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Archive for July 20th, 2010

Polaris Industries -- Victory Motorcycles

Creativity.

There is a fascinating and quite boring article in ‘Newsweek’ about the creativity gap, how creativity is declining in America.  Reading it I couldn’t stop thinking about the motorcycle business and specifically Harley-Davidson.

Given it’s earning season; H-D announce earnings HERE, now it’s Polaris Industries Inc. (NYSE: PII), makers of the Victory motorcycles turn who reported its Q2’10 net income of $25.6 million.  By comparison, the 2009 second quarter net income was $17.5 million.  Sales for the second quarter 2010 totaled $430.9 million, an increase of 25% from $345.9 million recorded in the year-earlier period.

Scott Wine, Polaris’ CEO stated:

“Polaris maintained strong momentum in the second quarter, driven by solid market share gains, sales growth and margin expansion. Innovation and execution enabled us to deliver another quarter of solid operating results in an overall economic and powersports industry environment that remains sluggish.”

Yeah, but you’re likely saying that’s all ATV and snowmobile sales, right?  True the lions share is off-road sales, but specific to sales of the On-Road Division, which primarily consists of Victory motorcycles, they saw an increase of 48% during the second quarter of 2010 vs. the same period in 2009. The N.A. heavyweight cruiser and touring motorcycle industry remained weak during the quarter, but Victory motorcycles had strong retail sales during the second quarter, increasing more than 10% in N.A. compared to the second quarter last year, resulting in overall market share gains and retail sales growth for the third consecutive quarter. The increased demand reflects the popularity of the new 2010 Cross Country and Cross Roads touring models.   The N.A. dealer inventory of Victory motorcycles declined 32% in the Q2’10 compared to 2009 comparable levels. The sale of Victory motorcycles in markets outside of N.A. continues to accelerate, with sales reaching 25% of total On-Road/Victory sales for the year-to-date period.  And lastly the income from Polaris financial services was $4.2 million for Q2’10 compared to $4.0 million in 2009.

I can’t put my finger on it, but there is something missing for me with the Victory motorcycle.  Maybe it’s just the “bar-n-shield” logo and now my bias is showing?  But I balk at comments from riders that claim Victory is NOT a threat or competition for H-D… it just doesn’t ring true.  The cruisers are more roomy, the engine has more HP, the motorcycle is lighter, has a lower seat, larger saddlebags all at a cost of thousands less means Victory is doing a lot RIGHT on the creativity front.

In other words, the Harley-Davidson businessmen look to squeeze all the creativity out in the name of profits.  And now the business is in the hands of the manufacturing line worker, who are always the least creative element in the chain.  The engineers designed out cost, the line-worker built them at the lowest cost, the dealer sold them slightly above cost. Now the company is trying to fix the business, but are flummoxed.  Do they truly think cutting out cost, means somehow people will magically appear?

They’re not and meanwhile Victory ratchet’s up innovation.

Photo courtesy of Polaris/Victory Motorcycles.

All Rights Reserved © Northwest Harley Blog
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Concert promotion blew up in the ‘70’s during the development and heyday of classic rock.  Stadiums or festivals were where the gigs took place as music drove the culture and everybody wanted to participate.

Thirty plus years later and along comes the internet.  Suddenly everyone is no longer focused on the same thing and niche was king.  Yet the major music labels continue to play the same old tune of trying to get acts TV exposure and on terrestrial radio with 22-minutes of commercials an hour, but the public is sick of being dictated to by music corporations purveying artists only in it for the buck and have tuned out.   The end result?

Is today’s modern concert business where the average person feels fleeced by excessive fees and high ticket prices and have decided to pass on most concerts.  In fact, ‘twenty-ten’ might go down as the turning point year that devastated the concert business.  Look at the signs from SoundScan.  Arizona concert boycotts.  Cancelled concerts by the Eagles, poor showing for John Mayer, Bon Jovi downsizes the number of cities, the death of Lilith Fair, winery offers for Court Yard Hounds, and the ever popular $10 concert cash coupons if you can drink a dozen 1-litre bottles of Diet Coke at $1.49.  The list goes on.

