Winnebago Industries Inc (WGO) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Winnebago Industries' third quarter results conference call.

My name is Louisa, and I be your Operator for today.

At this time, all participants are in listen only mode.

We will conduct a question and answer session towards the end of this conference.

(Operator Instructions).

I'd now like to turn the call over to Ms.

Sheila Davis, Public Relations and Investor Relations Manager.

Please proceed, ma'am.

Thank you, Louisa.

Good morning and welcome to the Winnebago Industries' conference call to review the company's results for the third quarter fiscal year 2009 ended May 30, 2009.

Before we get started this morning, I just wanted to let you know that we're in the middle of a severe thunderstorm, so should we be interrupted for any reason it is weather related.

Conducting the call today are Bob Olson, Winnebago Industries' Chairman of the Board, Chief Executive Officer and President, and Sarah Nielsen, Vice President, Chief Financial Officer.

I trust each of you have received a copy of the news release with our earnings results this morning.

This call is being broadcast live on our website at WinnebagoInd.com.

A replay of the call will be available on our website at approximately noon today.

If you have any questions about accessing any of this information, please call our Investor Relations department at 641-585-6803 following the conference call.

Before we start it's my responsibility to inform you that this presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that forward-looking statements are inherently uncertain.

The number of factors could cause actual results to differ materially from these statements.

These factors are identified in our filings with the Securities and Exchange Commission over the last 12 months, copies of which are available from the SEC or from the Company upon request.

I'll now turn the call over to Bob Olson.

Bob?

Thank you, Sheila.

Good morning and welcome to Winnebago Industries third quarter conference call.

While we are pleased the consumer confidence edged up in May, the United States and Canada continue to face economic challenges that negatively impact the recreational vehicle industry.

From a third quarter perspective, dealers have continued to reduce their inventories due in part to the reduction of available floor plan financing for the new product, as well as their uncertainty about future consumer demand.

Consequently, inventory of Winnebago Industries products on our dealer partners lots has declined 47% as compared to a year ago, and 20% sequentially since our second quarter.

As dealer inventories continue to decline, we feel we are inching closer to the replenishment cycle improving.

As one analyst stated in a report last month, the destocking trend is unsustainable and the replenishment rate must eventually reverse.

We are in agreement with that opinion, and have started to see improvement in the number of retailers required to generate an order to the factory.

We continue to believe there are dealers who want to replenish their inventories, and retail customers who want to enjoy the RV lifestyle, but can't because of the constraints most lending institutions have placed on both wholesale and retail financing.

The difficult credit environment continues to be our industry's number one opportunity today.

In a normal market environment, we would see wholesale and retail trends that mirror each other.

The day of the difference between the 78% decline of wholesale shipments year-to-date versus the 46% decline in retail sales truly demonstrates the discrepancy which exists due to the tight credit market, forcing dealers to continue to reduce their inventories.

We are hopeful as the economy heals and consumer confidence improves we will see the lending institutions begin to return to more normal lending patterns.

Over the course of history, RV consumer loans have proven to be good, quality paper, and once the economy improves and the lending institutions start realizing again the typical RV customer repays on a timely basis, and has low default rates, our financing dilemma will also improve.

In the meantime, we are pleased several federal programs have included benefits for the RV industry, such as the ability of our dealers to obtain an SBA loan to help fund their floor plan needs.

An inclusion of RV's in the TALF and TARP legislation; however, I don't believe any of these programs are going to have an immediate impact on the replenishment process.

These issues didn't happen overnight and they aren't going to be fixed overnight.

Dr.

Richard Curtain, the economist for the Recreational Vehicle Industry Association, stated in his last forecast dated June 9, 2009 that while the federal programs will aid consumers, the pace of gains in RV sales will remain slow due to the lingering fall out from the credit crisis, sluggish economic growth once the recession ends, slow wage growth, and a job loss rate that will continue to rise into 2010.

Dr.

Curtain also believes that seasonally adjusted shipments reach their low point in the first quarter of calendar 2009 and gains are expected over the next two years as negative financial factors will slowly give way to improved conditions in the market.

