Indian And Victory Sales Increase In Tough Motorcycle Market

The latest financial figures from Polaris, parent company of both the Indian and Victory motorcycle brands as well as the unique Slingshot, furthers the appearance all is not well in heavy cruiser segment.

With Harley-Davidson and the combined brands of Polaris essentially owning the cruiser market in North America, their financial results are a good indicator of what type of motorcycles new riders are attracted to.

Aside from owning the brands outlined above, Polaris also manufactures powersport vehicles including Off-Road Vehicles (ORV) and snowmobiles. As with other similar companies Polaris earns money from apparel, parts and accessories over all the various brands.

According to information released by Polaris this morning, motorcycle retail sales increased high-single digits percent, and as expected, ORV retail sales were down high-single digits during the quarter. Total Company North American retail sales were down nine percent for the quarter, which wasn’t a surprise to those in-the-know at Polaris.

Citing weak industry trends Polaris noted the average selling price was down 1% across its entire motorcycle line in the third quarter of 2016. More on this later.

2017 Indian Chief Classic – Source Indian Motorcycle

Before delving into the two-wheeled details, an overall snapshot shows a third quarter net income of $32.3 million for the quarter ended September 30, 2016 compared to $155.2 million reported in the third quarter of 2015. Sales for the third quarter of 2016 totaled $1,185.1 million, down 19 percent from last year’s third quarter sales of $1,456.0 million.

Polaris explained the large drop in net income was due to issues with its model year 2014 Polaris Ranger XP 900 which was recalled in September 2016 due to possible fire hazards.

“Our third quarter results, while discouraging, were in line with our revised guidance and reflect our ongoing execution of the RZR recalls and significant quality and safety improvement initiatives,” commented Scott Wine, Polaris’ Chairman and Chief Executive Officer. “During the past three months, we have accelerated our efforts to get our loyal owners back to riding safely, and are now over 50 percent complete with the RZR 900/1000 recalls and slightly below 50 percent on the more recent RZR Turbo recall notice.”

Third quarter results included expenses totaling approximately $65 million for increased warranty, legal and other costs associated with product recall activity. Other ongoing issues affecting the powersports segment such as shorter winters impacting snowmobile sales and a challenged oil and gas industry hitting Polaris’ ORV products were also highlighted.

“In addition to these recall challenges, we continued to face a weak overall Powersports industry, but were encouraged by continued retail strength for Indian and our overall motorcycle business, and the return to growth for side-by-sides in September,” Wine continued.

The observation about the strength of its motorcycle sales is interesting as it seems to depend on what part of those numbers are being considered. It should be noted, the financial information at hand at the time of writing compiled sales of motorcycles, parts, apparel and accessories into one number. But with price of a motorcycle so much larger than any piece of apparel or part, the numbers shouldn’t be skewed to any notable degree.

2017 Victory Octane – Source Victory Motorcycles

Riding into the numbers

Comparing the first nine months of 2016 to the same time last year gives a much better impression than comparing the last financial quarter year over year. Sales were up for the first nine months by 13 percent when compared to the year before while sales for the last quarter of 2016 were down by 3 percent when compared to 2015.

Polaris explains these results by noting Victory and Indian motorcycles grew with the overall numbers affected by lower Slingshot sales. However, fans of the three-wheeled roadster shouldn’t be disappointed, Polaris attributed the lower sales numbers as a ‘shipment timing’.

As for the decreases in Gross Profit, warranty expense related to recent safety and service bulletins, primarily for Slingshot was the cause, according to Polaris.

North American consumer retail demand for the Polaris motorcycle segment, which includes Victory, Indian Motorcycle and Slingshot, increased high-single digits percent during the 2016 third quarter with Indian Motorcycle and Victory increasing low-teens percent combined.

The biggest takeaway for motorcycle enthusiasts should come from a single sentence in this part of the financial results. Overall motorcycle industry retail sales 900cc and above was down high-single digits percent in the 2016 third quarter.

This observation by Polaris agrees with the main reason given by its competitor Harley-Davidson when it reported its financial results last week. Unfortunately, Harley-Davidson classifies the larger category as 601cc and above while Polaris uses 900cc as its cut-off number. Putting the two categories side by side and sliding the numbers from Polaris into the mix gives an indication the company seems to be doing well with its Indian Scout models which fall into the 900cc and under heading.

2017 Indian Scout Sixty – Source Indian Motorcycle

As mentioned, initial financial information groups Parts, Garments, and Accessories (“PG&A”) sales into one number across all its brands. Polaris reported they declined one percent during the 2016 third quarter to $224.4 million driven by lower retail sales.

The motorcycle segment of Polaris’ PG&A fell 10 percent in the third quarter when compared to year prior indicating riders are hanging on the last year’s apparel fashion and not spending as much on customizing their motorcycles. Again, this appears to be another industry-wide trend.

Looking to international motorcycle sales, third quarter decreased by 11 percent when compared to the year prior. The Asia Pacific market proved to be the strongest for Polaris, increasing 3 percent with Latin America sales decreasing by 1 percent and Europe, Middle East, Africa (EMEA) falling 12 percent.

Next steps

Polaris recently announced it would acquire Transamerican Auto Parts (“TAP”) a manufacturer, distributor, retailer and installer of off-road Jeep and truck accessories. This corporate addition is part of the company’s ongoing focus.

“This transaction provides us an immediate leadership position in a growing market, while allowing us to accelerate growth and profitability for Polaris,” continued Mr. Wine. “We are making the necessary investments, both internally and externally, to realize the true potential of our organization.”

Other highlights include its highly publicized ‘Ride Command’ technology which wasn’t only featured in some of its 2017 touring motorcycle models but in many ORV products as well.

Sporting the industry’s largest and brightest touchscreen display, highest resolution and fastest response time, the new Ride Command Infotainment System is fully integrated into the dash for an up-close rider experience. Ride Command promises an intuitive interface, customizable information displays, glove-compatible two-finger touch capabilities, and easy navigation to points of interest, like gas stations and restaurants.

Indian's Ride Command Infotainment System – Source Indian Motorcycle

Another sentence in the financial reporting worth some attention indicates Polaris may have an eye to streamlining its operations, a road being taken by other motorcycle manufacturers.

“Along with improvements in product safety and quality, we are using Huntsville and our go to market Retail Flow Management (“RFM”) process to establish Lean as a competitive advantage,” Wine noted before discussing the Ride Command technology, finishing the thought with, “We are working to transform the customer experience, from purchase to service, to enhance profitability. This commitment to improving our execution and our overall performance will drive a steadier cadence of growth and profitability in the future.”

This future doesn’t include the remaining months of 2016. Overall sales are expected to be down in the mid- to high-single digit percent range. However, motorcycle sales are projected finish the year up in the low-single digits percentage wise.

This last note brings us back to the beginning of our news story, Polaris indicating its motorcycle sales would be stronger if it wasn’t for ‘weaker industry trends’.

As Clutch and Chrome noted in our report on Harley-Davidson’s recent financial earnings, 2015 wasn’t a stellar period for motorcycles, so it could be considered as grading on a curve when comparing challenged numbers in 2016 to last year.

On a lighter note, what appears to be weaker numbers in the category of parts and accessories could be attributed to motorcycle buyers enjoying the growing trend of manufacturers including a laundry list of features on newer models as well as wider range offering a number of styles. All of this adds up to a new motorcycle owner riding off with a bike pretty much as they want it.

Everything comes together with riders getting more motorcycle bang for their buck and leaving manufacturers struggling to find acceptable profits in an environment of changing biker tastes.

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