Winnebago Industries Inc (WGO) 2010 Q2 法說會逐字稿

Greetings and welcome to the Winnebago Industries second quarter fiscal 2010 results conference call.

At this time all participants are on a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Sheila Davis, IR Manager for Winnebago Industries.

Thank you, Ms.

Davis, you may begin.

Thank you, Latoya.

Good morning and welcome to Winnebago Industries' conference call to review the Company's results for the second quarter of fiscal year 2010, ended February 27, 2010.

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 12 noon today Central Time.

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 today.

Before we start it's my duty to inform you 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.

A 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 second quarter conference call.

While Sarah will go into the details of the financial results for our second quarter of fiscal 2010 shortly, we are very pleased to see a trend of continued improvement in revenues and gross profit.

This was driven by the improvement in motor home deliveries throughout the quarter.

We hit the bottom of the cycle just one year ago during the second quarter of fiscal 2009, with some of the lowest shipments ever recorded in our history.

I'm happy to say the second quarter of 2010 was much improved, with 1,109 motor home deliveries, over 250% higher than last year for the same time period.

Fiscal year-to-date deliveries of 1,903 motor homes was an improvement of 96% over the same period last year.

In addition our sales backlogs were 1,159 motor homes as of February 27, 2010, an increase of 246% over the same period last year.

We have made a great deal of progress since November, through increased production rates and as a result our backlog is lower than at the end of the first quarter.

It was important for us to reduce our backlogs to allow us to moderate our lead times and consequently produce and ship our products in a timelier manner.

In addition dealer inventories have also started to rise from the historic low point last quarter and they are now at more appropriate levels with 2,022 motor homes in dealer inventory at the end of the quarter.

However, still down 31% from a year ago.

Our employment level has stabilize at approximately 2,000 employees.

And at this point we feel we are in good staffing position with overtime flexibility at our disposal to meet increased production when anticipated retail activity increases.

Our second fiscal quarter is typically the toughest from a seasonal point of view and the second quarter of 2010 was no exception with both weather interruptions and supplier issues.

This was an unusually harsh winter with challenging weather conditions across the country.

Just like most of the nation, we were impacted by severe snowstorms that forced us to close production on several occasions.

From the supplier's side we were forced to find a new manufacturer for heating and air conditioning components for our class A products when Specific Climate Systems suddenly closed their doors.

With the hard work of many of our employees and our new supplier, Evans Tempcon, we were able to quickly -- to work through the tooling requirements needed and successfully transition to the new supplier with very minimal interruption in our schedule.

We continue to monitor our supplier base and don't anticipate problems in the future, but remain prepared to resolve any issues that might arise as we all recover from these difficult times.

In light of all these issues, I was very proud of how the Company performed.

Our product lineup for 2010 continues to be very well received by our dealers, as well as the retail consumer.

According to Statistical Surveys Incorporate, the retail reporting service for the RV industry, we grew our retail market share during calendar year 2009 and continue to lead the industry in retail sales of class A and class C motor homes combined for the ninth consecutive year.

We are most pleased with the 40% increase in diesel retail market share we realized during 2009.

Combined market share results for calendar 2009 were 19.2% compared to 18.3% last year.

Our class A diesel market share was 11.3% compared to 8.1% last year.

As we continue our recovery from one of the toughest periods our industry has ever seen, retail activity will be the single most important factor to sustain our current production rates and our continued growth going forward.

While increased businesses in the second quarter allowed us to increase our production in our bottom-line, we will need continued retail activity to complete the cycle.

As we enter the spring season and the weather starts to cooperate, we are confident retail activity will start to improve and the current recovery will continue.

As we celebrate the hundredth anniversary of the recreational vehicle industry this summer, I can tell you the RV lifestyle is alive and well.

I am just returned from visiting with the retail customers at a Winnebago-Itasca Travelers Club rally, and while they confirmed just how tough the winter has been, they also reaffirmed my belief that our customers will continue to enjoy the RV lifestyle and they plan to keep buying our products in the future.

