Arctic Cat (
F2Q2011 Earnings Call
October 28, 2010; 11:30 am ET
Chris Twomey - Chairman & Chief Executive Officer
Claude Jordan - President & Chief Operating Officer
Tim Delmore - Chief Financial Officer
Shawn Brumbaugh - Padilla Speer Beardsley
Rommel Dionisio – Wedbush Morgan
Brandon Taylor – Raymond James Financial
Dennis Scannell – Rutabaga Capital
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Good day ladies and gentlemen and thank you for standing by. Welcome to the Arctic Cat’s fiscal 2011 second quarter earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today Thursday, October 28, 2010.
I would now like to turn the conference over to Shawn Brumbaugh. Go ahead ma’am.
Thank you. Thank you for joining us this morning. I’m Shawn Brumbaugh with Padilla Speer Beardsley. Before the market opened this morning, Arctic Cat released results for its fiscal second quarter ended September 30, 2010. Separately, the company also announced its leadership succession plans.
Participating in our call today to discuss these items would be, Chairman and Chief Executive Officer, Chris Twomey, President and Chief Operating Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we will have time for any questions.
Before we begin, please note that some of the comments made today will be forward-looking statements regarding the company’s expectations to future performance. Such statements are subject to risks and uncertainties and actual results may differ materially from those contained in the statements. And uncertainties are described in today’s news release and in the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors that may affect results.
Now, I’ll turn the call over Arctic Cat’s CEO, Chris Twomey. Chris.
Thanks Shawn. Thanks everyone for joining us this morning. As Shawn referred to, we this morning released a press release covering the company’s succession plans and I want to bring your attention to the fact that after 24 years as Arctic Cat’s CEO, I plan to retire at the end of December 2010. And the Board has selected Claude Jordan as President and CEO effective January 1, 2011. To ensure a smooth transition, I will remain as Executive Board Chair.
I’ve had the opportunity to work closely with Claude for more than two years and have the utmost confidence that under his leadership, Arctic Cat will continue to grow profitably and enhance shareholder value. Claude has a tremendous understanding of all aspects of our business, our products, and our customers, as well as an immense drive to win and that’s a great combination. And given the strong team he has to work with here at Arctic Cat, I am truly excited about the future potential of this company.
This morning, I will cover the individual performance of our three businesses during the quarter. Claude will review the progress we have made on the operations as we focus on improving profitability, and Tim Delmore our CFO will review our financial performance.
We are pleased with our financial performance for the quarter, particularly our double-digit earnings gains, as well as our Snowmobile and ATV sales increases. On the year-to-date we’ve continued to improve gross margins and we are working on holding operating expenses flat as a percent of sales. We have also continued to hold or gain share in both product lines and have lowered our dealer inventories.
Snowmobile sales for the quarter are up 7%, primarily on increased international sales. We continue to focus on matching the wholesale and retail selling seasons in North America, so more of our sales to those dealers will be made in Q3, when the retail activity is the greatest.
Certain of our North American dealers have already reported good retail sales activity in October and the weather is starting to cooperate across North America this week including blizzards in Montana and Western North Dakota.
It’s important to remember that the strongest Snowmobile retail months in North America began in November. Overall for the year, we now expect our Snowmobile sales to be up as much as 10% to 12% based primarily on stronger international orders. We continue to monitor North American dealer inventories as one important measure of the overall health of our dealer network.
At quarter end, our dealer inventories were down 15%, compared to the same time last year. Even with the lower inventories, retail sales can increase allowing us to maintain growth share. Sales of ATVs rose 9% in the quarter, driven by sales of our new Prowler HDX, which is a side-by-side model designed more for the utility market than the recreation market, which is currently served by our newly designed Prowler.
Sales in the quarter were also positively impacted by increased international sales in both ATV’s and Prowlers. We continue to closely monitor retail sales in the ATV area, so that we can better manage wholesale and retail activity with our goal to again reduce dealer inventories.
Year-to-date ATV and Prowler inventories are down 23% and we have maintained market share. For the year, we now expect our ATV sales to be about flat with last year, based on stronger international sales and only slightly lower North American sales.
So far this year, we have introduced seven new models of ATV’s and Prowlers and made significant changes in three other models. During the remainder of the year, we will introduce three more new models in segments where we are currently underperforming and we expect to see market share gains as a result.