Jun. 15, 2009 – Improved snow sales aren’t enough

A significant reduction in sales during its final two fiscal quarters resulted in a year-end loss for Arctic Cat, the manufacturer recently reported.
Despite improved snowmobile wholesale results, Arctic Cat ended its fiscal year with a net loss of $9.5 million, CEO Chris Twomey said in the company’s fourth-quarter earnings report.
“Initially we viewed the 2009 year as one of recovery after we significantly reduced dealer inventory the prior year to better match retail market demand,” he said.
But the company had to make drastic production cutbacks as its ATV retail sales slumped substantially. The company’s quad sales, which include its UTV segment, finished its fiscal year at $247 million, 29 percent below last year’s levels.
The company’s overall net sales of
$563.6 million represented a 9.3 percent decline from the previous year.
“Arctic Cat was profitable through the first nine months of fiscal 2009, due to increased snowmobile sales to dealers and distributors and lower operating expenses,” Twomey said, “but overall retail demand for recreational products remained weak in the fourth quarter as expected.”
One bright spot for Arctic Cat: its snowmobile segment. Twomey says the company gained a full point of market share for the North American market, largely due to an increase in sales in Canada, after its snowmobile sales rose 28 percent from a year ago. Twomey says North America’s industry-wide retail sales of snowmobiles decreased 11 percent for the full year compared to the prior model year, with U.S. sales down nearly 20 percent.
Looking to the 2010 model year, Twomey says North American dealer orders are lower than a year ago with Arctic Cat expecting snow sales to decline by 25-32 percent. But even with lower wholesale sales, he says the company doesn’t expect to lose market share next year. Twomey also notes that by the 2011 model year, Arctic Cat expects dealer orders to rebound due to lower inventory. “This should coincide nicely with the economic recovery, which we expect to be much stronger next year,” he said.
Arctic Cat did see a decline in its European market snow sales, including in Russia, which had been a particularly strong growth market.
Dealer inventory continues to decline, Twomey says. Snowmobile inventory among dealers is down 13 percent compared to the year-ago period and represents the second straight year of significant inventory declines for dealers. “All part of our plan to protect and improve the health of our dealer network,” Twomey said.
The company’s PG&A sales dropped slightly in its fourth quarter to $30 million, a 9 percent drop from the year-ago quarter. For its full fiscal year, Arctic Cat’s PG&A sales were essentially flat at $109 million. The company is expecting its PG&A sales to fall slightly next year, with full-year estimates at $97 million-$105 million.
Looking ahead, the company expects its 2010 fiscal year sales to fall to $425-$460 million, which could amount to a decrease of up to 24.5 percent compared to this year. The company said it expects to achieve ATV sales ranging from $188 million-$203 million in its next fiscal year.