Arctic Cat Inc. has been “forced to be more aggressive” with financial promotions this year as the company strives to compete with Polaris Industries Inc., said Seth Woolf, research analyst at Northcoast Research Partners.
Polaris has been “doing everything they can to maintain their marketshare, and not lose any business,” after the manufacturer’s recall of its RZR off-road vehicles in April, Woolf told Powersports Finance, which includes lowering the prices of their units.
This has caused Arctic Cat, and other competing powersports manufacturers, to counter with more aggressive rebates and financial promotions, he added. For example, Arctic Cat launched a 0% financing promotion, plus up to a $3,000 rebate on select model-year vehicles, in June, according to the company’s website. The offers are valid through its third-party lenders Sheffield Financial and FreedomRoad Financial until Aug. 31.
“It’s been a tougher market than most people thought, tougher than this time last year,” Woolf said. The environment became increasingly challenging in the fourth quarter when the industry started to hit some “rough roads,” particularly with regards to the oil industry, he added.
“All of us are trying as hard as we can to increase earnings,” Arctic Cat’s Chief Executive Chris Metz said during the company’s fiscal 2017 first-quarter earnings call in late July. “There’s a limit to how much people want to discount. Clearly, we are not a leader there. We are going to follow and we are going to hold our share.”
Arctic Cat reported its sales were down 22% to $104.9 million in the first-quarter ended June 30, from $134.4 million the same time a year prior. The drop in sales was due — in part — “to a more competitive retail environment that led to higher promotional spending than originally planned,” Metz said.
The manufacturer anticipates reporting “stronger financial results” in the second half of the fiscal year, driven by planned new product launches, Metz added.
Arctic Cat is trying to reduce inventory to the best of its ability, to make room for its new products, Northcoast’s Woolf added, and one of the fastest ways to reduce inventory is to ramp financial promotions up.
“We certainly aren’t anticipating a further deterioration in the marketplace,” Metz said, but Arctic Cat has new products it expects to transpire — particularly in the fourth quarter — and “remains committed” to its sales guidance for the remainder of the year.