Polaris Financial Results - An Interesting Roadtrip

Polaris, the parent company and manufacturer of Indian and Victory motorcycle brands as well as the Slingshot, disclosed how well the companies did during the first three months of 2017.

The numbers tell stories of a long-awaited success, recalls that continue to haunt results and just how much the Victory brand brought to the company. Like watching a mid-day soap opera or reading the latest Clancy spy novel, the first quarter financial statements have a lot of moving parts to them, some unique, others apparent trends of the motorcycle industry itself. Understanding we live in era with short attention spans, this article merits a full read for anyone interested in the current state of our motorcycle world.

Without a doubt, the best news found in this financial report are the improved sales of Polaris’ Off Road Vehicles which actually saw an increase when compared to the first quarter in 2016. Between falling commercial sales and mild winters, Polaris has weathered a few difficult years selling its off road-vehicles and snowmobiles. This segment, including their respective PG&A related sales, were $724.1 million for the first quarter of 2017, compared with $708.1 million for the first quarter for the prior year representing a two percent increase, year-over-year.

As Clutch and Chrome is a motorcycle magazine, we’ll leave that good news there and look at the more complex results for the company’s motorcycle and Slingshot sales.

The big number that jumps out from the financial information is a decrease of 35% in Polaris’ motorcycle segment sales, including its PG&A related sales in the first quarter of 2017. The number was $120.3 million, which is 35 percent smaller than those enjoyed by Polaris the first quarter of 2016 of $185.3 million.

The figures from last year included $46.3 million of Victory Motorcycles wholegood, accessory and apparel sales, showing just how much the now defunct brand brought to the bottom line. This sting is made more painful when its reported the costs to wind down Victory took a $38.6 million dollar bite out of the first quarter results.

Another hit to this segment came from the three-wheeled roadster, Polaris’ Slingshot, which suffered from negatively impacted sales by ‘low availability of salable product due to quality holds during the quarter’. Polaris issued three recalls on its Slingshots in November 2016 which not only affected three years’ worth of models but continues to takes its toll.

Indian Motorcycle retail sales increased low double-digits percent and continued to gain market share. Polaris feels this is partly driven by sales of the Company’s new highly customizable, split-screen Ride Command touchscreen infotainment system available on Indian Chieftain and Roadmaster models. Additionally, during the quarter, the Company added its 10th model to the line-up with the introduction of the Roadmaster Classic with genuine leather saddlebags and trunk, giving it distinctive vintage styling.

Bring this all together and North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, was down mid-single digits percent during the 2017 first quarter, while the overall motorcycle industry retail sales, 900cc and above, was down mid-single digits percent in the 2017 first quarter.

Gross profit for the first quarter of 2017 was a negative $19.9 million compared to positive $27.3 million in the first quarter of 2016. International sales to customers outside of North America totaled $166.2 million for the first quarter of 2017, including PG&A, up two percent, from the same period in 2016.

Finally, the recent acquisition of Transamerican Auto Parts (“TAP”) significantly increased the numbers in the Aftermarket segment sales column by adding $202.0 million of sales in the first quarter of 2017.

It appears Polaris is feeling the same challenges with the heavier motorcycle market Harley-Davidson cited in their financial results which should leave many to wonder if the trend of smaller and more affordable models a new road for the industry or passing trend.

Polaris did tease bikers as much as they did the analysts with comments made by Scott Wine, Chairman and Chief Executive Officer of Polaris Industries.

“we are aggressively investing in the development of innovative products that will further solidify Polaris’ position as the leader in powersports,” Wine stated.

This left some wondering if the company is developing the electric technology used in Victory’ Empulse for a model under the Indian brand or as with the Slingshot, its own, unique line of products.

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