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Arctic Cat Reports 2017 First Quarter Results


(7/29/2016)

Arctic Cat in St. Cloud, MN. Photo by ArcticInsider.com

Arctic Cat reported its fiscal 1st Quarter 2017 financial results today.

Here's the company's news release:

 

*First quarter net sales totaled $104.9 million;
*Net loss $0.81 per share;
*Continued progress made on strategies to reposition company;
*ATV/ROV dealer inventory down 9 percent;
*Company maintains fiscal 2017 revenue outlook, lowers EPS guidance on a weaker powersports market, increased promotional costs and unfavorable product mix

Arctic Cat Inc. (NASDAQ: ACAT) today reported a net loss of $10.6 million, or $0.81 per share, on net sales of $104.9 million for the fiscal 2017 first quarter ended June 30, 2016. The impact of unfavorable foreign currency exchange movements year-over-year was $0.20 per share. In the prior-year quarter, Arctic Cat reported a net loss of $1.1 million, or $0.08 per share, on net sales of $134.4 million.

Christopher Metz, Arctic Cat’s president and chief executive officer, stated: “As expected, Arctic Cat’s first-quarter sales were lower compared to the year-ago quarter. Importantly, we made progress on reducing dealer inventory, and further strengthened and expanded our dealer base, despite a weaker powersports market and continued foreign currency headwinds. However, the first-quarter per share loss was greater than anticipated, chiefly due to the timing of snowmobile shipments that shifted to the second quarter, as well as a more competitive retail environment that led to higher promotional spending than planned.”

Commenting further, Metz said: “We continue to focus on implementing our strategies and are encouraged by the significant progress we are making to reposition the company for long-term growth. We anticipate reporting stronger financial results in the second half of this fiscal year, driven by planned new product launches and contributions from our other key strategic initiatives.”

The company’s strategies to reinvigorate growth include: dramatically improving Arctic Cat’s dealer network; ramping up end-user focused new products; pursuing strategic partnerships; and creating a brand marketing powerhouse.

First-Quarter Operating Review
Arctic Cat’s fiscal 2017 first quarter net sales were down 22.0 percent to $104.9 million versus $134.4 million in the prior-year quarter. Unfavorable foreign currency exchange reduced net sales in the quarter by approximately 1.6 percent.

Gross profit and gross profit margin in the 2017 first quarter were approximately $11.8 million and 11.2 percent, respectively, compared to $22.6 million and 16.8 percent, in the prior-year quarter. Lower sales volumes and unfavorable foreign currency exchange impact reduced gross profit by approximately $1.6 million, or $0.08 per share.

Operating expenses in the fiscal 2017 first quarter were approximately $29.1 million compared to $24.1 million in the year-ago quarter. The year-over-year increase was chiefly attributable to unfavorable foreign currency exchange rates totaling $2.7 million, with the remainder primarily due to research and development investments. Operating loss in the 2017 first quarter was $17.3 million versus an operating loss of $1.5 million in the same quarter last year.

Arctic Cat ended the 2017 first quarter with cash and cash equivalents totaling $13.5 million at June 30, 2016, compared to $20.3 million a year ago. The company continued to make investments in the business to lay the foundation for future growth and to improve efficiency.

Business Line Results
ATVs/ROVs – Sales of Arctic Cat’s all-terrain vehicles (ATVs) and recreational off-highway vehicles (ROVs) in the 2017 first quarter totaled $43.7 million, down 17.3 percent compared to prior-year sales of $52.9 million. While sales of Arctic Cat’s side-by-side ROVs remained strong, including the Wildcat™, core ATV sales decreased as planned, as the company continued to lower core ATV inventory at its North America dealers. The company succeeded in decreasing ATV/ROV dealer inventory by approximately 9 percent in the fiscal 2017 first quarter.

As part of Arctic Cat’s aggressive new product development plans, the company introduced the first wave of its 2017 model year ATVs and ROVs, including six all-new models and a total of 27 class-leading machines for all categories of off-road work and play. These new 2017 models include the versatile and powerful HDX™ Crew six-passenger utility vehicle, the Prowler utility vehicle and the Alterra™ TRV® with 2-up passenger seating.

Commented Metz: “Consumers are very enthusiastic about our newest offerings, such as the HDX Crew and Prowler 500 utility side-by-sides. These vehicles provide innovative features at a great value. Our latest introductions are fueling sales and provide an indicator of what launching exciting new products can do for our business. Further, we continue to make progress on implementing our new product roadmap. Within the current 2017 fiscal year, we expect to unveil the first of these industry-leading new products, with continued new product introductions thereafter.”

