Harley-Davidson's Q1 2023: Solid Start and Focus on Profitable Growth
2023-07-30
Harley-Davidson held its Q1 2023 investor and analyst conference call, led by CEO Jochen Zeitz, to discuss the company's first-quarter results and strategic plan. The call focused on Harley-Davidson's commitment to profitable growth, the evolving macro environment, and their dedication to innovation and desirability.
During the meeting, the company highlighted its solid start to the year, with a 20% increase in consolidated first-quarter revenue. One of the key topics discussed was Harley-Davidson's focus on profit and growth in their premium categories. The company believes that a highly promotional approach would negatively impact profitability in these segments. Instead, they are concentrating on activities that encourage customers to engage with their dealers to find the right bike for them. This strategy includes introducing limited edition motorcycles and refreshed models to increase desirability and drive the legacy of the brand.
Harley-Davidson also expressed its commitment to strengthen and grow its leadership in smaller cycle segments such as touring, large cruiser, and trike. These segments not only offer the most profitability globally but also have the potential to attract new customers and riders. By focusing on these areas, the company aims to drive growth and profitability.
As part of their strategy, Harley-Davidson made the decision to retire the EVO Sportster in North America, a model that had been carrying negative margins for many years. This move has created a different retail unit volume dynamic in 2023 compared to previous years, and the company will need to carefully consider the impact of this change and adjust their plans accordingly.
Looking at the market outlook, Harley-Davidson expects growth in the new market and a healthier dynamic compared to prior years. While there have been some adjustments due to production interruptions, the availability of inventory is in line with expectations. The first quarter showed strong margin performance, driven by factors such as strong unit delivery, favorable unit mix, pricing benefits from model year updates, and improved productivity. However, the company anticipates some moderation in margins for the rest of the year, with factors like mix and pricing impact settling down. Foreign exchange is expected to be a negative factor in the first half of the year but should become more neutralized in the second half. Overall, margin growth is expected to be weighted towards the front half of the year.
The key drivers of Harley-Davidson's business are a profit focus, product lineup, and geographic expansion. The company plans to motivate customers to engage with their dealers to find the right bike for them. They also aim to strengthen their leadership in smaller cycle segments and have introduced limited edition motorcycles to increase desirability and drive the legacy of the brand. Additionally, they are selectively focusing on opportunities in segments that align with their product and brand capabilities. Harley-Davidson aims to grow their customer base and add to customer lifetime value through parts and accessories, apparel and licensing, and Harley-Davidson Financial Services. They are driving growth in service ROs in their dealerships for parts and accessories, launching new collections for apparel and licensing, and developing custom products.
While specific KPIs were not explicitly mentioned in the meeting, revenue growth, unit growth in profitable motorcycle segments, expansion opportunities, brand desirability, and customer satisfaction could be significant KPIs for Harley-Davidson.
The company's outlook for the quarter and year appears positive. The Chief Financial Officer expressed confidence in the expected growth in Q2 and Q3, citing factors such as new product launches, a recently announced CVO, and an upcoming anniversary event. The company also expects growth in these quarters due to a production suspension last year. However, no specific numbers or figures were provided.
Harley-Davidson has made progress on its strategic initiatives, being in the third year of their Hardwire strategic plan. They reported a solid start to 2023 with a 20% increase in first-quarter revenue, driven by HDMC. The company has prioritized unit growth and profitable growth, identified stronghold categories in the motorcycle market, and selective expansion opportunities. They have emphasized the desirability and premium nature of their brand and product. The company remains confident in their innovation pipeline and is working with dealers to generate demand and address concerns around affordability.
The call meeting included various analysts and financial experts, such as Joseph Altobello from Raymond James, James Hardiman from Citi, Gerrick Johnson from BMO Capital Markets, Noah Zatzkin from KeyBanc Capital Markets, David Viney as the Incoming Interim Chief Financial Officer, David MacGregor from Longbow Research, and Brandon Rolle from D.A. Davidson. Their analysis and insights provided valuable perspectives for investors and stakeholders, helping them make informed decisions about Harley-Davidson's financial prospects.
In summary, Harley-Davidson's Q1 2023 earnings call highlighted the company's solid start to the year and their focus on profit and growth in premium categories. They are committed to strengthening their leadership in smaller cycle segments and have made strategic decisions to drive growth and profitability. The company's market outlook is positive, and they remain confident in their innovation pipeline. With their ongoing strategic initiatives and collaboration with dealers, Harley-Davidson aims to continue attracting new customers and expanding their brand desirability.