H-D Business Overhaul Intended to "Rewire The Company for Success" - 'Hardwire' 5-year Strategic Plan Due by Year EndHarley-Davidson has announced some of the actions it has taken to "rewire the company", stating that it is "setting the foundation for a 5-year plan as the most desirable motorcycle brand in the world." The company has also reported 2020 financial results for Q2 and the ongoing actions it is taking to manage the impacts of COVID-19 on its business.
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| Jochen Zeitz, Harley-Davidson Chairman, President and CEO |
"I'm very pleased with our accomplishments in these times of extraordinary challenges and uncertainty," said Jochen Zeitz, Chairman, President and CEO, Harley-Davidson. "Through all of this, we have made significant progress toward the goals of The Rewire, the positive feedback from key stakeholders and the early impacts we are seeing in the marketplace are very encouraging.
"A total rewire is necessary to make Harley-Davidson a high-performance company. Building on our strong brand legacy, we are reinvigorating our core profit driving business - powered by our strongest dealers, most exciting products and careful inventory management, while focusing on the most important opportunities for future expansion.
"We're overhauling our operating model and our product plan and are rewiring our market structure and organization to focus on the strengths of our brand and company. We are now working on our new 5-year strategic plan, The Hardwire, which will be grounded in enhancing the desirability of our brand and protecting the value of our iconic products."
At the heart of the new operating model is a much needed and long overdue reduction of complexity and an ability to react to business needs and opportunities with increased speed.
'refined line-up, high-impact launches'
"Vast changes to the company's operating model under The Rewire include all areas of the business globally, from commercial operations to center-led support functions. Significant work has been undertaken to eliminate duplication, inefficiencies and complexity throughout the organization. As previously announced, the streamlined structure requires 700 fewer positions across our global operations."
Highlights of the new approach include streamlining planned motorcycle models by approximately 30 percent; balancing investments between current stronghold categories and new, high-potential segments; expanding product offerings of its best-selling motorcycles; delivering its first Adventure Touring motorcycle - the Pan America 1250 (in 2021); shifting annual product launch timing from August to early in the first quarter; reinvigorating launch efforts, including collaborations with key influencers to bring the brand and new products to life and drive brand desirability.
Among other plans, the company says it is set to launch a new marketing campaign including a collaboration with DC Comics' "extended universe" movie actor Jason Momoa "to celebrate the shared journey and unrelenting spirit of Harley-Davidson." Apparently.
Growth Through Parts & Accessories and General Merchandise
The company says it intends to intensify its focus on its Parts & Accessories and General Merchandise businesses, "encouraging customers to customize their entire riding experience to match their own style. Now part of the new Commercial function, new leadership has designed strategies for each business aligned to the company's motorcycle and market priorities with the goal of delivering a holistic experience in the marketplace."
Internationally Harley plans to "reset" its "global business" to concentrate on approximately 50 markets primarily in North America, Europe and parts of Asia Pacific, the "high-potential" markets that represent "the vast majority of the company's volume and growth potential" and is "evaluating plans to exit international markets where volumes and profitability do not support continued investment - in line with the future strategy."
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| The 2021 launch of the 1250 cc 'Pan America' Adventure Tourer is set to go ahead and rumors suggest that Harley will follow manufacturers such as BMW, Yamaha and Honda with a family of lower displacement variants in subsequent years. |
Marketing
In a very welcome step, one that smacks of the kind of grass-roots near-market connectivity between sales and marketing that Harley has singularly failed to embrace in the past 30 years, the company says it also plans to shift resources and marketing investments "into the regions for maximum impact.
"As part of this effort, the company has streamlined regional offices and created new groups of high potential countries that will have the autonomy to drive the business (within a clearly defined framework)." Additionally, the company plans to "optimize" its dealer network to provide an "improved and integrated customer experience." Among corporates, this is generally code for closing down a large number of outlets.
Harley-Davidson has "revamped its approach to supply and inventory management, focusing on products and initiatives that add value, while significantly reducing discounting and price promotions. This is expected to drive retail pricing to help preserve the value and desirability of Harley-Davidson motorcycles for its customers and brand."
