May 14, 2007 – Could sluggish 1Q linger?

By Neil Pascale
Weather the recent, depressed first-quarter industry sales were a harbinger of things to come or merely a hiccup in the consumer buying pattern will be answered in the next few crucial weeks.
The second quarter in the powersports industry has proven to be tremendously important for its shareholders, with 40 percent of last year’s on-road motorcycle sales coming in those crucial three months.
What transpired in the industry’s first couple of months — across-the-board new unit sale decreases as reported by the Motorcycle Industry Council — makes the next few months all that more crucial. Consider:
n ATV sales, coming off back-to-back declining years, dipped 10.7 percent in the first quarter compared to the same period last year, with March and its 8.5 percent decrease showing no hint of a rebound;
n On-street motorcycle sales declined 2.6 percent, with heavyweights Honda and Harley-Davidson both revealing depressed sales in their respective financial reports;
n Off-highway motorcycle sales dipped nearly 18 percent, with March even worse (off 18.4 percent); And
n Scooter sales were down 4.6 percent, although March did show quite an improvement from the previous year.
“I’m not personally too panicked after seeing the first-quarter data,” said Mark Blackwell, vice president of international operations for Polaris and the head of its Victory operations. “I know our retail sales were up really good in January and really good in March, but they were down in February and they were a little bit soft in the first half of April. In my mind, that’s weather-related because we see traffic to our Web site and interest is very strong.”
Another sign that consumer interest remains high and that irregular weather could have led to an off first quarter is data collected at consumer industry shows. Fifty-eight percent of the visitors that attended the International Motorcycle Shows (IMS) held in late 2006 and early 2007 said they were looking to purchase a new bike in the coming year. That statistic, which comes from a survey of some 60,000 IMS visitors, is about the same as last year, said IMS Director Jeff D’Entremont.
“I think that overall, the enthusiasm is there” for the industry’s products, D’Entremont said, noting IMS attendance was on par with the prior year even with significant challenges brought on this past winter by major snowstorms and sub-zero temperatures.
Still, there are economic indicators that say such a strong second-quarter rebound might be difficult this year. The University of Michigan’s consumer sentiment index, a respected economic pulse-taking, fell in March, further weakened in April and has fallen for four straight months. Another respected consumer spending pulse-taker, the New York-based Conference Board’s index of consumer confidence, also fell in April. “Could it be down this year? Yeah, it could. It definitely could,” Blackwell said. “The industry’s customers in the last nine months have been affected by higher gas prices and higher interest rates so I think it’s possible that we could have a slight decrease this year.”
Like many in the industry, Blackwell is still hopeful that if the weather cooperates that a strong second quarter could still be in the offing.
Plus, as Blackwell said, even if 2007 turns out to be flat in terms of sales growth “that’s great because last year was a record year.”

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