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Arctic Cat, Inc. (ACAT)
F1Q12 Earnings Call
July 28, 2011 11:30 a.m. ET
Shawn Brumbaugh – IR, Padilla Speer Beardsley
Claude Jordan – President and CEO
Tim Delmore – CFO
Scott Hamann – Keybanc Capital Markets
Craig Kennison – Robert W. Baird
Beth Lilly – Gabelli Asset Management
Previous Statements by ACAT
» Arctic Cat CEO Discusses F4Q2011 Results - Earnings Call Transcript
» Arctic Cat CEO Discusses F3Q2011 Results - Earnings Call Transcript
» Arctic Cat CEO Discusses F2Q2011 Results – Earnings Call Transcript
» Arctic Cat Inc F1Q11 (Qtr End 06/30/10) Earnings Call Transcript
I would now like to turn the conference over to Shawn Brumbaugh. Please go ahead.
Thank you. And 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 first quarter ended June 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.
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’ve made in operations as we continue to focus on profitability and reducing inventory. Following my comments, Tim Delmore, our CFO, will review our financial performance.
Overall, we are pleased with our financial performance for the first quarter. As we mentioned at the beginning of the year, we set out to grow sales in all product categories, improve gross margins, improve earnings per share, generate additional cash and reduce dealer inventory. Through the first quarter, we are on track to accomplish each of these.
In regard to the individual businesses, snowmobile sales were up 2% for the quarter, primarily driven by the increased volume in pricing. Additionally, snowmobile dealer inventory for North America was lower by 16%, driven by the excellent snow conditions we experienced last year.
With a lower inventory and increased orders we’re receiving on the 23 all new ProCross and ProClone snowmobile models, we launched earlier this year, we expect snowmobile sales to be up between 25% to 28%. This increase will be seen in both North American and international markets.
On the retail side, we will not see any significant retails until September and October. However, we feel confident that the fiscal year 2012, will be a strong year for our snowmobile business.
On the ATV business, sales increased 36% for the quarter. Key drivers were increased international in side-by-side sales. Additionally, we continue to focus on matching our wholesale sales to retail sales, in more successful and lowering our North American dealer inventory by 26%.
Industry retail ATV sales for North America had another difficult quarter as sales decreased by approximately 15%. Although North American industry retail sales were down, we were able to outperform the market and gained market share during the quarter.
Our side-by-side business has continued to perform well and has seen year-over-year sales increases driven primarily by the addition of our HDX heavy duty utility vehicle which was launched last year.
As we look forward, product development will once again be an area of focus. As shown, during our March dealer show, introduced yesterday, we are planning to launch a new sports side-by-side vehicle called the Wildcat, which will be a new segment for us. We are expecting to start taking orders for the Wildcat in our second quarter. The Wildcat will have a 1,000cc high output, D twin engine, electronic power steering, LED lights, bright and rear and an industry leading 17 inches of travel suspension. Based on the initial feedback, we have received more dealers, we expect this to be an exciting addition to our model year 2012 lineup.
Sales of our parts, garments and accessory business, continued to perform well and we’re up 7% for the quarter. Increased sales were driven by oil, garments and ATV parts.
During the quarter, we also launched our e-Commerce website for the US market, which will allow our customers to purchase parts, garments and accessories online.
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, reducing factory inventory and ending the year with more cash on our balance sheet.
In the area of gross margins, our goal was to increase gross margins by 20 to 60 basis points. During the first quarter, we have seen improvement to gross margin driven by higher volume, currency, product cost reduction efforts and higher selling pricing on select models. These actions have resulted in our gross margins, improving by 210 basis points during the quarter. Gross margin improvement will continue to be a major focus area, and we continue to expect gross margins to improve by 20 to 60 basis points for the year, although commodity costs will remain a challenge.