BRP (NASDAQ:DOO) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
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The full earnings call is available at https://www.icastpro.ca/events/brp/axr7z5/2026/09/03/brp-inc-s-fy27-q2
Summary
Brp Inc announced solid financial results for FY27 Q2, with revenues reaching $2.2 billion and a normalized EBITDA of $139 million, despite facing a net tariff impact of $145 million.
The company increased its full-year guidance, expecting revenues between $9.225 billion and $9.475 billion and normalized EPS between $4 and $4.50, driven by strong ORV demand and strategic initiatives.
Strategic updates included the introduction of new ORV models, expansion of manufacturing capacity, and the launch of Brp Financial Services to enhance customer and dealer engagement.
BRP's ORV segment showed strong performance, gaining market share in several regions, particularly in the utility side-by-side vehicle segment, while PWC sales faced softer demand.
Management highlighted ongoing tariff challenges but outlined mitigation strategies, including tactical operational changes and product mix adjustments, to manage these impacts.
Full Transcript
OPERATOR
Good morning, ladies and gentlemen. Welcome to the Brp Inc FY27 Q2 conference call. For participants who use the telephone line, it is recommended to turn off the sound on your device. I would now like to turn the meeting over to Mr. Philippe Deschein. Please go ahead, Mr. Deschein.
Philippe Deschein, Investor Relations
Thank you. Good morning and welcome to Brp's conference call for the second quarter of fiscal year 27. Joining me this morning are Denis Le Vot, President and Chief Executive Officer, and Sebastien Martel, Chief Financial Officer. Before we move to the prepared remarks, I would like to remind everyone that certain forward-looking statements will be made during the call and that the actual results could differ from those implied in these statements.
The forward-looking information is based on certain assumptions and is subject to risks and uncertainties, and I invite you to consult Brp's MD&A for a complete list of these. Also during the call, reference will be made to supporting slides and you can find the presentation on our website under the Investor Relations section. So with that, I'll turn the call over to Denis.
Denis Le Vot — President and Chief Executive Officer
Well, thank you, Philippe. Good morning everyone and thank you for joining us today. Before getting into quarterly results, I want to say a few words about Sebastien's retirement announcement released earlier this morning. As you could see, Sebastien had shared with the company's objective to retire some time ago and he has since supported the succession planning process. I want to thank Sebastien for his outstanding contributions over more than two decades at Brp Inc. He has played a key role in many of the company's significant milestones, including its initial public offering on the TSX in 2013, named at the time IPO of the Year. Sebastien's strong leadership, strategic vision and financial discipline contributed to making Brp Inc what it is today, with a proven track record and solid financial performance. This is Sebastien's last quarterly call as a CFO, but he will stay with us for a while as an executive advisor effective October 1.
Minh Thanh Tran, who is with us today, our Executive Vice President, Global Corporate and Product Strategy, who some of you already know, will become our new Chief Financial Officer. Minh Thanh joined Brp Inc in 2017. Over the years, he has demonstrated leadership excellence across corporate strategy, merger and acquisition, transformation and product strategy. He has spearheaded several initiatives that have driven Brp Inc's success, including leading the implementation of our new North American ERP system, developing our M28 strategic plan, and paving the way for the company's manufacturing footprint in Asia.
Prior to Brp Inc, Minh Thanh built deep expertise in investment and corporate banking with Lazard and BMO Capital Markets. His strong financial acumen, sharp business insight and extensive powersport industry experience position him as the right person to lead our finance organization. Minh Thanh and Sebastien will work together to ensure a smooth transition until Sebastien officially retires in April 2027. Now to our quarterly results. We delivered another solid performance with financial results ahead of our expectation, sustained ORV retail momentum driving further market share gains and meaningful progress on our key strategic initiatives.
We also continue to further improve our net tariff exposure while protecting our competitive position and long-term growth prospects. In this context, at our recent dealer event we unveiled new models that demonstrate our solid commitment to innovation, further expanding our product offering and adapting to the current tariff environment. Our team's ability to manage the business in this volatile geopolitical and macroeconomic environment, combined with our solid performance in ORV and overall strong execution, reinforce our confidence in the outlook.
As a result, we are increasing our full year guidance. Sebastien will provide further details later in the presentation. Now let's take a look at the second quarter results on slide number four. We delivered revenues of 2.2 billion, normalized EBITDA of 139 million and a normalized loss per share of $0.18. It is important to note that these results include an incremental net tariff impact of about 145 million compared with the second quarter of last year.
Despite this headwind, our performance came in ahead of our expectations, driven primarily by sustained momentum in ORV retail demand and the benefit of a reduced tariff rate on ATVs. We also generated a strong free cash flow of 193 million, further strengthening our balance sheet and enhancing our financial flexibility. As we navigate this volatile environment, let's turn to our network inventory on slide number five. Dealer inventory remains healthy, being up only 2% year over year.
We increased ORV availability and further optimized the mix of current model year units across our product line. Together, these actions position us well to capitalize on market opportunities in the second half of the year while supporting sound profitability throughout for both Brp Inc and our dealers. Turning to global retail trends on slide number six. In North America, market dynamics remain broadly consistent with recent quarters with modest industry growth led by continued strength in SSV.
Against this environment, our retail performance tracked the industry with ORV market share gains offset by softer PWC conditions. Internationally, EMEA market conditions continued to improve, particularly in ORV and PWC, notably supported by strong demand in Eastern Europe and Scandinavia. Our year-over-year retail performance was up low single digits, trailing the industry due to softer trends in the three-wheel vehicles. In Latin America, retail declined 4%, primarily reflecting softer SSV demand in Mexico.
In Asia Pacific, industry retail grew low single digits driven by continued strength in ORV. We outperformed the industry with retail increasing 8%, gaining further market share in SSV. Overall, we are pleased with our retail performance, particularly in ORV where we delivered strong results across most regions and continued to gain share in several key markets. Now let's look at our North American performance beginning with side-by-side on slide number seven.
