Arctic Cat Announces Financials, Expansion Plans & More

Arctic Cat announced its quarterly and fiscal year ending financial stats Wednesday, and the company also announced plans for a big expansion at its two Minnesota locations.

The full press release related to the financial reporting is posted below. It includes a decrease in snowmobile sales for the quarter, due to timing of shipments, but an overall increase in annual snowmobile sales by 6 percent over the previous fiscal year.

The expansion plans were announced separately from the official, Wall Street-oriented press release,  but were a part of the conference call about the earnings hosted by company CEO Christopher Metz and CFO Christopher Eperjesy. Acat2

“We’ve allocated approximately $26 million at our Thief River Falls facility for a new state-of-the-art paint line and other facility improvements that will enable continued growth in our recreation off-highway vehicle or ROV business,” Metz said during the conference call. “In St. Cloud, we have a 56,000 state-of-the-art square-foot facility where we manufacture and assemble ATV and snowmobile engines. We will invest roughly $400,000 in expanded assembly capability at this location. We’re excited to make these facility improvements that will enable greater efficiency and greater growth.”

The money invested in Thief River Falls will create 39 new jobs, the company said, and the move in St. Cloud will add 10 jobs.

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In the conference call, Metz also commented on Cat’s recent purchase of the Motorfist snowmobile clothing brand.

“Adding an outstanding brand like Motorfist gives us broader PG&A product offering for our North American international markets,” Metz said in the conference call with investor relations personnel, “and it also complements Arctic Cat’s existing garment and riding-gear portfolio. We offer the value price Drift brand, the performance Arctic Cat-branded Team Arcticwear and now, we’ve expanded our high-performance technical riding wear with Motorfist.

“We intend to maintain the Motorfist brand positioning and name, and Motorfist will continue to operate independently with its current staff in Idaho Falls, Idaho,” Metz continued. “Its founder, Brad Ball, remains as President of Motorfist to lead the organization, and we are very excited about that. Brad has taken his vision for high-performance riding-gear from a start-up to a strong consumer brand renowned for its quality. We see further growth ahead with our expanded distribution capabilities, and we are pleased to offer the Motorfist brand to our dealers, and we’re getting a terrific response.”

Metz also talked about potential for further partnerships with other powersports manufacturers (the company already partners with Kymco and Toro) and other potential expansions through aftermarket acquisitions.

Here is the Business Wire report on Arctic Cat’s financials:

ARCTIC CAT PRESS RELEASE

MINNEAPOLIS, May 13, 2015 (BUSINESS WIRE) — Arctic Cat Inc. today reported a net loss of $21.5 million, or $1.66 per diluted share, on net sales of $98.9 million for the fiscal 2015 fourth quarter ended March 31, 2015. Arctic Cat’s 2015 fourth-quarter adjusted net loss was $1.15 per diluted share, excluding the previously announced charges of $0.46 per diluted share for the planned reduction of core all-terrain vehicle (ATV) dealer inventory and executive transition costs of $0.05 per diluted share. In the prior-year quarter, Arctic Cat reported a net loss of $1.6 million, or $0.12 per diluted share, on net sales of $145.4 million.

Commented Christopher Metz, Arctic Cat’s president and chief executive officer: “We made significant progress in many areas in the fourth quarter during a transitional period. We added key finance, sales and marketing executives to our new management team, and expanded our high-performance garments and accessories offerings with the completion of the Motorfist acquisition. Further, we initiated a successful promotional program to begin to reduce our North America dealers’ core ATV inventory; this effort also generated market share gains.”

Added Metz: “We are committed to positioning the company for long-term, profitable growth. We are focused on partnering with our dealers to aggressively reduce non-current inventory and provide marketing support, enabling a return to wholesale and retail growth of new, innovative products. We will seek additional OEM partnerships and small bolt-on acquisitions that enable us to quickly expand our expertise and capabilities, and drive faster product innovation and increased sales. In addition, we are focused on investing in our business, speeding organizational change and improving efficiency.”

Operating Review

Arctic Cat’s fiscal 2015 fourth-quarter net sales were down 32 percent to $98.9 million versus $145.4 million in the prior-year quarter, as anticipated. The company had strong contributions to sales from its Wildcat™ recreational off-highway vehicle (ROV) line.

Gross profit margin in the 2015 fourth quarter was a negative 1.4 percent compared to 13.8 percent in the prior-year quarter, primarily due to planned lower sales volumes, the $7.6 million charge for the core ATV inventory reduction campaign and foreign currency impact. Unfavorable foreign currency exchange reduced gross profit by approximately $6.9 million, or an estimated $0.42 per diluted share.

