Winnebago Industries Inc (WGO) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Winnebago Industries' second quarter of 2011 earnings conference call.

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

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

(Operator Instructions).

And as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sheila Davis.

Thank you.

Ms.

Davis, you may begin.

Thank you, Rob.

Good morning, and welcome to Winnebago Industries' conference call to review the Company's results for the second quarter of fiscal 2011 ended February 26, 2011.

Conducting the call today are Bob Olson, Winnebago Industries' Chairman of the Board and Chief Executive Officer; Randy Potts, President; and Sarah Nielsen, Vice President and 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 this call will be available on our website at approximately 12.00 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 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.

As we begin our opening comments today, I'll review the overall health and well-being of the RV industry.

I'll have Randy discuss Winnebago Industries' current status, and then Sarah will review the Company's financial performance.

While we had some pretty tough comparisons to overcome, we were once again profitable for the quarter.

More importantly, we were operationally profitable this quarter on wholesale shipments that were 200 units fewer than last year.

This reflects the importance of our continued emphasis on controlling our costs.

Although challenging, I am very happy to report we now have achieved an operational profit of four consecutive quarters.

Every single member of our Winnebago Industries team has helped us achieve this goal.

And as a thank you, we have reinstated salaries and remove the wage freeze for hourly employees that were set in March fiscal 2009.

Retail motor home sales have continued to increase industry-wide, with year-over-year growth experience for the past four consecutive months.

Results from the majority of RV and vacation shows held throughout the country this spring have also demonstrated a positive trend, with both increased attendance and increased sales.

We are encouraged by the improvement in the US economy with increased consumer confidence and decreased unemployment.

We remain concerned, however, about the volatility of fuel prices due to the unrest in the Middle East.

As in the past, we believe that as fuel prices stabilize, consumers will continue to enjoy the RV lifestyle, even if fuel prices are higher.

We believe it is the volatility of fuel prices and its impact on consumer confidence, and not the price of fuel, that leads to uncertainty in the marketplace.

Almost a week has passed since the horrific tragedy occurred in Japan, and our thoughts and prayers go out to the people devastated by this natural disaster.

Although too early to tell what the impact this will have on the global economy, that has to be secondary to recovery efforts of the Japanese people.

I'll now turn the call over to Randy for an update on Winnebago Industries.

Randy?

Thanks, Bob.

First, we continue to see market share momentum, particularly in our Class A gas and diesel products.

According to Statistical Surveys, we were recognized for the 10th consecutive year as the nation's top selling motorhome manufacturer for calendar year 2010.

We're off to a good start in 2011, attaining the top spot again for the month with 20.3% market share for Class A and C motorhomes combined.

Of course, one month's worth of data is not a trend.

However, we have experienced very positive retail activity in the first half of fiscal 2011, up approximately 20% year-to-date through the second quarter.

Dealer inventories of our motorized products have risen approximately 8% compared to a year ago, and we believe they are reasonable in relation to current retail demand.

More importantly, we've seen significant improvement in the aging of our product on our dealers' lots compared to last year at this time, and as a result, we provided less retail promotional incentives during the quarter.

On the towable side, the integration of SunnyBrook RV in the Winnebago Industries operations is progressing well, and is now operating as a separate subsidiary under the name Winnebago Industries Towable.

We have been adding staff strategically to strengthen the SunnyBrook brand, as well as develop a Winnebago brand towable.

We expect to introduce a Winnebago brand travel trailer this summer.

It will be offered first to our Winnebago motorhome dealers.

A Winnebago fifth wheel will also be developed.

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

Thank you, Randy.

I will now review the financial performance of the Company's second quarter of fiscal 2011.

To start with, I wanted to highlight that we made our first acquisition in over 20 years this past quarter by purchasing certain assets and liabilities of SunnyBrook RV for $4.7 million, net of cash acquired.

Although the income statement impact of our new towable operations was not significant for the months of January and February, and it was not accretive during this first quarter of ownership, we are very excited about the potential positive impact this subsidiary will have to our consolidated results in future quarters.