We ended season 26 on a strong note with second quarter retail up mid single digits, outpacing the industry. Our momentum continued, driven by the success of the new Defender HD11 which fueled utility cab retail growth of more than 30%. We delivered our strongest ever second quarter for utility SSV retail. For the full season ended in June, our SSV retail grew by high single digits, outpacing an industry that grew mid single digits. More importantly, we gained more than three points of market share in current model year SSV units, achieving an all-time high in this category with Can-Am capturing nearly one-third of units sold.
To leverage higher-than-expected demand, we are expanding capacity within our existing manufacturing footprint. This should enable us to sustain our growth trajectory through the balance of the year and beyond. These positive trends also extended to ATV as shown on slide number eight. While the industry declined low single digits during the quarter, our retail increased mid single digits, significantly outperforming the market. This strong performance moved us into the number two position, within striking distance of the leader.
For the full season, our retail grew low single digits, outperforming an industry that declined low single digits. We gained share in the key mid and high CC segment, demonstrating the success of our products. Retail of current model year units increased by nearly 20%, allowing Can-Am to finish the season as the number one brand in the category. Overall, we are pleased with our ORV performance which reflects Can-Am's industry-leading product lineup, the effectiveness of our innovation strategy and the disciplined execution of our business plan.
Turning to PWC, our retail declined low single digits during the season's key quarter, in line with the industry. From a market share perspective, elevated levels of discounted carryover inventory from other OEMs continue to pressure non-current units. However, our current model year performance remains strong, with market share increasing by more than six points, ending the quarter above 60%. Given softer-than-anticipated industry demand, we have proactively decided to further reduce shipments for the balance of the year.
This disciplined approach will optimize network inventory, support retail execution and position both our dealers and Brp Inc for a stronger start to next season. Let's turn to slide number 10 for another view of our retail performance in North America. In other product categories, in three-wheel, retail declined mid single digits, with premium models continuing to account for most sales, underscoring resilient demand at the higher end of the category.
At 4.2s, retail declined almost 30%, reflecting softness across the marine industry. That said, we made solid progress in reducing non-current inventory. Finally, snowmobile retail was up more than 20% on low off-season volume. Overall, we are pleased with our second quarter performance. While PWC continues to face softer industry conditions, our ORV business remained very strong and we delivered solid results across several higher-margin segments, particularly in current model year units.
Moving on to slide 11 for a recap of key announcements from our recent Club Brp. Attending this major event for the first time since joining the company, I had the privilege of meeting several dealers and business partners. The energy and engagement were remarkable, with nearly 3,000 participants present in person representing more than 90 countries. On the commercial side, we launched Brp Financial Services, our new US retail financing program. It is designed to provide customers with a seamless financing experience while giving us greater flexibility to support retail growth and build stronger direct relationships with our consumers.
In line with our objective of strengthening dealer engagement and experience, we also enhanced our commercial programs to strengthen our dealer value proposition and support profitable long-term growth across the network. From a product perspective, our focus is clear: delivering more value to customers while reinforcing our leadership in innovation. In PWC, we announced our 2027 Sea-Doo lineup which includes the all-new Spark X model, more powerful than ever and packed with premium features.
We also launched the Sea-Doo RXP-X Senna 350 as a tribute to F1 legend Ayrton Senna, who inspired the world to push boundaries on the racetrack and beyond. Our collaboration with the Senna brand is already making waves, elevating Sea-Doo's global visibility. This limited edition is powered by the all-new 350 horsepower Rotax 1630 ACE engine, the most powerful factory-installed engine ever offered in the category. This engine is also available across the other Sea-Doo performance models.
In three-wheels vehicles, we introduced the most significant evolution of the Can-Am Ryker since its initial launch, improving handling and overall riding experience. It will be the first model manufactured at our new facility in Vietnam. Finally, meaningful upgrades across our ORV lineup, including new models, added features and a stronger value proposition, set us up to sustain our momentum and drive further market share gains in both ATV and SSV.
More importantly, we strengthened our position in what we see as the industry's most attractive growth opportunity: utility SSV cabs, shown on slide number 12. Over the past six years the segment has more than quadrupled and now represents nearly half of the utility side-by-side industry. For model year 27, we strengthened the Defender lineup with the all-new HD10 platform for the mid HP segment and the XU, a new and enhanced utility offering built for customers who depend on their vehicle in demanding work environments.
The XU brings together factory-installed accessories, greater capability and exceptional value in a purpose-built package. Finally, let's turn to slide 13. During Club Brp we demonstrated how serious we are about Can-Am becoming North America's leading off-road brand. We brought to life two visionary concepts, the Defender Pre Runner and the Maverick R X Ray. While neither is a production announcement, both showcase the creativity and engineering excellence shaping our product pipeline.
Last but not least, we committed to introducing major off-road product news every six months for the next four years. This commitment reflects our confidence in the category's long-term potential and our determination to remain the OEM of choice for dealers and riders. I am extremely proud of what we achieved at Club Brp and it was inspiring to see so many people come together to carry the message of our iconic brands and what we stand for. Moments like these keep us closely connected to our riders' expectations and challenge us to find new ways to raise the bar.
With that, Sebastien, my friend, for the 50th and last time, over to you for a more detailed review of our financial performance and guidance for the year.
Sebastien Martel — Chief Financial Officer
Thank you very much, Denis, and good morning, everyone. Our team once again executed well in a dynamic environment, capitalized on stronger-than-expected demand in ORV to deliver second quarter results ahead of our expectation. This, combined with an improved estimated net tariff exposure, is placing us well for the second half of the year and supports our full-year guidance increase. Looking at the financial results, revenues grew 18% to $2.2 billion, primarily driven by higher ORV shipments, a favorable SSV product mix, and positive pricing net of programs.
