Arctic Cat Inc. (NASDAQ: ACAT) today reported an improved net loss of $1.5 million, or a loss of $0.12 per diluted share, on a 28 percent net sales increase to $145.4 million in the fiscal fourth quarter ended March 31, 2014. In the prior-year fourth quarter, Arctic Cat reported a net loss of $5.1 million, or a loss of $0.38 per diluted share, on net sales of $113.2 million.
- Fourth-quarter net sales rose 28 percent to $145.4 million, fueled by strong sales of the new Wildcat Trail;
- Fourth-quarter net loss improved to $0.12 per diluted share;
- Full-year diluted EPS was $2.90 on increased net sales of $730.5 million;
- Company provides fiscal 2015 outlook
Commented Arctic Cat’s chairman and chief executive officer Claude Jordan: “The business posted strong double-digit sales gains on increased sales across all product lines and improved bottom-line results. We were pleased with the demand for our new Wildcat Trail side-by-side, as well as the Wildcat X. Our priorities remain to further advance our growth strategy through new product introductions and international expansion, while enhancing our operating efficiency.”
Among the highlights of Arctic Cat’s fiscal 2014 fourth-quarter and full-year financial results compared with the prior-year periods:
- Net sales grew approximately 28 percent for the quarter, led by contributions from the new Wildcat™ Trail and Wildcat™ X side-by-sides.
- Gross profit margin improved to 13.8 percent compared to 12.0 percent in the prior-year quarter due to higher volumes.
- Operating expenses were nearly flat at $22.7 million versus $22.4 million. The company continued to increase investment in research and development, which was up 7 percent in the fourth quarter and 16 percent for the full year, to ensure a strong pipeline of new products and technologies, while maintaining strict cost controls.
- Operating loss improved to $2.6 million versus a loss of $8.8 million in the year-ago quarter.
- At fourth-quarter end, cash and short-term investments totaled $82.5 million and the company had no debt.
Reflecting Arctic Cat’s ongoing commitment to enhancing shareholder return, the company repurchased 538,198 shares at a cost of $23.4 million in the 2014 fourth quarter. Arctic Cat has $2.1 million remaining under its current share repurchase authorization. The company also paid cash dividends of $0.10 per share in the 2014 fourth quarter.
For the 2014 full-year, Arctic Cat reported net earnings of $39.4 million, or $2.90 per diluted share, on net sales of $730.5 million. Sales in 2014 were up 9 percent with increases in all three business segments; however, earnings were reduced by $0.30 per diluted share, due to an unfavorable Canadian currency impact in the second half of the year. Full-year gross profit margins were lower, primarily as a result of product mix and the unfavorable Canadian currency impact, but within the company’s previously estimated range.
“Higher sales volumes driven by new product introductions, combined with our ongoing focus on operational excellence and cost controls, allowed us to overcome the negative Canadian currency impact and led to another year of solid earnings per share,” said Jordan.
Business Line Results
ATVs/Side-by-Sides – Sales of Arctic Cat’s all-terrain vehicles (ATVs) and side-by-sides increased 21 percent in the 2014 fourth quarter to $106.0 million, up from $87.6 million in the same period last year. Contributing to sales in the quarter was the new Wildcat Trail sport side-by-side model, as well as the continued success of the Wildcat X, a high-horsepower sport side-by-side model. Full-year ATV/side-by-side sales rose 11 percent to $333.2 million in fiscal 2014, chiefly due to increased Wildcat sales, and accounted for approximately 46 percent of the company’s fiscal 2014 total sales. Arctic Cat remains focused on further increasing its ATV/side-by-side business as a percent of total sales.
Said Jordan: “Our side-by-side business gained further momentum in the 2014 fourth quarter, led by sales of our newest Wildcat model. With the successful launch of our Wildcat Trail, we have entered a new growth segment of the sport side-by-side market. When we combine the Wildcat Trail with our other leading Wildcat models, we believe we have a winning proposition in the sport side-by-side market.”