His forecasted unit shipments of motorhomes to end calendar 2009 with a 60% decline over 2008, but then to grow by 22% in 2010.

Like Dr.

Curtain's forecast, it is my belief we are either at or near the bottom of the cycle, and when the housing market starts to improve, the stock market recovers, and personal balance sheets improve with increased savings, the US consumer's sense of wealth will improve and normal spending patterns will return.

As we manage through this difficult environment, we continue to adjust our production capacity through reduced work schedules for our employees.

As announced earlier, all of our hourly and salary employees are required to take an additional one week furlough during our fourth fiscal quarter.

In addition, we recently announced the upcoming closure of our Hampton fiberglass facility in Hampton, Iowa.

As difficult as these decisions are, we feel we have to continue to right size the operations to the level of demand and investigate other cost savings throughout the months ahead as we manage through these unprecedented economic times.

We continue to work on reducing our inventory levels and we're very pleased with the $19.5 million reduction during our third quarter.

We have further opportunities in that area going forward, which will in turn generate additional cash flow.

We are confident in our financial strength and competitive position in this economic recession.

As the top selling motorhome manufacturer, we are in a strong financial position with sufficient cash, no long term debt, strong brand recognition, and we take pride in being considered a leader in high quality and innovative products.

We have a terrific product line up for model year 2010, which we are introducing as we speak, through personal presentations provided by our district sales managers and our dealer partners' locations across the US and Canada.

Rather than holding one large dealer event as in the past, this provides us an opportunity to have a personalized presentation with a large group of dealer personnel at each location.

I personally attended a few of these early meetings a couple of weeks ago, and was very pleased with the positive response from our dealer partners to both our innovative new products and the method in which the meetings were held.

Market share results provided earlier this week from statistical surveys for calendar year-to-date through April, showed market share growth for Winnebago Industries and the combined Class A and Class C markets, as well as for Class A and C markets individually.

Combined market share results for calendar 2009 year-to-date through April were 18.4% versus 17.3% for the same period last year.

With a terrific product line up rolling out for 2010, we are optimistic about continuing to grow our market share as the year progresses.

With that, I will now turn the call over to Sarah for the financial review.

Sarah?

Thank you, Bob.

I will now review the financial performance for the company's third quarter of fiscal year 2009.

Revenues for the third quarter were $50.8 million, a 63.6% decrease as compared to the third quarter of fiscal 2008.

This was primarily the result of a decrease in our motorhome deliveries, of 1007 units or 61.9%.

Industry wholesale motorhome shipments as reported by RVIA for the first two months of our fiscal quarter were down 76.6%.

Our average motorhome selling price, net of discounts, decreased 3.7% in the quarter as compared to last year.

This is due to an increase of product incentives we offered at the wholesale level and also due to a shift in mix.

Our sales mix for the quarter was more heavily weighted to lower priced products as 72% of our volume in the quarter was Class B and C product as compared to 63% of our quarter last year.

During the quarter, we also had a number of retail incentive promotions in place to help stimulate retail business, which negatively impacted revenue.

Retail promotion allowances increased 4.7% as a percentage of net revenues as compared to the prior year.

These retail programs had a significant impact in helping to reduce our dealer inventory levels but at a substantial cost.

There were 2324 units of Winnebago dealer inventory at third quarter end, which was down 46.5% in the last year and 20.4% from our second quarter.

The third quarter margins were negatively impacted by lower motorhome deliveries, low absorption of fixed cost and higher production inefficiencies due to low production volumes, significant increases of wholesale and retail promotions due to the challenging market conditions, and a higher mix of lower priced Class C and B motorhome deliveries.

There was a positive benefit to cost of goods sold, however from the liquidation of last in first out inventory values, due to a significant reduction of inventory levels.

Selling expense decreased $2 million or 39.4% in the quarter, primarily due to the fact that we did not hold a dealer event in Las Vegas as typical for the launch of our new model year product.

As Bob mentioned this year instead of one large event, we chose to introduce our 2010 product line up directly to personal presentations at our dealer location.

