Arctic Cat Quarterly Earnings & Analysis

The 2015 Wildcat Sport XT, a recent addition to the Arctic Cat side-by-side lineup.

The 2015 Wildcat Sport XT, a more recent addition to the Arctic Cat side-by-side lineup which is a bright spot among Arctic Cat’s business segments.

Arctic Cat recently released their financial results for the fiscal fourth quarter ended March 31, 2015.  Management reported a net loss of $21.5 million on net sales of $98.9 million for the fiscal 2015 fourth quarter. In the prior-year quarter, Arctic Cat reported a net loss of $1.6 million on net sales of $145.4 million. Full-year net sales were down approximately 4% to $698.8 million from $730.5 million in fiscal 2014. Net earnings decreased to $4.9 million. Full-year net sales include an unfavorable foreign currency impact that reduced net sales by approximately $18.1 million.

Highlights of the earnings call related to the utility vehicle market include:

  • ATV sales (includes ATVs and UTVs) for the year decreased 15% to $284.1 million from $333.2 million in the prior fiscal year.
  • Strong sales of Wildcat side-by-side models were offset by lower sales of core ATVs to North American dealers and in international regions, including Russia, as the company reduced bloated dealer inventory of core ATVs.
  • At the retail level ATV and side-by-side sales increased low 20s% for the fourth quarter.
  • Management reported gaining market share in the side-by-side segment
  • Management announced $27 million of investment in US manufacturing facilities and is investigating establishing a facility in a lower-cost region of the world
  • In the fourth quarter Arctic Cat began shipping UTVs to Toro under their OEM agreement
  • Arctic Cat ATV sales are expected to increase 9-12% at the wholesale level for the coming fiscal year, primarily from Wildcat sales. Retail sales are expected to be in the 15-20% range.
  • Dealer feedback on the newest Wildcat Trail models has been positive as well as the new 2016 Prowler HDX announced in Febuary

 Learn more: (earnings call transcript)

Analysis:  The new CEO Christopher Metz is moving aggressively to improve the company. One of his first moves was to take a significant write down related to excess ATV inventory. He appears to be moving more quickly to clean up inventory in the ATV as well as other business segments than his predecessor. He also created a new position, Chief Marketing Officer and added a new NA sales executive. In addition they are investing $27 million in improving manufacturing facilities.

While there will be some new products in 2016, with launches in August, the year will be dedicated more to cleaning up inventory and laying the foundation for a more efficient and productive company. Fiscal year 2017 will feature a more robust slate of product introductions. Despite some difficulties overall for the company, Arctic Cat’s side-by-side business continues to be a growth area. Expect the company to continue to aggressively buildout their product offerings in this area, targeting both the recreational sub-segments with new Wildcat vehicles and trying to expand into more areas of the work/utility segment under the Prowler product line.

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