Snowmobiles – Snowmobile sales in the fiscal 2017 first quarter were down 30.4 percent to $40.5 million versus $58.2 million in the prior-year quarter, chiefly stemming from the timing of shipments. Commented Metz: “At our March dealer show, we launched one of our most exciting snowmobile lines in years, with many award-winning models. We believe we are well positioned for retail growth in our snowmobile business this year.”

Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2017 first quarter were down 11.5 percent to $20.6 million versus $23.3 million in the prior-year quarter. The decline is primarily attributable to an overall weakening of the powersports market, as well as lower pre-season sales of snow-related items, resulting from poor snowfall last winter in key geographies.

Fiscal 2017 Full-Year Outlook
Commenting on the company’s outlook, Metz stated: “We face ongoing challenges in fiscal 2017, with a soft and increasingly competitive powersports marketplace, and continued foreign currency headwinds. Yet, we see tremendous growth opportunities through new product innovation and strategic partnerships. We are highly encouraged by the progress we are making in these areas and we expect contributions from each in the near future. As we invest to support our strategic initiatives, we remain intensely focused on controlling costs.”

For the fiscal year ending March 31, 2017, Arctic Cat is maintaining its estimated full-year net sales in the range of $635 million to $655 million, assuming a favorable foreign currency exchange impact on sales in the range of $2 million to $5 million. The company is lowering its anticipated fiscal 2017 full-year net earnings to range from a loss of $0.70 per share to $1.00 per share, due to a weaker powersports market, increased promotional costs and unfavorable product mix. Previously, Arctic Cat estimated its fiscal 2017 full-year net earnings to range from a loss of $0.39 per share to earnings of $0.08 per diluted share. Continued foreign currency exchange headwinds in fiscal 2017, driven by the year-over-year impact of foreign currency exchange hedge losses, are estimated to reduce net earnings in the range of $0.42 to $0.53 per share compared to fiscal 2016. The company expects to end fiscal 2017 with little to no long-term debt. For the prior fiscal 2016 full year, the company’s loss per share totaled $0.71 on net sales of $632.9 million.

“Excluding the impact of foreign currency headwinds, we expect the company’s fiscal 2017 net loss to improve by approximately $0.33 per share over fiscal 2016, at the mid-point of our earnings guidance range, as we begin to grow sales and expand gross margins,” Metz said. “Assuming macroeconomic conditions are stable, we anticipate further accelerating sales, earnings and gross margin expansion next fiscal year, as our strategic initiatives begin to take hold.”

In the first half of fiscal 2017, Arctic Cat expects that its net sales will be down 12 percent to 15 percent, as the company continues efforts to improve dealer inventory and prepares to launch new products and other strategic initiatives. Arctic Cat expects stronger financial results in the second half of the year to be driven by new product launches that will begin in the fiscal 2017 third quarter, with the majority of new products to be launched in the fiscal 2017 fourth quarter.

Arctic Cat’s fiscal 2017 financial outlook includes the following assumptions:

  • ATV/ROV wholesale sales flat to up low-single digits; snowmobile sales down low-single digits; and PG&A sales flat to up low-single digits;
  • Positive foreign currency impact on sales for the full year in the range of $2 million to $5 million, assuming a Canadian dollar at $1.29, compared to an average rate in fiscal 2016 of $1.31;
  • Negative foreign currency exchange hedge losses for the full year in the range of $4 million to $6 million, versus foreign currency exchange hedge gains of $7.6 million in fiscal 2016, are expected to result in a net year-over-year increase in operating expenses of $12 million to $14 million. The company estimates that 70 percent to 80 percent of the net Canadian dollar exposure is hedged at an average rate of $1.34 in fiscal 2017;
  • Gross margin in the range of approximately 15.5 percent to 16.5 percent;
  • R&D expense of approximately 4.5 percent of sales, as the company continues to ramp up its investment in end-user focused new products; and
  • Capital expenditures in the range of $30 million to $35 million.

 

Added Metz: “Our focus this fiscal year is to continue to rebuild and reposition the company for a return to long-term growth. We remain confident in our strategic plans to turn the business around and excited about Arctic Cat’s long-term future.”

 

ARCTIC CAT INC.

