What To Expect From Harley-Davidson’s Q1 Results

by Trefis Team
Rate   |   votes   |   Share

The iconic American motorcycle manufacturer Harley-Davidson (NYSE:HOG) will announce its first quarter results on April 18, and as has been previously announced by the company, we expect a decline in revenue and reported EPS due to a drop in worldwide motorcycle shipments. Harley is looking to lower the retail inventory levels at the end of Q1 2017, compared to that of Q1 2016, and ship a lower number of 2017 model year motorcycles in order to sell off the excess 2016 model year bikes. This is also expected to lower the gross margin in the first quarter, but Harley’s results are expected to improve going forward in the next few quarters as the mix of both the 2016 and 2017 model year motorcycles becomes more balanced.

hog Q&A 18

Harley-Davidson has had its struggles in the last three or so years, first dealing with the aggressive discounting by its European and Japanese competitors on account of a stronger dollar, and then with the shrinking demand for heavyweight motorcycles in the domestic market. The primary reason why Harley’s retail sales declined 1.6% year-over-year in 2016, despite a 2.3% growth in international sales, was due to a 3.9% decline in U.S. retail sales, which form almost two-thirds of the company’s net unit sales. The U.S. heavyweight motorcycle market hasn’t filled up to the peak levels of 2005-2006, and it might not in the near future as well. This is primarily as the millennials are typically more price-conscious, especially after the recession, and are looking to hold off on making discretionary expenditures, which includes the luxury heavyweight motorcycles. Customer spending also took a hit due to the growing uncertainty regarding the political scenario in the country. So, the challenge for Harley is not just to fend off competition, but also to grow in a slowing market. The company is looking to ship only 66,000-71,000 motorcycles in Q1, down approximately 15-20% year-over-year, in order to keep supply in line with demand and also focus on lowering retail inventory levels at the dealerships. This is expected to hurt both the top and bottom line in the first quarter.

Harley has looked to overturn the trend of declining volume sales in the U.S. through certain measures:

  • Harley is focusing on growing the sport of motorcycling. As the core customer base ages, the company aims to build a new generation of riders, which will help the overall market for heavyweight motorcycles refill. The U.S. heavyweight motorcycle market (601+ cc) declined by 5.2% year-over-year in 2016, hurt by economic uncertainty and despite aggressive discounting by some of the motorcycle manufacturers. Harley’s U.S. dealers trained more than 65,000 new riders through the Harley-Davidson Riding Academy last year. The company previously announced its goal of increasing the number of riders trained in a year to over 100,000 globally by the end of the decade, with the majority in the U.S.  Basically, Harley is hoping to increase its sales by helping in creating more demand for the heavyweight motorcycles category in itself.

  • With the core customer aging, Harley has looked to diversify its customer base over the last few years. The aggressive push to increase its reach to young adults (aged 18 to 34), women, African-Americans and Hispanics — which collectively are termed as Harley’s outreach customers, is paying dividends, with sales to these customers outpacing sales to the core customer base for the fifth consecutive year in 2016. In fact, sales of new Harley-Davidson motorcycles to outreach customers in the U.S. has grown at a CAGR of 5% between 2010-2016, and retail sales to outreach customers now represent 40% of the volume sales, up from 34% in 2010. Despite facing stiff competition from foreign manufacturers, especially the Europeans and the Japanese who have undertaken aggressive discounting of models benefiting from the stronger U.S. dollar, Harley is the leader in motorcycle sales in each outreach category. Why this is a positive sign for the company is because it is in a strong position if and when sales in the overall heavyweight motorcycle market rise, as sales to the outreach segment are expected to drive this growth.
  • Harley is also looking to extract the growth opportunity in the used-bike segment, with which the company is reaching new and returning customers. According to the company’s research, of these customers, those who plan to buy another motorcycle, 9 out of 10 plan to buy another Harley, and 90% of those riders would consider buying new. [1] The company could benefit from the brand loyalty and high repurchase intent of these customers who buy used motorcycles from Harley-Davidson dealerships.

Have more questions on Harley-Davidson? See the links below.


1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Harley-Davidson

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology


  1. Harley-Davidson earnings call transcript Q4 2016 []
Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!