Revenues for the second quarter were $106.6 million, a 3.6% decrease from the second quarter of fiscal 2010.

Motorhome deliveries were down 200 units or 18%.

However, our average selling price increased 12.1% to $107,000, due in part to a stronger mix of higher-priced Class A products and also due to lower promotional incentives offered at the retail level.

Year-over-year, discounting has remained flat in our second quarter.

As noted in our press release, the second quarter was positively impacted by an inventory adjustment as a result of the annual physical and work-in-process inventory performed in January.

The favorable adjustment was a result of lower actual inventory [trap] and production material loss than recent experience, which had the effect of increasing our gross profit and inventory by $3.5 million.

During the past few years, when our production volumes and materials consumed were at their lowest point in our history, we incurred a much higher inventory loss as a percentage.

And as a result, we estimated this higher loss rate would continue.

This did not turn out to be the case, as our materials consumed in the past year increased over 90%, which resulted in our inventory trap and production material loss to decrease as a percentage.

Our gross profit margin for the second quarter was 10.6% compared to 4.3% last year.

Excluding the positive inventory adjustment, our gross profit margin would have been 7.4%.

Our operating expenses in the second quarter were $632,000 more than last year, due to increased legal expenses and to operating expenses associated with the Winnebago Industries' total operations.

We recorded tax expense of $1.1 million in our second quarter, which resulted in an effective tax rate of 24.2%.

We still estimate that our annual effective tax rate to be approximately 25% for the year.

We ended the second quarter of fiscal 2011 with $62.8 million in cash.

Significant outflows of cash during the second quarter consisted of increases in inventory of $22.6 million and $4.7 million for the acquisitions, which were partially offset by the proceeds of $5.3 million from the sale of auction rate securities at par, and net income earned of $3.3 million.

In total, our inventories increased by $26.5 million during the quarter, of which $5.4 million relates to Winnebago towables inventory on hand at quarter-end, and $3.5 million relates to the physical inventory adjustment, as mentioned earlier.

The remaining $17.6 million increase is primarily a result of an increase in finished goods inventory and wrong chassis inventory, as we built up inventory going into our spring selling season.

This increase was intentional on our part -- as a result of levering our production throughout the winter months, we took advantage of our excess capacity and minimized prospective hiring needs as we approached our historically busier third quarter.

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

(Operator Instructions).

Kathryn Thompson, Thompson Research Group.

Thank you for taking our questions today.

Over the previous three fiscal years, backlogs between Q1 and Q2 were down; but this year, you reported a 37% sequential increase.

How should we think about this?

Is this unusual?

Is this a reflection of real demand?

Or are we seeing more restocking in the market?

In other words, dealers spending inventory.

Help me understand a little bit better that sequential increase in backlogs, and is it sustainable going forward?

Good morning, Kathryn.

This is Sarah.

Your question is one that I spent some time looking at.

We understand the focus and scrutiny placed on backlog.

And looking back over our history, the challenge we have here is the last few years have been such unusual ones in light of the recession.

So, when I went back further, there was both increases and decreases between the first and second quarter; yes, I could find and really support a lot of examples going both ways.

I mean, we looked at it as to be positive.

We definitely had a dynamic at the end of our first quarter, like before Louisville, it was before -- you know, the timing of quarters can be very varied every year.

It's positive in our perspective that it's grown, but the retail is the key for it to be sustainable prospectively.

We're very encouraged with the fact that we've seen retail improve now for two sequential quarters in that 20% range, which definitely increases our positive outlook going forward.

And I guess kind of taking a second step on this, was the revenues shortfall and the sequential increase in backlogs related?

So this is -- backlog is up because you're unable to get certain orders out in the quarter?

No, not really.

We've got our scheduled set where we think it is going to meet dealer demand.

And we could have probably increased our production, but our concern would have been short-lived.

And we don't want to jerk our schedule around that much along with our people.

So, not -- we've had really no interruptions, no bottlenecks, constraints.

