A recent survey of select Arctic Cat dealers by BMO Capital Markets analyst Gerrick Johnson found “mixed, and somewhat disappointing, feedback from dealers regarding the pace of the company’s off-road vehicle and snowmobile sales.”
Johnson reports that BMO Capital Markets does “not view ACAT’s business negatively. We still believe ACAT benefits from a robust off-road vehicle (ORV) market, new product introductions.”
Johnson goes on to write that “we still believe ACAT can grow earnings by more than 10% annually over the next two years, but this expectation is a downshift from our prior expectation of 15% annual growth. The reason for our reduction in earnings expectations is mixed, and somewhat disappointing, feedback from off-road vehicle dealers, more aggressive than expected promotions on snowmobiles, possible pressure on sales from increased competition, and strained relationships with some of the OEM’s dealers.”
Additionally, Johnson says that “we recently contacted 20 ACAT dealers in the states of Arizona, New Mexico, Nevada and California, by telephone. The feedback we have received has generally been good, but not overwhelmingly so, and dealer satisfaction has not been to the level we were expecting to hear. …
“We have also contacted a substantial number of ACAT dealers in other parts of the country, and in this round of checks the feedback has been even more disappointing, with a louder chorus of dealers complaining that Wildcat sales have slowed and underperformed expectations.
“Furthermore, many dealers have expressed even greater disappointment in sales of utility side-by-sides and traditional ATVs. While the Wildcat side-by-side has been a solid introduction and had enhanced the overall Arctic Cat brand, we are disappointed that the strength has not necessarily carried over into other off-road product lines. Thus, with the lack of ‘halo sales,’ we think there could be further downside risk to our already downwardly revised estimates.”
The arrival of the four-seat Wildcat model, which is expected in February, allows Arctic Cat to compete in a growing market, Johnson said.
“Based on our analysis of monthly registration data, we find that the four-seat segment has been the fastest growing segment within the SxS category,” Johnson reports.
Other takeaways from Johnson’s report:
– ACAT vs. BRP presents “the real competition for the number two spot in recreational side-by-sides.”
– Based on a recent round of dealer checks in Minnesota and upstate New York, “we now wonder if the snowmobile business might just be tougher than we had originally anticipated. We have found significantly early-season markdowns on brand new 2013 models, in some cases almost to cost.”
– Based on his attendance at snowmobile events he has recently attended, Johnson says Ski-Doo is gaining share, and “this share appears to be coming from Yamaha and, according to some dealers we speak with, from ACAT as well. We are therefore reducing our FY2013 snowmobile sales estimate to $248 million (-1%) from $258 million (+3%).”