With that I'll 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 second quarter of fiscal year 2010.

Revenues for the second were $110.5 million, a 248% increase from the second quarter of fiscal 2009.

This was primarily a result of an increase in our motor home deliveries of 794 units or 252%.

Industry wholesale motor home shipments, as reported by RVIA, for the first two months of our fiscal quarter were up 138%, as dealers increased their inventory in December of 2009 and January of 2010.

Our average selling price increased by 8.2% for the quarter as compared to last year.

The increase in ASP was in part due to a decrease of product discounts offered at the wholesale level and also due to the fact that our sales mix for the quarter was more heavily weighted to higher priced products.

Also positively impacting revenues, as compared to last year, was a substantially reduced repurchase loss provision.

We repurchased one motor home and resold two during the quarter incurring minimal losses.

Last year during this quarter we bought back 18 units and resold 28, incurring losses of nearly $500,000 and also increased our repurchase loss reserve by $1 million, due to such negative experience.

We have seen minimal activity in this area for three sequential quarters now, a positive trend that we would like to see continue.

One other positive impact to revenues was that our retail promotional allowances decreased by 4.2% as a percentage of net revenues as compared to last year.

Increased motor home production during the second quarter resulted in an improved labor efficiencies, reduced labor costs as a percentage of net revenues and increased absorption of fixed costs as compared to the prior year.

These items had a positive financial impact and resulted in a gross profit margin for the quarter of 4.3% as compared to a gross deficit of 37.1% last year.

During the quarter we recorded tax benefits of $2.2 million associated with various tax planning initiatives and tax settlements.

Once again, we did not record any tax benefit related to the operational losses incurred during the quarter.

These benefits continue to be fully reserved and will provide economic benefit when we return to profitability.

Moving to the balance sheet, note that our cash position increased by $12 million during the second quarter.

The primary factors in the increase were from a federal tax refund received of $22 million and the redemption of auction rate securities net of borrowings of $1.7 million.

Many of our current assets and liabilities have increased along with our ramp-up of production and sales volumes, such as inventory, accounts receivable and accounts payable.

One example of this dynamic is very noticeable in inventory, which increased $8.7 million during the quarter due to a few key reasons.

As a result of the increases in production that we started in the first quarter and continued in our second quarter, we have more units in process and more finished goods inventory in transit to our dealers.

Also, as our mix has migrated to higher priced products, our average cost per unit has also increased.

As noted in our press release, today we have filed a shelf-registration statement on form F-3 with the Securities and Exchange Commission to provide additional financial flexibility.

Once this registration statement is declared effective by the SEC, it will provide us the ability to sell up to 35 million of our common stock and it will be available to us for three years.

We currently have no specific plans in place to use this registration statement or have an immediate need for additional capital, but one of the lessons we have learned during the last recession is to have multiple forms of liquidity in place in order to weather the most difficult of times.

It also may give us the flexibility to invest in new strategic opportunities should they arise.

Lastly I would like to highlight the point that Bob touched on earlier.

We are beginning to see a slow recovery from the difficult times we have experienced the last several quarters, but to sustain this recovery it is essential that retail activity improve.

In the last few months dealers have started to replenish their inventories, which has allowed us to increase production and improve our financial condition.

But this improvements in business will be short-lived if retail activity doesn't pull the inventory through the distribution channel.

We are optimistic that we will see retail improvement now that we are finely experiencing warmer weather and as the spring selling season begins.

I will now turn the call over to the operator of the question-and-answer portion of the call.

(Operator Instructions) Our first question comes from Craig Kennison with Robert W.

Baird.

Please proceed with your question.

Good morning, everybody.

Good morning.

Sarah, looks like you guys may be more profitable at a lower level of revenue, which is great.

Can you provide any update on the breakeven volume guidance that you provided in the past?