It's basically fallen suit to where we've had our production levels set.

I would say that the weather has been much kinder to us this year.

We had a lot of disruptions last year in regards to blizzards shutting us down an unprecedented number of days, which wasn't a dynamic this year.

So, that is a little bit of a change from last year.

Okay.

Could you clarify a little bit more about the primary drivers for the margin upside and how sustainable these are?

And just to clarify, is that $3.5 million benefit one-time in nature?

And how should we think about that as we model going forward?

Well, it definitely is a one-time in nature adjustment.

We do the physical inventory every January and we always have an adjustment, be it positive or negative; but, obviously, this year, it was very material and we wanted to appropriately cover that.

The positive, though, going forward is we really experienced an unusual dynamic of inventory loss inside fiscal 2009 and fiscal 2010 when our throughput was essentially at its lowest level.

And now we've seen that really improve.

So that is -- that's positive for us prospectively, but not to the degree of $3.5 million.

But we've adjusted that estimate of inventory loss back to its normal historical level.

The accelerated rate that we saw in '09 and '10, we've now really validated in our minds that it was linked to the amount of materials our production facility was consuming.

So, I don't know if I've helped you enough on that one, but that's how it's going to affect us prospectively.

In terms of thinking about margins going forward, the 7.4% is really kind of a clean one for Q2 -- are high-single digit, low-teens margins achievable in the current fiscal year?

It's going to relate to our -- how much we [said].

But I mean, I think we've seen a lot of improvement in regards to our fixed costs and variable costs.

And that's why we're able to accomplish this level of margin excluding even the inventory on that -- these lower levels.

Mix has been a very helpful dynamic in the fact that we've continued over the last year to back off on retail incentives and the discounting hasn't spiked.

So, if those positive trends continue and the mix is a good mix, and we see our production volumes increase, that is attainable.

But that's a lot of variables (multiple speakers) I just touched upon.

(multiple speakers) Yes, and a lot of it, Kathryn, goes back to what we've all been saying, you included, is that right now, this recovery is going to be dependent on retail.

And we can keep this retail activity going, I think the thing -- the variables that Sarah talked about will take care of themselves.

But we've got a lot of things that are beyond our control right now, and I mentioned some of them in my opening statement -- you know, all the way from what's going on in Libya to some of the other Mideast countries, to the catastrophic situation that happened in Japan.

Too early to tell what the impact is going to be there.

So, again, I think it all hinges on what this retail activity does and if that will continue all of us down this path of recovery.

So, it sounds like if you continue the current trends we're seeing in retail, that margin range is achievable; but you're not willing to put a stake in the ground right now about retail trends?

Yes, I think that's a fair assumption.

There's just too many unknowns right now beyond our control.

One of them that we haven't talked about and -- you can't have oil at $100-plus a barrel and not worry about some inflationary problems with petroleum-based products.

We're hearing and starting to see a little bit on commodity pressures and -- as all of our competitors are right now.

So, I think that's a big unknown going forward.

Okay.

Two quick questions and I'll move on, is -- impact of commodity prices going forward in your current capacity utilization.

Kathryn, this is Randy Potts.

I'll answer the capacity question.

We're at about 45% utilization in the second quarter.

Has that changed since then?

Just slightly.

If it has, it's no more than a few percent, so it's insignificant.

Okay.

And from an inflationary pressure perspective, going forward, I think it's going to be a continued topic of discussion.

And looking in the rearview mirror, it hasn't been a substantial impact to our margins in this -- inside this fiscal year at this point.

But, as Bob touched upon, that really could dramatically change.

Our past practice has been to pass that on in the form of a price increase or even surcharges have been used in times where commodities were moving dramatically very quickly.

So, we have those alternatives in front of us, but it's one that it's going to be a continuing focus on our side.

Okay, great.

Thank you so much.

Greg Badishkanian, Citigroup.

This is Alvin Concepcion in for Greg.

I know you've been seeing some improvements of retail over the past few months.

Have you seen anything even anecdotally change at retail in March to date?

