Arctic Cat Inc. (SAP)
F3Q10 (Qtr End 12/31/09) Earnings Call Transcript
January 27, 2010 11:30 am ET
Shawn Brumbaugh – IR, Padilla Spear Beardsley, Inc.
Chris Twomey – Chairman and CEO
Claude Jordan – President and COO
Tim Delmore – CFO and Secretary
Scott Hamann – Keybanc Capital Markets
Previous Statements by ACAT
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I would now like to turn the conference over to Ms. Shawn Brumbaugh with Padilla Speer Beardsley. Please go ahead.
Thank you. 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 third quarter ended December 31, 2009. 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 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 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?
Thanks, Shawn. Thanks everybody for joining us today. This morning, I will review the performance of each of our three product lines during the quarter. Claude Jordan, our President and COO will review the progress we have made in operations as we’ve focused on returning the company to long-term profitability and at the same time investing in select products to position Arctic Cat to be a stronger company as the economy recovers. And Tim Delmore, our CFO, will review our financial performance for the quarter.
I believe the world-wide economy continues to improve albeit at a very slow pace and the consumer recreational products markets are lagging in the overall economic recovery. Consumer spending is improving slightly and will continue to improve, but it will be held back by the unemployment rate which will not change substantially in calendar-year 2010. With these overall economic views, let me talk about the individual product lines.
Snowmobiles sales for the quarter were down 35% and 23% year to date, reflecting our lower planned sales for the year. Snowmobiles sales are lower in both North America and international markets as a result of the world-wide recession. We are closely monitoring dealer snowmobile inventories as one important measure of the overall health of our dealer network. At quarter-end, dealer inventories were down 16% compared to last year. North American total industry retail sales of snowmobiles are down about 20% compared to the same period last year.
Arctic Cat retail sales through December outperformed the industry and we have gained market share. Most of the snowfall so far this year came in late December. As a result, we have seen a strong pick up in retail sales in January. If this trend continues, we will close the retail sales gap with last year, but more importantly our dealers will have another good year of parts, garments and accessories as well as service sales, which will dramatically help their profitability.
ATV sales for the quarter were down 17% and 28% year to date as we have moved to adjust wholesale sales to better match retail sales activity and at the same time lower dealer inventories. At quarter end, the dealer inventories were down 23% compared to the same period last year. Arctic Cat North American total industry retail sales of ATVs through December were down less than the industry and Arctic Cat again gained share in this market as well.
Retail sales of Arctic Cat Prowler UTVs are down for the year, however significantly less than the core ATVs. We have also worked to better match wholesale and retail sales activities for Prowler UTVs, and at quarter-end dealer inventories are down at 11% compared to a year ago. Sales of parts, garments and accessories are down 7% for the quarter and 8% for the year to date. Again, we could see an improvement in this area if the snow stays and the dealers continue to service snowmobiles during Q4.
Now I would like to turn the call over to Claude Jordan for a review of the company’s operation. Claude?
Thanks, Chris. Good morning, everyone. As we have stated on our previous calls, our focus for fiscal-year 2010 will be on reducing expenses, controlling cash and positioning the business to be stronger as the economy recovers. As a result of these initiatives we have implemented, over the last 12 months, we have seen continued improvement in gross margins, lower operating expenses, lower inventory and stronger cash positioning.
In regard to operating expenses, we mentioned at the beginning of the year, our goal was to reduce expenses to over 17% compared to last year. With this in mind, we implemented numerous initiatives that have resulted in reduction during the third quarter of 9.3% and year to date of 14.4%.