March 12, 2007 – Reduced sled sales lead to layoffs

By Steve Bauer
Managing Editor
Arctic Cat has reduced its workforce by nearly
4 percent in an effort to align its staff size to coincide with the decreasing snowmobile market.
Approximately 65 positions in all departments are being eliminated, mostly from the company’s Thief River Falls, Minn., facility, and the company has not ruled out future layoffs if snowmobile sales don’t rebound.
Christopher Twomey, Artic Cat’s CEO, says the move was necessary considering that snowmobile retail sales continue to fall.
“The reality is that the industry-wide retail sale of snowmobiles are again declining this year, so the overall market for snowmobiles at the retail level in North America is about what it was in 1990. And so we just took a look at our business, and decided that it was geared for a much larger snowmobile presence than we’re currently seeing,” Twomey said.
Arctic Cat has also said it’s looking at adjacent market segments to help boost revenue in the near future.
The company reported a mixed bag in its third-quarter financial report, showing net sales on the rise but overall earnings continue to drag behind last year. The company’s net sales grew to $228.1 million in its fiscal third quarter, which ended Dec. 31. Arctic Cat said it doesn’t expect any material financial impact related to this announcement in its fiscal fourth-quarter ending March 31. The company had previously stated it expected fourth-quarter net sales to hover between $150 million to $170 million, which could be a drop from last year’s $153.3 million fourth-quarter result.
When asked if Arctic Cat will continue to downsize its staff if snowmobile sales don’t rebound, Twomey says it might be something the company would have to consider.
“Sales have been declining in nine of the past 10 years, and this is the first time in 23 years that we’ve made this kind of adjustment in our business,” he said. “So you continually have to look at your business and make sure you have the right people in the right places to service your customers. And if there are fewer customers out there, then you probably need less people.
“But we have managed it in other ways in the past, through attrition and other things, and we’ve really kept our business on the snow side rather flat. It just got to the point where we decided we had to make different adjustments because business just isn’t coming back as quickly as we thought, and it certainly isn’t coming back this year.”
Twomey noted the cutbacks were something the company had been looking at for months, and that all of the company’s departments were affected, not just the snowmobile division.
“We always look at the size of our business and what’s happening at the retail level, and the impact we think that will have going forward. It wasn’t something we thought of doing two days before Feb. 8,” he said.
Although he wouldn’t go into specifics, Twomey also admitted Arctic Cat is researching potential adjacent market segments.
“We consider adjacent market segments all the time,” he said. “For instance, we entered the UTV segment with introduction of our Prowler, so there’s an adjacent area and that’s been a growth part of our business. And while it’s under the overall umbrella of ATVs, it’s certainly different than ATVs. There’s nothing we can do about the snowmobile business because it’s directly tied to snow, and where it snows sales are good and our customers are there. So yes, we are constantly researching new market segments, but at this point where that will be is yet to be seen.”
Overall, Twomey feels Arctic Cat’s customers are some of the most loyal in the industry, and he’s confident that once the snows return, so will the customers.
“Snowmobiles still are a profitable business for us, and we intend to be in the snowmobile business forever,” he said. “I’m not a proponent of global warming. We’re certainly seeing some sort of dry cycle as far as winter weather is concerned, but once the cycle turns we’ve got great product, we’ve got great customers and they’ll be charging back and our snowmobile sales will be strong again. Until then, however, we just have to make our business the right size for that.”
Arctic Cat is the second snowmobile manufacturer in the past four months that’s been forced to cut staff due to declining snowmobile sales. In November 2006, Polaris reduced 2 percent of its workforce because of sluggish snowmobile sales.