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Wednesday 14 February 2024


H-D 2023 North American Retail Down -10% at 105,900 Unit Sales; Motorcycle Revenue Flat at $3.799bn

As anticipated, Harley's Q4 and 2023 full year results do not make good reading - counterintuitively however, 'Wall Street' is less concerned than might have been expected (at the time of writing), but that may not necessarily be a direct response to the results.

After some initial hesitancy about what was seen in the results, in the four days since the results were released (February 8, 2024), Harley's share price had risen by nearly 15% from $33.21 to as high as some $38.00 four days later (at the time of writing on February 13, 2024).

Whether that response has been a direct commentary on what the results showed, or just part of a generally strong NYSE recovery that had been in-play at that stage, only time will tell (Polaris Industries and other adjacent stocks had also been doing well). Either way, a clearly frustrated sounding CEO and beleaguered board would be taking some consolation in, despite the raw ingredients of the data, the recipe for strategic success appearing to still be robust.

Chairman, President and CEO of Harley-Davidson Inc., Jochen Zeitz, is quoted as saying: "In the third year of our Hardwire strategy, we have made progress in key elements of our strategic plan, focusing on our most profitable products and markets, which we believe will continue to yield benefits to the business and have set us up for long-term value creation despite the current challenging environment for the industry." 

In several references made during its hour-long call with investors and analysts, he and his C-suite team, including departing Chief Commercial Officer Edel O'Sullivan, appeared to repeatedly try to draw the toxin from those who are focused on what they see as a fetishistic focus on unit numbers by pointing to being "excited by the early read of our new Model Year launch" as Zeitz put it, describing it as "the most comprehensive product development in the touring platform in well over ten years" and one that will "redefine the Harley-Davidson Grand American Touring experience for years to come and lay the foundation to drive retail sales growth in '24."

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Maybe being a touch 'demob' happy, at one point O'Sullivan even tried to convince those listening that unsold 2023 inventory and a high level of carry-over models from 2023 was a 'good thing' as they will "serve as an interesting entry price point for customers that prefer some of the features of the older technology" - which rather throws the adequacy of the new model range initiatives and additions under a fairly large bus.

Harley cites the 2023 results highlights as including delivery of an (diluted) EPS of $4.87, achieving a 13.6% operating margin at HDMC with unit profitability "returned to historically healthy levels" - with Zeitz stating that "our average unit profitability is up from [around] $1,300 to $3,700. So not being obsessed by unit sales over the past few years has served us well in terms of overall profitability, which is improved from 6.3% to 13.6%.

" Our focus is on growth and profitable growth, and that's how we will complete our hardwired stage two strategy at the end of 2025. What comes after that, we will address at the appropriate time.

"We're not obsessed by market shares. I never have, nor ever will be. But of course, its pleasing to see that, in this tough environment [for top-end discretionaries], especially in the fourth quarter, we were able to grow our touring share to 75%, large cruiser to 80% (give or take 5%). That's commanding." Though not explicitly stated, the assumption must be that Zeitz was referencing domestic sales only - while Harley remains a global player in the small and shrinking 'large cruiser' segment, realistically it has barely even been 'at the races' in touring platform terms elsewhere.

HDMC global motorcycle shipments were down by 7% year-over-year at 179,984 units, with 2023 North American retail unit sales data putting them -10% at 105,900. HDFS operating income finished down 26%. 

Despite the LiveWire Del Mar electric motorcycle - the first bike off the S2 platform - finally becoming available to its 126 strong global dealer network - and a 21% increase in LiveWire branded units sales over 2022, LiveWire CEO Karim Donnez attempts to spin the progress that Harley's loss-making EV subsidiary is making don't look convincing when the 660 units sold in 2023 (514 of them in Q4) are put against the September 2022 SPAC Prospectus forecast of 100,000 units sales by the end of next year, and 250,000 by the end of the decade.

LiveWire reported a Q4 2023 loss of $35m and FY loss of $113m on full year revenue of $38m, which was -18% over 2022 despite actually selling some motorcycles (+11% YOY).

Q4 HDMC global motorcycle shipments were -13% YOY at 29,544, with HDFS operating income down by -10%.

Chairman, President and CEO of Harley-Davidson Inc., Jochen Zeitz, told investors and analysts that "our average unit profitability is up from [around] $1,300 to $3,700. So not being obsessed by unit sales over the past few years has served us well in terms of overall profitability, which is improved from 6.3% to 13.6%."