It's up from what it was last year at this time, from our standpoint, but we've only got January's data from stat surveys.

So it's hard to tell what the overall industry is doing.

And there's a show going on right now.

So we're really early into March at this point, but I think the show has been positive collectively, when you look at the whole kind of show season.

Yes.

And there's a pretty big one going on right now, as Sarah says, down in Perry, Georgia, the FMCA Show.

Preliminary reports are very favorable.

Okay, great.

And then going back to the retail data, December/January for Winnebago was up 20% for motorhomes; shipments were down 18% in the quarter, but inventories at the dealer level were up sequentially.

I know you touched on this a little bit, but if you'd just do the differences in timing where maybe you built inventory last quarter.

Or is it something that should benefit shipments going forward, since retail demand has been so strong?

So, any color on that, [I'd be grateful,] that will be hopeful.

Well, the second quarter is always the seasonal weakest retail quarter.

And so regardless of the fact that we were up 20%, it was a retail number of under (inaudible) 800 units in the quarter.

And we shipped 909 units.

So, as a result, we grew dealer inventories a little bit.

Last year, it was much more dramatic.

Our dealer inventories grew in that 400 unit range because they needed to restock.

When you look at the level of dealer inventories, though, at 2,179, in comparison to the last 12 months of retail registrations, which have been trending at 4,400, that indicates about a two-turn, very reasonable.

So I think we still have a dynamic with our dealer body that they are very cautious in regards to stocking.

They're not being aggressive and going outside of what's expected by their financial partners.

But -- and the third quarter retail for us and just the seasonal side of it from an industry standpoint is very different when you look at typically what plays out.

And even last year, it went from under 700 to nearly 1,400.

So, it doubles just between those two quarters.

So it will be interesting to see how it plays out this year.

And I think, Alvin, to your point, your last point, I'd rather be sitting in a position where retail is up, dealer inventories are in very good shape because it really should bode well for us going forward; different from last year where it was just the opposite.

We were wholesaling more, retailing less, and inventories were rising.

So I think it bodes very well for us going forward.

Okay, great.

And just one last one.

Can you just give us some more color on the retail credit environment over the last few months?

Yes, we see it improving.

In fact, in the last two weeks, we've met with GE and BofA both, and they're telling us the same thing -- that they're opening up their buy box a little bit.

In fact, we talked to one of them that said there's many variables that they look at when approving loan applications, but they're even down into around the 700 FICO scores.

So, we see it opening up a little bit.

We're even hearing the word "competition" in the wholesaling and retailing sectors of the industry.

So, we think that it is improving.

And obviously, not back to where it was back in '04, but I don't think we'll ever see it get back to those types of days and probably that's a good thing.

But we see that the lending part of the business is opening up a little bit.

Great.

Thank you very much.

Craig Kennison, Robert W.

Baird.

Thanks for taking my questions as well.

First question on dealer inventory.

It was much lower than we anticipated.

Typically, it will drop from Q2 to Q3.

Would you expect that pattern to continue?

Or is it maybe lower this quarter?

Well, I think that's a good question.

We see the same thing.

But I think it goes back to Sarah's point.

I think a lot of it is that I think our dealers have learned some lessons over these last three years.

And I think they're really watching and controlling their inventories.

As I just stated, I think it puts us in a pretty good position going forward.

I can't guarantee that, but I'd rather be sitting in a position where dealer inventories are lower than expected with the spring and summer season coming at us.

Because we could see some of that phenomenon of not only trying to keep up with retail, but then trying to restock some of their dealer inventories as well.

Yes, that's helpful.

Certainly, it's taken a long time to get inventory where it's at a good level today and I'm sure dealers don't want to give that back.

But if you look at some of the RVIA data, it would look -- it would seem that other manufacturers have shipped more in the channel on a percentage growth basis than maybe you did this quarter.

Are you seeing other manufacturers increase inventory where you're not increasing that inventory?

Well, we don't have access to that information, other than with our dealers, and we're not hearing a lot of that.

