Arctic Cat reported its fiscal 1st Quarter 2017 financial results today.
Here’s the company’s news release:
*First quarter net sales totaled $104.9 million;
*Net loss $0.81 per share;
*Continued progress made on strategies to reposition company;
*ATV/ROV dealer inventory down 9 percent;
*Company maintains fiscal 2017 revenue outlook, lowers EPS guidance on a weaker powersports market, increased promotional costs and unfavorable product mix
Arctic Cat Inc. (NASDAQ: ACAT) today reported a net loss of $10.6 million, or $0.81 per share, on net sales of $104.9 million for the fiscal 2017 first quarter ended June 30, 2016. The impact of unfavorable foreign currency exchange movements year-over-year was $0.20 per share. In the prior-year quarter, Arctic Cat reported a net loss of $1.1 million, or $0.08 per share, on net sales of $134.4 million.
Christopher Metz, Arctic Cat’s president and chief executive officer, stated: “As expected, Arctic Cat’s first-quarter sales were lower compared to the year-ago quarter. Importantly, we made progress on reducing dealer inventory, and further strengthened and expanded our dealer base, despite a weaker powersports market and continued foreign currency headwinds. However, the first-quarter per share loss was greater than anticipated, chiefly due to the timing of snowmobile shipments that shifted to the second quarter, as well as a more competitive retail environment that led to higher promotional spending than planned.”
Commenting further, Metz said: “We continue to focus on implementing our strategies and are encouraged by the significant progress we are making to reposition the company for long-term growth. We anticipate reporting stronger financial results in the second half of this fiscal year, driven by planned new product launches and contributions from our other key strategic initiatives.”
The company’s strategies to reinvigorate growth include: dramatically improving Arctic Cat’s dealer network; ramping up end-user focused new products; pursuing strategic partnerships; and creating a brand marketing powerhouse.
First-Quarter Operating Review
Arctic Cat’s fiscal 2017 first quarter net sales were down 22.0 percent to $104.9 million versus $134.4 million in the prior-year quarter. Unfavorable foreign currency exchange reduced net sales in the quarter by approximately 1.6 percent.
Gross profit and gross profit margin in the 2017 first quarter were approximately $11.8 million and 11.2 percent, respectively, compared to $22.6 million and 16.8 percent, in the prior-year quarter. Lower sales volumes and unfavorable foreign currency exchange impact reduced gross profit by approximately $1.6 million, or $0.08 per share.
Operating expenses in the fiscal 2017 first quarter were approximately $29.1 million compared to $24.1 million in the year-ago quarter. The year-over-year increase was chiefly attributable to unfavorable foreign currency exchange rates totaling $2.7 million, with the remainder primarily due to research and development investments. Operating loss in the 2017 first quarter was $17.3 million versus an operating loss of $1.5 million in the same quarter last year.
Arctic Cat ended the 2017 first quarter with cash and cash equivalents totaling $13.5 million at June 30, 2016, compared to $20.3 million a year ago. The company continued to make investments in the business to lay the foundation for future growth and to improve efficiency.
Business Line Results
ATVs/ROVs – Sales of Arctic Cat’s all-terrain vehicles (ATVs) and recreational off-highway vehicles (ROVs) in the 2017 first quarter totaled $43.7 million, down 17.3 percent compared to prior-year sales of $52.9 million. While sales of Arctic Cat’s side-by-side ROVs remained strong, including the Wildcat™, core ATV sales decreased as planned, as the company continued to lower core ATV inventory at its North America dealers. The company succeeded in decreasing ATV/ROV dealer inventory by approximately 9 percent in the fiscal 2017 first quarter.
As part of Arctic Cat’s aggressive new product development plans, the company introduced the first wave of its 2017 model year ATVs and ROVs, including six all-new models and a total of 27 class-leading machines for all categories of off-road work and play. These new 2017 models include the versatile and powerful HDX™ Crew six-passenger utility vehicle, the Prowler utility vehicle and the Alterra™ TRV® with 2-up passenger seating.