For the full year 2024, the company says it expects HDMC revenue to be in the range flat to down -9%, with operating income in the margin of 12.6% to 13.6%; HDFS operating income is expected to be between flat and up by as much as +5%. 

LiveWire electric motorcycle unit sales are forecast to be between 1,000 and 1,500, but with a potentially even worse operating loss of between $115 to $125m. H-D Inc. is forecast to be funding capital investments of $225 to $250m.

In what can only be described as a 'shockingly bad' Q4 (unless you are a Wall Street analyst it would appear!), consolidated revenue was down -8%, driven by a revenue decline of -14% at HDMC, partially offset by revenue growth of +15% at HDFS. In the worsening picture reported for a fourth quarter now shorn of the pre-Hardwire era of traditionally early new model introductions, the consolidated operating loss was $21m versus operating income of (just) $4m in the prior year's final quarter. The result was driven by an operating loss of $44m at HDMC, a decline of -10% at HDFS, and the operating loss of $35m in the LiveWire segment.

For the full year, consolidated revenue was up +1% [hurrah!], driven by a revenue increase of +16% at HDFS, partially offset by a revenue decline of -1% at HDMC. For the full year, consolidated operating income was down -14%. The result was driven by an operating income decline of -2% at HDMC, a decline of -26% at HDFS, and a higher operating loss in the LiveWire segment.

Harley's results news release went on to state that fourth quarter global motorcycle shipments at HDMC decreased -13% "due to prudent dealer inventory management and market conditions. Revenue was down -14%, due to lower volumes, where improved mix was offset by incentive spend. Parts & Accessories revenue was down -14%, largely in-line with revenue from Motorcycles. Apparel revenue was down -21%, driven by high dealer inventory levels resulting in lower replenishment.

"Fourth quarter gross margin was down -3.6 points behind the impacts of lower volume, higher sales incentives and other manufacturing costs, more than offsetting the benefits of shipment mix and lower raw material costs. Fourth quarter operating margin fell by 2.1 points due to the factors above, where operating expenses were lower in the quarter due in part to LiveWire transaction costs in the prior year's period.

"In the fourth quarter, global retail sales of Harley-Davidson motorcycles were down 11% versus prior year. North America retail performance was down 9% and continues to be impacted by both the high interest rate environment and the discontinuation of the legacy Sportster at the end of 2022 in the region. The decline in EMEA of -22% was driven by weakness in the French and German markets. The decline in APAC of 10% was driven by weakness in the Australian and New Zealand markets. Latin America sales increases were driven by growth in both Brazil and in Mexico.

"For the full year, global retail sales of Harley-Davidson motorcycles were down 9% versus prior year. North American retail performance continues to be adversely impacted by higher interest rates, economic uncertainty and lower sales of non-core motorcycles. EMEA retail has been adversely impacted by sluggish economic growth and the planned mix shift towards the profitable core product segments. APAC retail performance experienced strong growth in the first half of the year, but slowed in the second half of the year, with overall growth in Japan for the year.

"HDFS revenue was up $32m in the fourth quarter, an increase of +15% versus prior year, driven primarily by higher interest income. HDFS operating income decline of -$6m, or down -10%, was driven by higher interest expense, higher operating expenses and an increased provision for credit losses. The increase in the provision for credit losses was driven by several factors relating to the current macroeconomic environment. Total quarter ending net finance receivables were $7.5bn, which was up +5% versus prior year, driven primarily by an increase in wholesale commercial lending receivables.

"In the fourth quarter, LiveWire revenue increased to $15m from $9m, driven by unit sales of the new Del Mar electric motorcycles. The LiveWire operating loss was $35m in the fourth quarter, in-line with our expectations, and driven by continued product development and other spending associated with the delivery of the Del Mar electric motorcycle to market."

Having launched at around $7.18 at the end of September 2022, LiveWire (LVWR) stock reached as low as $4.85 three months later, but has gradually recovered since, closing at some $10.70 on February 9, 2024. Harley has still failed to meet its stated flotation launch target of reducing its ownership stake in LiveWire to 74%, and as recently as six months ago still owned some 90% of the LiveWire stock. With 225 employees and joint Milwaukee and Mountain View, California headquarters, LiveWire's market cap is some $2.23bn, with the share price having increased by some +50% since that ill-fated September 2022 launch. 

In 2023, H-D generated $755m of cash from operating activities, paid cash dividends of $96m, repurchased $350m of shares (10.2 million shares) on a discretionary basis and raised $2.5bn of financing for HDFS. The company reported holding cash and cash equivalents of $1.5bn at year end.