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Arctic Cat Reports Fiscal 2010 Second Quarter Results

Press Release –

Arctic Cat Reports Fiscal 2010 Second Quarter Results

Increased second quarter operating profit 7% on lower sales;
Continued to lower cost structure, improve gross margin percentage and strengthen balance sheet;
Company maintains annual revenue guidance, remains focused on achieving continued operational efficiencies

MINNEAPOLIS–(BUSINESS WIRE)–Oct. 29, 2009– Arctic Cat Inc. (NASDAQ: ACAT) today reported net earnings of $14.8 million, or $0.81 per diluted share, on net sales of $166.3 million for the second quarter ended September 30, 2009. Arctic Cat reported net earnings in the fiscal 2008 second quarter of $16.9 million, or $0.93 per diluted share, on net sales of $204.3 million.

For the six months ended September 30, 2009, Arctic Cat’s net earnings were $8.8 million, or $0.48 per diluted share, on net sales of $235.7 million. In the first six months of last year, the company reported net earnings of $10.0 million, or $0.55 per diluted share, on net sales of $298.2 million.

Commented Arctic Cat’s chairman and chief executive officer Christopher A. Twomey: “We continued to face difficult selling conditions during the second quarter, given the global economic environment. Despite this, we are pleased with the company’s continued progress on our goals to reduce the company’s cost structure and strengthen the balance sheet.”

Among the highlights of Arctic Cat’s 2010 second quarter financial results versus the same quarter last year:

  • Gross margins increased 410 basis points in the quarter and 230 basis points year to date;
  • Operating expenses declined 12 percent to $23.3 million from $26.6 million, and fell 17 percent year-to-date;
  • Operating profit rose 7 percent to $21.9 million from $20.5 million;
  • Inventories were reduced 23 percent to $133.6 million from $172.3 million;
  • Total cash and short-term investments at quarter end rose to $11.2 million from $3.7 million; and
  • The company had no short-term debt at quarter end compared to $14.8 million a year ago.

“Through strong inventory management, expense controls and a rescaled business, we continue to remain on track to deliver improved operating results this fiscal year on lower sales,” said Twomey.

Arctic Cat announced on October 20, 2009 that the company has entered into an agreement for GE Capital, Commercial Distribution Finance to become the exclusive provider of floorplan financing for Arctic Cat’s U.S. dealers. The new multi-year financing program will replace Arctic Cat’s current financing agreement with Textron Financial Corporation, which had previously announced its intent to exit the dealer floorplan business. The new financing program is expected to begin December 1, 2009.

“We are very pleased to partner with GE Capital, and we expect that this agreement will continue to provide our ATV and snowmobile dealers with innovative financing programs and superior service,” said Twomey.

Business Line Results
“Our continued focus on achieving our operating efficiency initiatives has enabled Arctic Cat to increase our gross margin percentage, despite lower demand for recreational vehicle products at this time,” said Twomey. “We expect that Arctic Cat will be well-positioned as a stronger, leaner company as our markets recover.”

Snowmobile sales totaled $85.7 million in the second quarter compared to $98.4 million in the prior-year quarter. Year to date, snowmobile sales were $103.7 million versus $119.8 million in the same period last year. Although Arctic Cat continues to anticipate lower worldwide snowmobile orders in fiscal 2010 as a result of the recession, the company expects to maintain or increase its North American market share by offering consumers leading-edge technologies, such as the new powered up 800cc engine that is being used in its models across all market segments.

All-terrain vehicle (ATV) sales totaled $51.7 million in the second quarter versus $71.6 million in the prior-year quarter. Year to date ATV sales were $83.9 million compared to $125.4 million in the first six months of fiscal 2009. With retail industry ATV sales continuing to decline during the recession, Arctic Cat has worked to reduce dealer inventories and, at the same time, increase market share.

Sales of parts, garments and accessories (PG&A) in the second quarter totaled $28.8 million versus $34.3 million in the prior-year quarter. Year to date, PG&A sales were $48.1 million compared to $52.9 million in the year-ago period.

