Arctic Cat Inc. (ACAT)
F2Q2012 Earnings Conference Call
October 27, 2011, 11:30 a.m. ET
Shawn Brumbaugh - IR, Padilla Speer Beardsley
Claude Jordan - President and CEO
Tim Delmore - CFO
Lisa Brozewicz - KeyBanc Capital Markets
Mark Smith - Feltl and Company
Craig Kennison - Robert W. Baird
Jake Crandlemire - Ramsey Asset Management
Previous Statements by ACAT
» Arctic Cat's CEO Discusses Q1 2012 Results - Earnings Call Transcript
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» Arctic Cat CEO Discusses F3Q2011 Results - Earnings Call Transcript
Good day ladies and gentlemen, thank you for standing by. Welcome to Arctic Cat Fiscal 2012 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 27, 2011.
I’d now like to turn the conference over to Shawn Brumbaugh. Please go ahead.
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 the fiscal 2012 second quarter ended December 30, 2011.
Participating in our call today to discuss the company’s performance and outlook will be President and Chief Executive 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 of future performance. Such statements are subject to risks and uncertainties and actual results may differ materially from those contained in the statements. These risks 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 to Arctic Cat’s CEO, Claude Jordan. Claude.
Thanks Shawn. Good morning everyone and thanks for joining us today. This morning I will cover the individual performance of our three businesses as well as the progress we have made in operation as we continue to focus on sales, profitability and improving our cash position. Following my comments, Tim Delmore, our CFO will review our financial performance.
Overall we are pleased with our financial performance for the quarter especially our double-digits sales and earnings growth. As we mentioned at the beginning of the year, we set out the growth sales in all product categories, improved gross margins, improve earnings per share, generate additional cash and reduced the overall inventory. Through the second quarter, we remain on-track to accomplish each of these.
In regard to individual businesses, snowmobile sales were up 25% for the quarter primarily driven by increased volume and to a lesser degree pricing and mix. Additionally, snowmobile dealer inventory for North America was lower by 12% driven by the excellent snow conditions we experienced last year. With the lower inventory and the increased orders we have taken on the 23 all new peripherals and product line snowmobile models we launched this year, we expect snowmobile sales to be up between 28% to 33%. This increase will be seen in both North America and international markets.
On the retail side we have only one month of snowmobile sales and we are seeing strong growth. However, the majority of these sales are due to the strong preseason snowmobile sales we took earlier this year. The strongest month of snowmobile retail sales will come in our third and fourth quarter. However, we feel confident that fiscal year 2012 will be a strong year for our snowmobile business.
Finally, two of our new model year ’12 snowmobiles have been recognized has led the year for 2012.
On the ATV business, sales increased 4% for the quarter driven primarily by the international sales. Additionally, we continue to focus on matching our wholesale sales to retail sales and we are successful in lower our North American dealer inventory by 24%.
Industry retail ATV sales for North America had another difficult quarter as sales decreased by approximately 12%. During the second quarter our core ATV retail business also decreased, however, we continue to see year-over-year retail growth in our side-by-side business and we are now seeing five straight months of positive growth. During the second quarter our side-by-side retail business grew at over 8%.
Some of the highlights for the quarter included the introduction of the all new Wildcat IV side-by-side vehicles which was introduced in July at the 50th year celebration of the Arctic Cat brand. The Wildcat, will have a 1000 high output V-Twin engine, electronic power steering, led lights front and rear, and an industry leading 17 inches of front travel suspension.
Based on the initial feedback we have received from our dealers and the media, we expect this to be an exciting addition to our model year 2012 line up. We will start shipping the Wildcat in limited quantities in our third quarter, and then in larger quantities in our fourth quarter.
Sales of our parts, garment and accessory business continue to perform well and we are up 13% for the quarter. Increased sales were driven by the pre-seasons snowmobile related parts, garments and accessories. During the quarter we also continued to expand on our e-commerce website for the U.S. market and have just launched the e-commerce website for our Canadian customers.
In regard to operational performance, we stated at the beginning of the year, our focus would be on improving gross margin, controlling our operating expenses and ending the year with more cash in our balance sheet. In the area of gross margins our goal was to increase gross margin by 20 to 60 basis point. During the second quarter, we have seen our gross margin decline by 126 basis points primarily due to product mix and sales incentive on early season snowmobile sales.