonal products driven by Spark. So when we're looking at Spark today, we're probably looking at total revenues for the year of CAD125 million. We talked about cannibalization in the range of CAD30 million-CAD35 million initially when we launched it. Cannibalization ratio was probably a bit lower so probably in the range of CAD50 million overall when we are looking at it for the upcoming season as well.

So Spark is on the overall product success very good for us and it's accretive to the bottom line.

The margins are similar to our entry-level traditional PWCs. So on a product, global product basis, yes, it will reduce the margins somewhat. We'll catch up some of it with the PAC business but on the bottom line it will be accretive as you see the volume is quite significant for Spark this year.

And how should we think about the PAC business sort of in the second half? Year to date year up 15% which is the high end of your guidance range. I know it's heavier on snowmobiles, which is going to be a big driver of the growth in the second half. How should we think about PAC growth going forward?

Like I said, we ship a lot of snowmobile for the upcoming season in Q2. Difficult to plan snowmobile because -- it's difficult snowmobile. You can a plus or minus. We're seeing Q4 depending on the snow condition that could play up or down but for the rest, except for snowmobile that was stronger in Q2 and in part that was also stronger in Q2, the rest I would say is going as planned on all of the of the product lines. And then we should be within the guidance we gave you on this.

Okay, thanks very much.

(Operator Instructions) Chris Bowes, Cannacord Genuity.

Thanks, Sebastien. Just as we look at the seasonality in seasonal products for the balance of the year, given the early ramp to Skidoo production this year to you expect to see more balance between Q3 and Q4 or do you think it's going to be Q4 loaded as usual?

I think we will -- we'll be seeing some shipments constantly throughout the second half of the year. Q3 is going to be snowmobile-related. As again we mentioned that our demand for snowmobile was very strong and we'll see some seasonal product increases in the second or later part of the quarter driven in part by PWC. That's when we start shipping PWC for the upcoming season. And as I've mentioned Spark is going very strong and those deliveries will be starting in the fourth quarter.

All right, fair enough. Just moved to the Juarez facility. Could you maybe just give us a little bit more granularity and tell us when you expect the product to start rolling off the line and maybe when we can expect to find out what the product is going to be?

You mean the new facility in Juarez, we call it Juarez 2. Like we said in the spring, the Juarez 1 what we are producing right now, ATV and side-by-side is limit in terms of capacity because we are somewhat in the middle of the city and we cannot expand. That's why we launched a new one. We start construction this October.

And like we said the production is planned to start late fall 2015. Obviously for competitive reasons, Chris, I cannot tell you more than that. But it's to enter a new off-road segment.

Okay, thank you.

There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Bosse.

Great, thank you, Mode. So this concludes today's call. I want to thank all of our participants for their interest and their support and I invite you to join us for our third-quarter earnings call to be held on December 12. So with that, thank you very much and you all have a very good day. Thank you.

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.