Second quarter net sales totaled $164.6
million;
Net loss $0.98 per share;
Continued progress made on strategies to
reposition company, including signing two strategic
partnerships;
Commitment letter signed to extend and
increase revolving bank agreement to $130 million year round to
support future growth initiatives;
Company lowers fiscal 2017 revenue and EPS
outlook on weaker powersports market, increased promotional costs
and unfavorable product mix
Arctic Cat Inc. (NASDAQ:ACAT) today reported a net loss of $12.8
million, or $0.98 per share, on net sales of $164.6 million for the
fiscal 2017 second quarter ended September 30, 2016. Arctic Cat®
recorded a special item totaling $1.4 million after tax, or $0.10
per share, for a product liability settlement in the fiscal 2017
second quarter. In the prior-year quarter, Arctic Cat reported net
earnings of $11.2 million, or $0.85 per diluted share, on net sales
of $211.2 million.
Christopher Metz, Arctic Cat’s president and chief executive
officer, stated: “We expected that Arctic Cat’s second quarter
would be challenging, as we continued to implement our turnaround
strategies. However, we encountered a softer than anticipated
powersports market in the quarter, with Arctic Cat’s and the
overall industry’s sales down. We are disappointed in the company’s
second-quarter results, which were impacted by lower sales volumes,
unfavorable product mix and a heightened promotional
environment.”
Commenting further, Metz said: “We made further progress on
implementing our strategic growth initiatives in the fiscal 2017
second quarter. We recently signed two strategic partnerships – one
during the fiscal 2017 second quarter and the other after quarter
end – that we anticipate will contribute meaningfully to Arctic
Cat’s future revenues in fiscal 2018 and beyond. We continue to
expect reporting stronger financial results in the second half of
this fiscal year, driven by planned new product launches and an
improved product mix.”
The company’s strategies to reinvigorate growth include:
pursuing strategic partnerships; ramping up end-user focused new
products; creating a brand marketing powerhouse; and improving
Arctic Cat’s dealer network.
Operating Review
Arctic Cat’s fiscal 2017 second quarter net sales were down 22.0
percent to $164.6 million versus $211.2 million in the prior-year
quarter. Foreign currency exchange had minimal impact on net sales
in the quarter.
Gross profit and gross profit margin in the 2017 second quarter
were approximately $13.5 million and 8.2 percent, respectively,
compared to approximately $43.9 million and 20.8 percent,
respectively, in the prior-year quarter. Contributing to the
year-over-year decrease in gross profit were: lower sales volumes;
unfavorable product mix, primarily driven by an increase in lower
margin snowmobile sales to our OEM partner; increased sales
incentives as a result of a highly promotional retail environment;
and unfavorable foreign currency exchange impact on engine
purchases.
Operating expenses in the fiscal 2017 second quarter were
approximately $32.6 million compared to $25.3 million in the
year-ago quarter. The year-over-year increase was chiefly
attributable to unfavorable impact from our foreign currency
hedging activities of $3.9 million, a $2.2 million product
liability settlement, and increased research and development costs
associated with investments in new end-user focused products as
part of our new product roadmap. Operating loss in the 2017 second
quarter was $19.1 million versus an operating profit of $18.7
million in the same quarter last year.
Arctic Cat ended the 2017 second quarter with cash and cash
equivalents totaling $9.2 million at September 30, 2016, compared
to $10.7 million a year ago. The company expects to generate
significant cash from operating activities in the second half of
the fiscal year, as the company ships new products and reduces
inventories. By the end of fiscal 2017, the company anticipates
reducing inventory by up to $55 million and lowering long-term debt
by $25 million to $50 million. The company continues to make
investments in the business to lay the foundation for future growth
and to improve efficiency.
For the six months ended September 30, 2016, Arctic Cat’s net
loss was $23.3 million, or $1.79 per share, compared to net
earnings of $10.1 million, or $0.77 per diluted share, in the
prior-year period. Included in the net loss for the six-month
period is a special item totaling $1.4 million after tax, or $0.10
per share, for a product liability settlement recorded in the
fiscal 2017 second quarter. Year to date, the company’s net sales
totaled $269.5 million versus $345.5 million in the year-ago first
six months.
Business Line Results
ATVs/ROVs – Sales of Arctic Cat’s all-terrain vehicles
(ATVs) and recreational off-highway vehicles (ROVs) in the 2017
second quarter totaled $44.0 million, down 37.8 percent compared to
prior-year sales of $70.8 million. Year-to-date sales totaled $87.8
million, down 29 percent from $123.6 million in the prior-year
first half.
Metz stated: “Faced with a weak powersports market impacted by
macroeconomic trends in the oil, gas and agricultural sectors, our
sales in the second quarter and year to date are lower than we
expected and our dealer inventory levels remain higher than we
would like. Despite our challenges, we are committed to reducing
dealer inventory to make room for our exciting and innovative new
products slated to hit the market over the next 12 months. We are
making tremendous progress on multiple new product initiatives and
are pleased to begin delivering ROV models designed in partnership
with Robby Gordon. We are on track to introduce three new ATV/ROV
product waves this fiscal year. Two waves have been announced. We
will unveil the third new product wave by late February at our
dealer show.”