Outlook
Arctic Cat is implementing operational efficiency initiatives aimed at returning the company to long-term profitability on lower anticipated sales volumes. The company’s fiscal 2010 outlook includes the following assumptions: the continuation of the weak global economic environment negatively impacting sales of recreational products; increasing gross margins up to 300 basis points through global low-cost sourcing, improved commodity pricing and greater efficiencies from lean manufacturing; achieving a 12 percent to 17 percent reduction in operating expenses; improving cash flow from operations; and ending the year with more cash on the balance sheet by lowering inventory.

Arctic Cat continues to estimate sales for its fiscal year ending March 31, 2010 in the range of $425 million to $460 million, based on achieving ATV sales of $188 million to $203 million, snowmobile sales in the range of $140 million to $152 million and PG&A sales of $97 million to $105 million. Arctic Cat has not provided fiscal 2010 earnings per share guidance, although the company expects improved per share results compared with fiscal 2009.

Commenting on the company’s outlook, Twomey said: “This is a challenging year for the recreational products industry. Near-term, we remain focused on conservatively managing our business to meet lower anticipated demand. We are continuing our efforts to improve the company’s operational performance. We also are taking appropriate actions to preserve cash and maintain dealer health, as well as developing select innovative products that position Arctic Cat to emerge as a stronger company once the economy recovers.”

ARCTIC CAT INC.

Financial Highlights

(000s omitted, except per share amounts) (Unaudited)

 

 

 

 

 

 

 

 

 
   

Three Months Ended

 

Six Months Ended

   

September 30,

 

September 30,

   

2009

 

2008

 

2009

 

2008

Net Sales

               

Snowmobile & ATV Units

 

$

137,466

   

$

170,025

   

$

187,554

   

$

245,216

 

Parts, Garments & Accessories

 

 

28,834

 

 

 

34,289

 

 

 

48,116

 

 

 

52,975

 

Total Net Sales

   

166,300

     

204,314

     

235,670

     

298,191

 

Cost of Goods Sold

               

Snowmobile & ATV Units

   

103,748

     

135,180

     

154,090

     

204,659

 

Parts, Garments & Accessories

 

 

17,341

 

 

 

22,012

 

 

 

28,821

 

 

 

33,533

 

Total Cost of Goods Sold

 

 

121,089

 

 

 

157,192

 

 

 

182,911

 

 

 

238,192

 

Gross Profit

   

45,211

     

47,122

     

52,759

     

59,999

 

Operating Expenses

               

Selling & Marketing

   

9,619

     

13,506

     

16,041

     

22,390

 

Research & Development

   

3,028

     

4,249

     

6,198

     

8,929

 

General & Administrative

 

 

10,652

 

 

 

8,847

 

 

 

17,286

 

 

 

16,314

 

Total Operating Expenses

 

 

23,299

 

 

 

26,602

 

 

 

39,525

 

 

 

47,633

 

Operating Profit

   

21,912

     

20,520

     

13,234

     

12,366

 

Other Income (Expense)

               

Interest Income

   

     

27

     

4

     

99

 

Interest Expense

 

 

(175

)

 

 

(414

)

 

 

(247

)

 

 

(618

)

Total Other Income (Expense)

 

 

(175

)

 

 

(387

)

 

 

(243

)

 

 

(519

)

Earnings Before Income Taxes

   

21,737

     

20,133

     

12,991

     

11,847

 

Income Taxes

 

 

6,957

 

 

 

3,218

 

 

 

4,158

 

 

 

1,895

 

Net Earnings

 

$

14,780

 

 

$

16,915

 

 

$

8,833

 

 

$

9,952

 

Net Earnings Per Share

               

Basic

 

$

0.81

 

 

$

0.94

 

 

$

0.49

 

 

$

0.55

 

Diluted

 

$

0.81

 

 

$

0.93

 

 

$

0.48

 

 

$

0.55

 

               

 

