Apr. 21, 2008 – A sign of more sluggish sales

Arctic Cat’s revised earnings outlook reported in early April is the first public sign the weak ATV retail sales that hit hard in December lingered into the first quarter.
Arctic Cat CEO Christopher Twomey told stock analysts that he believes the industry’s ATV retail sales for the recent quarter to be down in the “mid to high teens” in terms of sales percentage compared to the previous year.
The sluggish retail environment was one of three reasons Twomey cited for Arctic Cat’s “disappointing” fourth-quarter outlook. The Minnesota manufacturer reported its fourth-quarter net sales are expected to total $167-$169 million, a potential 3 percent drop from the previous year.
Overall, the industry’s ATV sales dropped more than 28 percent in December compared to the prior year period, according to the Motorcycle Industry Council. That retail sales data does not include UTVs or new entry OEM sales.
“The headwind we saw in the retail ATV market at the end of calendar year 2007 continued to worsen in the first quarter of calendar 2008, causing lower than anticipated wholesales sales to our dealers,” Twomey said in a press release.
Besides a slow retail market, Twomey said two other “highly unusual” events negatively impacted the company’s fourth-quarter profits.
First, the company was forced to halt production for a while on its Prowler UTVs because of a temporary supply interruption. At the time, the company was in the process of transitioning to a different supplier as part of the company’s strategic sourcing initiative, according to the company’s press release. The supply issued was resolved before the end of the fourth quarter.
In the conference call with analysts, Twomey said the incident was the “first time a vendor-supply issue has affected our ability to meet sales targets” and believes “a similar occurrence is highly unlikely.”
Twomey also reported one of its largest retailers significantly reduced its planned order for the quarter, resulting in another loss of sales. Twomey did not name the retailer during the conference call but seemed to indicate it was one of the big-box stores the company works with. Twomey said the retailer decided to sell ATVs only in its largest footprint stores.
Despite the decreased sales, Twomey did note the company made market share gains in the quarter and has reduced its dealer inventory levels in the percentage range of the low to mid teens compared to the prior year. He also said the company’s side-by-side sales continue to be stronger than the previous year. psb

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