In an unprecedented step, Harley-Davidson CEO Matt Levatich wrote an open letter to shareholders in April this year that was clearly designed to overcome investor anxiety following Harley’s 2015 financial statements, and to head off any negative reaction to the then upcoming 2016 Q1 announcement.
|Harley CEO and president Matt Levatich: “We recognize there are challenges ahead, and we are taking solid steps to assert our brand promise, enhance our company capabilities and grow our leadership position”|
The letter got very little coverage in the motorcycle media, yet it included some very interesting pronouncements, information and insights.
Levatich cited Harley’s 113 years of giving “true individuals around the world a way to powerfully express their own personal freedom” and pointed to his own 22 years with company as a foundation for understanding “what our brand means to our customers” and paid tribute to a dealer network whose “sole purpose is to deliver exceptional experiences” and “passionate and committed”.
‘a good portion of our investment is in product development’
However, from a strategic perspective Levatich didn’t duck the challenges that the company was faced with. “Our long history has taught us to be agile and adaptable to changing circumstances, and 2015 was one of those times. Last year served up one of the most competitive environments we’ve seen in years” acknowledging that “our 2015 results didn’t fully meet our expectations” – citing the 1.3 percent decrease overall in global sales of new motorcycles, the 3.7 percent decrease in revenue to $6 billion, the 10.9 percent decrease in net income (to $752.2 million) and the 4.9 percent decrease in earnings per share.
However, the context being attempted shareholder reassurance, he also pointed to what he described as the “strong value” the he considered that the company had nonetheless delivered to its shareholders through a 12.7 percent increase in dividend rate and the repurchase of “nearly 28 million discretionary shares of our stock.
“Thanks to an all-out effort by our employees, suppliers and dealers, we were able to mitigate the impact of a highly competitive market fuelled primarily by currency headwinds. We also made progress against our objectives, including demonstrating our appeal and relevance to all customer segments globally,” Levatich said.
“We are proud of our efforts in 2015 to preserve key performance measures and build foundational strengths for long-term success. We recognize there are challenges ahead, and we are taking solid steps to assert our brand promise, enhance our company capabilities and grow our leadership position and share in the markets we serve.
He listed what he saw as being some of those 2015 efforts of which the company could be proud, including their international sales successes, specifically referencing the transition to direct distribution in Canada and the growth in Touring model sales seen in Europe, the addition of 40 new dealers internationally, the new long-term labor agreement at the York, Pennsylvania Vehicle Operations facility, what he saw as a holding of market share domestically in the face of competitive pressures that had included deep discounting, the rebranding of the Riding Academy program in the U.S. and the growth in the number of graduates, and the introduction of the 2016 models, including what he described as the “high octane” (!) S-series cruisers.
“In October, we announced our plans to build a stronger, deeper bond with our existing loyal customers while creating powerful connections with new customers – those who already ride and those who have not yet discovered the sport of motorcycling. We challenged ourselves to free up resources – both financial and people – for more demand-driving focus and investment in 2016 and beyond.
“In 2016, we will increase our customer-focused marketing by 65 percent. This increased investment will build awareness of our brand and our incredible products for new and current riders around the world. Through the increased investment in our Riding Academy programs, we will give more people reasons and opportunities to learn to ride. We also plan to increase Riding Academy U.S. dealer points by roughly 20 percent to support our goal to grow the number of U.S. graduates to 65,000 in 2016.
“Our efforts to extend our reach through great new Harley-Davidson dealerships also continues. Between 2008 and 2015, we added 176 dealers in international markets … our plans are to further extend access to the brand internationally via 150-200 additional dealerships by 2020.”
‘build a stronger bond with existing customers’
In endeavouring to outline a positive “Road Ahead” the letter reiterated objectives announced in October 2015 – namely to grow the sport of motorcycling in the US (some one-third of buyers of new Harleys are new riders – so Harley is “doing its bit”), grow U.S. and international retail sales “at a faster rate”, grow revenue and earnings “at a faster rate through 2020” and outperform the S&P 500 – something that on a dividends reinvested basis Harley has consistently done, despite the downturn, ever since the 1986 flotation.
Intentionally or otherwise Levatich both raised the stakes and expectations about the MY 2017 announcement due in August by stating that “a good portion of our demand-driving investment is going to motorcycle product development. This is the heart of what we do, and we are committed to leading the industry with the best motorcycles in the world. We will increase investment in product development in 2016 by 35 percent over 2015. Given the step-up we made last year, this new investment significantly increases new product development investment from 2014 levels” and acknowledged that “we have set high expectations for ourselves in 2016 and beyond.”
Levatich concluded by throwing further profile onto the much vaunted 2016 marketing campaign and the results the company hopes it will generate: “We have loyal and passionate customers who would be the envy of any business. We are confident of our focused strategy, passion for our brand, and progress on key initiatives make us strong and well positioned for the challenges of today’s dynamic marketplace.
“We have exceptional employees, dealers and suppliers who are aligned and committed to deliver dreams of personal freedom for all those who desire to be part of this exceptional brand. Together we are creating the next chapter of our legendary legacy.”