Turning to profitability on slide 16, we generated gross profit of $263 million, representing a margin of 11.7%. The year-over-year decline in gross margin reflects two primary tariff headwinds for approximately 740 basis points, and the one-time impact of a supplier financial restructuring, which impacted gross margin by approximately 330 basis points but was excluded from our normalized metrics. Excluding these two items, gross profit margin would have increased by approximately 140 basis points year over year, reflecting the underlying strength of the business.
Normalized EBITDA was $139 million, while normalized EPS ended at a loss of $0.18 per share. We generated strong free cash flow of $193 million during the quarter and $560 million year to date, further strengthening an already solid balance sheet. As a result, we ended the quarter with more than $600 million in cash and a net leverage ratio of 1.6 times. Now turning to slide 17 for our revised fiscal 27 guidance. With the first half of the year now behind us, we have delivered results ahead of our expectations, supported by continued strength in ORV demand and solid execution across the business.
While the macroeconomic, geopolitical, and trade environments remain volatile, the momentum in off-road, together with an improvement in our expected net tariff exposure, has enabled us to absorb a portion of the other headwinds we are facing and increase our normalized EPS guidance by a dollar to a range of $4 to $4.50. Looking at the key drivers of the guidance update, from a product perspective, we expect continued momentum in ORV supported by recent product launches and additional production capacity coming online to more than offset our decision to lower volumes and increase sales programs in personal watercraft.
In light of softer-than-expected trends in the industry, we believe these actions will position the business for a healthier start to next season, particularly given the strong reception of our new models at Club Brp Inc. On the cost front, like many companies, we continue to face higher commodity and freight costs due to elevated oil and energy prices and ongoing transportation pressures. These factors are affecting our gross margin and are reflected in our updated guidance.
As for tariffs, factoring the latest tariff development and our revised business assumptions, we now expect Section 232 and 338 net tariff exposure to be $200 million for the year, which would represent approximately $225 million of net tariff exposure on an annualized basis. Finally, our updated guidance incorporates revised tax rate assumptions and lower share count resulting from the completion of our NCIB program. Incorporating all these changes, we now expect revenues between $9,225,000,000 and $9,475,000,000, normalized EBITDA between 1.25 and 1.75, and normalized EPS between 4 and 4.50.
From a cadence perspective, we expect third quarter normalized EPS to be down 50% to 60% year over year, mainly due to the incremental tariff impact. This implies a much stronger Q4 normalized EPS compared to Q3. With these revised assumptions, we now expect to generate more than $800 million of free cash flow for the year, providing additional flexibility and further strengthening our balance sheet. As I mentioned last quarter, we do not believe this outlook reflects the full earnings potential of our business.
Brp Inc continues to benefit from strong fundamentals and attractive long-term growth opportunities. Over time, we expect our earnings to better reflect this potential as we continue expanding our plan and as the trade environment becomes more stable and predictable. And finally, before I pass the call back to Denis, I would like to say a few words. As Denis mentioned earlier, after 22 years with Brp Inc, I have decided it is time to let the new generation lead the finance team.
It has been an incredible privilege to be part of this organization and to work alongside such talented people throughout my career at Brp Inc. Brp Inc is in a strong position with exceptional brands, a compelling product portfolio, and a highly capable leadership team led by Denis. I am confident that, together with our talented finance organization, Mintan will build on the strong foundation we have established and help take Brp Inc to the next level.
Having worked closely with him for many years, I know he has a deep understanding of our business, our strategy, and our financial priorities, and that he is the right person for the job. To all of you on the line, thank you for your trust, feedback, and continued support over the years. Obviously, I look forward to watching Brp Inc's continued success in the years ahead. And with that, I will turn the call back to Denis.
Denis Le Vot — President and Chief Executive Officer
Thank you, Sebastien. Thank you very much. And as everybody understood, we are satisfied with our first half performance. Our financial results reflect sustained momentum in ORV, while our response to a volatile environment once again demonstrates Brp Inc's agility and flexibility. We quickly identified factors within our control and acted on them with precision and discipline. In parallel, we continue to advance our M28 strategic plan, with the announcements made at Club Brp Inc reinforcing our commitment to capturing our full powersport potential.
Our recent ORV success shows our ability to translate insights into market-shaping product that resonates with customers and drives market share gains. We remain focused on becoming the number one ORV brand in North America and on increasing our competitive edge across our portfolio. In closing, driven by our strong lineups and engaged dealer network, we are confident in our ability to reinforce Brp Inc's competitive position, sustain profitable growth, and create lasting value for shareholders.
As we're currently working on our next long-term plan, I look forward to sharing our vision for the road ahead. On that note, I will turn the call over to the operator for questions, and once again, welcome to Mintan and congratulations to Sebastien.
OPERATOR
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.
Your first question comes from Thabaha Khan with RBC Capital Markets. Your line is now open.
Thabaha Khan, Analyst at RBC Capital Markets
Great, thanks, and good morning. And just before getting into questions, all the best, Seb, with the next chapter. Just on the commentary around the guidance update that you guys have shared, hoping to get a little bit more detail, you know, just breaking that, how much of this was just maybe the environment getting a little bit better, whether it's on the macro. And then, secondly, if you can just detail the puts and takes around the evolution of tariffs.
You know, obviously you have a dollar amount, but just, you know, what are you assuming for the tariff backdrop? I think there was some commentary around the ability to get some exemptions—maybe how much of that is baked in here? We'd love to get some color on sort of the setup into the back half of what's evolved since the beginning of the year, both on tariffs and on the fundamental outlook. Thanks.
Sebastien Martel — Chief Financial Officer
Sure. Good morning. Well, first, on the guidance, if we look at the puts and takes, obviously when you look at the top line, the movement is coming from better ORV deliveries this year, offset a bit by the adjustments in production that we're doing and deliveries for personal watercraft. As Denis mentioned in his opening remarks, that is a small tailwind, net-net, of about $0.10 to $0.15. Obviously inflation is top of mind with a lot of people, with a lot of companies, and so we're feeling that impact as well.