Weighted Average Shares Outstanding:

               

Basic

 

 

18,227

 

 

 

18,078

 

 

 

18,212

 

 

 

18,049

 

Diluted

 

 

18,252

 

 

 

18,091

 

 

 

18,225

 

 

 

18,056

 

                               

 

 

 

 

 

 

 

September 30,

Selected Balance Sheet Data:

       

2009

 

 

 

2008

Cash and Short-term Investments

       

$

11,160

     

$

3,733

Accounts Receivable, net

         

68,286

       

78,613

Inventories

         

133,605

       

172,320

Total Assets

         

286,900

       

343,755

Short-term Bank Borrowings

         

0

       

14,810

Total Current Liabilities

         

103,799

       

147,890

Long-term Debt

         

0

       

0

Shareholders’ Equity

         

177,426

       

184,605

                     

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

     

September 30,

 

 

September 30,

Product Line Data:

   

2009

 

 

2008

 

 

Change

   

2009

 

 

2008

 

 

Change

Snowmobiles

   

$

85,739

   

$

98,379

   

-13

%

   

$

103,656

   

$

119,795

   

-13

%

All-terrain Vehicles

     

51,727

     

71,646

   

-28

%

     

83,898

     

125,421

   

-33

%

Parts, Garments & Accessories

   

 

28,834

   

 

34,289

   

-16

%

   

 

48,116

   

 

52,975

   

-9

%

Total Sales

   

$

166,300

   

$

204,314

   

-19

%

   

$

235,670

   

$

298,191

   

-21

%

Source: Arctic Cat Inc.

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37 COMMENTS

  1. “Inventories were reduced 23 percent to $133.6 million from $172.3 million”

    This is because all of their inventory was forced onto the dealers!!!!!!

  2. Fred UP and/or any other dealers: I’m curious… has there been more or less “push” of product onto the dealer recently, compared with previous years? How about snowmobiles vs. ATVs?

  3. According to the conference call, Arctic Cat has helped reduce dealer ATV inventory by 22 percent compared to last year. Dealer snowmobile inventories down 14 percent compared to last year. Sounds like they also reduced backyard inventory.

  4. “With retail industry ATV sales continuing to decline during the recession, Arctic Cat has worked to reduce dealer inventories and, at the same time, increase market share” It appears to me that dealers have more inventory than normal. Especially hold over machines. And trucks keep comming in pouring on more machines. How is there help reducing inventories?….with high intrest programs and non competitive machine prices?

    “We also are taking appropriate actions to preserve cash and maintain dealer health,” How So?

  5. Some obvious ways of helping reduce dealer inventory would be through ongoing reduced production (so they aren’t continually loading up dealers), added promotion of retail products and retail incentive programs, the latter two requiring cash, which recently has been in short supply. I’m not certain these are all happening, at least at a level that’s satisfactory for dealers. I’d love to hear the dealers’ opinions. Also, are the retail programs from Cat significantly different than the other three? I truly don’t know.

  6. Hold on !!!! In order to receive these fabulous retail icentives a dealer has to order more product, adding to their iventory. So I dont think that the dealer inventories are shrinking, I would say that they are growing. Correct ???

  7. Good point Fred !

    Why would you load up a dealer with so much current model year units when they are having a hard time moving their noncurrents? Plus someone is selling noncurrents out of their backyard way cheaper than the ones dealers have in inventory !! This isn’t right !!!! Is it ??

  8. Where can you get these non-currents at? What kind of price can you get a 550 efi fur? I know some of the Non current polaris atv’s are going pretty reasonably.

  9. John–They must not be offering to many rebates or financing options on units. If you look at the numbers, they have drastically reduced what they were spending on “Selling and Marketing”. Would that not lead to reduced rebates being offered to dealers and customers? It actually looks like the administrative cost have increased. Wouldn’t it be better to cut administrative costs and put more $$$ into selling and marketing to keep/gain market share? This does not seem like an effective plan. Are they trying to go “Green” buy cutting down on marketing or something?