"All of these efforts of The Rewire aim to provide a better starting point for the future and to build desirability for the Harley-Davidson brand and products."
In its Q2 news release, Harley has highlighted several "Rewire outcomes" that it says it has already been able to bank - such as $250m in cash savings (excluding restructuring charges) including SG&A and capital reductions expected in 2020; restructuring charges of $42m that are expected to result in approximately $100m in ongoing annual savings based upon actions taken; a reduction in global dealer inventory of -32 percent with U.S. 2020 new model year motorcycles selling at MSRP on average and used H-D pricing up significantly at retail and auction.
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| The 'Rewire' update does NOT name check the planned new 'Bronx' streetfighter model for 2021, which appears to confirm the widespread speculation that the project is to be dropped - at least for the foreseeable future. |
"The Rewire is expected to continue through the end of the year, leading to a first look at the company's 2021-2025 strategic plan, "The Hardwire", expected in the fourth quarter. Building on the foundation and principles of The Rewire, the driver of the new plan will be Harley-Davidson as the most desirable motorcycle brand in the world for its customers, employees, community and investors."
In terms of its COVID-19 Response and Recovery the company says it "continues to proactively manage its business through the pandemic and has implemented robust protocols to keep workers safe in its factories. Most non-production workers will continue to work from home until the end of the year. Response and recovery plans include supporting global dealers and customers. At the end of the quarter, about 93 percent of our global dealers were open for retail motorcycle sales following pandemic interruptions."
Included in the company's broad cost and cash savings measures are SG&A reductions, curtailed capital spending, suspended discretionary share repurchases and a "prudent" approach to dividend payments. The company announced it will pay a third quarter cash dividend of $0.02 per share, in line with its second quarter dividend. The dividend is payable September 25, 2020 to the shareholders of record of the company's common stock as of September 10, 2020.
The company has also further strengthened its strong liquidity position with nearly $4.7bn in liquidity at the end of the quarter.
Second Quarter 2020 Results
Global retail motorcycle sales in the second quarter of 2020 were significantly impacted by COVID-19. Q2 U.S. retail sales finished down 27% compared to the prior year; -22% YTD. European (EMEA) retail sales were -30% Q2; -29% YTD. Worldwide motorcycle retail sales were down -27% Q2 and -23% YTD.
Revenue from the Motorcycles and Related Products segment was down in the second quarter of 2020 (-53% and -33% YTD). Revenue from motorcycle shipments specifically were -59% in Q2 and -36% YTD. Gross margin and operating margin were down during the quarter, primarily due to lower productivity and absorption resulting from the suspension of manufacturing.
"Second quarter 2020 results reflect the impacts of COVID-19 and also the actions taken in the second quarter to rewire the company. Q2 GAAP diluted EPS was $(0.60) versus $1.23 in Q2 2019. Excluding restructuring plan costs and the impact of recent tariffs, adjusted Q2 diluted EPS was $(0.35) versus $1.46 in Q2 2019. Second quarter net loss was $92m on consolidated revenue of $865m versus net income of $196m on consolidated revenue of $1.6bn in Q2 2019.
Financial Services segment second quarter operating income of $5m was down 94 percent driven by an increase in the provision for loan losses related to COVID-19's impact on economic projections.
Cash and cash equivalents were $3.9bn at the end of the second quarter of 2020, compared to $925m at the end of Q2 2019. Harley-Davidson generated $610m of cash from operating activities year-to-date 2020 compared to $496m year-to-date 2019.
The company paid a cash dividend of $0.02 per share for the second quarter of 2020. The company did not repurchase shares on a discretionary basis during the second quarter of 2020. During the quarter, there were 153 million weighted-average diluted common shares outstanding and 18 million shares remained on board-approved share repurchase authorizations.
Given the uncertainty that remains surrounding the impact and duration of the COVID-19 pandemic, the company is not providing financial guidance.