Arctic Cat began shipping a few Wildcat Trail models in the fiscal 2014 third quarter; however, most orders began to be filled in the fiscal 2014 fourth quarter. This model offers a narrower 50-inch wide, trail-legal platform that allows riders access to authorized ATV trails, making it a versatile option for consumers. In addition to its trail legal capabilities, the Wildcat Trail also offers industry-leading horsepower and suspension, coupled with the lowest price in the 50-plus horsepower segment.
“Our 17 percent side-by-side retail sales growth, combined with our 3.5 percent ATV retail sales increase, resulted in North America market share gains in both categories during our fiscal 2014,” said Jordan. “This makes Arctic Cat the only OEM to gain market share in both the North American snowmobile and ATV segments during the fiscal year.”
Snowmobiles – Snowmobile sales in the fiscal 2014 fourth quarter were $6.4 million, as Arctic Cat typically ships few snowmobiles in this period. Full-year snowmobile sales increased 7 percent to $282.4 million compared to $263.7 million for fiscal 2013.
Commented Jordan: “Our 2014 snowmobile line-up included exciting new models and engine choices that were well received by dealers and consumers. During the year, we gained the most market share in the industry, with our retail sales growing more than 19 percent versus 11 percent for the industry. Our significant increase in retail sales lowered dealer inventory by 9 percent, which positions us well for future snowmobile sales.”
Arctic Cat introduced its first designed and built snowmobile engine in model year 2014. Called the 6000 C-TEC2, it became the #1 selling snowmobile in the United States’ 125 horsepower performance segment. This powerful, lightweight and fuel-efficient 2-stroke engine enabled the company to enter the large 600cc snowmobile market segment that accounts for 18 percent of the snowmobile industry.
Added Jordan: “Our strategic co-branding partnership with Yamaha has exceeded our expectations and contributed to increased volume and improved operating profits in fiscal 2014 compared to the prior year. We expect to realize continued benefits from this collaboration in the future.”
Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2014 fourth quarter totaled $33.1 million, up 7 percent compared to $31.0 million in the prior-year quarter. Contributing to increased PG&A sales in the fourth quarter were sales of snow-related accessories and garments, due to favorable snowmobile riding conditions, and Wildcat-related accessories. Full-year PG&A sales increased 6 percent to $114.9 million compared to $108.1 million for fiscal 2013, primarily driven by improved parts sales.
Fiscal 2015 Full-Year Outlook
“We anticipate results in fiscal 2015 to be fueled by our strong pipeline of innovative new products and technologies, further market share gains in the growing side-by-side segment and ongoing leverage in our cost structure. However, our business will face significant headwinds in fiscal 2015. The current weakness of the Canadian dollar will reduce our fiscal 2015 sales and earnings, as approximately 30 percent of our sales are exported to Canada. Even so, we are targeting to deliver the highest sales in the history of Arctic Cat,” said Jordan.
For the fiscal year ending March 31, 2015, Arctic Cat anticipates net sales in the range of $775 million to $786 million, with unfavorable Canadian currency exchange expected to reduce consolidated net sales by approximately $12 million or 1.5 percent. The company estimates that fiscal 2015 earnings per share will be in the range of $2.33 to $2.43 per diluted share, which includes an unfavorable Canadian currency impact of $0.79 per diluted share.
Arctic Cat’s fiscal 2015 outlook includes the following assumptions versus the prior fiscal year: core ATV North America industry retail sales flat to up 2 percent; side-by-side North America industry retail sales up 6 percent to 9 percent; snowmobile North America industry retail sales flat to up 3 percent; achieving slightly higher operating expense levels as a percent of sales primarily due to the Canadian currency hedge benefit received during fiscal year 2014; and increasing cash flow from operations. The company expects gross margins to be down 110 basis points, chiefly due to Canadian currency and, to a lesser extent, product mix and tooling amortization.
“Although we will be challenged this year, given the significant weakness of the Canadian dollar, we remain excited about the underlying strength of our business, product portfolio and future growth prospects, and we remain committed to shareholder value creation,” Jordan said.