Financial Highlights

($ in thousands, except per share amounts)

(Unaudited and subject to reclassification)


 


 




Three Months Ended





June 30,



Statements of Operations:

 

2016

 

2015



Net Sales







Snowmobile and ATV/ROV units


$

84,277



$

111,105




Parts, garments and accessories


 

20,595

 


 

23,276

 



Total net sales



104,872




134,381




Cost of Goods Sold







Snowmobile and ATV/ROV units



80,678




96,957




Parts, garments and accessories


 

12,437

 


 

14,862

 



Total cost of goods sold


 

93,115

 


 

111,819

 



Gross Profit



11,757




22,562




Operating Expenses







Selling and marketing



9,192




8,955




Research and development



7,858




6,003




General and administrative


 

12,015

 


 

9,151

 



Total operating expenses


 

29,065

 


 

24,109

 



Operating Loss



(17,308

)



(1,547

)



Other Income (Expense)







Interest income



2




-




Interest expense


 

(212

)


 

(114

)



Total other expense


 

(210

)


 

(114

)



Loss Before Income Taxes



(17,518

)



(1,661

)



Income Tax Benefit


 

(6,966

)


 

(605

)



Net Loss


$

(10,552

)


$

(1,056

)



Net Loss Per Share







Basic


$

(0.81

)


$

(0.08

)



Diluted


$

(0.81

)


$

(0.08

)



Weighted Average Shares Outstanding:







Basic


 

13,047

 


 

12,958

 



Diluted


 

13,047

 


 

12,958

 









 







 



June 30,



Selected Balance Sheet Data:

 

2016


2015



Cash and Short-term Investments


$

13,509



$

20,278




Accounts Receivable, net



45,039




40,088




Inventories



179,556




169,543




Total Assets



355,491




333,499




Total Current Liabilities



134,347




108,394




Long-term Debt



50,047




30,877




Shareholders' Equity



157,887




179,501




 




 





Three Months Ended





June 30,

 

 

Product Line Data:

 

2016


2015

 

Change

Snowmobiles


$

40,537



$

58,231



(30.4)%

ATV/ROV Vehicles



43,740




52,874



(17.3)%

Parts, Garments & Accessories


 

20,595

 


 

23,276

 


(11.5)%

Total Sales


$

104,872

 


$

134,381

 


(22.0)%












 



Comments (32):

catman since 72 says:
7/29/2016 6:35:00 PM

This is not good.
Kevin says:
7/29/2016 7:56:00 PM

The economics of losing your way. Polaris is crushing AC - not good. This is going to be a big hole to climb out of. It will be very interesting to see how sled sales go this year.
JimR says:
7/29/2016 8:44:00 PM

Did you even read the article? It was known well before that they would be losing money. Polaris has its own demons. Hundreds of thousands in recalls on there UTV line. Undesirable machines. Cat will be just fine.
kevin sebastian says:
7/30/2016 2:20:00 PM

Hope we have a good snowy and long winter the snowmobile industry needs one. Arctic Cat needs one ! The motorsports industry right now is slow. Hate to say it but we also need a good election in November the real economic numbers for the country aren't good.
Worried says:
7/30/2016 4:28:00 PM

Chris Metz sure like the buzzwords "strategic initiatives".
Tom Mahon says:
7/30/2016 4:57:00 PM

YUP--"strategic initiatives" as in short term results do not count on Chris Metz watch, YET. As in-- these are the results of the other guy. New players , new game plan, a lot at risk . Give them a chance .
Tom Mahon says:
7/30/2016 5:24:00 PM

NASDAQ:ACAT JULY 29/ 4:48 Down 14.56% - 3Month Outlook>> FLAT -- Could have a sleeper on our hands in December ??
Dave says:
7/31/2016 5:39:00 PM

The biggest problem is the dealer network, seems like every town the premiere dealers all handle Pol or CanAm. Arctic lost so many quality dealers over the last few years is the reason! It all seems to go back to the sales and marketing, it is embarrassing to me (nothing but cats since 1968, and an awful lot if them) to see my brand become such a underachiever in the field! It is still the best in quality of any brand! Does the marketing department even mention where the competitors manufacture their products? The only one still made in USA, figure it out Cat, get rid of you sales team and marketing team, start over with a new team with progressive sales people and marketing people, you need to understand , the customers and dealers drive your business, you have let both down. I will never buy another brand and never have, but I am tired of defending my brand with everyone who used to ride Cat. Denver has one dealer, Phoenix has two dealers, are you serious? Two huge markets and Polaris owns you! Listen to me, get up off the mat and get Cat back on top, you have the best product, worst marketing and sales department. Management get out of your comfortable offices and see what is going on in the field. Yes I have more to say if someone from Cat wants to reply to me!789ff9m
Ericsno says:
8/1/2016 9:54:00 AM