H-D Tent @ Mayhem

Disregarding the external conditions of the concert promotion sphere, is Harley-Davidson marketing.  Their demographic ‘machine’ determined that ‘twenty-ten’ is the year to double down on seeking young motorcycle buyers and do so at…music concerts!   Huh?

It’s true.  They launched their H-D Golden Horse Saloon at the Rockstar Mayhem Festival two weeks ago in San Bernardino, Ca., in an effort to market to young, edgy potential customers.  The third concert of the tour was last week at the White River Amphitheater, in Auburn, Wa.  The festival includes Korn, Rob Zombie, Lamb of God, Five Finger Death Punch, Hatebreed and several other bands. Last month H-D had a similar set-up at the Bonnaroo Music & Arts Festival in Manchester, TN.

Rob Zombie (R) and drummer (L)

The goal of any Harley-Davidson special events marketing campaign is to generate awareness and increase sales among the target audience.  It’s well known in music circles that the concert business is in the toilet.  Sure you can talk about the economy, all the external business factors, but they’re secondary to the acts, the music.  It’s doesn’t matter how great the venue is, certainly doesn’t matter how great the promoter is, it comes down to the quality of the act and whether they can draw a crowd.  Given sky high concert prices and that we live in an on-demand world where you experience only that which you want means this demographic outreach/tactic is unlikely to pay motorcycle sales dividends for Harley.

H-D Demographic -- Young Edgy Potential Customer

One notable item…  Mayhem could arguably be the loudest festival on the planet giving the sparse crowds so much ‘metal’ that many will feel aurally violated after the gig.

Photos courtesy of H-D, Mayhem Festival and Rob Zombie.

Bonus: If you’re into this type of ‘Metal’ music mix there is a free 9-song download via iTunes (good through Sept 30th) using the following code to redeem the songs: 9EL3JJRW3JNF

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H-D Advertising in India

In spite of continued high unemployment numbers, homebuilder confidence at a 15-month low and very tight credit,  Harley-Davidson Inc. (HOG) reported that its second-quarter 2010 net income rose to $71.16 million or $0.30 per share, from $19.75 million or $0.08 per share in the same quarter last year. The biggest money-maker was in the Financial Services Segment as it became profitable to lend money for motorcycle purchases once again.

Income from continuing operations were $139.3 million, or $0.59 per share, compared to income of $33.4 million and earnings per share of $0.14 from continuing operations in the year-ago quarter. In the second-quarter the financing arm returned to the black and posted a profit of $60.8 million, after posting a loss of $90.5 million during the same period a year ago.

Net revenue from motorcycles and related products were basically flat at $1.135 billion, compared to $1.136 billion in the year ago quarter.  The company expects to ship 53,000 to 58,000 motorcycles in the third quarter and reiterated its expectation to ship 201,000 to 212,000 Harley-Davidson motorcycles to dealers and distributors worldwide in 2010, a reduction of five to ten percent from 2009.

Harley-Davidson now expects gross margin to be between 32.5% and 34.0% for the full year, versus the prior estimate of 32.0% to 33.5%. The Company continues to expect full-year capital expenditures of between $235 million and $255 million, including $95 million to $110 million to support restructuring activities.

At the press briefing Keith Wandell, President and CEO of H-D stated:

“Harley-Davidson is making steady progress at executing its strategy to deliver results through focus,” he continued with “We are seeing the benefits of our restructuring and continuous improvement activities reflected in our earnings performance.”

Clearly declining motorcycle sales are the biggest reason for Harley’s struggles and the company’s solid Q2 is not all that reassuring when you remove the “bank” profitability a.k.a. financial services.  New products launch on July 27th which holds some promise along with the international expansion into India.

Updated: July 20, 2010 — John Olin (H-D CFO)  stated during the conference call with investors today that many strapped Harley customers wound up selling their motorcycles during the recession. This has created a glut of used bikes on the market, causing the ratio of used-to-new bike sales to rise to two-to-one in 2009 from one-to-one in 2007.

Photo courtesy of H-D.

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