Q4 2023 Earnings Summary
- Harley-Davidson has significantly increased average unit profitability from $1,300 to $3,700 per unit, a 185% increase, leading to an improvement in overall profitability from 6.3% to 13.6% operating margin since 2019.
- The company commands a dominant market share in its core categories, with touring reaching over 75% market share in the U.S. and large cruiser at over 80%, demonstrating a strong competitive position.
- The new 2024 model year launch, especially the new touring models, has received a very positive initial reaction from dealers, media, influencers, and consumers, indicating potential for strong sales growth despite current economic challenges.
- High interest rates are negatively impacting consumer demand, leading to lower retail sales, especially in the North American market. The company acknowledges that the continued high interest rate environment and consumer affordability concerns are a challenge for their customers, impacting discretionary purchases. ,
- Increased reliance on promotions and incentives is pressuring margins. Harley-Davidson implemented incentives resulting in a reduction to revenue of approximately $40 million in Q4, aiming to support retail performance but negatively affecting gross margins. ,
- LiveWire segment continues to incur significant operating losses, with an operating loss of $117 million in 2023, expected to be in the range of $115 million to $125 million in 2024, indicating ongoing challenges in achieving profitability in their electric motorcycle business. , ,
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Margin Outlook
Q: How will margins be impacted in 2024?
A: Margins in 2024 may face headwinds from additional manufacturing costs and potential negative operating leverage. We anticipate about $100 million in productivity gains to help offset inflationary pressures. The major investment in the new touring platform is the largest in Harley-Davidson's history. While we're optimistic about a smooth launch, we acknowledge possible variability due to the significant changes from suppliers to dealerships. -
Retail Sales Guidance
Q: What's driving retail sales guidance of flat to up 9%?
A: Our retail sales guidance for 2024 ranges from flat to up 9%, equating to 163,000 to 178,000 units. Early reactions to our new model year '24 products are positive, but it's early in the season. We face uncertainties due to high interest rates affecting consumer demand, especially in the discretionary premium product segment. -
Share Buybacks and EPS Guidance
Q: Can you provide details on tax rate, share count, and EPS guidance?
A: We are committed to share buybacks consistent with 2023 levels, which will reduce share count over time. While we don't provide EPS guidance currently, we have been challenged to offer EPS guidance starting next year. -
Impact of Promotions
Q: How much did promotions boost retail sales?
A: Increased promotions led to a positive retail sales uptick in December, with sequential improvements from October and November. The promotions correlated with increased consumer demand, helping to move through 2023 model year inventory. -
Dealer Inventory Levels
Q: How is the mix of current vs. noncurrent inventory?
A: We currently have an appropriate level of inventory, with the majority being 2023 models supporting retail as we ramp up 2024 production. Our goal is to reduce 2023 inventory to make room for 2024 models, maintaining a roughly 1:1 balance to account for floorplan costs. -
Product Mix and Pricing
Q: Are you shifting towards touring and trike shipments?
A: Yes, our strategy is to shift toward high-value products like trike and touring models, as part of our Hardwire Stage 2 strategy. We've adjusted pricing to be competitive, including adding features from higher-end models into mid-level ones. This helps reduce complexity and offers better value to customers. -
Market Share Trends
Q: What's your outlook on market share?
A: While not obsessed with market share, we aim for growth and profitable growth. In a tough environment, we've grown our touring share back to 75% and large cruiser share to 80%. We see opportunities to gain share, especially in touring and trike segments, but high interest rates present challenges. -
LiveWire Profitability
Q: What's the outlook for LiveWire profitability?
A: We're focused on product innovation and cost improvement to reach profitability for LiveWire as soon as possible. Our long-term vision is to be the leader in the two-wheel EV industry, driven by innovation and performance. In 2024, we aim to match retail with wholesale and have expanded to 126 retailers globally. -
Dealer Sentiment
Q: How are you addressing dealer challenges?
A: We recognize that high interest rates have led to lower dealer profitability. Dealer sentiment has improved due to new product launches, and we're working to balance facility upgrades with financial difficulties dealers may face. Our Project Fuel has seen success, with over 100 dealerships in process and 75% expected to be completed by the end of 2025.