Yes.

The positive momentum that we've seen with the mix and the decrease of both discounts, allowances and repurchase activity were two of the key variables that would indicate it could be higher or lower for us.

The one thing that hasn't yet really moved upward would be the non-motor home revenue stream that we've touched upon in previous calls.

So most conservatively, we discussed it could be as high as 1,700 to 1,800 or 1,900 units on a quarterly basis if we didn't see improvements on the revenue pressures and the mix.

We have had now a few quarters of progress on that front and so the 1,200 to 1,400 range is definitely more in line with what we're seeing real-time today.

Our most critical focus on a prospective basis is where retail will be and if the retail traffic is not there, one of the things that we've done in the past is to incent at the retail level.

So that could put pressure back on the revenue line.

All of that has yet to be played out, but we definitely have seen on the volumes that we are producing it's lower than the worst case scenario we've discussed in previous quarters.

Thank you.

And then on the sales and delivery line, those expenses actually declined sequentially despite an increase in sales.

Maybe you can give us a sense for how to think about that particular line item, which is trending favorably.

The timing of some of the key expenses on that can vary quarter to quarter.

It could be timing in regards to when our [preserves] are put together and miscellaneous things along that front.

We still are operating at much lower levels in regards to our salaried staff here and the major things that flow through on the selling line item historically have related to events such as Louisville, which is in the second quarter for us typically, and some of the other big events, like a POMONA or other shows that we might be supporting.

Dealer days for us in past years have been a significant third quarter expense.

We did not pull that last year and there are no plans to have a big event in Las Vegas this year.

But otherwise, there is really no significant item moving that up or down.

It's more just the timing of when that flows through.

But when you look at on an annualized basis what the run rate would be, I wouldn't think that 2010 would be too significantly different than what it was in 2009.

And then final question on the retail side.

I totally agree that that's the next step in the recovery.

Are you at all surprised to see retail actually down for you in the quarter?

I kind of recognize it's the off season, so it's hardly relevant.

But any trends that you can look at that would provide a little more optimism than what we see in the numbers?

You know, Craig, this is Bob, that I look at it that you are right, it was a seasonal part of our year, but I think a more important part on the degradation of retail is the fact that the weather has been just horrendous across the entire country.

When you look at Florida, I just come back from down south and all I heard was how difficult the weather has been down there, people having to run their furnaces and wear coats and they were more concerned about keeping warm than they were buying motor homes.

You go to the East Coast and, I mean, two or three huge blizzards that just crippled the northeast and cold weather all along the East Coast line.

Obviously we know what we had in the Midwest, as we said in the script that we had some production days off just simply because of the blizzards that we've faced here.

And then you've got obviously the mud slides and the rainy season out on the West Coast.

So I think a huge contributor here is the fact that the weather has just not been cooperative with the RVing lifestyle.

That resonates with what we've seen as well and maybe I'll get back in the queue and ask a question later.

Thanks.

Our next question comes from Greg Badishkanian from Citigroup.

Please proceed with your questions.

Great.

Thank you.

Just a few quick questions.

First with respect to the shelf, obviously if the economic conditions even continue, don't get better you're probably not going to need that.

So I'm assuming you're looking at that if there is -- economy deteriorate significantly or for strategic acquisitions and if the latter is the case, what type of acquisitions are you looking for?

You're definitely right that we're looking at this as a tool to have at our disposal for the worst of times or the best of times essentially.

There was such disruption this last year in relation to what was available from a liquidity standpoint if needed and we were fortunate to have the ability to reduce our inventory positions in '09 when the worst of it was really occurring around us.

So we look at both alternatives to be the reason why one wanted to have it in place and since it's available to us for a three-year timeframe, it was more -- exactly, I guess, what the terminology on it is referred to as on the shelf.

But we don't have any other specific items to discuss on that front at this time.

Okay.

