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Morningstar | Winnebago Industries Is Growing in Towables and in Sectors Outside RVs

Winnebago Industries' leading position in the cyclical recreational vehicle industry and strong balance sheet should allow the firm to persevere through economic turmoil. The top three motor home manufacturers (Thor, Forest River, and Winnebago) make up nearly 80% of the North American motor home market. Winnebago has reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design. The company took on debt to make the deal and issued shares, but we think the gross margin accretion of several hundred basis points was worth it. Towables is an area the company has long wanted to grow in but had remained very small since acquiring SunnyBrook in 2011. Winnebago’s towable share is only about 7% even after Grand Design, so there is a long growth runway here if the firm can chip into Thor and Forest River’s dominant 85% combined market share. In fiscal 2018, towables were about 43% of total revenue compared with just 9% in fiscal 2016. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat. Leadership sees plenty of opportunities to improve Winnebago’s operations with a more laser focus on strategic planning to be faster to market with new products in new segments such as off-roading and lower price points (but not the cheapest in a segment). Models will no longer be cloned which should help dealer profitability and product will be positioned around a good, better, best framework. Acquisitions in the nearly $900 billion North American outdoor activity market will also play a role but only for high-end firms such as Grand Design or Chris-Craft boats as opposed to buying underperforming firms for a turnaround. Industry data shows RVs as a primary accommodation for camping increased to 26% in 2016 from 18%. Over 60% of U.S. households camp at least occasionally and 12% camp more than three times a year. Millennials and Gen X campers are 72% of all U.S. campers, so Winnebago has plenty of runway with younger consumers if it executes right. We think Winnebago's brand equity gives it a good shot of capitalizing on these trends.