BMO Capital Markets analyst Gerrick Johnson, who provides dealers with the quarterly PSB/BMO Dealer Survey summary, has published a research note following Harley-Davidson dealer checks.
“Our retail checks indicate continued strong demand for Harley-Davidson’s (HOG) motorcycles. Despite macro-economic uncertainty, dealers continue to see demand outpacing supply, putting a governor on near-term sales, but aiding in the perception of exclusivity and desirability. We are updating our earnings model to account for the company’s recent two-week shutdown owing to a regulatory non-compliant supplier part. There was no recall and HOG has resumed shipping; we anticipate lost 2Q wholesale/retail to be made up in 3Q, with no change to our full year estimates.
“Retail demand remains solid and continues to outpace supply. Many new bike models and limited editions are sold before they hit the dealer floor. Traditional touring base models may last on the floor for a week or two. We have not had any feedback that customers are canceling their pre-orders, and dealers continue to plead for more product.
“On May 19, HOG indicated that it was suspending production of internal combustion motorcycles for two weeks owing to a ‘regulatory compliance matter’ related to a supplier part. HOG resumed production on June 6, in line with its original two-week timeline and without any other issues. Shipping has since been sporadic, with many dealers receiving deliveries last week, though some still have not. We are shifting 8,075 units, $155 million of revenue, out of our 2Q model and into 3Q. The net effect is no change for the year. We have also adjusted our retail sales model, and now expect worldwide retail to be down -19% in 2Q, but up +21% in 3Q, +1% for the year.
“On June 23, the FTC issued a statement alleging that HOG has been illegally imposing illegal warranty terms that voided customers’ warranties if they used anyone other than H-D authorized dealers for warranty parts or repairs. The consent order is still undergoing a 30-day public comment period after which (July 22) the FTC will decide whether to make the consent order final. We plan to revisit our model at that time. While a net negative, we do not foresee this being a significant drag on P&A sales. We think that the vast majority of owners will still want warranty repair work performed with genuine parts installed by an authorized dealer.”