Operating loss in the 2015 fourth quarter was $29.0 million versus an operating loss of $2.6 million in the same quarter last year. Contributing to the decline was increased general and administrative expenses, including executive management transition and legal costs.

Arctic Cat ended the 2015 fourth quarter with a strong balance sheet. The company had cash and short-term investments totaling $41.3 million at March 31, 2015, compared to $82.5 million a year ago, and no long-term debt.

For the full year ended March 31, 2015, Arctic Cat reported net earnings of $4.9 million, or $0.38 per diluted share, on net sales of $698.8 million. Full-year net sales include an unfavorable foreign currency impact that reduced net sales by approximately $18.1 million, or $1.10 per diluted share. Arctic Cat’s 2015 full-year adjusted net earnings totaled $1.40 per diluted share, excluding the following charges: executive severance of $0.08 per diluted share in the first quarter; warranty expense of $0.32 per diluted share recorded in the second quarter, executive transition costs of $0.11 per diluted share in the third quarter and $0.05 per diluted share in the fourth quarter; and $0.46 per diluted share for the planned reduction in core ATV inventory in the fourth quarter. In fiscal 2014, Arctic Cat reported net earnings of $39.4 million, or $2.90 per diluted share, on net sales of $730.5 million.

Arctic Cat paid a total of $6.5 million in cash dividends to shareholders in fiscal 2015.

Business Line Results

ATVs/Side-by-Sides – Sales of Arctic Cat’s ATVs and side-by-side ROVs in the 2015 fourth quarter totaled $66.8 million compared to prior-year sales of $105.9 million. While sales of Wildcat ROVs increased, core ATV sales were down for the fourth quarter and full year, as the company continued its efforts to lower core ATV inventory at its North America dealers.

“Wildcat ROV sales continue to be a bright spot and we are pleased that retail sales of our Wildcat outpaced the industry average in calendar 2014,” said Metz. “Dealer and consumer response to our expanding Wildcat line remains enthusiastic, and we expect further gains in the ROV segment, driven by new products and technologies.”

In fiscal 2015, Arctic Cat expanded its line of Wildcat ROVs with the introduction of the Wildcat Sport and Wildcat Trail models. The Wildcat Sport has a 60-inch wide chassis, offering consumers a mid-sized option between the original Wildcat and the Wildcat Trail model, with its narrower 50-inch stance. Arctic Cat also debuted the Wildcat Trail Limited EPS, which is a more fully featured version of the Wildcat Trail.

Snowmobiles – Snowmobile sales in the fiscal 2015 fourth quarter totaled $5.3 million versus $6.4 million in the prior-year quarter, due to the timing of shipments and lower international sales, including sales to Russia. Full-year snowmobile sales increased 6 percent to $300.7 million, up from $282.4 million for fiscal 2014.

Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2015 fourth quarter declined to $26.8 million versus $33.1 million in the prior-year quarter, with sales of snow-related parts impacted by the lack of snow in certain regions. In March 2015, Arctic Cat announced it completed the acquisition of privately held Motorfist, LLC, a manufacturer of high-performance technical riding gear. The acquisition complements Arctic Cat’s garment and riding-gear business. For the 2015 full year, PG&A sales were down 1 percent.

Fiscal 2016 Full-Year Outlook

“We will continue to take bold actions to enable a return to growth,” stated Metz. “A key focus remains rightsizing our core North America ATV dealer inventory levels during fiscal 2016. An improved dealer inventory position will allow us to launch more new products and increase sales. In addition, our strong cash position gives us the flexibility to make investments to grow the business through innovative products, strategic and OEM partnerships, and bolt-on acquisitions. While it will take time to implement and benefit from our plans, we are excited about Arctic Cat’s long-term future.”

For the fiscal year ending March 31, 2016, Arctic Cat estimates full-year net sales in the range of $690 million to $705 million, assuming an unfavorable foreign currency exchange impact on sales in the range of $12 million to $15 million pre-tax. Arctic Cat expects fiscal 2016 full-year net earnings to increase and be in the range of $0.80 to $0.95 per diluted share, after reflecting unfavorable foreign currency exchange rates. Foreign currency exchange headwinds are estimated to negatively impact gross profit and reduce net earnings in the range of $0.60 to $0.70 per diluted share, which will only partially be offset by the company’s hedging strategy.