And then just with respect to the supplier disruptions, was there a certain class or type of product that that had an impact on and, I guess, we're largely beyond that now, so that's not going to be an issue going forward and when was the issue kind of resolved?

Well, it hit both of our class A gas and class A diesel product lines and through the herculean efforts of our employees, as well as the new supplier, we were able to minimize any adverse effects on production time.

When we first heard that SCS was going to close their doors, we had exposure to several weeks of not being able to produce both class A gas and class A diesel product.

And through the efforts of everybody, basically we had no interruption on our class A gas.

We did have a few days' interruption on our class A diesel.

But you're right, we don't anticipate any more problems, especially on this issue, but as I said in the opening statement, this has been a pretty difficult downturn for everybody, not only dealers, but manufacturers and, more importantly, suppliers.

And as we come out of this, it -- there's a lot of people and a lot of companies that are trying to find their way through this.

So, are we out of the woods?

I think we're a lot better off today than we were probably three or four month ago, but we're still cautious from a standpoint that we have to be ready to react if we get any of these surprises.

And to be honest, this air conditioning and heating vendor closing the doors was a surprise and we had to really react quick.

And, so, I'll never say never that we'll experience this again, but I feel much better now than I did, like I said, three or four months ago.

Did other players in the industry also use that supplier or were you exclusive?

No.

I think there was one or two other manufacturers that did use it.

I don't know that for a fact, but we've heard through the grapevine that there was and I'm not really sure how that impacted them.

But it was pretty minimal other than us that used that supplier.

And so the backlogs for you guys were huge and THOR also has very high backlogs.

Is that the case across the industry, are all the players have pretty high backlogs or is that limited to just you two?

And obviously it's a good problem to have when there's not enough supply.

So how is that -- you talked about it in the quarter, it's helping from a promotional perspective, less discounting.

Would you expect that to carry forward into the stronger selling season?

Well, I really don't know how to answer your question other than the fact that there's two companies that we can view what their backlog is, us and Thor.

I can be a smart aleck and say, "I hope it's just us two," but I don't know that for a fact.

My assumption is that all manufacturers, whether they're publicly or privately held, are seeing some of this increased activity that we've seen over the course of the last quarter.

And again, I just want to re-emphasize that I think it speaks volumes for what the dealers have for confidence in this lifestyle.

They've stepped up, they've ordered units, and now we're looking for the retail customer to complete the cycle.

Yes.

And then -- you'd expect the discounting to remain lower than last year as we go into the stronger selling season?

I certainly hope so.

With what we had for business last year, not only for us, but as an industry, I mean, we go back and do some year-over-year comparisons now and I just shake my head thinking, I can't believe it was ever that low.

So as we climb ourselves out of this hole, I'm confident that things will get back to a little bit more normal.

As Sarah said, if retail doesn't start to pick up here pretty soon, which I really do think it will once this weather starts to cooperate, that there might have to be some incentivising on the retail side.

But, I really think that when you go back and you look at the winter that this country has faced, I think when the weather starts to get better and people get that spring fever itch, I think you are going to see people starting to come in and buy units out of the dealerships.

Nice job in the quarter, guys.

Thanks.

Thank you.

Our next question comes from Scott Stember with Sidoti & Company.

Please proceed with your question.

Good morning.

Good morning, Scott.

Sarah, could you give me the ASPs by product for this year and last year?

Certainly.

In the quarter for 2010, our class A gas was 91,961 as compared to 95,012 last year.

And the diesel side it was 148,461 as compared to 159,842.

So our total class A was 114,668 versus 118,925.

On the class C front it was 72,190 as compared to 69,538.

Total agencies 97,880 versus 89,164.

And class B was 61,861 versus 64,958.

To give us to a total for the quarter this year 95,802 as compared to 88,550, which was up 8.2%.

Okay.

And could you tell what the capacity utilization was in the quarter?

The last quarter we ran at 43%.

That compares, I believe, 31% that we had the previous quarter.

