In what appears to be a clear effort to prevent some new announcements from being overshadowed by its second quarter financial results, Harley-Davidson announced on July 24 that there will be a second press release, slide presentation and stake holder conference call on Monday July 30 in which the company will address the so far unknown impacts of its January 2016 “Next 10 Years” initiative announcements with a further series of “Accelerated Strategy For Growth” plans.
The company is adamant that the new announcements will be consistent with is previously unveiled plans. Those plans are summarized as growing ridership by at least 2 million new riders through training, launching 100 new models in 10 years, increasing international sales volume to 50 percent of production, and to do all this “profitably and sustainably” while keeping investor returns within the top quartile of S&P 500 performance.
However, it is clear that the new details will be a response to the so far lacklustre impacts that its plans have had on sales and will be targeting some kind of acceleration in and details of new product plans, achieving broader consumer access (“meet customers where they are now and how they want to engage with a multi-channel retail experience”) and deliver “stronger dealers” - driving a “performance framework to improve our dealer financial strength and the Harley-Davidson customer experience.”
The take-aways from this appear, first of all, to be senior management dissatisfaction with the performance (stating quite clearly that it wants “stronger dealers”) and (probably) the location of existing dealerships - the absence of urban and metropolitan consumer access has been an issue for some years. Secondly, the company plans moves (maybe ahead of MY2019 announcements?) to add some flesh to the bone in terms of at least one but possibly all of its immediate, medium and long-term product (platform?) plans.
“accelerated strategy for growth”
to be announced July 30
Matt Levatich, President and Chief Executive Officer, told investors that Harley needed “new types of products and channels” in drawing on the firm’s 115-year legacy and the vision of the founders may have been alluding to the long-rumored Adventure Tourer project.
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| Matt Levatich, President and Chief Executive Officer, told investors that Harley needed “new types of products and channels” |
Either way, the company is making it sound like there is something more to come next week than simply an update on its E-bike plans, and references to a “multi-channel retail experience” may presage the introduction of an online ordering, dealer delivery program.
The company says it intends to “leverage core strengths in the business, brand and dealer network” (suggesting that the churn in the dealer network seen in the past 36 months has not been an entirely unwelcome factor in the long-term evolution of the dealer network as far as management is concerned) and “invest in opportunities that inspire increased ridership sooner and deliver sustainable growth for the future” (acquisitions anyone?).
Asked if the company felt there was a disconnect between its apparent marketing success in terms of social media metrics and the stubbornness of sales to outperform the market, Levatich emphatically thought not.
Further asked about the reaction in Europe to Harley’s decision to “eat” the approximate $2,200 average on-cost of the increased tariffs imposed by the EU, he said the reaction among dealers had been universally positive and that the fact that the company would back their commitment to Harley in this way “made them very proud” to be associated with Harley. Conversely, he said that the general reaction among U.S dealers to seeing some production transitioning overseas had been phlegmatic – he said that for the most part domestic dealers appeared to understand that the company “had to do what’s best” to keep itself healthy.
“stronger dealers”
As it happens, Harley’s Q2 Fiscals have not, actually, been as bad as many had feared. Domestic U.S. unit sales for the quarter ended June 30, 2018 were down by -6.3 percent, with Harley’s retail sales now nearly tracking the wider market atrophy at -6.4 percent for the quarter (46,490 units) for a second quarter in-class market share of 48.4 percent and -8.7 percent (75,800 units) YTD for a 49.2 percent share so far this year (-0.4 percent). Motorcycle shipments for Q2 were 72,593 units and 136,537 for the calendar YTD. Overall global retail sales were down by -3.6 percent for the quarter.
Harley continues to work on managing inventory levels (dealer inventory was down by some 14,100 units in Q2), saying that doing so continues to deliver the intended results in terms of profits and MRSP maintenance as it plows the ground for MY2019 models.
Levatich is quoted as stating that “our results in the second quarter reflect business performance that is in line with our expectations. With the focus of every employee and dealer, we are making progress building the next generation of Harley-Davidson riders in line with our long-term objectives. Our manufacturing optimization, demand-driving investments and commitment to manage supply in line with demand remain on target and continue to strengthen our business.”
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| Harley says it has not yet decided where production of bikes for Europe will be based, but did confirm that materials and inventory are now being built up in Thailand for a previously scheduled ramp-up of production there before the end of this year |
The importance of Harley’s international ambitions and the decision about where it will build bikes for European customers (in response to the tariffs farrago) were underlined by their Q2 international results.
While sales in Asia Pacific and Canada remain challenged (Japan and Australia have been notably soft for Harley in the second quarter), the welcome news is that Latin American sales are up (thanks largely to growth in Brazil and Mexico), and in Europe (EMEA) sales were +3.6 percent for the quarter and are tracking at +4.8 percent YTD, giving Harley an improved market share of 10.4 percent.
“meet customers where they are now”
Harley says its European performance is being driven by “strong Softail sales,” and the addition of another 12 international dealers can’t have hurt as the company continues its plan to have added some 150 – 200 new dealers internationally in the four years to 2020.
The effects of inventory management can be seen in the fact that total revenue (at $1,525.1 billion) was “only” down by -3.3 percent despite -11.3 percent lower shipments. YTD revenue was $2,889.1 billion; the average motorcycle revenue has increased “behind favorable mix, higher pricing and favorable currency exchange.”
The 2018 motorcycles segment gross margin is down somewhat on 2017 at $532.1 million (34.9 percent of revenue) for the second quarter and $1,005.9 billion (34.8 percent of revenue) YTD due to higher steel and aluminum costs, among other factors.