The cat Utvs and atvs don't sell unless they discounted thousands I bought a 15 wildcat sport limited for 5k off ,you can buy a new xr 700 over 4K off mark,I'm friends with some dealers there very little interest in the thundercat people want the new 800 and new chassis,if we have a bad winter will cat keep going?
Bulldog says:
8/1/2016 10:51:00 AM

We were going to get a new Arctic Cat Dealer in my home town. They agreed on everything and pretty much had the contract ready to be signed. Then the AC rep came into the meeting to sign the contract and told them they had to take twice as many units as they previously agreed to. Killed the entire deal. I dont know what in the hell they are thinking but in my opinion even a small dealer in the area is better then none! Also, let them start slow and build a customer base before cramming a bunch of units down their pie hole.
Kevin says:
8/1/2016 1:16:00 PM

http://m.startribune.com/arctic-cat-loses-10-6-million-in-second-quarter/388669831/

The corner will be turned but it's a tough climate right now.
Charles says:
8/1/2016 1:58:00 PM

@JimR - I agree with your comments
@Dave - AC is on the comeback trail. They are doing all the right things to put this iconic brand back on top!
@Bulldog - AC would rather have fewer "top quartile" dealers than lots of smaller dealers.
295cat says:
8/2/2016 9:36:00 AM

We've lost countless dealers in NY because of the corporate demand to have dealers take more units than they can sell. A snowmobiler in the northern Adirondacks has to travel 60+ miles to get to the nearest Arctic dealer. This while passing good dealers who used to sell Arctic. The dealers in Indian Lake, Tupper Lake, Malone and Saranac have stopped selling Arctic which has led to primarily Ski-Doo taking the customers. In the Hudson Valley there also has been a constant rotation of who is dealing Arctic, a dealer dating back to the early '70's was recently lost. Its a shame. But like alot of us on here I'll only buy the machines from Thief River.
Bulldog says:
8/2/2016 9:59:00 AM

I agree 295cat and people like convenience. Why drive 60 - 100 miles to buy or look at a new cat when 10 minutes away there is a Polaris or Ski-Doo dealer? We have lost lots of Dealers down here in the Madison Wisconsin area and there have been no new dealers stepping up to take their place. How does AC expect to get product out there so people can see, touch and test drive a new machine? Are farmers really going to drive that far to buy an ATV or UTV and then have it serviced that far away or just go with a brand that has a much closer dealer? Think about what you would do if you arent brand loyal. AC needs to rethink how many machines they make dealers take and worry more about getting machines on show room floors where salesman can sell them to the locals.
AllenO says:
8/2/2016 7:33:00 PM

Kymco - American made?
Yamaha - American made?
Sherco - American made?

How can anyone claim Arctic Cat is American made.....
Dave says:
8/2/2016 8:30:00 PM

Ok let's get technical, Polaris and Can Am ATV and UTV both assembeled in Mexico , sit on I-25 and I-10 and watch them roll by. Point is Thief River quality needs to be recognized and promoted
ScottL says:
8/2/2016 8:31:00 PM

I'm like others that have lost of their local dealer. My dealer just sent everything back to TRF in June. I feel the passion and loyalty many Arctic Cat owners have are due to the dealers and the relationships they have built up over the years. Forcing all these small dealers out because of low sales is wiping out this tie. I've only purchased new Arctic Cat products from two different dealers dating back to 1972. The closest dealer (with a good reputation) is now 45 miles away. Arctic Cat, you're making it very hard to keep buying your products!
Brian says:
8/2/2016 9:18:00 PM

Cat destroyed their dealer network in our area, a lot of us bought cat products because they had small dealers that knew their product and would go out of their way to keep the machines running, they shut down our long time local dealer and left us in the dust. MEGA dealers and CAT do not go together!!!
JimR says:
8/3/2016 10:06:00 AM

AllenO:

My sled has Cats home built 600 cc in it and my quad has cats 550 in it, both built in St. Cloud. Sorry to bring facts into this conversation.
Jim W. says:
8/3/2016 7:13:00 PM

