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Analyst: Harley-Davidson Q1 U.S. retail growth expected to rise

Harley-Davidson Q1 U.S. retail sales are estimated to increase by 5 percent, according to a research note provided to Powersports Business by BMO Capital Markets analyst Gerrick Johnson.

“We believe HOG is in the early stages of a multi-year turnaround with new marketing and product rollout strategies that we think will help to drive sales growth,” Johnson writes.

Johnson goes on to report that BMO’s “early readings on the first quarter’s retail performance are encouraging, giving us confidence in our estimate for +5% U.S. retail sales growth of new Harley-Davidson motorcycles in the first quarter.

“With a bevy of new products, including the new Road King Special and Street Rod, great deals on prior-year models, and excitement around the new 2017 touring bikes with the Milwaukee-Eight engine, we expect retail momentum to continue and are lifting our estimate of 2Q17 U.S. retail sales growth to +5.0% from +3.5%. This brings our full-year estimate to +4.1% from +3.6%.

“We continue to receive excellent feedback on the new 2017 touring models with the new Milwaukee-Eight engine. The only complaint is that dealers wish they had more of them. An increase in supply should be forthcoming as the inventory overhang from last year's overshipment of 2016 models is abating.

“Sales of the leftover 2016s have been solid, and consumers have been eager to acquire these new motorcycles at a significant discount, although Harley dealers still have some work to do to be where they'd like to be in terms of inventory, acting as a governor to near-term upside. But as these 2016s move out, availability will increase, and we expect steady purchasing from consumers.”

“Based on our analysis of registration data, we believe Harley-Davidson saw a high-single-digit retail sales increase in the U.S. in January, against easy comparisons. We think performance in February was similar, although it was up against tougher comparisons thanks to warm weather last year from el Nino.

“But weather in the first quarter this year has also been favorable, especially in February in the Midwest, East, and Southeast. Sales came in like a lion in March but have gone out like a lamb owing to odd weather patterns that produced very warm weather early, then very cold weather late.

“We have been struck by the significant change on dealers’ floors in recent visits. Gone are the plentiful hang tags advertising $3,000, $4,000, or $5,000 off. In fact, we are seeing many more ‘sold’ or ‘hold’ hang tags and fewer 2016 models overall. We have noticed that dealers are advertising deals much less often in their promotional emails, and Harley-Davidson also ended its $0 down AND 0.99% financing offer in February.

To be sure, there is still too much prior-year product in the channel, with our spot checks indicting that the number of prior-year models is still 140% higher than it was last year at this time. Yet, that is down from about 220% higher in the early fall.

“Dealer feedback has been positive. Along with last year’s Roadster, the Street Rod is a better attempt to reach the younger consumer than the 2014 Street 750. We have heard better recent feedback on Harley’s efforts to court younger riders. The only thing that seems to concern dealers is that the Street Rod is in the same price range as the Iron 883, which is most dealers’ best-selling sportster.”

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