General and administrative expenses decreased $1 million or 23.1% as compared to the same quarter last year.

This was primarily a result of reduced wages and stock-based compensation expense.

Our continued focus on the balance sheet resulted in cash and short-term investments increasing by $14.3 million during the third quarter.

During June 2009, subsequent to our third quarter end we received a $400,000 par redemption on a portion of our auction rate security investments.

Year-to-date we have received $8.5 million of redemptions on the investments that fall at par.

A significant improvement in working capital was achieved in inventory as we ended the quarter with $53.2 million, a reduction of $19.5 million or 26.9% from inventory on hand at the end of the previous quarter.

This was due to a $13.6 million reduction in raw materials, primarily a result of chassis utilization and a $9.5 million reduction of finished good inventories which was partially offset by a decrease in our LIFO reserve.

As Bob indicated earlier, we are very pleased with the further progress we have made during the quarter on inventory reductions.

On a trailing 12 month basis, our inventory levels have been reduced by $57 million.

We estimate that we can see another $3 million to $5 million reduction in inventories during our fourth quarter.

During the quarter, we listed our airplane for sale, thus, this asset is classified as such on the balance sheet and no longer included within property.

Also during the quarter we were required to repurchase 51 units from our dealer, all of which were resold during the quarter.

There was very minimal impact to our revenues in the third quarter as nearly all of these units repurchased were fully reserved at the end of our second quarter.

Our repurchase reserve at the end of the third quarter was $1.8 million.

I will now turn the call over to the Operator for the question and answer portion of the call.

(Operator Instructions).

Your first question comes from the line of Scott Stember with Sidoti & Company.

Please proceed.

Good morning.

Good morning, Scott.

Sarah, could you give the ASP and unit information for this quarter and last year as well?

Oh, certainly.

At the end of this quarter, our Class A gas had an ASP of $87,421 versus $87,581 last year.

Class A diesel is $163,258 versus $176,893 last year, and the combined Class A was $114,136 versus $109,762 last year.

Class C was $61,704 as compared to $60,953, A and C in total was $78,066 versus $79,735.

Our Class B is $60,946 versus $69,523 and all units together $76,519 versus $79,440.

All right, that's great.

Could you talk about some of the discounting that you're seeing right now?

I know there was some concerns out there with some of your competitors having gone out of business and with distressed units out in the field.

Could you talk about that, and also maybe just touch on your dealer, how many dealers you might have lost in the quarter and what you think will happen going forward?

Well I'll talk a little bit about the discounting Scott and I'll turn it over to Sarah for the dealers because she's done some homework on that.

As far as the discounting, we talk about the companies that went into bankruptcy protection, and really, our fears of huge, huge, huge discounting, I think because they were under bankruptcy protection and there was the potential of them being acquired by somebody, I don't think we saw as big of ones as what we first feared.

Now, with that being said, I think we still got a very large discounting environment out there.

I mean, for the retail customer it's a great time to buy an RV and a lot of us, and I know we've entered that to a point but it's basically to try and stimulate some business in this very very difficult economic time that we face, not only as an industry but as a country, and but really, when you look at what it could have been, I don't think it ended up being as bad so far, as what my fears first were when we heard of all of the possible bankruptcies.

With that I'll turn it over to Sarah on your question for the dealers.

In regards to our dealer count, we are down 12 additional locations at the end of our second quarter so we're now at approximately 243 locations, and the mix of the reasons for the dealer locations to go away is similar to what we've seen all year.

Some of our dealers are choosing to close stores to save their own fixed costs, and so between that, and certain instances, we're always evaluating if a dealer is performing that we had about a third of our locations go away, because they closed a store or we chose to close that location, and then the remaining portion of the closures are going to be because of the situation financially that some of our dealers are in, and so they are either filing Chapter 11, or the bank is repossessing the inventory, or they're exiting the business and choosing not to stock motorhomes any longer.

Did you say you were down 12 year-over-year?

No, we are down 12 sequentially in the quarter.

When you look at where we are on a year-to-date basis we're down 37.

