Arctic Cat reports net loss in fiscal Q4 2015

Arctic Cat Inc. (NASDAQ:ACAT) today reported a net loss of $21.5 million, or $1.66 per diluted share, on net sales of $98.9 million for the fiscal 2015 fourth quarter ended March 31, 2015. Arctic Cat’s 2015 fourth-quarter adjusted net loss was $1.15 per diluted share, excluding the previously announced charges of $0.46 per diluted share for the planned reduction of core all-terrain vehicle (ATV) dealer inventory and executive transition costs of $0.05 per diluted share. In the prior-year quarter, Arctic Cat reported a net loss of $1.6 million, or $0.12 per diluted share, on net sales of $145.4 million.

Commented Christopher Metz, Arctic Cat’s president and chief executive officer: “We made significant progress in many areas in the fourth quarter during a transitional period. We added key finance, sales and marketing executives to our new management team, and expanded our high-performance garments and accessories offerings with the completion of the Motorfist acquisition. Further, we initiated a successful promotional program to begin to reduce our North America dealers’ core ATV inventory; this effort also generated market share gains.”

Added Metz: “We are committed to positioning the company for long-term, profitable growth. We are focused on partnering with our dealers to aggressively reduce non-current inventory and provide marketing support, enabling a return to wholesale and retail growth of new, innovative products. We will seek additional OEM partnerships and small bolt-on acquisitions that enable us to quickly expand our expertise and capabilities, and drive faster product innovation and increased sales. In addition, we are focused on investing in our business, speeding organizational change and improving efficiency.”

Operating Review

Arctic Cat’s fiscal 2015 fourth-quarter net sales were down 32 percent to $98.9 million versus $145.4 million in the prior-year quarter, as anticipated. The company had strong contributions to sales from its Wildcat recreational off-highway vehicle (ROV) line.

Gross profit margin in the 2015 fourth quarter was a negative 1.4 percent compared to 13.8 percent in the prior-year quarter, primarily due to planned lower sales volumes, the $7.6 million charge for the core ATV inventory reduction campaign and foreign currency impact. Unfavorable foreign currency exchange reduced gross profit by approximately $6.9 million, or an estimated $0.42 per diluted share.

Operating loss in the 2015 fourth quarter was $29.0 million versus an operating loss of $2.6 million in the same quarter last year. Contributing to the decline was increased general and administrative expenses, including executive management transition and legal costs.

Arctic Cat ended the 2015 fourth quarter with a strong balance sheet. The company had cash and short-term investments totaling $41.3 million at March 31, 2015, compared to $82.5 million a year ago, and no long-term debt.

For the full year ended March 31, 2015, Arctic Cat reported net earnings of $4.9 million, or $0.38 per diluted share, on net sales of $698.8 million. Full-year net sales include an unfavorable foreign currency impact that reduced net sales by approximately $18.1 million, or $1.10 per diluted share. Arctic Cat’s 2015 full-year adjusted net earnings totaled $1.40 per diluted share, excluding the following charges: executive severance of $0.08 per diluted share in the first quarter; warranty expense of $0.32 per diluted share recorded in the second quarter, executive transition costs of $0.11 per diluted share in the third quarter and $0.05 per diluted share in the fourth quarter; and $0.46 per diluted share for the planned reduction in core ATV inventory in the fourth quarter. In fiscal 2014, Arctic Cat reported net earnings of $39.4 million, or $2.90 per diluted share, on net sales of $730.5 million.

Arctic Cat paid a total of $6.5 million in cash dividends to shareholders in fiscal 2015.

Business Line Result

ATVs/Side-by-Sides – Sales of Arctic Cat’s ATVs and side-by-side ROVs in the 2015 fourth quarter totaled $66.8 millioncompared to prior-year sales of $105.9 million. While sales of Wildcat ROVs increased, core ATV sales were down for the fourth quarter and full year, as the company continued its efforts to lower core ATV inventory at its North America dealers.

“Wildcat ROV sales continue to be a bright spot and we are pleased that retail sales of our Wildcat outpaced the industry average in calendar 2014,” said Metz. “Dealer and consumer response to our expanding Wildcat line remains enthusiastic, and we expect further gains in the ROV segment, driven by new products and technologies.”

In fiscal 2015, Arctic Cat expanded its line of Wildcat ROVs with the introduction of the Wildcat Sport and Wildcat Trail models. The Wildcat Sport has a 60-inch wide chassis, offering consumers a mid-sized option between the original Wildcat and the Wildcat Trail model, with its narrower 50-inch stance. Arctic Cat also debuted the Wildcat Trail Limited EPS, which is a more fully featured version of the Wildcat Trail.

Snowmobiles – Snowmobile sales in the fiscal 2015 fourth quarter totaled $5.3 million versus $6.4 million in the prior-year quarter, due to the timing of shipments and lower international sales, including sales to Russia. Full-year snowmobile sales increased 6 percent to $300.7 million, up from $282.4 million for fiscal 2014.

Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2015 fourth quarter declined to $26.8 million versus $33.1 million in the prior-year quarter, with sales of snow-related parts impacted by the lack of snow in certain regions. In March 2015, Arctic Cat announced it completed the acquisition of privately held Motorfist, LLC, a manufacturer of high-performance technical riding gear. The acquisition complements Arctic Cat’s garment and riding-gear business. For the 2015 full year, PG&A sales were down 1 percent.

Fiscal 2016 Full-Year Outlook

“We will continue to take bold actions to enable a return to growth,” stated Metz. “A key focus remains rightsizing our core North America ATV dealer inventory levels during fiscal 2016. An improved dealer inventory position will allow us to launch more new products and increase sales. In addition, our strong cash position gives us the flexibility to make investments to grow the business through innovative products, strategic and OEM partnerships, and bolt-on acquisitions. While it will take time to implement and benefit from our plans, we are excited about Arctic Cat’s long-term future.”

For the fiscal year ending March 31, 2016, Arctic Cat estimates full-year net sales in the range of $690 million to $705 million, assuming an unfavorable foreign currency exchange impact on sales in the range of $12 million to $15 million pre-tax. Arctic Cat expects fiscal 2016 full-year net earnings to increase and be in the range of $0.80 to $0.95 per diluted share, after reflecting unfavorable foreign currency exchange rates. Foreign currency exchange headwinds are estimated to negatively impact gross profit and reduce net earnings in the range of $0.60 to $0.70 per diluted share, which will only partially be offset by the company’s hedging strategy.

Added Metz: “Our focus over the next year is to rebuild and reposition the company for a return to long-term growth in fiscal 2017 and beyond. We believe that we have strong strategic plans to turn the business around. Although we face significant challenges in fiscal 2016, including continued foreign currency headwinds, we see tremendous opportunities to improve the company’s operations, expand gross margins and enhance financial performance over time.”