U.S. retail sales of Harley-Davidson motorcycles are “growing slower than expected,” according to a research note provided to Powersports Business by Raymond James analyst Joe Hovorka. Raymond James & Associates, Inc., released the note following a survey of 30 Harley-Davidson dealerships in the U.S.
“Our survey results suggest retail sales grew in the mid-single digits in 2Q14 compared to our prior model of +11%,” Hovorka reports. “Retail sales were expected to grow 11% following a slow start to the year due to weather and a strong new product offering for model year 2014. For the first time since 2Q10, more dealers also state that they have too much inventory than those that say they have too little inventory.”
Hovorka adds that following “a soft, weather influenced 1Q, we would have expected retail sales to generate a more meaningful acceleration during 2Q. While 2Q of the prior year saw sales accelerate during the quarter as weather improved, dealers this year indicate a more uneven cadence at retail. Some dealers continue to blame bad weather, while others appear puzzled as to why recent sales have not been stronger. Following easier y/y comps (+4%), as well as our expectation for pent up demand and considerable new product for MY14 (Model Year 14), we are disappointed in the recent performance of retail sales.”
Hovorka goes on to write that the “number of Harley-Davidson dealers reporting an increase in 2Q14 retail sales was 47%, as compared to 37% during 1Q14. The percentage of dealers noting a decline in retail sales was 20%. Historically, our survey results have overstated actual retail sales as our sample size normally skews toward larger, more successful dealers. Comparing the 2Q14 sales index to our previous surveys, we believe that U.S. retail sales were up mid-single digits for Harley-Davidson during the June quarter.
“Inventory levels at the dealers took a step backwards during 2Q14, with 27% of dealers indicating that inventory levels were ‘too heavy’ and only 17% indicating that inventory levels are ‘too light.’ We note that this is the highest reading of dealers who indicate that inventory levels are ‘too heavy’ since 2Q09, and the first time that over 20% of dealers have indicated such in over 4 years (2Q10). It would appear that dealer inventories may have grown more than expected, with dealer comments likely skewed higher following the first year of surge production at Kansas City, but also from the slower than expected rate of growth in 2Q retail sales. While we are not overly concerned with channel inventories at this stage (given shipments are winding down and dealers need sufficient inventory to carry them until the August 2015 model year launch), we interpret the slight backup in channel inventories as an incremental negative for 2H14 shipments. Dealers comment that interest remains generally high for the 2014 model year, with 47% citing ‘strong’ consumer interest. The Street model family is also generating excitement, though product availability in the dealer channel was virtually nonexistent at the end of 2Q. Most dealers are not expecting to receive any meaningful allocation of Street until mid-July or August, and Street has thus provided minimal benefit to 2Q retail sales. Dealers also speculate that the Road Glide will return in model year 2015. While the product represents a meaningful portion of retail sales (10% of Touring, 4-5% of total volume), we do not expect its return will be entirely incremental, given some consumers have likely already traded up for the new features in MY2014.”