Okay, and with respect to the "distressed units" that are out there, looking out are you concerned there could be more of a push towards discounting or were you thinking maybe we're at a trough as far as discounting?

Well, I think right now it's going to depend on what the dealers are looking at the new buyers of the bankrupt companies, because I think those are the ones that we're probably most concerned about, but if the new buyers come in, and they start honoring some of the things from the old corporations, I don't think you'll see as deep a discounting.

If that doesn't happen, you could start seeing that it will take more to move that product off the dealers lots.

All right, can you comment on what your capacity utilization was in the quarter and with the move to close one of your factories, put it in house to your main facility, will that have a major impact going forward?

Our capacity utilization in the third quarter was approximately 18%, and moving the Hampton facility is not going to have a huge impact on capacity utilization.

We are bringing mostly our front fiberglass shrouds and our rear caps to Forest City and we'll be looking at outsourcing some of the other things, so it won't have a huge impact on capacity utilization, but it will utilize an area that is not being utilized today, plus some of the folks may or may not move up from Forest City or from Hampton and we may have to look at calling back some of the other folks, so I'm hoping that it may put some of our folks back to work here as well.

All right, and last question, you talked about some of your personalized meetings with your dealers displaying some of your new models.

Could you talk about what's being well received, what's really do you think will move in the market when things do turn around?

Well, I think one of the things and I'll just make a personal comment on the dealer meetings that we are having, we've put together a DVD this year that I say a few words on it and then we introduce our product throughout, and then we have our District Managers go out and make presentations on the actual products itself.

As I mentioned in our prepared remarks that I had the opportunity to sit in on a couple of those presentations, and I was extremely happy how it went for a couple reasons.

One is with our dealer days, you're going to get a certain amount of the dealer management at those meetings and when we go into their dealership, we have the opportunity now to talk to several of their employees that may not have the opportunity to go to a dealer days in Las Vegas, and so I think our ability to drill deeper down into the dealership's management structure I think is very beneficial because they get to hear it firsthand.

Secondly, I think we did a very good job of preparing these DVDs and putting together some really good presentations on what has changed and we've spent a lot of time on the 2010 product really from a stylish perspective.

We've spent a lot of time on trying to dress up our exteriors as well as our interiors.

I think once a quarter we try to get out to our dealerships, and I'm personally involved in that, and from that and several other communications that we have with our dealers we've been able to take some of their feedback and incorporate it into our products, and I think we've really showed a lot of things this year that we are improving, we're coming out with obviously what we introduced at Louisville with our Vienna Rail products, which is the first Class A product on a Spinner chassis which is being very very well received, but diesel products we've really tried to step it up a notch, not only have we improved the interior and exterior looks and styling of the product, but we're also offering bath and a half floor plans, which we've never done before.

We have a Thread chassis offering now that we've never had in the past.

We are starting to offer Tag axles, so we have a lot of new and exciting things that we're going to be adding and offering in the diesel line up, so and then we've got a brand new Vista and Sun Star product that has been revamped totally, new front end, more amenities, styling is much better, so we've heard a lot of good responses from that.

The one thing that I was really pleased with because this is quite a deviation from what we have done in the past as far as introducing our new product line but when we did and I had the opportunity to sit in on the presentations, the first thing that was said after the presentation was over was the fact that they were very impressed with the fact that how Winnebago has been very innovative in a very depressed year.

They didn't expect anybody to come out with many new products and it would just be kind of a face lift of some old product and I think we've proven that we believe in this industry for the long term and we've invested a lot in our 2010products so I was very pleased to hear that they noticed the fact that innovation that Winnebago is known for is still alive and well.

Great.

That's all I have.

Thanks.

The next question comes from the line of David Wells with Thompson.

Please proceed.

Good morning everyone.

Good morning.

First off just looking at the inventory reductions that you mentioned that are possible in the fourth quarter I believe it was $3 million to $5 million, could you give us any color, is that finished goods or raw materials and should we see a similar margin benefit from those reductions like we saw in the third quarter here?