Commented Metz: “Consumers are very enthusiastic about our newest offerings, such as the HDX Crew and Prowler 500 utility side-by-sides. These vehicles provide innovative features at a great value. Our latest introductions are fueling sales and provide an indicator of what launching exciting new products can do for our business. Further, we continue to make progress on implementing our new product roadmap. Within the current 2017 fiscal year, we expect to unveil the first of these industry-leading new products, with continued new product introductions thereafter.”
Snowmobiles – Snowmobile sales in the fiscal 2017 first quarter were down 30.4 percent to $40.5 million versus $58.2 million in the prior-year quarter, chiefly stemming from the timing of shipments. Commented Metz: “At our March dealer show, we launched one of our most exciting snowmobile lines in years, with many award-winning models. We believe we are well positioned for retail growth in our snowmobile business this year.”
Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2017 first quarter were down 11.5 percent to $20.6 million versus $23.3 million in the prior-year quarter. The decline is primarily attributable to an overall weakening of the powersports market, as well as lower pre-season sales of snow-related items, resulting from poor snowfall last winter in key geographies.
Fiscal 2017 Full-Year Outlook
Commenting on the company’s outlook, Metz stated: “We face ongoing challenges in fiscal 2017, with a soft and increasingly competitive powersports marketplace, and continued foreign currency headwinds. Yet, we see tremendous growth opportunities through new product innovation and strategic partnerships. We are highly encouraged by the progress we are making in these areas and we expect contributions from each in the near future. As we invest to support our strategic initiatives, we remain intensely focused on controlling costs.”
For the fiscal year ending March 31, 2017, Arctic Cat is maintaining its estimated full-year net sales in the range of $635 million to $655 million, assuming a favorable foreign currency exchange impact on sales in the range of $2 million to $5 million. The company is lowering its anticipated fiscal 2017 full-year net earnings to range from a loss of $0.70 per share to $1.00 per share, due to a weaker powersports market, increased promotional costs and unfavorable product mix. Previously, Arctic Cat estimated its fiscal 2017 full-year net earnings to range from a loss of $0.39 per share to earnings of $0.08 per diluted share. Continued foreign currency exchange headwinds in fiscal 2017, driven by the year-over-year impact of foreign currency exchange hedge losses, are estimated to reduce net earnings in the range of $0.42 to $0.53 per share compared to fiscal 2016. The company expects to end fiscal 2017 with little to no long-term debt. For the prior fiscal 2016 full year, the company’s loss per share totaled $0.71 on net sales of $632.9 million.
“Excluding the impact of foreign currency headwinds, we expect the company’s fiscal 2017 net loss to improve by approximately $0.33 per share over fiscal 2016, at the mid-point of our earnings guidance range, as we begin to grow sales and expand gross margins,” Metz said. “Assuming macroeconomic conditions are stable, we anticipate further accelerating sales, earnings and gross margin expansion next fiscal year, as our strategic initiatives begin to take hold.”
In the first half of fiscal 2017, Arctic Cat expects that its net sales will be down 12 percent to 15 percent, as the company continues efforts to improve dealer inventory and prepares to launch new products and other strategic initiatives. Arctic Cat expects stronger financial results in the second half of the year to be driven by new product launches that will begin in the fiscal 2017 third quarter, with the majority of new products to be launched in the fiscal 2017 fourth quarter.
