June 4, 2007 – Arctic Cat restructures its business plan

Coming off a quarter in which it lost $1.6 million, Arctic Cat Inc. announced a number of organizational changes, including a planned one-time reduction in its snowmobile production.
The Thief River Falls, Minn.,-manufacturer will decrease its sled production for its next fiscal year by 30 percent, the company stated in its annual financial report. The company also said it will reorganize its business into units focused on its three selling arenas and will move its headquarters south to Minneapolis.
“Rather than have a functional structure, with engineering, finance and sales and marketing, what we really want to do is organize now by business unit,” Arctic Cat CEO Christopher Twomey said in an interview with Powersports Business. “I think I can get a lot more focus, and we will be able to make decisions more quickly, and focus on those three businesses a lot tighter if we’re organized along the business unit.”
Arctic Cat did report a seventh consecutive year of record revenue, including a 4 percent rise in its snowmobile sales. But elevated inventory levels at dealerships, mostly in the Midwest, have prompted Arctic Cat to reduce sled production in the coming fiscal year.
“I think that it is a one-year kind of event because if we see any type of reasonable snow, particularly in the Midwest, then inventories will be lower and the dealers will be ready to come back and order,” Twomey said of the snowmobile production decline.
Could the sled reduction last for more than one year? Twomey said that’s possible if “we have as bad a snow year next year as we had this year.”
Still, he noted, “I generally think that with any kind of normal snow, inventories get reduced and the snow sales increase. They’re not going to increase tremendously in the first year, but I think we can see some modest increases as we go forward.”
Part of that confidence stems from the fact that dealer inventories in the East and the West are not as bad, or even better, as last year.
“As we look at our inventory right now, it’s up in the very low single digits over last year,” Twomey said. “It’s the placement of that inventory. Most of it exists in the Midwest because the West sold pretty well and the East didn’t order that much last year and sold through. Actually at the dealer level, we have less inventory in the East this year than we did last year.”
And even in the face of a 10th straight year of declining new sled sales in the United States, Twomey sees reason for optimism.
“When it snows, our customers come out and buy, and we saw that,” he said, noting Arctic Cat sales were up as much as 60 percent in parts of the Pacific Northwest and into western Canada. “In areas where it didn’t snow, which was Montana all the way to the East Coast, it was just difficult.”
Two issues that Twomey and his staff still have to decide with the realignment of the organization is where international sales will fit in the new scheme and where in the Minneapolis area the company’s new headquarters will be located. The business realignment and new location is expected to cost the company $1.6 million, according to its financial report, of which half is expected to be a one-time expense.
“A lot of the people we deal with are not located where we are, but in fact are located in Minneapolis or other larger cities that are a heck of a lot easier to get to from Minneapolis,” Twomey said of the reason to relocate the company’s headquarters. “It just made sense to locate the business unit managers there as well as some of the other managers like myself.”
Some of the new managers who are expected to move into the new headquarters are three new general managers who will be looking over each of Arctic Cat’s segments — snowmobile, ATV and parts, garments and accessories. Twomey said Arctic Cat will open the hiring to internal candidates, but said the company probably will be looking for candidates with general manager experience in other businesses.
Arctic Cat will continue to have its manufacturing operations in its current locations, including the new St. Cloud, Minn., engine facility. That facility, which currently builds one ATV engine, is expected to expand its engine production this fiscal year. psb

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