Arctic Cat Inc F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

Arctic Cat Inc (ACAT)

F1Q11 (Qtr End 06/30/10) Earnings Call

Jul 29, 2010 11:30 am ET


Shawn Brumbaugh - IR, Padilla Spear Beardsley

Chris Twomey - Chairman and CEO

Tim Delmore - CFO and Secretary

Claude Jordan - President and COO


Rommel Dionisio - Wedbush Securities

Phil Anderson - Longbow Research

Yasuna Murakami - MC2 Capital Management

Steven Baughman - Divisar Capital



Welcome to the Arctic Cat, fiscal 2011 first quarter Earnings Call. During today's presentation, all parties will be in a listen-only mode and following the presentation, the conference will be open for questions. (Operator Instructions) As a reminder, this conference is being recorded today, Thursday, 29th of July, 2010.

I would like to hand the conference over to Ms. Shawn Brumbaugh. Please go ahead, ma'am.

Shawn Brumbaugh

Thank you, Josh. Thank you for joining us this morning. I'm Shawn Brumbaugh with Padilla Spear Beardsley. Before the market opened this morning, Arctic Cat released results for its fiscal first quarter ended June 30, 2010.

Participating in our call today to review the company's performance will 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 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 will turn the call over to Arctic Cat's CEO, Chris Twomey. Chris?

Chris Twomey

Thanks, Shawn. Thanks, everyone for joining us today. This morning, I will cover the individual performance of our three businesses during the quarter. Claude Jordan, our President and CEO will review the progress we have made in the operations as we focus on improving profitability and Tim Delmore, our CFO will review the financial performance.

Snowmobiles sales in the quarter are down 4% as we continue to match wholesale and retail sales seasons. It is safe to say that with the warm wet summer the country is experiencing there is no retail demand at this time and we have altered our production and sales activity accordingly.

The North American Snowmobiles retail sales season begins in earnest in September and October and shipments to dealers have been shifted toward those months. For the year, we expect Snowmobile sales to be up 5% based primarily on the stronger orders from international distributors who were negatively impacted last year by currency changes. In spite of the overall weak European economy and as a result of favorable snow conditions, our distributors experienced good retail sales last year and are in a position to increase their orders this year.

We continually monitor North American dealer inventories as one important measure of the overall health of our dealer network. At quarter end, dealer inventories were down 17% compared to the same quarter last year. Even with lower dealer inventories retail sales can increase this year and we will maintain our grow market share.

Sales of ATVs for the quarter were down 13% again as we also shifted ATV sales to dealers later in the year, so that their inventories would continue to decline. Following the success we experienced last year taking ATV orders from our dealers at three separate times, which allowed us to more closely match dealer needs and retail sales, this year we will again visit each dealerships three times during the year to take the 2011 model year orders.

Again this approach will better match dealer orders with actual retail activity. Lower dealer inventory and reduced cost, so that more dollars will be available for retail programs if necessary. We will spread new model introductions over all three order cycles to generate increased retail interest. Our focus will to introduce new products in model segments, which currently show signs of improvement.

Uncertainties in the economy, weak consumer confidence and unemployment figures at near historic levels continue to negatively affect ATV retail sales. The overall rate of decline this year has slowed. However, calendar year, today retail sales in North America for the industry are down about 20%. Arctic Cat retail sales were down only about half as much as the industry. So, we have gained market share.

Retail sales of Prowler UTVs are also down for the year. Dealer inventories are down to a level, which could be negatively impacting retail sales. In July, we began shipping our all new Prowler XTX. This machine is configured for three passengers and is designed to be a heavy duty workhorse. It has a longer wheel base than the regular Prowler and is equipped with power steering and standard equipment.

Although, shipments have only begun in the last month, dealers are already reporting good retail sales activity. We expect this model as well as the newly styled regular Prowler will drive increased sales for the remainder of this year.

Overall, we expect ATV and Prowler sales to dealers and distributors to be down 3% to 6% for the fiscal year. Sales of parts, garments and accessories are down about 4% for the quarter. Sales of parts and accessories are up year-to-date, while we have delayed shipments of garments again to match the retail selling season.

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