Okay.

And just going back to the fact that we haven't seen retail bounce back at this point and that your backlog is a little bit lower than it was in the previous quarter, if we do not see retail bounce in the next few months, is it safe to assume that profitability will still -- might be elusive for you guys in the back half of the year?

Yes.

It's -- we don't like to give forward guidance, but it's pretty obvious that where we're at this quarter, that if we can't equal or improve on that it's going to be tough to turn a profit.

Okay, got you.

And could you talk about have you guys, I know we ask you this question every quarter about [Tolvols], but could you just tell us what the latest rationale is about possibly entering that market?

Well, as you know, we've promoted an individual, one of our exec management team to the position of strategic planner and we are looking at all possibilities right now.

As I've said many other times, that I know never we'll say never and we are looking at all possibilities.

I have got nothing for it right now from the standpoint of Tolvols, but I'll say that it is -- everything is on the table right now.

Okay.

And just the last question regarding the dealer channel.

Assuming that retail doesn't really respond the way you want it to in the short-term, when would you think that your dealer inventory would be at equilibrium.

Well, when we look at what our retail registration run rates have been for the last 12 months on a rolling 12-month basis through February, we were trending a little over 4,000 units.

So our dealer inventories are about half of that, which reflects about a two turn, which is reasonable in our view.

Anything under two times a year is probably too high, especially based on the criteria the financial institutions flooring the dealer's inventory would accept.

So I think if it's less than two turns, it's too high.

Got you.

That's all I have right now, thank you.

Yes, thank you.

Our next question comes from Kathryn Thompson with Thompson Research Group.

Please proceed with your question.

Hi.

Thank you so much.

About how many weeks does your current backlog represent and how does this compare to normal lead times?

Approximately about five weeks, Kathryn, and that's right in the neighborhood that we like to run it at.

As we mentioned in the opening statement that we worked pretty hard through the quarter to try and lower that backlog, because we felt our lead time was too high.

And we've got it back down into that five weekish range and that's where we'd like to see it, because if it's longer than that, our concern is is that we could lose sales to the competition.

And maybe just to highlight, when we look at what does that mean in terms of timeframe, we have inventory in all various states at any point the time.

So there's always units that are just almost ready to go out the door and they're on the line and so there's a dynamic that about 1,159 are not all unbuilt.

They're in various stages of completion.

Okay.

And where are dealers in terms of inventory replacement?

So in other words, I know you talked a little bit about running it two times, but if you give a little bit more color about dealer inventory replacement trends.

Well, I think it goes back to an earlier question, what we're seeing as far as retail and I think last month's RVI or, I'm sorry, Staff Survey's reports indicate that retail was down and part of that is seasonality, but part of it is simply from the fact that the weather has been pretty tough and I think dealers, as I mentioned before, I think they've stepped up and they've started to replenish their inventories.

As you can see by just our dealer inventories, they're up fairly decent from where they were earlier in the year and now it's left up to the retail customer.

I think dealers have done their job as far as ordering units.

Manufacturers have done their job as far as fulfilling those orders.

And now it's -- the third leg of the stool is we've got to have that retail customer pull the inventory through the channel.

So if you're at about at two turns right now, where were you at the peak of the market, just to put this in a perspective?

When you look at where -- our peak inventory was 5,400 units.

I think they're -- at our peak dealer inventory time, it was completely out of balance, even with the numbers of deliveries or shipments at that juncture.

On average it's historically, I think, two has been fairly fair.

In the last two years we haven't had that.

It's taken a lot of pain to get them down to that level.

But the, I guess, the discipline we see on the wholesale financing side is a new element of the picture.

It wasn't really, I guess, as much as a factor in previous years.

And so I think that adds a new dynamic on a prospective basis.

Okay.

You talked a little bit about weather outages and supply issues.

How is that impacting backlogs and does that bump backlogs up or did it have no real impact on your overall backlog levels?