In regards to our opportunities from an inventory standpoint, they're in both raw materials and finished goods and in a year where we substantially increased or decreased our inventories and thus our LIFO reserve is impacted, it is incrementally beneficial in the fourth quarter but in regards to where we look at the opportunities to be, it would be in both of those categories.

Okay, and assuming that you're able to realize that lower inventory, at that point then, do you reach kind of a baseline level of inventory that is just kind of necessary to keep the doors open and operational, or can it continue to trend down into fiscal year '10?

I think there are still opportunities in 2010.

Okay.

I think a lot of it is going to depend on the economy.

I mean, David, we're in unchartered territory, here and to give you a definitive answer I don't think we can do that.

I think we continue to look every day at what our opportunities are, and as long as we are in this distressed economy we've got to look for ways that whether it's reduce cost, reduce inventories whatever it maybe to keep us a viable entity.

Okay, sure.

And then given the additional plant closure, does that affect your breakeven unit level?

I know in the last conference call it was in that kind of 1200 to 1400 unit range.

Does that come in some or is that still a pretty accurate number?

I think that's still a fair way to look at it, and when we walk through in the second quarter all of the cost savings items that we've worked through and we're in process of it was a fairly long list.

Since that point in time, the most significant new development would be the Hampton closure and it's just a part facility, a year ago we were idling an assembly location which employed a larger base of employees, so it's a little bit different than the context of what we were going to be doing, and Bob touched upon, there is an element of that capacity and that production that will be done here in Forest City versus Hampton.

I look at 2010, there is an opportunity for maybe $700,000 to $800,000 of fixed cost elimination as a result of that when that closure is complete, but it's a little bit different than the location that we closed a year ago.

Okay.

And I guess just trying to get a sense of what the company's cash burn would be, assuming kind of no changes from inventory I'm kind of backing into like a mid single digit say $4 million to $5 million number range.

Is that a reasonable way to think about just to get a sense of how much cash the Company needs to have to keep its operations going and kind of given the current sales levels, if we don't see an improvement going into the back half of calendar 2009 here?

Well, I guess the significant liquidity items I would look at on a perspective basis in the next 12 to 18 months, if you look at our balance sheet, there's a fairly sizeable tax receivable that's been generated due to the losses that occurred thus far this year.

We're going to be carrying that back to fiscal 2007 and filing a return probably in our second quarter.

We have a pretty sizeable refund received in March related to 2008, so that is one element to consider and then in the fourth quarter of 2010 is the time that we'll be able to put the UBS auction rate securities back, and there's an incremental $4.4 million of cash that's available there, and we touched upon inventory that we've quantified improvements in the fourth quarter, reductions that we are estimating and if the situation doesn't change or improve in regards to the industry, there's more opportunities there in 2010, and that's all in addition to a facility in place, so we think the liquidity situation we have is, we're still happy with the efforts that made thus far and the 41 plus that we have in cash and investments short-term at the end of that quarter, so those would be the important points I guess I would touch upon liquidity wise.

Okay, that's helpful, and then maybe last question here.

Given the significant year-over-year drop at dealer levels for your inventories, do you have a sense of your dealers that carry multiple product lines from other manufacturers?

Are they seeing similar decreases in those lines or is it the case because your product sales have been better that their inventories still maybe kind of bloated at the dealer level but it's due to other manufacturers products who maybe aren't as well received in the marketplace and that would put downward pressure just on looking at total retail level turns?

We really don't have any data to support an opinion one way or the other, other than us being out with both our field individuals and when we go on these dealer visits but I can tell you that there's been pressure on all dealerships to reduce their inventories.

I think some have done a better job than others and we know what ours is and we're extremely happy with the level that we reduced our inventories over the past 12 to 15 months.

They continue to drop and as I stated in the prepared remarks that there's a point where this is not sustainable that that replenishment cycle does have to begin again and you look at, I keep talking about this retail to wholesale or retail to order phenomenon and when you look at the wholesale percentage that we're down versus what the retail percentage is down, that would make a huge difference in production volumes if we could just equal to what where retail is right now, and the lending institutions they continue to put pressure on the dealers to focus on turns, get rid of their aged inventory.

