Harley Q1 North America Retail Motorcycle Sales -5%; International +2% - Ongoing Supply Chain Shortages Blamed
Harley has opened the year with mixed results for Q1 - revenue from motorcycles was up overall, but while international unit sales improved, domestic U.S. numbers were off.
Global Q1 retail motorcycle sales were up +2% versus the prior year - "driven by growth in EMEA and Asia Pacific. North America retail performance (down -5%) was adversely impacted by production shortages, which resulted in significantly lower dealer inventories."
Chairman and CEO Jochen Zeitz is quoted as saying that "as we enter the second year of our five-year Hardwire strategic plan, we are pleased to see strong consumer demand for Harley-Davidson products across all regions. Our teams continue to work through the impact of the ongoing global supply chain disruption, and despite the challenging macro environment, we are optimistic for improvements in the second half of the year."
Q1 reported highlights include +6% growth for motorcycle revenue - "driven by global motorcycle pricing and growth across Parts & Accessories (+11%) and Apparel (+2%)." Motorcycle sales operating income margin was 15.6%, which was down -2.9 points versus 2021 Q1 - "global pricing was able to offset cost inflation, but margin was negatively impacted by lower shipments due to the ongoing semi-conductor shortage."
A decline of -27% in HDFS operating income was "driven by the significant loss reserve release in 2021 and the normalization of losses in 2022 in line with expectations; GAAP diluted EPS was $1.45 and during the quarter Harley repurchased $248 million of shares (6.2 million shares) on a discretionary basis.
Harley's full-year 2022 outlook remains unchanged; the merger transaction between LiveWire and AEA-Bridges Impact Corporation (the special purpose acquisition vehicle/SPAC in which Harley will maintain a 74% ownership stake) is "on track to close in mid-2022" - which sounds a tad later than the Q2 completion and NYSE 'go live' originally cited.
First quarter gross margin was down -2.8 percentage points compared to Q1 prior year - "global pricing contributed approximately four points of margin benefit and largely offset the cost inflation, however, gross margin was also negatively impacted by unfavorable motorcycle mix due to the inability to produce to demand given the semi-conductor challenges. The -2.9 first quarter operating margin decline was "due to negative mix and higher operating expenses for LiveWire."
HDFS' operating income declined $32m versus Q1 2021 - "driven by an unfavorable comparison to the prior year quarter, which included a significant decrease in the allowance for credit losses. In Q1 2022, retail credit losses begin to normalize to historical levels resulting in a higher provision for credit losses, partially offset by lower interest expense. Total quarter ending finance receivables was $6.8B, which is +1% versus prior year."
Harley reports generating $139m of cash from operating activities during Q1 2022. Cash and cash equivalents were $1.4bn at the end of the first quarter, down $927m compared to the end of the prior year first quarter "as the company continues to normalize cash balances back towards historical levels." The company paid cash dividends of $0.1575 per share in Q1 2022.
For the full year 2022, the company "reaffirms its initial guidance and continues to expect HDMC revenue growth of +5 to +10%; HDMC operating income margin of 11 to 12%; HDFS operating income to decline by 20 to 25% and capital investments of $190m to $220m.
"The outlook assumes that logistics and manufacturing moderately improve in the back-half of the year as we get beyond the peak levels of inflation experienced in 2021 and the semi-conductor supply stabilizes; the company now expects raw material inflation to continue through the balance of the fiscal year. The company's cash allocation priorities are to fund growth through The Hardwire initiatives, pay dividends and execute discretionary share repurchases."