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Jun. 15, 2009 – Reacting to a downturn in sales

June 15, 2009
Filed under Features

Arctic Cat has made a number of cost-cutting initiatives to deal with a sizeable reduction in ATV retail sales, company officials recently said.
The Minnesota-based manufacturer announced a second round of layoffs, a production shutdown and manufacturing cost reductions in a conference call on its fiscal fourth-quarter report. The company lost more than $16 million in that quarter when it significantly cutback on its ATV production to improve company and dealer inventory levels.
Arctic Cat’s ATV sales, which include its side-by-sides, totaled $64 million in its fourth quarter, a decline of 55 percent compared to the previous-year period. For its fiscal year, the company’s ATV sales dropped 29 percent to $247 million.
To cope with those declines, the company announced a series of cost-cutting moves, including:
• Layoffs: The company eliminated 108 positions earlier this year and then recently downsized another 60 positions or 5 percent of the workforce.
• Plant shutdowns: The OEM closed its manufacturing down for a week in April and has planned another shutdown for July.
• Employee costs: Company officials said some staff’s base salaries have been reduced by 5 percent. They also have eliminated the company’s 401k match and reduced vacation accruals.
• Dealer show: Arctic Cat canceled its annual national ATV dealer show. Claude Jordan, the company’s president and chief operating officer, said some of the funds that traditionally went to that show would be redirected “toward retail programs to assist our dealer
network in increasing retail sales.”
All totaled, those cost-cutting measures and others will result in a 12-17 percent reduction in the company’s operating expenses, Jordan said.
Arctic Cat also continues to work on various initiatives aimed at improving gross margin, Jordan said, including working with its vendors to lower material and product cost. The company has been able to achieve a significant reduction in materials costs, driven primarily by lower commodity pricing, Jordan said.
In its fourth-quarter conference call, Arctic Cat officials also touched on two other subjects: consumer lending and the health of its dealer network.
Arctic Cat currently is working to add a new consumer-lending partner. Its U.S. consumer lending agreement with Textron Financial expires in January and CEO Chris Twomey said the company is in negotiations with another company on a multi-year agreement. Arctic Cat’s Canadian agreement with Textron expires in 2012.
Twomey also said the company’s dealer network remains healthy, although it has seen a higher rate of attrition in recent years. Twomey said the company routinely loses up to 10 percent of its dealers annually. That percentage has climbed in recent years to as high as 15 percent. However, he noted the company continues to replace lost dealers, noting last year both the ATV and snowmobile business added about
10 percent of new dealers.
“While the overall number (of dealers) is down, I think the quality of the dealers remain high,” he said. “In general, we are relatively comfortable with our dealer network and the health of our dealer network as they exist today.”

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