We are talking about another, call it, 50-ish basis points impact on our profitability this year. So that's roughly $0.50 headwind. And the rest is primarily related to our net tariff exposure that has evolved in the last few months, which is bringing the guidance up by a dollar. Now to your second question, as to all the puts and takes on the tariff. Let me just give you an update as to what has changed since the last time we talked in May. The first thing is Section 232 tariffs for ATVs has gone from 25% to 15%.
And the second element is a new tariff, Section 338 tariffs for imports from Canada into the U.S., which are now subject to a 50% tariff rate. And this product line that is impacted is Spyder. Not a huge impact this year because most of the deliveries for the year have been done in the first half of the year, but will have an impact next year. And then the other element—and it's something I've shared with you in the past as well—when we talk about Section 232 tariffs, it's not a broad stroke that the U.S. administration has taken on the powersport industry. It's very targeted to either specific vehicle categories and sometimes even specific vehicle configurations. And so, at Brp Inc Club, we introduced new models which cater to a growing segment of the market, specifically utility. And some of these models that we are introducing are not subject to 232 tariffs. And so a different tax treatment applies to them, and that provides us with a benefit, because what we've seen after Club is that the mix of demand from consumers and from dealers has shifted towards these models.
So net-net, when you add all of this, we're talking about a net exposure this year of $200 million and next year of $225 million on an annualized basis. Great. Thanks for that color. And just for my follow-up, just given this sort of evolving backdrop, can you maybe talk about sort of the production ramp you sort of talked about, and maybe how production, manufacturing—and just any early thoughts on how you're positioning that side of the business as you head into sort of maybe a more favorable operating backdrop?
And just maybe you can tie in sort of the retail demand outlook there as well. Thanks. Yeah, we're obviously—the last thing we want to do is overproduce and have too much inventory in the network. We're seeing greater demand for cab units, and so that is where we're adding capacity for cab units. Dealers are asking for it, consumers are asking for it. And so it's a decision that we've been looking at—or an alternative we've been looking at—for quite a few quarters.
And so we're going to increase capacity on that front.
Denis Le Vot — President and Chief Executive Officer
Yeah, on that one. As I said, you know, the cab now is half of the utility and has quadrupled. So this is a very big trend. Defender is behaving very well in that category. So this is why we are investing on that one.
Thabaha Khan, Analyst at RBC Capital Markets
Thanks so much.
OPERATOR
Your next question comes from Craig Kenneden with Baird. Your line is now open.
Craig Kenneden, Analyst at Baird
Hey, good morning. Thanks for taking my question. Seb, it's really been a pleasure working with you. I wanted to ask about the supplier financial restructuring line item. Maybe just shed more light on that issue, please.
Sebastien Martel — Chief Financial Officer
Yeah, well, it's something we do not do in normal circumstances, but we had an important supplier that was going through financial difficulties and in order to ensure continued supply of parts, we needed to step in and provide this type of financial support. But obviously it's, it's. I've been with this company for 22 years and it's the first time we've had to do this. So it's an exceptional circumstance. The objective is to maintain the relationship with the supplier. It's a good supplier and good quality parts. So the objective is to maintain that relationship. Obviously there is potential increases in prices that we'll get from that supplier in order to make sure that the profitability is maintained for the supplier, but nothing too material. And so I'd say the most material element is the adjustment we've done this quarter on the results.
The bulk of it is already. Yeah, the bulk of it is reflected in the quarter.
OPERATOR
Your next question comes from Brian Morrison with TD Cowen. Your line is now open.
Brian Morrison, Analyst at TD Cowen
Yes, good morning. Thanks very much. It's been a true pleasure, both professionally and personally. I've enjoyed every minute of this ride together and I wish you all the best in the next chapter.
Sebastien Martel — Chief Financial Officer
Thank you.
Brian Morrison, Analyst at TD Cowen
That said, I want to dive a bit more into these tariffs. So I think you stated 145 million for the first half of the year and 225 million for the full year this year. So that's 80 million in the back half. And then I think you said 225 million for next year as well. Is that correct? And if so, why does the prorated $80 million for the second half accelerate for next year?
Sebastien Martel — Chief Financial Officer
Well, this year when we talk about the net tariff impact, we're actually looking at offsets as well that we've announced in May. So we need to factor that. So the margin impact on tariffs was more in the range of 165 million. The bottom line impact is about 145 million because of the offsets we did on the operational front. So total for the year we talked about 200. So we're more looking at a net impact for H2 of all 55 million, which brings us to 200. And so for the total next year, it's going to be 225. Why proportionately is it less this year? Because we actually paid tariffs because of the mix of products that we ship in H1. And so we expect the mix to improve next year. And that's why we're seeing a reduced overall annualized impact coming down.
Brian Morrison, Analyst at TD Cowen
Okay, so if I can follow up, if I recall correctly, back at Mission 28, the investor day, the EBITDA implied was about 1.45 billion. And then Q1 of this year, you added another $50 million for improved fundamentals. Would that be the starting point that we should think about for Mission 20 with respect to EBITDA for 2028 prior to taking into account these net tariffs?
Sebastien Martel — Chief Financial Officer
Yeah. Well, when we look at M28, obviously the fundamentals of M28 are very much in place. I mean, we've talked about dealer network expansion that is online. We've talked about ORV market share gains that is progressing even better than planned. The industry as well is healthy. We have more product introductions coming in. Our lean initiatives as well are in line. And even we've pulled some forward this year to offset some of the tariff headwinds we were facing. The big variable is commodity prices and inflation, which is higher than what we've expected this year. We're looking at probably 100 to 125 basis points higher than the initial M28. But we believe we can offset that with more volume and also continued lean initiative. So the M28 objective of $8 for next year is still very much reachable. Net of tariffs.
