Issue link: https://read.dmtmag.com/i/258703
12 • February 17, 2014 • Powersports Business FINANCE www.PowersportsBusiness.com Arctic Cat reported net earnings of $12.1 mil- lion, or $0.89 per diluted share, for the fiscal third quarter ended Dec. 31, compared to prior- year record net earnings of $17.9 million, or $1.30 per diluted share. Net sales in the third quarter were $225.8 million, up from net sales of $218.0 million in the same quarter last year. "The company posted solid revenue growth in the third quarter that met our expectations, as we achieved double-digit sales gains in our ATV/side-by-side and our parts, garments and accessories businesses," Arctic Cat chairman and CEO Claude Jordan said. "As we stated last quarter, however, we expected the second half of our fiscal year to be challenging. Profitability in the 2014 third quarter was reduced, chiefly due to anticipated lower gross margins on snowmobile models built for Yamaha, as part of our new partnership this year, and ATV prod- uct mix. The Yamaha gross margin impact was primarily absorbed in the fiscal 2014 third quar- ter compared to record earnings in the prior-year third quarter. "We are expecting strong fourth-quarter sales and earnings, which will be driven by the launch of our new Wild- cat Trail model. Additionally, we continue to focus on operational excellence and cost controls to maximize our efficiency and profitability." Highlights of Arctic Cat's fiscal 2014 third- quarter and year-to-date financial results com- pared with the prior-year periods: Net sales grew approximately 4 percent for the quarter, primarily led by contribu- tions from the new Wildcat X and Wildcat X Limited side-by-sides, and parts, garments and accessories. North American retail sales increased 15 percent from the prior-year quarter, with double digit retail sales gains in ATVs, Wildcat side-by-sides and snowmobiles. Year to date, these retail gains have allowed Arctic Cat's ATV business to gain market share for the 2014 fiscal year and its snowmobile business to gain the most market share in the industry for the 2014 fiscal year. Gross profit margins were 17.8 percent compared to 23.3 percent in the prior-year quarter due to several factors, most notably lower-margin Yamaha snowmobiles supplied in the quarter and product mix. Previously, Arctic Cat expected 2014 full-year gross mar- gins to be lower by 80 basis points. The com- pany now anticipates that fiscal 2014 gross margins will be approximately 190 basis points lower than the prior year, primarily due to product mix and Canadian currency impact. ATVS/SIDE-BY-SIDES Sales of Arctic Cat's ATVs and side-by-sides increased 12 percent to $78.2 million, up from $69.6 million in the same period last year. Con- tributing to sales were orders for the new Wild- cat X Limited pure-sport side-by-side model that began shipping in the 2014 third quarter and continued success of the four-seat Wildcat 4X, which began shipping in late September. Both of these models feature Arctic Cat's high horsepower X engine, as well as enhanced ride and performance technologies. Said Jordan: "Our side-by-side business again performed well in the 2014 third quarter, with strong contributions from Wildcat sales. Includ- ing the new Wildcat Trail side-by-side model that we just launched, Arctic Cat now offers 10 different Wildcat models. We anticipate contin- ued strong performance in our side-by-side busi- ness during the fourth quarter of this fiscal year, led by sales of the new Wildcat Trail." Arctic Cat began shipping a few of the new Wildcat Trail models in December; however, most orders will be filled in the 2014 fourth quarter. This model offers a narrower 50-inch wide, trail-legal platform that allows riders access to authorized ATV trails, making it a versatile option for consumers. In addition to its trail legal capabilities, the Wildcat Trail also offers industry-leading horsepower and sus- pension, coupled with the lowest price in the 50-plus horsepower segment. Arctic Cat remains focused on further increasing its ATV/side-by-side business as a percent of total sales. The company anticipates that this business will be approximately 50 per- cent of total company sales for the fiscal 2014 full year. During fiscal year 2013, 45 percent of sales were in the ATV/side-by-side segment, up from 39 percent the previous year. PARTS, GARMENTS & ACCESSORIES Sales of parts, garments and accessories (PG&A) in the fiscal 2014 third quarter totaled $29.5 million, up 13 percent compared to $26.0 million in the prior-year quarter. Con- tributing to increased PG&A sales in the third quarter were strong sales of snow-related parts and accessories, due to favorable winter snow- mobile riding conditions, and Arctic Cat's expanded line of side-by-sides, which led to higher sales of side-by-side accessories. Arctic Cat continues to expect its PG&A business to grow in fiscal 2014 through the expansion of its Wildcat accessories and continued growth of the parts business. FISCAL 2014 FULL-YEAR OUTLOOK Arctic Cat's fiscal 2014 outlook includes the following assumptions versus the prior fiscal year: core ATV North American industry retail sales flat to up 5 percent; side-by-side North American industry retail sales up 15 percent to 25 percent; snowmobile North American industry retail sales up 5 percent to 8 per- cent; Arctic Cat dealer inventories, excluding new products, flat to up 10 percent; achieving slightly lower operating expense levels as a per- cent of sales; and increasing cash flow. PSB Arctic Cat sales rise, but profit drops in quarter CLAUDE JORDAN P10x12-PSB3-Finance.indd 12 2/5/14 10:20 AM