Issue link: https://read.dmtmag.com/i/752766
ATV/UTV OEM reports net loss in quarter that ended Sept. 30 Arctic Cat Inc. (NASDAQ:ACAT) reported a net loss of $12.8 million, or $0.98 per share, on net sales of $164.6 million for the fiscal 2017 second quarter ended Sept. 30, 2016. Arctic Cat recorded a special item totaling $1.4 million after tax, or $0.10 per share, for a product liabil- ity settlement in the fiscal 2017 second quarter. In the prior-year quarter, Arctic Cat reported net earnings of $11.2 million, or $0.85 per diluted share, on net sales of $211.2 million. Christopher Metz, Arctic Cat's presi- dent and chief executive officer, stated: "We expected that Arctic Cat's second quarter would be challenging, as we continued to implement our turnaround strategies. How- ever, we encountered a softer than antici- pated powersports market in the quarter, with Arctic Cat's and the overall industry's sales down. We are disappointed in the com- pany's second-quarter results, which were impacted by lower sales volumes, unfavor- able product mix and a heightened promo- tional environment." Commenting further, Metz said: "We made further progress on implementing our strategic growth initiatives in the fiscal 2017 second quarter. We recently signed two strategic part- nerships — one during the fiscal 2017 second quarter and the other after quarter end — that we anticipate will contribute meaningfully to Arctic Cat's future revenues in fiscal 2018 and beyond. We continue to expect reporting stronger financial results in the second half of this fiscal year, driven by planned new product launches and an improved product mix." The company's strategies to reinvigorate growth include: pursuing strategic partner- ships; ramping up end-user focused new prod- ucts; creating a brand marketing powerhouse; and improving Arctic Cat's dealer network. Arctic Cat's fiscal 2017 second quarter net sales were down 22.0 percent to $164.6 million versus $211.2 million in the prior-year quar- ter. Foreign currency exchange had minimal impact on net sales in the quarter. Gross profit and gross profit margin in the 2017 second quarter were approximately $13.5 million and 8.2 percent, respectively, com- pared to approximately $43.9 million and 20.8 percent, respectively, in the prior-year quarter. Contributing to the year-over-year decrease in gross profit were: lower sales volumes; unfa- vorable product mix, primarily driven by an increase in lower margin snowmobile sales to its OEM partner; increased sales incentives as a result of a highly promotional retail envi- ronment; and unfavorable foreign currency exchange impact on engine purchases. Operating expenses in the fiscal 2017 sec- ond quarter were approximately $32.6 million compared to $25.3 million in the year-ago quarter. The year-over-year increase was chiefly attributable to unfavorable impact from our foreign currency hedging activities of $3.9 million, a $2.2 million product liability settle- ment, and increased research and develop- ment costs associated with investments in new end-user focused products as part of our new product roadmap. Operating loss in the 2017 second quarter was $19.1 million versus an operating profit of $18.7 million in the same quarter last year. Arctic Cat ended the 2017 second quar- ter with cash and cash equivalents totaling $9.2 million at Sept. 30, 2016, compared to $10.7 million a year ago. The company expects to generate significant cash from operating activities in the second half of the fiscal year, as the company ships new products and reduces inventories. By the end of fiscal 2017, the com- pany anticipates reducing inventory by up to $55 million and lowering long-term debt by $25 million to $50 million. The company continues to make investments in the business to lay the foundation for future growth and to improve efficiency. For the six months ended Sept. 30, Arctic Cat's net loss was $23.3 million, or $1.79 per share, compared to net earnings of $10.1 million, or $0.77 per diluted share, in the prior-year period. Included in the net loss for the six-month period is a special item totaling $1.4 million after tax, or $0.10 per share, for a product liability settlement recorded in the fiscal 2017 second quarter. Year to date, the company's net sales totaled $269.5 million versus $345.5 million in the year-ago first six months. RESULTS BY SEGMENT Sales of Arctic Cat's all-terrain vehicles (ATVs) and recreational off-highway vehicles (ROVs) in the 2017 second quarter totaled $44.0 mil- lion, down 37.8 percent compared to prior- year sales of $70.8 million. Year-to-date sales totaled $87.8 million, down 29 percent from $123.6 million in the prior-year first half. Metz stated: "Faced with a weak power- sports market impacted by macroeconomic trends in the oil, gas and agricultural sectors, our sales in the second quarter and year to date are lower than we expected, and our dealer inventory levels remain higher than we would like. Despite our challenges, we are committed to reducing dealer inventory to make room for our exciting and innovative new prod- ucts slated to hit the market over the next 12 months. We are making tremendous prog- ress on multiple new product initiatives and are pleased to begin delivering ROV models designed in partnership with Robby Gordon. We are on track to introduce three new ATV/ ROV product waves this fiscal year. Two waves have been announced. We will unveil the third new product wave by late February at our dealer show." I n e a r l y S e p t e m b e r , t h e c o m p a n y unveiled the second wave of its 2017 model year ATVs and ROVs, including new Wild- cat X and Wildcat 4X models that feature an all-new RG PRO rear suspension, and a value-priced Alterra 300 ATV. The second Arctic Cat's ATV/ROV sales drop 37.8 percent in Q2 www.PowersportsBusiness.com Powersports Business • November 28, 2016 • 19 See Arctic Cat Q2, Page 22