Harley-Davidson is in the dumps and has been in the dumps for a while, though its still-newish CEO has said he has a plan. That plan is, basically, getting smaller and trading on exclusivity. In the short-term, it appears to be working.
The big question remains: What happens long-term? But for now, CEO Jochen Zeitz’s plan to focus on the markets and motorcycles that Harley is most popular in — mostly the big motorcycles, mostly America — is paying off.
Harley reported higher-than-expected earnings for the third quarter today, and the stock market responded in kind. The earnings news was despite the fact that motorcycle sales in the U.S. fell 10 percent in the third-quarter compared with the same period last year. But that was less than sales fell in the second quarter of this year, which was 27 percent, so progress, I guess.
From Bloomberg:
In line with Zeitz’s strategy of shrinking supply and shoring up pricing, the company said dealer inventory fell more than 30% compared with a year ago, and it was able to charge asking price for 2020 model-year motorcycles in the U.S. during the quarter. The Milwaukee, Wisconsin-based manufacturer reported adjusted earnings per share of $1.05, beating analysts’ consensus of 29 cents.
[…]
Harley shares soared 27% to $36.82 as of 11:20 a.m. in New York. That reduced the stock’s decline this year to less than 1%.
The company didn’t issue guidance for full-year earnings, citing uncertainty related to the pandemic. But Zeitz teased some of his future plans, saying there is “meaningful headroom” to add product in Harley’s core heavyweight-motorcycle category. He also played up the debut of its first adventure touring bike, the Pan America, due early next year.
Harley said it will have a new strategic plan ready early next year called The Hardwire, which I take to mean more of the same. In the meantime, the most interesting part of Harley’s press release today is the following:
Harley-Davidson plans to concentrate on approximately 50 markets, primarily in North America, Europe and parts of Asia Pacific, that represent a high percentage of the company’s expected volume and growth potential. The company’s international business has been significantly reset and refocused with investment and resources aligned with projected market potential. Under the new participation model, approximately:
• 36 highest potential markets will remain, with the resources and autonomy within a clearly defined framework, to best drive growth and profitability.
• 17 markets will transition to more cost-effective distributor models. This includes India, where Hero MotoCorp will be the exclusive Harley-Davidson distributor and licensed to develop and sell a range of Harley-Davidson motorcycles.
• 39 markets will be exited due to volume, profitability or potential that does not support continued investment.
I wouldn’t say it’s great news for Harley that it is leaving markets, but it is *action* that investors will respond to. It is also evidence that Zeitz has a clear vision for the future of Harley, and one directly opposite that of his predecessor, Matt Levatich. Zeitz’s vision is that Harley becomes a niche manufacturer of expensive toys, while Levatich wanted to take Harley global.
And while Zeitz’s vision has now posted some short-term gains, it is hard to know if it’ll work long-term, as Harley’s core demographic of baby boomers continues to age out. The company is doubling down on boomers in America and a shrinking number of other countries, but then what?
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