I think if there's one big, issue that's out there still, I think the inventories for all manufacturers have come down.

I just don't have a sense if they've come down what we have but I think there is a big issue that faces all of us from an industry standpoint and that's the age of the inventory that still remains out there.

Some of the newer stuff appears to be turning quicker and there are some aged inventory that's out there.

Okay, great.

Thank you very much.

The next question comes from the line of Greg Badishkanian with Citi.

Please proceed.

Great.

Thanks.

Could you talk about maybe the credit from the dealer perspective as well as the ability for consumers to finance RVs and then also, maybe distinguish between Class A and Class C?

Well, financing continues to be the number one issue I think facing this industry, from a wholesale standpoint, I think that we've got really two major players and that's Banc of America and GE, and they have toughened up their credit standards from the standpoint of lending money, and that's part of the issue that we've got as I mentioned before, that we've got dealers that want to add inventory to their inventory but because of a lot of different expectations that these lending institutions have, they are not allowing them to do that yet.

I think that it's going to eventually free up and get better as the inventories continue to reduce and if sales continue to improve like we have seen over the course of the last couple two three months, they will eventually start freeing some of that up.

On a retail side, Banc of America plays in that along with some other national chains but we're seeing that some of the local banks, some credit unions are helping the retail side of it, but I will say that their criteria to lend money has become very very stringent.

It's not uncommon that you're going to have to have a 20% down payment, you'll have to have a FICO score that's going to be probably in that 725 to 730 before you even get looked at.

A novel idea that they check to see if you have proof of income, which they're really starting to focus on that as well which I think is a good thing, so you've got to have a pretty good credit history to be financed for one of these and you've got to have some skin in the game with a down payment, so you can't lose sight of the fact that over the course of the last several years, retail RV loan paper has been very very quality, and default rates are very low, the payments are paid in a timely manner.

We seen that degrade a little bit over the course of the last 12 months but it still far exceeds anything else that's out there right now and I think when this economy does turnaround and the lending institutions aren't quite as nervous as what they've been over the past year, I think you're going to see some normalcy come back into this and you'll see not only the people that want to get into this lifestyle but you'll see those that have pent-up demand.

We had a great year as an industry back in 2004 and that's six years ago and you've got people that the typical trade pattern is four to six years and you've got people out there that they're ready to trade up and get a new motorhome.

I think once that financing does free up, you're going to see maybe a bigger increase in demand than what we are anticipating.

Has there been any change in trend over the last one or two or three months, have things gotten tighter or have they eased up a bit with the economy seeming to improve modestly?

From what we can tell, we think it's about the same.

We haven't seen, a lot of it will depend on the region of the country.

Some regions that are having a little bit tougher time now economically is still very very difficult.

We've seen other areas where things have gotten a little bit better.

It's a little bit easier to get a loan, but it is kind of spotty but as an overall statement, I would say it's been about the same as what it was since the first of the year.

And just kind of looking at underlying demand, so 12 to 18 months hopefully we're kind of through the tough macro environment, lending eases up.

Usage as you look at parks and other sort of metrics that maybe you look at, is the underlying usage of RVs, has that maintained?

I think it might be down a little bit, but I think it's not disastrous like other parts of this economy are right now.

I think what you're seeing is that people are still wanting to use their RV.

They may not make the 500-mile trip but they might make the 50-mile trip to stay local, so the RVs are still being used.

It's just that they might be staying closer to home.

Right.

Great.

Thank you.

Your next question comes from the line of Craig Kennison with Robert W Baird.

Please proceed.

Great.

Thanks.

This is actually Mark in for Craig.

Just a couple of questions.

Getting back to the dealer inventory again, Bob, what do you think is an acceptable level of dealer inventory for this environment and do you have any estimate in terms of when we expect to see that inflection point on the replenishment rate?

Boy I wish I knew that answer.

I'm not a good one to ask.

