Harley Q2 Financial Results - "Retail Growth and a Strong Gross Margin Increase"
Reiterating that Harley's strategy remains "grounded in desirability and profitability," Chairman, President and CEO Jochen Zeitz is quoted as saying that "Harley-Davidson showed continued progress in delivery of our Hardwire strategy this quarter, despite the macro-economic conditions affecting both the business and our customers.
"Following the production suspension we experienced late in the quarter, impacting motorcycle shipments, we achieved retail growth for the quarter in addition to a strong increase in gross margin.
"We are confident in our ability to navigate near-term headwinds and remain optimistic on the future, most notably following the successful launch of our game-changing CVOs and the highly attended gathering of our community during our anniversary year, reinforcing the enduring power of the brand."
The financial highlights for the second quarter and first half year to date were said to include HDMC gross margin of 34.8%, an increase of 400 basis points, but against a decline in HDMC revenue of -4%, behind a 10% decrease in wholesale shipments related to the unplanned production suspension. HDFS revenue increased +19% on higher interest income and increased investment income. Global pricing is said to have partially offset unit declines.
Parts & Accessories revenue was up +1% driven by improved digital efforts, while Apparel revenue was down -14% compared to a strong Q2 period last year, as the bulk of seasonal product sales occurred in Q2 last year, compared to Q1 of this year.
Global retail motorcycle sales in the second quarter were up +3% versus the prior year. North America retail performance was up +1%, "driven by strength in our core categories such as Grand American Touring and Cruiser, but offset by declines in the Sport motorcycle segment, following the discontinuation of legacy Sportster models in North America at the end of 2022."
Growth in APAC was driven by continued strong demand across key markets, including Japan, China and Australia. The decline in EMEA of -6% was primarily driven by a market exit and the planned unit mix shift towards the profitable core product segments. Growth in Latin America was driven by modest growth in Brazil partially offset by weakness in Mexico.
With its mostly successful 120th Anniversary events in Budapest and Milwaukee now under its belt, events which Harley says "reinforced overall brand strength" and the introduction of the two new CVO motorcycles (as well as the new models in the Enthusiast and Icons collections from earlier in the year) completed, Harley has revised its full year 2023 outlook for HDMC.
For the full year 2023, and in-line with a realigned corporate reporting structure, the company has revised its HDMC and LiveWire unit sales guidance and now expects HDMC revenue growth of flat to 3% and operating income margin of 13.9 to 14.3%, with LiveWire motorcycle sales of just 600 to 1,000 units.
The company still expects HDFS operating income decline of 20 to 25%, a LiveWire operating loss of $115 to $125m and Harley-Davidson, Inc. capital investments of $225 to $250m.
For the second quarter, HDMC reported gross margin of 34.8%, an increase of 400 basis points, against a revenue decline of -4% "behind a 10% decrease in wholesale shipments related to the unplanned production suspension." HDFS revenue increased 19% on higher interest income and increased investment income. Harley delivered diluted Earnings Per Share (EPS) of $1.22.
Consolidated operating income in the second quarter was down -20%, driven by a decline of 8% at HDMC, a decline of 31% at HDFS, and an operating loss of $32m in the LiveWire segment. Consolidated operating income margin in the second quarter was 15.3% compared to 18.9% in the second quarter a year ago.
Second quarter gross margin was up 4.0 points behind pricing, cost productivity and shipment mix, more than offsetting the negative impacts from reduced volume and foreign currency. Second quarter operating income margin fell by 0.6 points due to higher operating expense, including higher people costs and marketing spend.
For the first half of 2023, HDMC achieved operating income margin of 19.2%, an increase of 240 basis points on HDMC revenue that was up 8% versus prior year - "driven by a 2% increase in wholesale motorcycle unit shipments" and delivered diluted EPS of $3.27, up 12%. The company repurchased $156m of shares (4.1 million shares) on a discretionary basis.
Consolidated revenue was down 2% in the second quarter, driven by a revenue decline of 4% at HDMC, which was partially offset by revenue growth of 19% at HDFS.
HDFS' revenue was up $38m in the second quarter, an increase of +19%, driven primarily by higher interest income and increased investment income. HDFS' operating income decline of $27m, or down -31%, was driven by higher interest expense and an increased provision for credit losses.
LiveWire revenue for the second quarter was down compared to the same quarter in 2022, due to lower unit sales of LiveWire ONE electric motorcycles and STACYC electric balance bikes. LiveWire operating loss of $32m in the second quarter, in-line with expectations, was driven by product development spending associated with the launch of the Del Mar electric motorcycle.