Now, that's not to say that if our competitors have dealers that are not using dealers that are Winnebago Industries dealers, that they're not putting more out into the channel; I can't answer that.

But we're not hearing a lot of that from the dealers that stock Winnebago Industries products.

Okay.

Thank you.

That's helpful.

And then, Sarah, with respect to gross margin, in the past, you've shared with us essentially the fixed portion of your cost of goods sold.

Where do you see that on an annual basis today and is there any seasonality to that number?

There definitely is a little bit of seasonality to that.

We talked about in the past that that -- the fixed element of COGS on a run rate of full fiscal year is in that $40 million range.

We're probably slightly under that for the first six months; but, as Bob mentioned in his opening remarks, we are reinstituting a wage increase that went into effect two years ago.

So we do have some additional costs to consider on a perspective basis.

On an annual run rate, that's probably in the $1.3 million to $1.4 million range, so that's not all [fixed]; but some of those people are considered to be fixed expenses based on what their positions are.

So, I mean, and that's a good thing, to be able to start sharing something back with the employees.

But other than that, I mean, our headcount has remained very constant.

We've introduced a new dynamic on the acquisition side of the equation with some of their expenses, but it's not significant really in the grand scheme.

We primarily purchased inventory, so on a prospective basis, there is that dynamic to consider, but it's really not materially different from $40 million.

Any sort of guidance you can provide with respect to gross margin and how we should think about it, relative to last year and the final two quarters of this year?

Will there be less discounting in the final two quarters of this year that would benefit gross margin?

Any other factors we should consider?

Well, we have a positive comp in this quarter year-over-year from a retail standpoint.

Discounting was pretty flat.

It happened throughout fiscal 2010, where we had a lot of positive comps in that regard.

So now when I look at the second half of '11 to '10, if we maintain what we did a year ago, I think that would be probably more reasonable to expect than to see dramatic changes there.

Now, our third quarter is influenced typically by rental shipments, which has a different kind of a -- you're looking at lower-priced units and skinnier margins in regards to volume buys, which has impacted the mix in the past; but I think that's fair to consider prospectively.

But it was really much improved a year ago for the third and fourth quarter, and if that continues, we'll be at par.

And now, conversely, if business conditions would change, you know, that could be a negative comp, but at this point, we don't see that.

Great.

Thank you very much.

Bret Jordan, Avondale Partners.

A couple of quick questions and one of them on SunnyBrook.

When do you expect that to begin to contribute to the P&L?

This is Randy.

The key element to that strategy is the introduction of the Winnebago brand towable.

And we're on track to launch that product probably mid-summer.

So, that's going to be the driving force behind turning the corner there.

So there will really be no revenues attached to SunnyBrook until you have the Winnebago brand on it?

Well, I can't say that specifically.

I mean, at the same time, we're working at improving the existing SunnyBrook product.

And sales are increased, are at a higher level than they were at the point of acquisition.

So we'll continue to try to improve upon that too; but the real prize out there is the Winnebago branded product.

Okay.

So was there any revenues attached to SunnyBrook in Q2?

Yes, there were.

It wasn't material.

In our press release that we issued this morning, we did provide some key data points from a Winnebago Towables perspective, just more to start being consistently providing that, in comparison to the motorhome side, though.

We illustrated what shipments were and what our backlog is in dealer inventory.

So there was a small amount of revenue in regards to this quarter.

Okay.

And then on the increase in inventory, the [17.6] finished goods and chassis.

Could you give us some color as to on the finished goods side, is that a lot of the Class B for that product launch?

Or are there any particular categories you're seeing you're expecting higher demand in?

Well, for B specifically, no, that's going into production full force here in this quarter.

So, it's the existing product categories we have.

But I guess I would go back to the key remarks I made in my opening statements.

We really looked at trying to take advantage of leveling our production in our winter months, to be prepared for our busier spring season, and that was the catalyst for definitive inventory growth.

Okay.

And then one last question, that you were commenting on the last question about the rental shipments potentially skewing margin.

