While "making more from less" is somewhat of a Holy Grail for any business, getting product "out there" is also a righteous goal - in financial terms, scarcity has to be a pathway to somewhere, not simply a goal in and of its own.
It has been a while since I stood on my "Harley, you could be doing better" soapbox, and I feel dirty about climbing back on to it now. It's not as if, with this iteration of Harley's strategic plans, I have a firm grasp of what the Motor Company should be doing in addition to or instead of 'HardWire' in order to keep the share price and bottom line moving in the right direction.
The problem is, if the recent loss of the CFO is anything to go by, Harley itself appears to have more questions than answers at this stage.
Corporate hubris and ego will prevent Harley from jettisoning LiveWire or finding a way to reverse it out of the SPAC cul-de-sac it has been driven down (btw - global EPTW sales numbers and market forecasts continue to suggest that its 100,000 units by 2025 objective remains the stuff of fantasy).
'could become vulnerable again'
Within hours of the Q1 results being announced, some were pointing to the 14% increase in Q1 shipments - as opposed to retail sales - as marking a return to the bad old "Channel Stuffing" days that nearly brought the Motor Company to its knees 15 years ago.
However, Harley, quite rightly, points to the increase in available inventory coming "in advance of [the] key riding season," with the increase in wholesale shipments and continued global pricing realization "driving that [Q1] 21% increase in HDMC revenue." The problem with the way the income has been accounted for though is that Q2 may well have a bunch of sales with no profit score in the revenue column. But I guess it has always been thus.
Either way, Wall Street is not known for its ability to appreciate nuance.
On the day the Q1 fiscals were released (April 27, 2023), Harley stock opened at $38.13 and dropped as low as $33.80 before closing at around $36.00. For context, the year-ago Harley stock price at that stage was $36.32, and since then it had been as low as $29.81, with a 12-month high of $51.72 in early February 2023.
Despite the success it has had in taking back control of pricing and using scarcity to reinforce brand status, the stock market response was hardly the ringing endorsement of 'Hardwire' strategic plan progress that Zeitz was clearly claiming.
Whichever way the potential revenue/unit deficit in Q2 is looked at, the potential discrepancy surely represents a roll of the dice? Zeitz is betting that Harley's dealers will be able to sell the units, and more besides, otherwise Q2 results could see unit sales jump, but without the commensurate increase in revenue from motorcycle operations.
The overall math may well have the tolerance to absorb such a "cost of doing business" priced in and, no doubt, there will be an (probably lesser) element of the cash movement cycle in the Q3 and Q4 fiscals too - indeed there is likely an element of perpetual carry-forward in such matters.
Meanwhile, has Wall Street taken a more nuanced and balanced view of Harley's progress in the days since the Q1 fiscals dropped? That's a big fat no! The Harley share price opened at $36.63 on the day after the results were published and, despite a slight recovery to a high of $37.56 since then, Harley stock closed at a modest $34.10 the evening before writing this piece on May 10.
Yes, okay, what shares have not been suffering this year? Sure, most have, but not all - there have been winners. Whichever way you slice and dice the market indexes, most shares have suffered badly so far this year, indeed, there has been around 18 months of volatility and the stock market momentum is decidedly negative (again this year) as we head into the low volumes of the summer months.
Why am I investing content real estate and keystrokes into this in such detail? Quite simply because if this continues for very much longer (maybe six to 18 months would be a timeframe), Harley could be headed back into take-over territory - and more likely hostile than 'White Knight.'
Only once in the past 24 months has Harley's share price been lower than at the time of writing, and it is way closer to that low than it is to any subsequent high.
The problem is that only very dubious balance sheets treat brand value as an asset. While Harley's (Zeitz') focus on the desirability of the brand has served certain kinds of businesses well in the past in fiscal terms (listed and privately held businesses), there is a balancing act to be struck. One where the potential acquisition price is lower than the long-term profit opportunities that a well curated brand can deliver.
Under such circumstances, the kind of multiples involved in trying to get investors to price unrealized profits into an acquisition are more closely associated with the lower-cost, high-unit number FMCG (Fast Moving Consumer Goods) markets that the present CEO is more accustomed to - not the higher priced, lower-unit number sectors that a business like a motorcycle manufacturer or automotive conglomerate occupies.
Such businesses breathe entirely different air. Harley-Davidson is in danger of becoming vulnerable again. There are trillions of dollars of investment capital out there for which the number of good homes is diminishing, and for which the 'quick buck is the best buck'. That capital is in the hands of investors for whom time is the enemy, not the opportunity. These are febrile times in which mergers and acquisitions activity is morphing, and not necessarily in a good way.
Don't get me wrong. This has been a tricky piece for me to write, expressly because, actually, overall and given the past and present circumstances, I personally think Harley's senior management team and its workforce are 'doing a good job.'
Yes, the Harley brand is important and should be nurtured in such a way that the metal commands a suitable premium. But unless the stock markets improve (hard and fast), then we will be approaching an era in which investors will have even less capacity to price that in than they do now.
