H-D Q3 North America Retail Unit Sales -10%, Global -13%, 9-month Global Retail Unit Sales down -5%, Motorcycle Revenue -32%
Harley-Davidson's third quarter retail unit sales do not make pretty reading. They are down by -10% over Q3, 2023, in North American Retail Unit Sales terms, down by -13% in Global Retail Units Sales terms.
However, in the context of annual global unit sales progress it may have bought itself a 'Mulligan'. Nine-month year over year North American Retail Unit Sales are cited as being ('only') down by -1.7% YTD with Global Retail Unit Sales down by -5% year-over-year.
"We have worked diligently through the quarter to mitigate the impact of high interest rates, and the macroeconomic and political uncertainty that continues to put pressure on our industry and customers, especially in our core markets," said Jochen Zeitz, Chairman, President and CEO, Harley-Davidson.
Able to point to a 75% share of U.S. Touring motorcycle unit sales, an increase of 4 share points year-over-year, Zeitz went on to say, again, that "we are very pleased with the reception of our touring launch, with customers and dealers alike, and are working hard to set the Company up for a solid 2025."
Setting aside that "solid" is hardly an 'inspirational' ambition, Zeitz clearly recognizes that it is nonetheless 'aspirational' in the present context. In his prepared remarks he concluded by saying that "we are optimistic about our ability to make sound progress in the new year," with further interest rate reductions and improved consumer confidence a needed tailwind for the motorcycle industry, apparently all critical to Harley management's ability to reverse the company's present direction of travel.
In the vendor conference call that accompanied the release of these numbers, there were some references that the 2025 new product offer could also point to sunlit uplands. However, there was also a growing sense of concern from the analysts charged with safeguarding their investor's interests that, at this stage, Harley is not giving them enough that is 'motivational' where recommending H-D as a 'hold' is concerned.
In advance of the release of Harley's Q3 Financial Report, Rick Barrett for the Milwaukee Journal Sentinel reported that an early October 2024 research note by respected Harley observer Craig Kennison (of Milwaukee-based Baird Equity Research) pointed to dealer frustration centered on the ongoing issues surrounding high inventory ('Channel Stuffing' as it has historically been referred to) and the resulting "related price discounting".
"U.S. dealers we contacted reported significant retail declines," Kennison wrote. "They cited several reasons including the economy, the election, and weak showroom traffic," he added.
Barrett reported that "this follows the negative attention that Harley had received this summer including calls for boycotts of the company's products over diversity, equity and inclusion policies. Product recalls, labor unrest over additional manufacturing sent to Thailand, and a $287m court judgment against the company also made headlines."
Kennison says that "the company was in the news for all the wrong reasons, fueling frustration among stakeholders." The Baird report stated that "by a margin of 71% to 13%, dealerships thought motorcycle inventory was too high [rather] than too low."
In Kennison's view "everyone is marking down product significantly. A race to the bottom," and as a result Baird downgraded Harley stock to a Neutral rating. "We see value in the brand, but it is best to sit this ride out as pressure builds from riders, dealers and shareholders."
Harley shows Q3 dealer inventory as being at least 10,000 units higher than the year-ago (60,000 units vs. 50,000), and Zeitz continues to say that Harley expects "retail units sold and wholesale unit shipments" to be "balanced" by the end of 2024. "Dealer inventory should be at similar levels as at the end of last year," Zeitz had said, having claimed that this implied a reduction in dealer inventory of approximately 30% versus the levels seen in the summer of 2024.
Q3 motorcycle shipments are put at having been around 27,500, which is -39% against the 45,300 shipped in Q3 of 2023. The worldwide unit retail sales total of 36,200 units (vs. 4,700/-13%) breaks down as 24,600/-10% for North America; 6,100/-23% EMEA; 4,800/-16% Asia Pacific and just 700 units in Latin America.
Q3 consolidated sales (HDI) were -26% at $1,514m. Revenue from motorcycles (HDMC) was put at $826m, down by -32% from Q3 in 2023, with P&A -6%, Apparel +13% and licensing -59%. The Tribeca, NYC based G&A and Licensing Creative Studio that was announced in February 2022 was finally closed with 25 people let go in April this year. The experiment was an unmitigated disaster with cash burned for no real gain.
HDI operating income was -49% at $106m. HDMC. HDMC gross margin was 30.1% with operating income of just $55m (-69% from $175m in 2023), and Q3 operating margin for Q3 $6.3m vs. $13.5m for the year-ago period.
HDFS operating income increased by $17m in the third quarter, (+ 29%). The result was driven by higher interest income and a lower provision for credit losses, partially offset by increased borrowing costs, where operating expenses were largely flat.
LiveWire revenue for the third quarter decreased by -41%, due to a decrease in STACYC third party branded distributor volumes. LiveWire's operating loss of $26m was $1m more than a year ago, largely in-line with our expectations. In an embarrassingly wide forecast LiveWire expects 2024 full year electric motorcycle unit sales of between 600 and 1,000 units with an Operating Loss of 105 to $115.
Harley generated $931m of cash from operating activities and repurchased $350m of shares (9.5 million shares) on a discretionary basis; cash and cash equivalents were at of $2.2bn at the end of the quarter. Harley-Davidson, Inc. capital investments are expected to have been in the range of $225 to $250m for the full year.
For the full year 2024, the Company now expects HDMC revenue down 14 to 16% compared to 2023 with Operating Income margin between 7.5 and 8.5% and Operating Income up +5 to 10% compared to 2023.