Well, I think if, obviously, we would have been working the days that we're down, whether it be because of snow or supplier issues.

So it could have possibly taken them down, but on the same hand, being at the level that we think we need to be at for reasonable lead times, those orders could have been replenished as well, so kind of a tough question to answer.

Yes.

There are some variables in there that, you know, I don't have the answer to.

Okay.

That's fine.

And I know you said promotional environment is much less and from our checks it seems like you're having a greater mix of class A type product sales that are pushing through.

How has your order mix in particular changed over the past four to six weeks?

Well, we see a very consistent trend.

It's evident if you just look at the backlog at November to February, not a lot of change in regards to the percentage of As or Cs.

So a lot of what's influencing our class A orders would be a new entry in the diesel area, the Via and the Rayo, which from a pricing standpoint it does weighs our diesel ASP lower and that's evidence as well, but we're also seeing a lot of acceptance on our Vista and the Sun Star, which is our low-price class A gas offering.

And that is also evidence in our backlog and our shipments, but I don't think we've seen any dramatic change on the backlogs, especially quarter to quarter are pretty similar in terms of mix.

Yes.

And I think once we introduced our 2010 product lineup, I think that -- it has been pretty steady as far as the mix of what that is and when you've got a brand new 42 foot tag axle product that we've never had before, we have got bath and a half floor plans that we've never had before.

I think if you look at our diesel product especially, you'll see the Winnebago-Itasca product change quite a bit in 2010.

And that's been well received by both dealers and retail customer.

And as Sarah says, our Vista and Sun Star product has been totally redesigned.

That's also getting well received from our customers as well.

So I think it's been pretty constant since we've introduced our 2010 product lineup.

Okay.

All right.

And finely, just in assuming some modest improvement and retail demand as the year progresses, how should we think about incremental margins?

Oh, we have a ways to go to get back up to levels where we would like to be.

The improvements inside of the quarter, I think, was partially offset by some of the challenges we saw operationally because of the weather and the supply issues.

So there is an opportunity in the third quarter where we don't have disruptions to production and we don't have an added focus on trying to transition rapidly to a new supplier.

But the volume is the key and we need the volumes to move up from 1100 a quarter to expand on some of those opportunities as well.

Okay.

Great.

Thank you, so much.

I appreciate it.

Thank you.

Thanks.

Our next question comes from Brett Jordan with Avondale Partners.

Please proceed with your question.

Hi, good morning.

Good morning.

Couple quick questions and really more on the progression of retail demand.

It's sounding like weather really is a pretty sold lid on retail sales and looking at the SAP Surveys for January.

Would it be fair to assume that February was probably also down then, given the fact that I think nationally the weather patterns in February were worse than January and just sort of as we expect some -- what the timing of retail improvement might be?

Specifically, Bob, you said you just came back from a southern retailer trip.

Do you think we've seen continued lag from January?

Well, I think you hit the nail on the head when you say that February was as bad as January, maybe even a little worse.

I think you are going to see retail probably down a little bit in February as well.

I know -- just I'll take our situation, for example.

I mean, it's been cold, it's been snowy.

Just the last few days, in fact, today we're suppose to hit 60 degrees, which is going to be a first time in a long time and just the attitude of people when you walk outside without a coat on and not have to worry about shovelling snow and things like that.

I think when you have got all of those things on your mind concerning weather, you just don't have that appetite to run into a dealership and look at buying an RV.

I think once we get the spring fever bug, I think you're going to see that pick up.

Okay.

And then, again, a little bit more granularity on the STATS Survey retail numbers from January, your class Cs, I think, were down a little bit in share.

Was that because the chassis supply issue?

Was there something sort of external of impact to your C share of the month?

Well, I think there were no chassis issues that I'm aware of.

And I think part of it is is that we had a competitor that was able to get some chassis at a very reasonable price from one of the bankrupt companies and I think they took advantage of that and put a lot of vehicles, a lot of C body vehicles out on the market share or marketplace at a very reasonable price for the dealers.