We saw this coming several months ago, and we, at one time, back when things are really booming we had an inventory I believe was somewhere in the neighborhood of about 5400 units in dealer inventory and when we saw this decline starting, I'd made a prediction that boy when we see this thing hit 3500 units in our dealer inventory that's where the replenishment cycle will start again and life will be good, so obviously we're down much more significantly than that right now and it continues to decline and but there's got to be a point.

I can't speak for the industry but I can speak for us.

We are an eyelash away from being at one of the lowest dealer inventory levels in the history of our corporation, and I really think we're getting close.

Now do I have a specific number?

No, I don't but my gut tells me that we're an eyelash away from this replenishment cycle starting, the one thing that I do track and I sound like a broken record on this but I do track the number of retails it takes to generate an order for our factory and I can tell you that that has improved significantly over the course of about the last four or five months.

We seen it as high as four and five retails to generate an order and we're now down where we're in that 1.5 to 2 and improving from there, so I think we're getting very very close to that replenishment cycle starting.

Okay, thank you.

Shifting over to the backlog, I notice that the Class B only included two units.

How much of that is the industry and how much of it is an indication of the potential that they have on the market?

That was on the B?

Yes.

The industry side for Class B motorhomes is a very small population, so part of that is a function of if you're looking at such a small amount of shipments to go around and we were very pleased in regards to the 56 that we had shipped during the quarter.

We've seen pretty good success in regards to retail turns and the demand on that product.

We don't have a very long amount of lead time.

It's a product that we can produce and ship relatively quickly so the two is a function of a point in time, but I guess I don't look at any significance of that number per se and more so, I point to the level of business we had in the quarter on that category.

Okay, thanks and then finally, Bob, could you update us on your thoughts on towables as well as any non-RV revenue opportunities?

Well, we don't have anything to report.

We continue to look at that.

There's several different things that we've got in the works right now.

Once we have something finalized, if we finalize anything, we will make an announcement on it but as I said last time we had the conference call, I've taken "No" out of my vocabulary.

We have to look at every opportunity that's going to allow us to generate revenues and if it makes sense for Winnebago Industries we definitely want to get into it.

One of the issues, that we constantly struggle with is that if we do want to get into some diversity and I think in the long run, we do, but I want to make sure that we get into something that's going to be here for the long run.

I don't want something that we get into and then RV side of the business picks up and we just put that off to the side.

I think it's something that we have got to commit to and whatever that diversity is, we have to make sure that we are committed to that and in it for the long run.

One of the issues that we face looking at diversity is, it's not just the RV industry that is struggling right now because of economic conditions that are out there.

There are very few industries in the American economic society that isn't struggling right now, so to find that magic business to get into that is booming right now is very difficult, so we continue to look, we've had several meetings on several different projects, and when we do have something nailed down, we'll let everybody know.

That's all I have.

Thank you.

Thanks.

Your next question comes from the line of Richard Whitings with Broadview Advisors.

Please proceed.

Thank you.

You have done a very good job of bringing costs down as revenues have declined, but are we reaching the point where labor cost is really the only lever you have left to pull?

Well, probably not really, but I think we have to do some soul searching as far as what we want to be as a Company.

I think almost everybody knows that we're very proud of the fact that we are the most vertically integrated Company in the RV industry and we have that capability of not being so vertically integrated and cutting costs that way but we have to really analyze that closely because we feel that gives us a competitive advantage when things do turnaround whether that be from a flexibility standpoint, whether that be from a quality standpoint, whether that be from a speed to market standpoint, and a good example is the Hampton facility that we've announced we're going to close.

We felt that we don't lose our identity by moving part of that operation back into the Forest City campus and then outsourcing more.

To your question, those are going to be the tough decisions if this doesn't turn around soon that we are going to have to address, and right now we don't want to have to do that but we've also got to look at what we have to right size ourself to in order to come closer to meeting the demand for the product.

Okay, on a slightly different tack, what is the historical replacement cycle been for say a Class A motorhome and I realize that that's a moving number in a difficult economic cycle is going to become an extended number, but what historically has been the age rate of trade in upgrade?