Obviously, the macro and the geopolitical will dictate how things trend over the next 12 to 18 months, but we certainly feel as a management team that that number is still achievable. Net of tariffs.
Denis Le Vot — President and Chief Executive Officer
Yeah, this is what we are still working on, guys. The top line is in pretty good shape and I would even add that the international as we speak this year fiscal 27 will almost reach the 2.5 billion that we were chasing for last year.
Brian Morrison, Analyst at TD Cowen
That's very helpful, thank you.
OPERATOR
Your next question comes from James Hardiman with Citi. Your line is now open.
James Hardiman, Analyst at Citi
Hey, good morning. I was hoping we could drill down a little bit on the inflation piece. Obviously, you know, freight and transportation are a big deal. Any incremental color you could give us there in terms of sort of overland versus ocean freight, you know how that's proceeded. I think you've given us some numbers that sort of give us an idea for this year and next year, but maybe just sort of underline those as we think about how this issue progresses.
Sebastien Martel — Chief Financial Officer
Yeah. Well, when we talked last quarter I talked about a 70 to 75 basis point headwind coming from inflation. And now with the updated guidance we're looking more at 100 to 125 basis points. There are many variables driving this. We haven't seen the price at the pump for fuel come down despite the barrel has kind of the pressure on the barrel has come down but the pump and refined products has continued to go up and therefore plastics and certain commodities is higher.
We're seeing steel and copper as well being higher. And your question on freight and transportation, most of the challenges is on land. Obviously the availability of trailers, the availability of drivers has tightened a lot in the last 12 months and that has continued to put pressure on our pricing. And so that's why we've built in an additional 50 basis points in the guidance.
James Hardiman, Analyst at Citi
Got it. That's helpful. And then maybe just give us a state of the ORV industry. Obviously the industry grew in the, in the second quarter you grew even more I guess A why do you think ORVs have outperformed some of these other big ticket discretionary categories? What role if any are rates playing? And then from a market share perspective, you know, you guys seem to be gaining significant share. To listen to Polaris sounds like they're getting share.
Kawasaki has some compelling products that they're bringing to the market. CF Moto doesn't seem like they're going anywhere. So maybe sort of how we should think about the market share landscape if you're gaining who's losing sort of thing and ultimately just help us understand the forward outlook for RVs and then you know, the sustainability of your share gains. Thanks.
Denis Le Vot — President and Chief Executive Officer
Yeah, there is a strong momentum behind this which is, which is a shift from used to be kind of a recreational segment to the utility segment quad by quad year after year. As we said the it quadrupled in the last four years and we see a continued growth on this one. This goes from, you know, farming to construction business to first respond business. I mean there's a lot of application which are now turning to SSV applications. And we are of course into this at a great position with our Defender, especially with the Defender Cab. So we see that two things at the same time. The strong momentum on the segment itself. I think we'll continue make the global or the growth at least in North America from that standpoint.
And the second thing is that we are product offer like the XU we just introduced that was really very well received by the dealer which is really a rough and tough application for construction that we are doing here and the continued investment we having. We mentioned also on the manufacturing capacity that we are having makes the thing that. Yes, for, for the next years to come. There is still growth on that segment and it's a major change into, into the clients that are buying the SSV in the US
James Hardiman, Analyst at Citi
that's helpful. Color. Thanks. And I'll reiterate what a lot of people have said. Seb, congrats on the retirement. It's been great working with you. And meantime, congrats on the new role. Looking forward to expanding the relationship. Thanks.
Sebastien Martel — Chief Financial Officer
Thank you.
OPERATOR
Your next question comes from Benoit Poirier with Desjardins. Your line is now open.
Benoit Poirier, Analyst at Desjardins
Yeah. Good morning everyone. And congrats, Seb, on your successful career. And congrats, Mintan, for your new role. Just in terms of tariffs, you did a pretty good job so far managing the tariff exposure. Still 225 million impact for next year. So I was just curious to see if there's any other mitigation factor that you're currently consider that exist that might erase a good portion of the remaining tariff impact.
Denis Le Vot — President and Chief Executive Officer
For sure, it's possible. You know, being, being a job means being ready. And we are constantly working on trying to be ready. Okay. Which is, which is a lot of work by the way. And you've seen how quick we could react in just one quarter on this net impact that we have been here diminishing in the magnitude that you just saw. We continue working on that. Okay. This implicates of course, product offers continuing on all delivers, which is from the overhead to the lean management with a supplier, of course to the new product that we are offering and will continue offering. And of course any project that we have on potential move of the manufacturing or whatever is also here. Because I'm sure it's going to be a question, but what we are doing is that we are getting ready for any kind of situation.
The thing is, what we need to go further in what we are doing is to deem that we are in an environment of tariff which is predictable and fixed over the time. And I think you will agree with me, this is not the time as we speak, so difficult to elaborate on what's going next once we don't have a minimum of, you know, productivity in the environment.
Benoit Poirier, Analyst at Desjardins
Okay, that's great. And on ORV side, you've been quite successful in terms of market share gain. It looks like that the competitive landscape is evolving on side by side with Yemen exiting the market. What's your expectation, Denis, on Whether they will remain in the ATV market And what about on this presence and side by side given their declining market share?
Denis Le Vot — President and Chief Executive Officer
Well, I would certainly not comment on competitive strategy. You know, the thing you have to have in mind is that this is the place of the market that we are investing the most. I mean our, our momentum is tremendous. The Defender is gaining by the day market share. And as I explained before, with the lineup, with the investment we are making in our capacity to produce the product that the dealers and the clients are demanding for, I'm super confident on our position on the market.