And I think that hurt us a little bit.

All right.

Great.

Thank you.

(Operator Instructions) Our next question comes from [Peter Garnelin] from Garrison Asset Management.

Please proceed with your question.

Hi, Bob, hi Sarah, hi, everyone.

A question on the retail credit environment.

If you could touch on that and give us some color on what you're seeing at the dealer level and also on the sell-through from retail credit.

Well, it's definitely an improvement when I compare to what we were experiencing a year ago.

And I think it's maybe not significantly different from where we were in the first quarter of our fiscal year, but I think just a continued approach in the marketplace by the leaders of the retail financing side to focus on strong creditworthy customers, have discipline on the process itself, but not maybe the fear that was there a year ago.

So I think it's an improving dynamic, but they're still definitely looking at the highest worthy credit customers.

I think to add to that, as well, I've talked to a couple of the lending institutions and I think they have eased up just ever so slightly.

Not a lot, but just a little bit.

But I think probably a bigger dynamic to this is the fact that I think the retail customer, the dealers are starting to understand what the new rules are, so they expect when they apply for financing that they're going to be asked to put a down payment down.

They're going to be asked to verify that they make what they say they make.

They're only going to be able to receive credit for the value of the product and not exceed that.

And I think it's kind of getting back to the good old days.

And I think a lot of our customers, both retail and wholesale, are finally starting to understand that and the perception that credit is easing a little bit, I think is partly due to the fact of what I just explained.

Great.

A follow-up question.

Could you talk a little bit about the efficiencies at your manufacturing, of the Metro manufacturing side of the business?

And I know you guys have now 2,000 employees and that was ramping up in the quarter and there's always a learning lesson and learning and training.

Could you talk a little bit about how comfortable you are in efficiencies and for this upcoming quarter will that kind of carry through?

Well, I think so.

We've got, as I mentioned before, our employee base is about where we think we need to be with today's levels and we will have several of those employees that will have been here for a period of time.

So now the training aspect is behind us.

Anytime that you can run your assembly lines on a continuous basis, the efficiencies are just inherent with that.

So we're able to run much closer to what our standards are and that has a huge impact on all aspects of billing quality motor homes.

And to put that in perspective of how recently that change has really been in place, it was in the middle of October that we started running all of our assembly lines again simultaneously.

So it was only maybe half of our first quarter and then all of our second that we have migrated back to that approach and been increasing our production on a weekly basis to satisfy the demand.

So there is definitely some improvements, more to be had on a prospective basis than -- some -- the training element is a fair point that you brought up and that will continue to improve as we have a stabilized workforce.

But the volume side of it is one of the keys for us to have enough and have it be consistent to keep those efficiencies in place.

Great.

And from moving from the 40% capacity, assuming that retail were to pull through and dealers felt more comfortable and started even increasing their inventories, would that start flowing down to the bottom-line, meaning the efficiencies and the capacity utilization now that you had basically the structure you like?

Is that a fair comment?

Yes.

Thank you very much.

You're welcome.

(Operator Instructions) Our next question comes from David Cohen with Midwood.

Please proceed with your question.

My question has been answered.

Thanks.

There are no further questions in queue at this time.

I would like to turn the call back over to management for closing comments.

Thank you for joining our call today.

We are very pleased with our performance and our progress towards profitability this last quarter.

I believe we are experiencing a very positive growth trend with increased demand for our motorhomes.

But I also believe we will need increased retail pull in the market to ensure this growth trend continues.

Nevertheless, the RV industry is alive and well.

As a leading motorhome manufacturer in the industry we remain very optimistic about the long-term outlook and are ready and able to continue to grow with the increased demand for our products as the market recovers.

I would like to thank everyone for joining Winnebago Industries conference call today.

And I look forward to talking with you again in June when we report our third quarter results for fiscal 2010.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.