Well right now as I mentioned before, the trade cycle usually ranges in that four to six year time period and that's why we're kind of excited about the fact that our biggest year ever, I shouldn't say ever was 2004 and that was six years ago and the average trade cycle for our products, it runs in that four to six year time frame, so we look at it that when the economy does turn around and people start to have more confidence in buying the discretionary type products that we're going to see some pent-up demand, and like I said earlier about our 2010 product, we have gone at great lengths to make some significant changes in our 2010 diesel product and even in our Class A entry level product, so there's now going to have that incentive to trade as well, so we think there's a real bright spot here for people wanting to trade out of their four to six to seven-year-old vehicle.

Thanks, Bob.

Thank you.

Your next question comes from the line of Richard Keim with Kensington.

Please proceed.

Hi, good morning.

Just a couple questions.

First of all, on your market share, can we delve into that a little more, just first of all, obviously you didn't give a break down I don't think you did between Class A and Class C, but more of what I wanted to do was, are you just picking up just the bankruptcy share, or where is all of that bankruptcy share going since you got three major bankruptcies in the industry and I'm sure some others?

Well I think it's really too early to say that anybody is picking up any share from the bankruptcy because where you really have a staff is in the retail market, and they still got a presence out there in the dealer channel and like I said before, there's a lot of deals going on right now, so you're not seeing a lot of I think market share either pick up or degradation either way simply because for all intense and purposes, they're still in that dealer channel with a product that's available for sale.

Now the wholesale side of it which there's no data to support if any single manufacturer is picking up market share or not, that's where you could probably see a little bit of separation in between maybe some of the bankrupt companies that have not put product into the dealer channel versus those that have stayed in production over the course of the last three or four months.

Are the bankrupt companies, are they continuing to produce or are they just being sold?

It has been very limited as far as what they have, from our knowledge from what they have produced there has been some production but I think it's been very limited.

At this point in time, it's early in the process but one of the companies assets that were sold at the first part of this month and they're in the midst of trying to I think resume operations and then the other entity might be sold in the next week or two, if there aren't any competing bids, so they're still kind of in the middle of all of that.

When you look at market share kind of back to your first question, there's definitely, on a year-to-date basis, 2008 to 2009 you can see a lot of that the players not associated with the bankruptcy losing to some degree which would be I would point to maybe some of the games that we have in place thus far, and really you got to look at it category by category like you touched upon, there's a lot of ways to dissect that but we're really happy with the comparison thus far year-to-date of what we've done.

Okay.

On another subject, I know you've talked a lot on this call about inventory, you're really saying you could reduce inventory $3 million to $5 million and that sounds like that's about it for a while but this really, that equals the latest quarter's sales, and I know you're hoping the sales will pick up, but isn't this way too much inventory on that basis?

Well, what we quantified is that we see an opportunity in the next quarter of $3 million to $5 million.

From a 2010 standpoint, an earlier question also posed, could we make further reductions in our next fiscal year which if we don't have any improvement in the environment, I definitely think we can.

Prior to this fiscal year and in recent history the lowest point of our inventory levels is approximately $77 million, so we are at levels that we haven't seen as a Company in many many years but there's definite opportunity there on a perspective basis.

Okay.

As far as stock buyback, I think you've said that you were holding back waiting and then considering other things.

Any change in that thinking?

No, there isn't.

No, we're still in a cash preservation mode and while we're in that, stock buyback isn't on the top of the priority list.

Okay.

Thank you.

Thank you.

At this time we have no more questions.

I would like to turn the call over to Mr.

Bob Olson for any closing remarks.

Sir?

Thank you.

While the current market remains extremely challenging, we continue to be optimistic about the long term outlook for the RV industry.

We believe the RV lifestyle is a great American tradition that won't be abandoned by RV enthusiasts.

Customers who have delayed their motorhome purchase due to the economic environment will be ready to buy when the credit Markets and general economy begin to turn around.

And as the leading motorhome manufacturer in the industry, when that happens, we will be ready and able to take advantage of it.

I would like to thank everyone for joining Winnebago Industries' conference call today and look forward to talking with you again in October when we report our fourth quarter and fiscal 2009 results.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.