Benoit Poirier, Analyst at Desjardins
Okay, that's great. And just one for seb. In terms of free cash flow, obviously you see some upside for the year. You've been quite aggressive in terms of buyback. So just curious to, to. To. To hear some color about the opportunities that you foresee in terms of incremental capital deployment. Whether it's on the buyback or maybe on capex requirement for next year given all the opportunities that you see ahead.
Sebastien Martel — Chief Financial Officer
Well, obviously a strong free cash flow generation this year. Capex, no big variation planned this year and next year, obviously we're continuing to invest in the business. We have a solid portfolio of products are going to be introduced. But certainly we have another NCIB window that's opening up early December. And so we could deploy easily an additional $200 million of cash towards buybacks from now to the end of the year. And the good news is we have the flexibility to do it if we decide to execute on it.
Benoit Poirier, Analyst at Desjardins
Perfect. Okay, thank you.
OPERATOR
Your next question comes from Robin Farley with UBS. Your line is now open.
Robin Farley, Analyst
Great, thank you, Seb. Best wishes. It's been so nice working with you. You'll definitely be missed. And then, sorry to pivot right into a tariff question from that, but I wonder if you could give a little bit of color on tariff in Q3 versus Q4, because there's just something about the tariff cadence that seems a little unclear. So just the split of the tariff impact between those two quarters, and then if you wouldn't mind clarifying, if it's 55 million tariff impact in the second half, you know, seems to be double next year.
You mentioned some of that was the mix of products. Can you kind of quantify how much of that is incremental 338 tariff and how much is that mix issue that you mentioned? Thanks.
Sebastien Martel — Chief Financial Officer
Yeah, well, obviously going into the granular kinds of gets complicated. But what I can say just on the cadence of tariffs is that we would expect higher tariffs in Q3 versus Q4, because the transition to the new products we've recently launched is going to be happening mostly in Q4. So you'll see some, probably in the range of 30, 35 million, easily, of tariffs in Q3 and the remaining in Q4.
Robin Farley, Analyst
Okay, great. That's very helpful. Thank you. Oh, and I didn't know if you had a comment, I'm sorry, on next year, on how much of the incremental was.
Sebastien Martel — Chief Financial Officer
Yeah, yeah. Well, next year, again, depends on the mix of the product and the timing by quarter. And so that obviously influences the payout. But the cadence should be pretty much probably more skewed in the first half of the year as we ship ORV units. And then also we have Spyder kicking in next year, which is about, let's call it, 60 to $65 million headwind that we're facing with Spyder.
Robin Farley, Analyst
Okay, great. Thank you very much.
OPERATOR
The next question comes from Joe Altobello with Raymond James. Your line is now open.
Joe Altobello, Analyst at Raymond James
Thanks. Hey, guys. Good morning, Seb. Congratulations. I know everyone said it already, but it's been great working with you and obviously good luck as well. A couple of questions here. I guess first on the guidance, and I want to follow up your response to Robin's question. If I look at your third quarter guidance, it implies EBITDA margin down a few hundred basis points, kind of similar to what we saw in the second quarter, even though the bulk of the margin, or, I'm sorry, the tariff pressure is sort of behind you here.
So what else is weighing, I guess, on that third quarter margin?
Sebastien Martel — Chief Financial Officer
Well, the other element, other than the tariff — there's still some tariffs remaining in the third quarter. But the other element that is there in Q3, Q4 in the second half of the year is the inflationary pressure. So we've been increasing or reducing our guidance because of inflation. So we're at 125 basis point headwind, and a lot of that will be happening in the second half of the year, so more amplified. And then the other element is product mix.
Last year we had a very rich mix with shipments of Defender HD 11 and also personal watercraft. This year the mix is a bit more stabilized. And also we're reducing our personal watercraft deliveries. I'd say these are the three elements which are impacting our gross margin.
Joe Altobello, Analyst at Raymond James
Got it. Very helpful. And just to follow up on that, you called out ORV demand pretty healthy. Obviously you're taking share, but the industry is also growing nicely coming from the utility side. But in terms of the end user or buyer, where are you seeing the most pockets of strength?
Sandy Scullion — President Powersports
All the utility. And on the cab unit, the luxury models are very strong. We talked about our average household income of $176,000 at the meeting. That obviously results in us being able to sell higher-end models. And as Denis mentioned, we are increasing capacity for cab units because the demand is strong and dealers see the door swings from these consumers for this novelty that we're bringing to the market. And you can see it mostly in our upper range, upper segment, upper power in the engines that we are selling and in the current business.
Okay. Because this is where we are very big, and we are gaining 3 points of market on the ORV and on the ATV and 6 points of market in the PWC in the current model year business, which also reflects how wealthy our clients are.
Joe Altobello, Analyst at Raymond James
Okay, great. Thank you.
OPERATOR
Your next question comes from Cameron Dorksen with National Bank. Your line is now open.
Cameron Dorksen, Analyst at National Bank
Yeah, thanks very much. Good morning, and let me echo my congratulations to Seb as well. Well-deserved retirement. I hope you have many trips planned in the next few years. But I guess maybe my question is really around the year-round revenue guide. You know, obviously you indicated that the ORV sales are performing ahead of expectations you had earlier this year, I guess for the full year, though it sort of implies relatively modest, I guess, year-over-year revenue growth in year-round products.
Just wondering what you're seeing there. Is there some element of conservatism built into your second half guide? And maybe you can also make comment on what you're seeing just in the retail so far here in your fiscal Q3.
Sebastien Martel — Chief Financial Officer
Yeah, I'll comment on the first part and I'll let Denis comment on the retail. As I mentioned to Joe earlier, obviously, last year was a very strong second half with HD 11 deliveries, so a very rich mix. This year we had product news. Obviously we're going to the HD 10 and open cab models as well. So the mix is a bit more balanced this year and so that is providing less top-line growth than you could have expected. But from a retail perspective, the expectation is good for the second half because we're now having full cab in the network and that should help retail.
But I'll let Denis comment more specifically on the trends for Q3.
