We're in a rough moment for powersports manufacturers. Well, at least for those that primarily deal in more expensive machines. As is the case with Polaris, the makers of everyone's favorite UTVs, ATVs, snowmobiles, and whatever the hell the Slingshot is.
Like KTM's parent company Pierer, as well as Harley-Davidson and Can-Am's BRP, the Minnesota-based OHV company's year isn't looking too rosy. Like other manufacturers in the space, Polaris has seen consumer purchases dry up after years of stellar growth fueled by pandemic spending, incredibly low interest rates, and generally calm times (yes, I understand the pandemic was chaos, but it's somehow more now).
And like those other manufacturers, Polaris is feeling the heat, as in its recent earnings report, the brand stated it saw its profits drop a whopping 82% compared to last year. That's, uh...bad.
The company states that a host of variables are likely to blame for the brand's profit downturn, including the high interest rates pushing people away from financing large purchases, unease over the upcoming US Presidential election, as well as the general unease folks have over the economy and their employment stability.
During the call, Polaris' CEO Mike Speetzen stated that one factor, high interest rates, was very much an issue causing distress within the company. Higher interest rates mean it's harder not to be underwater on a purchase, as well as making payments affordable. And that while the Federal Reserve marginally lowering interest rates helped, more would need to be done in order to get people financing these machines again.
Another big issue that Polaris is facing, though not something that was brought up during the call, was that the entire snowmobile industry felt more pain than usual as last year's snowfall on the East Coast of the United States wasn't something to write home about. Indeed, the lack of snow for the vast majority of the East Coast caused many to not only push off buying a new machine, but even registrations of old machines were down. That's just another blow to the company's profits.
Speetzen did state that one issue Polaris is looking to address is outdated inventory that's now stockpiling on dealership lots. "A healthy dealer network is one of the critical components to our long-term success, which is why we have anchored our current production and shipment plans to our goal of lowering dealer inventory by 15 to 20 percent by the end of the year, and I am encouraged by the progress being made," said Speetzen in a press release ahead of the call.
That's a tactic many other powersport companies are playing, too, as KTM's Pierer stated that growing inventory is a real issue in relieving some of the dealership stress. What this all likely means is that Polaris products will see deep discounts in the near future as dealerships attempt to offload the older inventory—maybe I can get a real cheap Pro RMK Khaos.
Polaris now expects to see about a 20% fall in profits compared to last year. As you'd expect, the company's stock price has tumbled slightly on that news. Likewise, Polaris stated that in order to have a better outlook going forward, the company will be doing certain restructuring plans, stating, "The Company is executing certain corporate restructuring activities across the organization to increase efficiency and focus its business, including the divestitures of the GEM, Taylor-Dunn and Transamerican Auto Parts businesses."
What that doesn't say is whether or not we'll see layoffs.
Times are tough, though. I think most companies thought the good times were going to keep going at the pace we saw during the height of the pandemic. And executives doubled or tripled down on more expensive offerings in their respective lineups, seeing people form waiting lines to get those pricey machines. Yet, as interest rates rose, and wages stagnated even more, as well as the cost of living increasing dramatically in just a few short years, people just aren't spending that hard-earned money on non-essential expensive machines.
We'll have to wait to see where the chips fall with Polaris, as it figures out how to move forward in this new world. That said, the company does make excellent powersport equipment. But you can't bank just on good engineering.
