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Sporty Burnout

Stock price performance, not your motorcycle!

Harley-Davidson (HOG) shares have been on a smokin’ hot burnout of late.  We’re talking about a 2nd gear blowing the melted tire kind — as the stock price approaches a 52-week high.  Rumors of a merger or buyout floating around the web may have contributed.  Who knows.

The motor company is set to release its Q1’2010 earnings before the opening bell on Tuesday, April 20th.  Analysts expect revenues for the quarter to be in the $1B range down from the $1.29B in Q1, 2009.

As a predominate recreational luxury motorcycle, not used as a primary method of transport, you’d have to live on an island to be unaware of how the company has suffered during this ‘great recession.’  With contracting credit markets, the uncertainty of jobs, housing values in freefall, increases in state and federal taxes and despite a younger rebellious image in marketing campaigns the fact is that H-D’s average buying customer age is getting older at a rate of 6 months every year and has been for the last 20 years.  It seems a decline in the Harley culture is inevitable if not certain.

HOG Financial Snapshot

Harley competes more on image and getting customers to buy into the lifestyle (brand), and through “nostalgic design” and quality rather than price.  This helps keep margins high which were in the 31% range for 2009.  It will be interesting to learn next week if the company’s premium priced motorcycles have attracted buyers amid a weak spending environment or they’ve been successful in pulling in a fresh batch of younger riders.

If Toyota sales increased 40% last month amid the sticking pedals and trapped mats on more than 8M vehicles maybe it’s time for H-D to announce an unintended throttle acceleration recall too!  I’m hoping for good news next week.

Full Disclosure: None.

Photo courtesy H-D Financial Reports.

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hog-vs-spxHarley-Davidson is scheduled to report its first-quarter 2009 financial results April 16.

Even if you’ve been leveraging “guru” Cramer (Mad Money) to help make a fortune — who in my view has no more idea of what is going to happen tomorrow than the average chimp. Pessimism runs high especially after the motorcycle manufacture took the unusual action of reporting mid-quarter sales numbers earlier this quarter. With sales down 13 percent worldwide in January and February the chance of a sunny quarter and forecast is unlikely.

Clearly HOG deserves a great deal of skepticism. Over the past year, the stock’s decline of 66% has outpaced the 40% slide endured by the broader S&P 500 Index (SPX). As a stock underperforms you’ll naturally see an uptick in investor pessimism.  There are a number of indicators which suggest traders are looking for a sharp decline out of the stock prior to April expiration.  One of the better article’s deconstructing the HOG situation can be found HERE.

Chart courtesy of Schaeffers

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hd_stockWe all know that winter places an icy grip on motorcycle purchases and often chills sales.   It’s just a slow time even in a good year let alone during the “mother” of all financial deep freezes.

But, along comes a motorcycle sales concept that I don’t understand.  Buy any 2009 Harley-Davidson motorcycle from Chaz Hastings Milwaukee dealer and they’ll give you 50 shares of HOG.  At today’s market price you could convert it (before taxes and fees) into $812.00.  If you buy a 2008 model you’ll receive 100 shares!  Will this promo really increase motorcycle sales?

A sales promotion attaching a manufactured product to its stock with a financial meltdown makes no sense?!  Harley stock has lost more than 60% of its value (like most stocks!) in the last 3 months.  It might be a good buy if you can predict when things will turn around, but the financial news has been downright depressing and looks to continue.  News on any given day is “bail-out de jure”.  I would think Harley would want to distance themselves from topics that remind customers of just how bad the financial market is and stick to exploiting the bad boy or naughty vs. nice image.

Free is free, but why the dealer wouldn’t offer up a year of free fuel or any number of other worthwhile promo’s (free motels, free fly-n-ride, interest rate buy down, free 110cu in kit, free clothing, Toy Run donations, etc.) which help reinforce motorcycle riding rather than “drive-by” broker management…defies logic in my view.

Disclosure: the author owns no HOG.

Stock certificate courtesy of HD

 

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