In early September of 2016, the company unveiled the second wave
of its 2017 model year ATVs and ROVs, including new Wildcat™ X and
Wildcat 4X models that feature an all-new RG™ PRO rear suspension,
and a value-priced Alterra™ 300 ATV. The second wave is on top of
the fiscal 2017 first quarter introduction of six all-new models,
featuring the versatile and powerful HDX™ Crew six-passenger
utility vehicle, the Prowler utility vehicle and the Alterra™ TRV®
with 2-up passenger seating. Arctic Cat expects these exciting new
products to drive topline and bottom line growth in the second half
of fiscal 2017.
Snowmobiles – Snowmobile sales in the fiscal 2017 second
quarter were down 12.9 percent to $95.7 million versus $109.9
million in the prior-year quarter, due to lower North American
sales volumes of Arctic Cat products and an increase in incentives,
partially offset by increased shipments to our OEM partner.
Year-to-date snowmobile sales totaled $136.2 million, down 19
percent compared to $168.1 million in the year-ago period.
Parts, Garments & Accessories – Sales of parts,
garments and accessories (PG&A) in the fiscal 2017 second
quarter were down 18.3 percent to $24.9 million versus $30.5
million in the prior-year quarter. The decline is primarily
attributable to a sluggish powersports market and lower pre-season
sales of snow-related items, resulting from elevated dealer
inventories as a result of poor snowfall in key geographies for the
past two consecutive years. Year-to-date, PG&A sales totaled
$45.5 million, down 15.4 percent from $53.8 million in the first
half of fiscal 2016.
Financing Agreement
In November 2016, Arctic Cat signed a commitment letter to amend
its senior secured revolving credit agreement. The amendment would
extend the term of the agreement to November 2021 and permit
borrowings up to $130 million year round. Arctic Cat expects the
amendment to be finalized prior to December 1, 2016.
Fiscal 2017 Full-Year
Outlook
Commenting on the company’s outlook, Metz stated: “We continue
to face ongoing challenges in fiscal 2017, with a soft and
increasingly competitive powersports marketplace, and continued
headwinds from foreign currency. We are positioning Arctic Cat to
capitalize on tremendous growth opportunities through new product
innovation and strategic partnerships. We are highly encouraged by
our progress in these areas and we expect future contributions from
each. As we invest to support our strategic initiatives, we are
cutting costs and manufacturing output to improve free cash flow
and earnings. We believe that our balanced approach, along with our
new bank agreement, will enable us to realize Arctic Cat’s
long-term growth potential.”
For the fiscal year ending March 31, 2017, Arctic Cat is
lowering its estimated full-year net sales and earnings range,
reflecting a weakened powersports market, unfavorable macroeconomic
trends, unfavorable product mix, and a highly competitive
promotional environment. The company now anticipates fiscal 2017
net sales of $600 million to $640 million, and fiscal 2017 net
earnings to range from a loss of $1.00 per share to $1.40 per
share, which reflects a return to profitability in the second half
of the fiscal year. Previously, Arctic Cat estimated its fiscal
2017 full-year net earnings to range from a loss of $0.70 per share
to a loss of $1.00 per 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 $0.44 to $0.47 per share compared to
fiscal 2016. For the prior fiscal 2016 full year, the company’s
loss per share totaled $0.71 on net sales of $632.9 million.
Arctic Cat’s fiscal 2017 financial outlook includes the
following assumptions:
- ATV/ROV wholesale sales flat to down
mid-single digits; snowmobile sales flat to down high-single
digits; and PG&A sales flat to up single digits;
- Neutral to slightly negative foreign
currency impact on sales for the full year of $1 million or less,
assuming an average Canadian dollar of $1.31 for fiscal 2017, which
reflects an average rate of $1.33 for the second half of fiscal
2017, 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 $1.5 million to $2.5
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 $9 million to $10
million. The company estimates that 70 percent of the net Canadian
dollar exposure is hedged at an average rate of $1.33 for the
balance of fiscal 2017;
- Gross margin in the range of
approximately 13.5 percent to 15.0 percent, with the lower end of
the range reflecting continued elevated promotional incentives in
the second half of the fiscal year;
- R&D expense of approximately 5.0
percent of sales, as the company continues to ramp up its
investment in end-user focused new products, including products to
support our new strategic partnerships; and
- Capital expenditures in the range of
$30 million to $35 million.
Added Metz: “We remain focused this fiscal year on rebuilding
and repositioning the company for a return to long-term growth when
macroeconomic conditions improve. We are confident in our long-term
strategic plans to turn the business around.”
Conference Call
Arctic Cat will host a conference call and webcast, accompanied
by a slide presentation, at 10 a.m. CT (11 a.m. ET) today to
discuss its fiscal 2017 second-quarter results. To listen to the
conference call by phone, dial 800-768-6570 in the U.S. and Canada,
or 785-830-1942 internationally. The conference ID number is
3585182. A replay will be available until Wednesday, November 16,
2016, at 888-203-1112. To access the slide presentation, live
webcast or webcast replay, go to www.arcticcat.com, investors, and
click on the webcast icon.