Denis Le Vot — President and Chief Executive Officer
Yeah, globally on the market, if we are on the ORV specifically, SSV North America, the momentum is good. But the momentum in size is, if you take, for instance, Q2, the market is up low single. The market is a low single. The cab on the utility is very strong. We are plus 30% year over year, but it's a piece of the market. But globally, what we plan for is this up low single growth of the market in H2 and for next year. And we are very confident that this will happen inside of the market. We are playing the switch of our own mix of sales, which is way higher on the utility and the cab. That's the point.
Cameron Dorksen, Analyst at National Bank
Okay, that's helpful. I appreciate the time.
OPERATOR
You're welcome. Your next question comes from Martin Landry with Stifel. Your line is now open.
Martin Landry, Analyst at Stifel
Hi, good morning. I'd like to dig a little bit into your dealer inventory. You say that your dealer inventory in North America is up 2% year over year in units. I'm just trying to reconcile that with your sales. Looking at your sales of seasonal and year-round products, they're up, I think, 26% year to date. Your retail sales are mostly flat year to date in North America. So I understand that I'm comparing, you know, units versus sales, but pricing can't be up that much to explain the difference.
So if you can help me better understand why your inventory at dealerships is only up 2%, that'd be great.
Sebastien Martel — Chief Financial Officer
Yeah, you need to look at it versus where we were in January. At the end of January, that's probably a better way to look at it. And so we had very, very lean inventory in January. So that's how you would need to run the math. And looking at wholesale, retail, and inventory, we are actually happy with where the inventory is. ORV is in a good place. We're probably at 100 days of inventory and quite much lower on the cab units. We finished snowmobile inventory at the end of the season down 30% versus a year ago.
So again, in a good position. One area where we do have more inventory is personal watercraft. And as Denis mentioned in the prepared remarks, the season was softer than expected. So we're cutting production in order to start the season off in a good position and help protect dealer profitability. So when I look at it in a nutshell, I think we are well balanced to make sure that we have enough inventory to support retail, but also the right amount of inventory to protect the dealers' profitability.
Given the momentum, this is a healthy position.
Martin Landry, Analyst at Stifel
And is there a difference between your inventory level globally versus North America?
Sebastien Martel — Chief Financial Officer
Well, in international, dealers tend to hold less inventory. Very similar to the auto industry. You can comment on that part at International,
Denis Le Vot — President and Chief Executive Officer
but we see the same trend. So there is less of an inventory hold by the dealers in these markets. But generally the same trends are experienced at International in terms of the healthiness. And we have good movements, as you could notice in my speech, also at International, right. Like Asia Pacific, retail was very high. We are good in Scandinavia, Eastern Europe on most of the product lines. So we don't have a problem there.
Martin Landry, Analyst at Stifel
Okay, thank you. And Sebastian, congrats on your career. Best of luck on the next chapter, and nintend, well done. Congrats on your appointment.
OPERATOR
Your next question comes from Tristan Thomas Martin with DMO Capital Markets. Your line is now open.
Tristan Thomas Martin, Analyst at DMO Capital Markets
Hey, good morning. And like everyone has said, congrats. Congrats. I was just curious. You kind of alluded to it in one of the prior questions, but how many dealerships have you added relative to your 100-plus target from the M28 plan?
Denis Le Vot — President and Chief Executive Officer
Well, if you take last year, 36; we targeted 30. And this year we're targeting, or modeling, that it would be around 40 that we are chasing. And we already signed 20. And more importantly, you know, at the club we talk about there are prospects which are visiting us to take a decision, and we have a lot of contacts. So we are super confident with increasing by 40 this year.
Tristan Thomas Martin, Analyst at DMO Capital Markets
Okay, great. And then just really quick, anything you want to flag on the overall kind of promotional backdrop?
Sebastien Martel — Chief Financial Officer
Nothing particular to call out. Inventories are healthy and so we see OEMs being less promotional. We expect a positive tailwind from less promotion this year, similar to what we shared back in May, of about 50 basis points.
Tristan Thomas Martin, Analyst at DMO Capital Markets
Great, thank you.
OPERATOR
Your next question comes from Anthony Bonadillo with Wells Fargo. Your line is now open.
Anthony Bonadillo, Analyst at Wells Fargo
Yeah. Hey, good morning. Thanks, guys. Sebastien, congrats to you both. I just wanted to dig in on the model XU a little bit, the Defender. Can you just maybe talk about how penetration of that could evolve, just given the reception you got from dealers at the Orlando event? And just any thoughts on the anticipated mix of that versus other models next year?
Denis Le Vot — President and Chief Executive Officer
Yeah, the mix is continuously growing. I would just repeat one figure: we took three points in the current business. Of market share. And this is mostly due to this new offer on the Defender, obviously. So this is big because it drives most of our growth on the segment and we want to continue. So that's why we are also investing on the cabs as well as on the Defenders, as I said before. So we are now pushing, as we did in the club, the offer on the utility with the XU series that you certainly have seen, and also continuing investing in the factory in order to follow.
But most of our growth — and I repeat — is three points on the entire current model business, which is mostly coming from this Defender.
Anthony Bonadillo, Analyst at Wells Fargo
That's helpful, thanks. And then just on the BRP Financial Services announcement, can you maybe talk a little bit more about that decision? Why was now the appropriate time for that? And then just thoughts on implications to the P&L as that ramps and we look to model that.
Denis Le Vot — President and Chief Executive Officer
Yeah, it was a big non-product news at the club. Very, very good reception from the dealers. It's all about elevating the dealer network experience, elevating the consumer experience as well. Dealers and consumers are expecting OEMs to provide them the same service level that car OEMs are providing. And so that was a number one objective. The other objective as well is being closer to the customer, knowing our customer better, understanding repurchase rates, influencing repurchase rates as well.
