In a research note provided to Powersports Business, BMO Capital Markets analyst Gerrick Johnson reports on Polaris inventory concerns at the dealer level that could impact sales.
Johnson reports BMO Capital Markets research indicates “that 1) dealers are seeing records sales, 2) they see no end in sight, but 3) they have a shortage of inventory. In the near term we are concerned that Polaris (PII) may be missing opportunities to capture demand owing to supply/distribution issues. Unless this recent surge is the beginning of a longer-term secular trend toward motorized outdoor recreation, the retail window could begin to close if a change in lifestyle preferences or economic conditions pivots consumers to alternative recreation options.”
Johnson adds that demand “for powersports products has accelerated since the outbreak of COVID-19. After record sales in May, we think yoy retail sales growth, while still strong, decelerated in June. Growth could compress further, as most dealers fear they may soon run out of goods and are unsure if there will be much replenishment over the remainder of the season.
“According to the company, PII's Monterrey, Mexico, facility was closed for about a month and a half, a couple weeks longer than most competitors. There are also lingering supplier delays and distribution bottlenecks. With a sense of urgency, some consumers are willing to settle for other brands in lieu of Polaris products or other activities altogether.
“In the longer term, the key question seems to be whether current demand trends are sustainable. So far, economic uncertainty has not dissuaded consumers from buying. Government stimulus programs and low interest rates have helped grease the wheels. But we can't ignore the possibility of an economic contraction. Some dealers believe that late-season and fall sales may also have been pulled forward. And we wonder if the gradual opening of economies will offer consumers other recreation options.
“PII is attracting new customers, a long-term positive. ATV sales have been strong, and more units are being financed, both signs of entry into the market. Motorized outdoor recreation is a ‘sticky’ experience, and PII should benefit from a growing installed base. Unfortunately, if dealers had more product that base could be even bigger.
“To reflect supply constraints, we are lowering our 2020 revenue estimate to $5.88 billion (-13%) from $6.01 billion (-11%). Our EPS estimate is revised to $3.25 (49%) from $3.75 (-41%). We are keeping our 2021 estimates unchanged and expect EPS of $5.60 (+72%) on revenue of $6.49 billion (+10%).”