About Arctic Cat
The Arctic Cat brand is among the most widely recognized and
respected in the recreational vehicle industry. The company
designs, engineers, manufactures and markets all-terrain vehicles
(ATVs), side-by-sides and snowmobiles, in addition to related
parts, garments and accessories under the Arctic Cat® and
Motorfist® brand names. Arctic Cat Inc. is headquartered in
Minneapolis, Minnesota. Its common stock is traded on the NASDAQ
Global Select Market under the ticker symbol “ACAT.” More
information about Arctic Cat and its products is available at
www.arcticcat.com.
Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for certain forward-looking statements. The company’s
Annual Report, as well as the Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q and other filings with the
Securities and Exchange Commission, the company’s press releases,
investor presentations and oral statements made with the approval
of an authorized executive officer, contain forward-looking
statements that reflect the company’s current views with respect to
future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical
results or those anticipated. The words “aim,” “believe,” “expect,”
“anticipate,” “intend,” “estimate” and other expressions that
indicate future events and trends identify forward-looking
statements including statements related to our fiscal 2017 outlook,
business strategy, strategic partnerships, performance
opportunities, expected inventory reductions, product introductions
and demand, expected expenses, market position, and the impact of
foreign currency exchange rates. Actual future results and trends
may differ materially from historical results or those anticipated
depending on a variety of factors, including, but not limited to
those set forth in the company’s Annual Report on Form 10-K for the
year ended March 31, 2016, under heading “Item 1A. Risk Factors”
and factors described in the company’s subsequent filings with the
Securities and Exchange Commission. The company does not undertake
any obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
ARCTIC CAT INC.
Financial Highlights
($ in thousands, except per share
amounts)
(Unaudited and subject to
reclassification)
Three Months Ended Six Months Ended September 30,
September 30,
Statements of Operations: 2016
2015 2016 2015 Net Sales Snowmobile and ATV/ROV units $
139,702 $ 180,676 $ 223,979 $ 291,781 Parts, garments and
accessories 24,908 30,481 45,503
53,757 Total net sales 164,610 211,157 269,482
345,538 Cost of Goods Sold Snowmobile and ATV/ROV units 133,269
147,739 213,947 244,696 Parts, garments and accessories
17,798 19,500 30,235
34,362 Total cost of goods sold 151,067
167,239 244,182 279,058 Gross
Profit 13,543 43,918 25,300 66,480 Operating Expenses Selling and
marketing 11,188 11,842 20,380 20,797 Research and development
8,421 6,222 16,279 12,225 General and administrative 13,035
7,202 25,050 16,353
Total operating expenses 32,644 25,266
61,709 49,375 Operating Profit
(Loss) (19,101 ) 18,652 (36,409 ) 17,105 Other Income (Expense)
Interest income 23 12 25 12 Interest expense (457 )
(394 ) (669 ) (508 ) Total other expense (434
) (382 ) (644 ) (496 ) Earnings (Loss) Before
Income Taxes (19,535 ) 18,270 (37,053 ) 16,609 Income Tax Expense
(Benefit) (6,762 ) 7,099 (13,728 )
6,494 Net Earnings (Loss) $ (12,773 ) $ 11,171
$ (23,325 ) $ 10,115 Net Earnings (Loss) Per Share Basic $
(0.98 ) $ 0.86 $ (1.79 ) $ 0.78 Diluted $ (0.98 ) $
0.85 $ (1.79 ) $ 0.77 Weighted Average Shares
Outstanding: Basic 13,048 12,985
13,047 12,972 Diluted 13,048
13,145 13,047 13,149
September 30,
Selected Balance Sheet Data:
2016
2015
Cash and cash equivalents $ 9,151
$
10,713
Accounts receivable, net 93,321
68,225
Inventories 195,703
171,267
Total assets 417,910
340,422
Total current liabilities 183,626
131,182
Long-term debt 73,857
15,794
Shareholders' equity 147,271
190,380
Three Months Ended Six Months Ended
September 30, September 30,
Product
Line Data: 2016 2015 Change 2016 2015
Change Snowmobiles $ 95,685 $ 109,918 (12.9 )% $ 136,222 $ 168,149
(19.0 )% ATV/ROV 44,017 70,758 (37.8 )% 87,757 123,632 (29.0 )%
Parts, garments and accessories 24,908 30,481 (18.3
)% 45,503 53,757 (15.4 )% Total net sales $ 164,610 $
211,157 (22.0 )% $ 269,482 $ 345,538 (22.0 )%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161109005268/en/
Arctic Cat Inc.Christopher Eperjesy, 612-350-1791Chief Financial
Officerceperjesy@arcticcat.comorPadillaCRTShawn Brumbaugh,
612-455-1754shawn.brumbaugh@padillacrt.com
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