And the other element as well is we'll be more tactical in how we hone promotions as well, how we target certain credit scores in the market vis-à-vis certain product lines. So it is certainly huge news. Dealers reacted favorably. After two weeks, we have 90% of our dealer network already signed up. We're originating loans already. So I'm very happy with the result. And yes, it may have a positive financial implication, but I think the broader implication is about Brp Inc becoming the OEM of choice for dealers and consumers and building that brand aura around Brp Inc. And if I may, coming from the auto industry, I have some experience on that one. And being closer to the client is super important not only for the network but also for us because this opens the door for new projects to come about. You know, renewal of the financial and renewal for the product, sorry, and even a certified pre-owned program, et cetera. This is all related. So creating the link with the client has immense value for both our dealers and also our company.
OPERATOR
Your next question comes from Brandon Roll with Loop Capital. Your line is now open.
Brandon Roll, Analyst at Loop Capital
Good morning. Thank you for taking my questions. And again to echo everyone else's comments, congratulations, Seb, on the retirement. Just, you know, a couple questions for me. First, on tariffs, could you just talk about maybe the portion of the tariff mitigation efforts that are potentially structural in nature? You know, maybe once tariffs are repealed or get rolled back.
Sebastien Martel — Chief Financial Officer
Well, in May we talked about $200 million of, call it, tactical operational elements we were putting in place. That's still much in force today. And we expect some of that as well to carry over next year. Probably not to the level of what it is this year, but certainly there. And obviously it's all about building better business practices. And who knows if tariffs do leave one day. Minhan will be the CFO and I know he'll be controlling a tight leash and so maybe he's going to want to keep some of that to the bottom line.
I certainly hope he does.
Brandon Roll, Analyst at Loop Capital
Okay, great. And then just, you know, looking at the second half guide, what is the underlying assumption for ORV retail in the back half of the year? Thank you.
Sandy Scullion — President Powersports
Well, as you saw year to date, our side-by-side retail up 7%, CTV 4%. So good retail performance year to date. The expectation is that the industry will remain as we had it in the second half. And our expectation is good retail momentum, especially that we have, we'll call it, a full six months of Defender HD 11 in the network.
Brandon Roll, Analyst at Loop Capital
Okay, great. Thank you.
OPERATOR
Your next question comes from Garrick Johnson with Seaport Research Partners. Your line is now open.
Garrick Johnson, Analyst at Seaport Research Partners
Thank you. Good morning. Congratulations, Sebastian. Congratulations, Minsan. I have a question on factory expansion you're talking about. I presume this is Suarez 2. What are you doing there? It seems like you're expanding capacity pretty quickly. So is it just more throughput or is there actual capital that needs to go in?
Sandy Scullion — President Powersports
It's not very big in terms of capex. Indeed, what we are doing here is more like the line, physical line organization, because of course when you cabin you need more space because there are some steps of manufacturing that you add on the main line. And we do this by a bypass to this line. So we are just mostly extending the building. So we're extending a building so that we can have a throughput of this, which is increased by roughly 33% of what we are doing right now, which will be impacting, of course, on our commercial performance.
And as Sebastian said before, our dealer inventory is rather low on this one. The demand is still there. So we are super confident that the market will absorb this. Okay, great.
Garrick Johnson, Analyst at Seaport Research Partners
And, you know, it would be super wonderful if recreational demand kicked in. Just for edification, what was recreational ORV retail in the quarter?
Sebastien Martel — Chief Financial Officer
I don't have that granular data with me, but we can certainly try to share something later.
Garrick Johnson, Analyst at Seaport Research Partners
Okay, what's your guess? Probably down significantly or down a little bit or down in the high teens.
Sebastien Martel — Chief Financial Officer
I'm looking at Phil, but I don't like to guesstimate and so we'll provide you harder numbers.
Garrick Johnson, Analyst at Seaport Research Partners
Okay, fair enough. Talk to you later. Thank you.
OPERATOR
Ladies and gentlemen, as a reminder, should you have any questions, please press star one. Your next question comes from Jonathan Goldman with Scotiabank. Your line is now open.
Jonathan Goldman, Analyst at Scotiabank
Hey, good morning team, and let me be the last one to sign the retirement card. Congratulations particularly on managing through the last five or six years' environment. And congratulations to you as well. Look forward to connecting. Most of my questions have the answer. Just a couple, I guess, clarification ones. Are you able to discuss, in the quarter, the revenue growth—maybe break it down in terms of volume share gains? How much was pricing and mix?
Sebastien Martel — Chief Financial Officer
Yeah, well if I look at the overall margin evolution this quarter, as we said in our prepared remarks, look at gross profit was hit by 740 basis points from tariffs. We have the supplier restructuring 330 and so net-net, we're looking at the 140 basis point year-over-year improvement when you exclude the two previous items I mentioned. And so what drove the gross margin improvement? Obviously leverage on fixed costs is about 110 basis points, pricing 80 basis points, positive manufacturing efficiencies about 110 basis points.
And then in terms of a headwind, we have inflation, FX, another for about 160 in the quarter.
Jonathan Goldman, Analyst at Scotiabank
Okay, that's useful. Then maybe one more. You kind of discussed this, I guess, on a question or two ago, but just thinking more broadly, have you changed your assumption on the North American powersports industry retail? I think you were talking about flattish on the previous couple of calls.
Sebastien Martel — Chief Financial Officer
No change in assumption. No.
Jonathan Goldman, Analyst at Scotiabank
Okay, perfect. Thanks for taking my questions.
Sebastien Martel — Chief Financial Officer
Thank you.
OPERATOR
There are no further questions at this time. I will now turn the call over to Mr. Dishein to close the meeting.
Philippe Deschein, Investor Relations
Great. Thank you, Joelle. And thanks everyone for joining us this morning and for your interest in Brp Inc. We look forward to speaking with you again for third quarter conference call planned for December 3rd. Thanks again everyone and have a good day.
OPERATOR
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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