Indian Motorcycle Sales Ride a Tough Market

The parent company of Indian Motorcycle released its financial results for the third quarter of 2017, pulling motorcycle reporters away from the latest model reviews to dissect two-wheeled sales.

The question on everyone’s mind as they cruised through the numbers, how would they look compared to those recently released by Harley-Davidson? According to the financial results from Harley, sales of heavier motorcycles in North America aren’t going well so there was a natural curiosity how that would affect Polaris.

Under Polaris’ manufacturing umbrella are snowmobiles, ATV’s, motorcycles, aftermarket parts and the Slingshot, a fun but hard to describe three-wheeled past time. There were two leading statements in the press release outlining the financial results of Polaris;

  • Sales for the third quarter of 2017 increased 25% to a record $1,478.7 million; adjusted sales were $1,480.3 million, up 25%, about half from organic growth.
  • Polaris North American unit retail sales were up 13 percent with ORV retail sales up mid-teens percent and Indian Motorcycles unit retail sales up 16 percent. Retail sales were also up modestly versus the 2015 third quarter.

First, a look at the motorcycle segment.

Motorcycles increased retail sales 16 percent, partly driven by new model introductions including the new Chieftain Elite and Limited models and Roadmaster Classic. Slingshot's retail sales were down although the rate of decline decelerated during the quarter. While Polaris uses a slightly different metric than Harley-Davidson, they agree heavier motorcycle sales are a challenge. Motorcycle industry retail sales, 900cc and above, were down high-single digits percent in the 2017 third quarter. Overall, Indian Motorcycle market share surpassed the ten percent mark in September.

“Results were strong throughout our portfolio, led by Indian Motorcycles’ exceptional performance as they accelerated share gains and outpaced a declining North American motorcycle market while also delivering strong growth in Europe, Australia and Asia,” commented Scott Wine, Chairman and Chief Executive Officer of Polaris Industries.

When including branded aftermarket parts, apparel and goods along with the motorcycles themselves, sales totaled $155.1 million, a decrease of 14 percent compared to $181.2 million reported in the third quarter of 2016.

Understanding the biker waters are muddied with Polaris phasing out its Victory Motorcycle line, those numbers do include anything sold from that defunct brand, $39.4 million worth to be precise. There are costs involved with discontinuing a brand, but on the other hand production costs to make the motorcycles and apparel are no longer being charged, so exactly how much profit those sales bring in can be difficult to calculate on the back of a napkin.

Indian motorcycle wholegood sales increased in the low twenty percent range in the third quarter driven by new product introductions and improving brand awareness. This last phrase could be applied to marketing or even sales discounts.

The increased sales of Indian motorcycles helped offset lower Slingshot sales which Polaris includes in its motorcycle segment. Taking off with a loud roar, celebrities and everyday people who would never consider a motorcycle were drawn to the three-wheeled roadster. Polaris’ legal team have worked overtime to lobby states with helmet laws to allow Slingshot drivers to cruise lid-free. However, production issues and recalls tempered Slingshot sales and the latest results may have Polaris wondering if the roadster concept is going to remain popular.

No matter which way it’s sliced, the motorcycle segment’s gross profit was down. The third quarter of 2017 was $10.4 million compared to $20.3 million in the third quarter of 2016. Adjusted for the Victory Motorcycles wind down costs of $7.6 million, motorcycle gross profit was $17.9 million, down from the third quarter last year due primarily to lower Slingshot volume.

Between warmer winters and a struggling energy industry, sales of its Off Road Vehicle (ORV) have been tough over the last few years. When taking the machines as well as branded parts and clothes together, sales increased five percent in the 2017 third quarter compared to the third quarter last year. Gross profit increased 34 percent to $296.9 million, or 29.5 percent of sales, in the third quarter of 2017, compared to $221.6 million, or 24.7 percent of sales, in the third quarter of 2016. Gross profit percentage increased primarily due to product mix as well as lower year over year warranty costs.

“I am particularly proud of the improved performance from our Off-Road Vehicle business, which was fueled by a well-planned and executed Factory Authorized Clearance sale and the strong reception of our model year 2018 introductions,” Wine explained. “Encouragingly, RZR retail sales were especially strong in the quarter, and we had our best ATV retail quarter in two years.

As with every motorcycle manufacturer, there are two sides to financial results. One is the bottom line of profits and corporate growth and the other boils down to how many motorcycles they’re selling and ultimately market share.

If you add back the costs involved with winding down Victory Motorcycles and those involved with the recent acquisition of Transamerican Auto Parts (TAP) Polaris is having a great year. However, the company is riding the same stormy roads other motorcycle manufacturers, lower sales of larger size bikes. As incredibly cool as the smaller Scouts and Bobbers are, the bigger bikes tend to have the best profit margins.

Polaris do have the advantage of being in the early stages of introducing the Indian name to international markets which gives an instant boost to any growth numbers. But how they navigate the overall, uncertain motorcycle market could be the deciding factor in the manufacturer’s success going forward.

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