Cat is thinking like G.M.- eliminate the small dealers and make the large ones renovate the dealerships, that seems to have worked for General Motors,but their selling cars / and trucks, not sleds and atvs.
AllenO says:
8/3/2016 8:18:00 PM

JimR:

I'll pass on the 550 and 600...... That's a fact..... I thought Cat Pride was the big horse power machines.
Dave says:
8/3/2016 10:58:00 PM

If there thinking like GM, there in trouble because Obama ain't gonna bail them out! I am wondering where these mega dealers are? They must all be back east and north cause there isn't anything even close in Colo, Ariz, or New Mex,. Every two or three years I gave to go find another dealer cause the last one dropped Cat because of the corporate and sales BS.
JimR says:
8/4/2016 9:32:00 AM

AllenO:

What are you trying to say? Pass on the best sled engine in the business and will be the same with the 800 that is coming? Compensating for some body issues?
Bulldog says:
8/4/2016 9:38:00 AM

I agree Dave. That and their machines are not selling like Polaris and BRP right now. I would think they would want as many dealers as they can get pushing their products to get them out to potential buyers. Also, everything I read right now says they are trying to lower dealer inventory by offering huge discounts on left over machines. Well quit shoving so many machines down dealers throats and you might not have that problem AC! Let them order what they think they can sell... especially if they are just starting out. I am really disappointed that we are not getting a dealership in Cross Plains, WI because AC tried making them take more machines then they were comfortable with.
AllenO says:
8/4/2016 2:17:00 PM

JimR

I read the Cat's are heavier than Yamaha's now....
Rick Schafer says:
8/6/2016 10:40:00 AM

Also lost a dealer this spring. I had purchased 15 new sleds from them over the years. I was loyal to them and they were very good to me and kept me on the trails. But like the others, they could no longer afford the inventory levels.

They like myself were not impressed with Cat's marketing strategy. The new turbo is cool but the ex-dealer and my riding buddies would have much rather had a new 800. Not a lot of interest in the large turbos in our riding circle. Not sure how the sales stack up on those models compared to the 600 and 800. No spring show is also a tough sell, like to look at sleds, touch and feel before making a purchasing decision.

Hopefully there will be positive changes going forward. Been riding Cats since 70's and would like to continue!
Jim W. says:
8/6/2016 3:11:00 PM

The problem is that in the past, CAT has hired on to many none sledder people that do not understand how the sledding industry works. To many corporate people in charge that do not get it. You cannot continue to operate a company in this kind of business the way they are. I would highly encourage Cat to return to some of the ways that they know has worked for years and that is a foundation for a great company moving forward. Cat needs to belly up and say to their dealers and customers, that we got your back.
Jimmy bob says:
8/7/2016 9:58:00 AM

Very true Jim w. You don't need to know a lot about the product to be upper management but it helps. You need to know how to handle budgets and people. What is dangerous is when they think they know. Remember that thier styling committee is probably made up by people that think they know style because they bought a Lexus, and wear snappy looking dress pants.
Oldcrow says:
8/8/2016 9:50:00 AM

"Share our Passion"
Do they; does Arctic Cat upper management share the passion that so many of us have grown to love.
Do they even use the products they build and is there the chance we will meet them on the trails?
Arcticbuster says:
8/10/2016 11:59:00 AM

I agree with Oldcrow. John has reported here in many, many reports of the AC workers that live and breath the sport 24/7 and have the passion. Similar passion needs to be found in the top tier of management and then AC will come out on top. Perhaps the top tier were not fortunate enough to be born and raised in this type of environment or location but they truly need to understand and embrace others that have this passion and use them as mentors. Support the riders and dealers as others have suggested and the need to cut a dollar from the budget will be replaced by the dollars spent from the loyalists that will buy the products.
Bulldog says:
8/10/2016 2:00:00 PM

Great, now I was just told the place in my hometown that was going to be an AC Dealer until AC tried to make them take too many units is now going to be a Polaris Dealer. There are Polaris dealers in almost every town around us. Wake the F_ _ _ UP CAT! You are missing the boat!! How are people supposed to buy your products with no dealers around? Polaris gets it... why don't you??
kevin sebastian says:
8/11/2016 2:35:00 PM

For sure! getting the brand out there is one thing but above and beyond have to have the dealers and factory support! I love the Brand as I know you all do too hopefully the factory reps read Arctic Insider as much as we do! I Bleed Green!!!!

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