Was last year's third quarter a particularly strong rental quarter?

Or how does that compare to normal trends?

We definitely had rental inside our third quarter last year.

The overall industry had significant amount of rental.

And we commented on in recent quarters that we didn't have as large of a percentage of that overall business as maybe what we've had in the past, because of pretty significant orders and very aggressive approaches in regards to the pricing of all that product.

So -- but it definitely is a part of our third quarter up in the prior year, and I would look at it to be consistent this year.

I guess speaking of aggressive pricing, one of your competitors has been talking about some margin challenges related to that.

Are you seeing any changes in competitors' pricing in the current quarter or in the recent past?

More aggressive or less aggressive?

No, I mean, I guess we've been very pleased with the perspective that we provided last promotional incentive really focused at the retail level because it wasn't needed -- dealer inventories are healthier and not as aged.

So that's a positive for us on a year-over-year basis.

In regards to discounting, we're very similar to -- on the level that we had done a year ago.

From a sequential standpoint, that's up slightly, but for us, it's not been a significant factor and it's positive when you look at this quarter versus last year.

Yes.

And I think to talk about the competitors, we're not seeing like it was here a year or two years ago, where, I mean, everybody had huge discounting going on.

We'll see pockets of it in maybe different regions throughout the country, but we don't see the huge discounting programs that were going on here a couple of years ago.

So, I think, from the standpoint of overall discounting, I think it's down to a dull roar.

So, we're pleased.

I mean, we don't think it's a big issue like it was here a couple of years ago.

All right.

Great.

Thanks.

David Whiston, Morningstar.

Just two quick questions for Sarah.

Regardless of future acquisition activity, is there a set cash level, either as a percentage of assets or absolute dollars that you want to stay above going forward?

In regards to our cash position, we definitely like to have an amount of cash to probably cover our fixed costs, maybe for a year to 18 months, based on what we survived in the past two years.

So, I think we have a conservative approach on that regard.

But the acquisition that we had in our second quarter, from the dollar standpoint, it was -- it's pretty small in the grand scheme of an acquisition, but a great experience for us in regards to the integration efforts and what we think has some great opportunities going forward.

Okay.

And given the sharp increase in inventory, do you have any guidance at this time if you can be free cash flow positive this year?

We have had a dynamic and it played out last year, and I would expect it to play out again this year to a great degree where, between our second and our third quarter, our inventories moved down pretty significantly.

So that's still going to be our goal and objectives, to have lower inventory levels after the spring selling season and the busiest time of the year is behind us.

I guess that's as far as I probably will go on that comment.

Okay.

Thank you.

Scott Stember, Sidoti and Company.

Sarah, could you give the ASPs for this year and last year, and Towables as well?

Okay.

In regards to our second quarter, we had Class A gas on the average selling price of [91.668], and diesel was [186.473].

So our average Class A was [129.314].

Class C was [74.068] and our A and C in grand total was [107.434].

From a Towable standpoint, we had travel trailers that had an average price of $17,450 and fifth wheels of $30,365, so that averaged to $20,640.

Okay.

Do you have last year as well?

On the motorhome side, last year, the Class A gas was [91,961]; Class A diesel was [148,461].

Class A in total was [114,668].

Class C was [72,190].

A and C in total was [97,880].

Got you.

And just some early reads that you're seeing from the integration of SunnyBrook with regards to your dealership networks, are you actively in the process of increasing the number of dealers you have?

Or is that going to be contingent on the new Winnebago products?

Our plan as far as retail sales of the new Winnebago product will be to approach our existing Winnebago dealer network first, essentially giving them the first right of refusal.

If they determine that they don't want to carry that product line, we'll look elsewhere.

Okay.

And as far as the discounting levels just going back, obviously, we've heard before that there was some pretty heavy discounting in the total market the last few quarters, and it seems to be abating right now.

Can you guys give a little reading on that?

I think it's all just still too new to us to have a lot of history on the details of the towable market.

I mean, we're only 12 weeks into this integration and really just trying to get this thing propped up and going.