Arctic Cat’s fiscal 2017 financial outlook includes the following assumptions:
- ATV/ROV wholesale sales flat to up low-single digits; snowmobile sales down low-single digits; and PG&A sales flat to up low-single digits;
- Positive foreign currency impact on sales for the full year in the range of $2 million to $5 million, assuming a Canadian dollar at $1.29, compared to an average rate in fiscal 2016 of $1.31;
- Negative foreign currency exchange hedge losses for the full year in the range of $4 million to $6 million, versus foreign currency exchange hedge gains of $7.6 million in fiscal 2016, are expected to result in a net year-over-year increase in operating expenses of $12 million to $14 million. The company estimates that 70 percent to 80 percent of the net Canadian dollar exposure is hedged at an average rate of $1.34 in fiscal 2017;
- Gross margin in the range of approximately 15.5 percent to 16.5 percent;
- R&D expense of approximately 4.5 percent of sales, as the company continues to ramp up its investment in end-user focused new products; and
- Capital expenditures in the range of $30 million to $35 million.
Added Metz: “Our focus this fiscal year is to continue to rebuild and reposition the company for a return to long-term growth. We remain confident in our strategic plans to turn the business around and excited about Arctic Cat’s long-term future.”
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ARCTIC CAT INC. |
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Financial Highlights |
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($ in thousands, except per share amounts) |
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(Unaudited and subject to reclassification) |
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Three Months Ended |
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June 30, |
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Statements of Operations: |
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2016 |
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2015 |
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Net Sales |
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|
Snowmobile and ATV/ROV units |
$ |
84,277 |
$ |
111,105 |
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|
Parts, garments and accessories |
|
20,595 |
|
|
23,276 |
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Total net sales |
104,872 |
134,381 |
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Cost of Goods Sold |
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|
Snowmobile and ATV/ROV units |
80,678 |
96,957 |
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|
Parts, garments and accessories |
|
12,437 |
|
|
14,862 |
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Total cost of goods sold |
|
93,115 |
|
|
111,819 |
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Gross Profit |
11,757 |
22,562 |
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Operating Expenses |
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Selling and marketing |
9,192 |
8,955 |
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Research and development |
7,858 |
6,003 |
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General and administrative |
|
12,015 |
|
|
9,151 |
|
||||
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Total operating expenses |
|
29,065 |
|
|
24,109 |
|
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Operating Loss |
(17,308 |
) |
(1,547 |
) |
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Other Income (Expense) |
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Interest income |
2 |
– |
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Interest expense |
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(212 |
) |
|
(114 |
) |
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Total other expense |
|
(210 |
) |
|
(114 |
) |
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Loss Before Income Taxes |
(17,518 |
) |
(1,661 |
) |
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Income Tax Benefit |
|
(6,966 |
) |
|
(605 |
) |
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Net Loss |
$ |
(10,552 |
) |
$ |
(1,056 |
) |
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Net Loss Per Share |
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Basic |
$ |
(0.81 |
) |
$ |
(0.08 |
) |
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Diluted |
$ |
(0.81 |
) |
$ |
(0.08 |
) |
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Weighted Average Shares Outstanding: |
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|
Basic |
|
13,047 |
|
|
12,958 |
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||||
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Diluted |
|
13,047 |
|
|
12,958 |
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June 30, |
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Selected Balance Sheet Data: |
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2016 |
2015 |
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Cash and Short-term Investments |
$ |
13,509 |
$ |
20,278 |
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Accounts Receivable, net |
45,039 |
40,088 |
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Inventories |
179,556 |
169,543 |
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Total Assets |
355,491 |
333,499 |
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Total Current Liabilities |
134,347 |
108,394 |
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Long-term Debt |
50,047 |
30,877 |
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Shareholders’ Equity |
157,887 |
179,501 |
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Three Months Ended |
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June 30, |
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Product Line Data: |
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2016 |
2015 |
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Change |
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Snowmobiles |
$ |
40,537 |
$ |
58,231 |
(30.4)% |
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ATV/ROV Vehicles |
43,740 |
52,874 |
(17.3)% |
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Parts, Garments & Accessories |
|
20,595 |
|
|
23,276 |
|
(11.5)% |
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Total Sales |
$ |
104,872 |
|
$ |
134,381 |
|
(22.0)% |
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