Added Metz: “Our focus over the next year is to rebuild and reposition the company for a return to long-term growth in fiscal 2017 and beyond. We believe that we have strong strategic plans to turn the business around. Although we face significant challenges in fiscal 2016, including continued foreign currency headwinds, we see tremendous opportunities to improve the company’s operations, expand gross margins and enhance financial performance over time.”

 

 

 

 

ARCTIC CAT INC.
Financial Highlights
(000s omitted, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31, March 31,
2015 2014 2015 2014
Net Sales
Snowmobile & ATV Units $ 72,060 $ 112,323 $ 584,873 $ 615,608
Parts, Garments & Accessories 26,843 33,085 113,883 114,883
Total Net Sales 98,903 145,408 698,756 730,491
Cost of Goods Sold
Snowmobile & ATV Units 82,460 104,057 505,383 506,707
Parts, Garments & Accessories 17,789 21,319 73,924 72,705
Total Cost of Goods Sold 100,249 125,376 579,307 579,412
Gross Profit (1,346 ) 20,032 119,449 151,079
Operating Expenses
Selling & Marketing 8,844 9,192 39,656 38,028
Research & Development 5,878 6,707 24,341 23,998
General & Administrative 12,888 6,755 48,914 28,557
Total Operating Expenses 27,610 22,654 112,911 90,583
Operating Profit (Loss) (28,956 ) (2,622 ) 6,538 60,496
Other Income (Expense)
Interest Income 7 8 25 30
Interest Expense (7 ) 14 (353 ) (122 )
Total Other Expense 22 (328 ) (92 )
Earnings (Loss) Before Income Taxes (28,956 ) (2,600 ) 6,210 60,404
Income Tax Expense (Benefit) (7,431 ) (1,051 ) 1,290 21,000
Net Earnings (Loss) $ (21,525 ) $ (1,549 ) $ 4,920 $ 39,404
Net Earnings (Loss) Per Share
Basic $ (1.66 ) $ (0.12 ) $ 0.38 $ 2.97
Diluted $ (1.66 ) $ (0.12 ) $ 0.38 $ 2.90
Weighted Average Shares Outstanding:
Basic 12,947 13,088 12,926 13,275
Diluted 12,947 13,088 13,089 13,598
March 31,
Selected Balance Sheet Data: 2015 2014
Cash and Short-term Investments $ 41,262 $ 82,532
Accounts Receivable, net 28,695 42,003
Inventories 152,443 140,652
Total Assets 316,846 342,294
Short-term Bank Borrowings 0 0
Total Current Liabilities 124,634 148,541
Long-term Debt 0 0
Shareholders’ Equity 180,371 185,043
Three Months Ended Twelve Months Ended
March 31, March 31,
Product Line Data: 2015 2014 Change 2015 2014 Change
Snowmobiles $ 5,265 $ 6,382 -18 % $ 300,731 $ 282,442 6 %
All-Terrain Vehicles 66,795 105,941 -37 % 284,142 333,166 -15 %
Parts, Garments & Accessories 26,843 33,085 -19 % 113,883 114,883 -1 %
Total Sales $ 98,903 $ 145,408 -32 % $ 698,756 $ 730,491 -4 %
ARCTIC CAT
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
Three Months Ended Twelve Months Ended
March 31, March 31,
2015 2014 2015 2014
Net Earnings (Loss) – as reported $ (21,525 ) $ (1,549 ) $ 4,920 $ 39,404
Adjustments, after tax:
Warranty Charge 4,232
ATV Inventory Reduction Charge 6,019 6,019
Executive Transition Charge 609 3,089
Net Earnings (Loss) – as adjusted $ (14,897 ) $ (1,549 ) $ 18,260 $ 39,404
Net Earnings (Loss) per Share – as reported:
Basic $ (1.66 ) $ (0.12 ) $ 0.38 $ 2.97
Diluted $ (1.66 ) $ (0.12 ) $ 0.38 $ 2.90
Adjustments, after tax:
Warranty Charge $ 0.32
ATV Inventory Reduction Charge $ 0.46 $ 0.46
Executive Transition Charge $ 0.05 $ 0.24
Net Earnings (Loss) per Share – as adjusted
Basic $ (1.15 ) $ (0.12 ) $ 1.41 $ 2.97
Diluted $ (1.15 ) $ (0.12 ) $ 1.40 $ 2.90

SOURCE: Arctic Cat Inc.

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