  10. No Don, I think they are looking out for number one. And their customers (dealers) are the ones taking the hits to make their numbers better. Most dealers inventories are up 20% or more, and Cat’s is down….do the math

  11. I agree with you Arctic 1, our inventory is up 35% over last year. The dealers have helped them out, so why don’t they help the dealers out ?

  12. i am employed at a cat dealership in ontario, and it is so nice to see the manufacture of world class products do well. However there dealer network is hurting. with two teir prices for canada and the usa it is very hard to keep canadian customers from shopping usa. with the strong cdn$ and lower us retail prices the canadian dealers are loseing customers everyday. It is hard to compete with the difference in dealer cost from us to canada and the us dealers have a very stong retail customer program, while in canada are programs are near nothing… 250 cat cash and a two year warranty on 2010 sleds and rebates on average of 800 for noncurrent sleds. With the weak economy they should be helping the dealers reduce inventory but there not, they just keep added to it with blackmail type programs. ie: hey we will give you price protection on one sled you have instock, (cost 8000).. but you have to order one morefrom our inventory (cost 7500) then they also credit your 8000 inventory sled 500… cost average and sell more is there thought.. well let me tell ya its crap…. if i have a new 07 instock, what makes you think i can sell it plus another for 500 dollars less…. all in all from what i see on the sales floor the only manufacture to take some control is polaris, they have good programs and have taken means to reduce cost to the consumer.. abit makeing a sled or atv thats old tech and selling it for far less than the hi tech model. buy doing this they have created a playin field where no other manufacture can compete. ie polaris 500 carb atv selling at 5999.00 arctic cat 500 atv selling at 8499… what would you buy?

    any other dealers have any thoughts?

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  16. OK….Like Mg Myo,I’ll push you to call back sweet memory.Eventhough we don’t have kytpuyut,ican just drop and give you lephat and poneyeegyi.I’ll pull some strands of sweet memory…..not long long time ago…on a ship road to Mandalay….. you have to go on:)Gyidaw

  17. OK….Like Mg Myo,I’ll push you to call back sweet memory.Eventhough we don’t have kytpuyut,ican just drop and give you lephat and poneyeegyi.I’ll pull some strands of sweet memory…..not long long time ago…on a ship road to Mandalay….. you have to go on:)Gyidaw

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  20. Here is the answer on the snceod photo:This is a horntail. The species is Urocerus flavicornis (in the literature called U. gigas flavicornis). If you have more images of this species, I would like to get permission to use a side view of this species for my siricid paper.HenriHenri GouletResearch Scientist (Entomology) | Chercheur (entomologie)Agriculture et Agroalimentaire Canada | Agriculture and Agri-Food Canada960 Carling Av. | 960 Ave CarlingOttawa, ON K1A 0C6Te9le9phone | Telephone 613-759-1832Te9le9copieur | Facsimile 613-759-1927Te9le9imprimeur | Teletypewriter 613-773-2600Gouvernement du Canada | Government of Canada http://rbpplpzlbm.com [url=http://gidjggygmt.com]gidjggygmt[/url] [link=http://hftrwfh.com]hftrwfh[/link]

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  23. I’m hoping you might have have sotihmeng to say about 2 and 3:1. It’s cold in Boston too, so2. What’s the connection between cold north Atlantic and extraordinary melt further north (I’ve seen the pix from Greenland, mostly from climatechangepsychology blog (Tenney Naumer)? I know it’s not simple, just asking; maybe the answer is a couple of years down the road.3. You mention squawk radio meteorologist in link from RealClimate in connection with one wmar who is a pest at DotEarth. For my sins, I’ve appointed myself (yeah, I should know better) as one who finds ways to reveal how phony his materials are. Do you know who he is (with, say, 90% certainty like the IPCC)? If so, I won’t quote you, but would like to know. http://dradfnpp.com [url=http://sksrymuxkb.com]sksrymuxkb[/url] [link=http://tnoppnd.com]tnoppnd[/link]

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