So, I don't think we have a good perspective on that yet.

Okay.

That's all I have.

Thank you.

Barry Vogel, Barry Vogel and Associates.

Don't have too many questions, because a lot of questions have been asked.

Bob, would you say it's fair to assume that, currently, when a retail sale is made, you then get a reorder of one unit?

And if that is so, do you think that that's probably going to continue going forward, in terms of the stability of the dealer inventories versus all the volatility of the last three years?

Yes, I think so.

Last year, we had the, I guess, the luxury of increasing some dealer inventory, so we had a little pickup in business.

But that came from historic low levels.

I mean, levels that I never thought we'd ever see.

Over the course of probably six months or so, the dealers got their inventories up to where they felt that they could support their demand on a retail basis.

And I think, going forward, not only between the dealers becoming -- I should say -- becoming better businessmen but maybe being reminded that they have to be better businessmen, along with the financial institutions, basically keeping rein on what those levels can be, and basing that on inventory turns per year, I think that's a fair assumption that until things really start to pick up a little bit, that it's going to be played pretty well to the vest, from the standpoint of replacing dealer inventory.

When they retail one, they'll look at replacing them.

Now as far as the actions of the new owners of the motorhome assets of Fleetwood and Monaco, can you give us some color as to what's happening there, relative to them competing with you?

Well, they're back.

(laughter) I will say that.

From what we're hearing out there, I think they are trying to go out and establish their dealer network.

I think Fleetwood has probably been -- had a little more success than what Monaco has right now, but they've come out with new product, both of them have.

I think they're trying their darndest to reestablish some relationships in this industry.

And not only is it -- it's a challenge for them simply because any time you come out of bankruptcy and they have to do, it's difficult.

But we're still not out of the woods from an economic environment.

So you've got two things there that are some pretty good headwinds for them.

Do you think that as time goes on and they reestablish themselves, they could be more competitive with you?

You know, it's hard to say.

You know?

I think they're going to have to be, if they're planning on making any headway in this industry.

It's a very competitive environment out there right now.

The good old days are gone.

So you've got to adapt to the times.

And that's their call, I guess.

Now, as far as towables, I know you outlined some of your strategy that you're going to come out with the Winnebago brand in July, and then follow it up with a fifth wheel brand.

What kind of capacity do you have currently in terms of production of the products you think you're going to be producing?

We believe we have a capacity of about 8,000 units a year in the Middlebury location.

And what kind of revenues on average could that achieve, if it was operating at relatively decent percentage of capacity?

Well, I think we're going to use that $20,000 and change selling price, so we're looking at $160 million.

Okay.

Good luck with you on that venture.

[Richard Whiting], Broadview Advisors.

Bob, in your opening comments, you talked about reinstating salaries and 401(k)'s and removing wage freezes.

On your hourly employees, has the opening wage/starting wage changed or gone up?

Or are you still at the new reset that came about a year ago?

We are still at the new reset.

Okay.

So it's just pretty much an annual review of merit raises?

Yes.

Okay.

Everything else I had has been answered.

Thank you.

Thank you.

Mr.

Olson, there are no further questions at this time.

I would like to turn the floor back over to you for closing comments.

All right.

Thanks, Rob.

Well, thank you for joining us today on our call.

We are pleased with our results for the second quarter of fiscal 2011, and once again, I want to thank our employees for their hard work and dedication throughout this downturn in the economy.

It's been a very difficult period in our history and we greatly appreciate the sacrifices they have made to help us get through it.

We remain dependent on continued growth of the retail market to drive our business going forward.

And while the turmoil in Libya and other countries in the Middle East, and the tragedy caused by the earthquake and tsunami in Japan have been quite devastating, we are hopeful that we will see continued recovery of the US economy throughout the remainder of calendar 2011.

I would like to thank everyone for joining Winnebago Industries' conference call today, and I look forward to talking to you again in June, when we report our results for the third quarter of fiscal 2011.

And I'd like to wish everybody a happy St.

Patrick's Day.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.