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Arctic Cat sees fiscal Q3 sales growth

February 13, 2012
Filed under Features

Snowmobile sales rise 61% for quarter

Claude Jordan

Arctic Cat Inc. in January reported net sales growth of 36 percent in its fiscal third quarter compared to the year-ago quarter.

Arctic Cat also reported net earnings of $17 million on net sales of $207 million for the fiscal third quarter ended Dec. 31. In the prior-year third quarter, Arctic Cat reported net earnings of $9.3 million on net sales of $152.0 million.

“We are very pleased with the company’s strong third-quarter and year-to-date performance. Arctic Cat continued to execute well during the quarter, producing double-digit sales and earnings gains,” Arctic Cat president and CEO Claude Jordan said. “Our focus on introducing innovative products and technologies, such as our extensive new snowmobile lineup and the Wildcat sport side-by-side, contributed to the strong third-quarter results and helped generate increased sales across all product lines.”

Among the highlights of Arctic Cat’s fiscal 2012 third quarter financial results versus the same quarter last year:
• Net sales grew 36 percent, chiefly driven by increased snowmobile sales and international ATV sales;
• The company began to ship the new Wildcat sport side-by-side vehicle;
• Operating expenses as a percent of sales declined to 10.4 percent compared to 13.5 percent;
• Operating profit rose 114 percent;
• Cash and short-term investments totaled $76.3 million at quarter end; and the company had no short- or long-term debt.

Total cash and short-term investments at quarter end were $76.3 million, compared to $107.1 million at the end of the prior-year quarter. Arctic Cat used $79.3 million in cash during the fiscal 2012 third quarter to purchase all of Suzuki Motor Corporation’s 6.1 million shares of Arctic Cat Class B common stock. The stock buyback was funded entirely with existing cash on the company’s balance sheet. The transaction reduced Arctic Cat’s outstanding shares from 18.4 million to 12.3 million, increasing non-Suzuki shareholders’ ownership of outstanding common shares by approximately 33 percent while leaving Arctic Cat’s public share float unchanged.

Commented Jordan: “We believe that this stock buyback provides immediate and long-term value to our remaining shareholders, who should see the benefit in improved earnings per diluted share from reduced shares over the next four quarters.”

Following the share purchase from Suzuki, Arctic Cat continues to have a strong balance sheet. Given the company’s current cash position and projected cash generation, Arctic Cat expects to end the current 2012 fiscal year with more than $60 million in cash.

For the nine months ended Dec. 31, Arctic Cat’s net earnings increased to $36.1 million on net sales of $486.8 million. In the first nine months of last fiscal year, the company reported net earnings of $22.6 million on net sales of $391.2 million.

Snowmobile sales rose 61 percent to $125.2 million in the fiscal 2012 third quarter, up from $77.8 million in the prior-year quarter. Sales continued to be fueled by Arctic Cat’s extensive new 2012 model lineup, announced in March, with 23 all-new snowmobiles representing 75 percent of the current offerings.

ATV sales increased 12 percent to $54.4 million in the fiscal 2012 third quarter versus $48.6 million in the same period last year, with strong contributions from Arctic Cat’s Prowler line of side-by-sides. During the third quarter, Arctic Cat began shipping limited quantities of its all-new Wildcat V-Twin 1000i H.O. sport recreational off-road vehicle to dealers. The Wildcat ROV was introduced to the public through demonstrations and rides held throughout North America. Arctic Cat is ramping up production of the Wildcat in the fiscal fourth quarter in order to meet demand for this off-road sport vehicle.

Sales of PG&A in the fiscal 2012 third quarter grew 7 percent to $27.4 million versus $25.6 million in the prior-year quarter. The growth was primarily due to snowmobile-related PG&A sales. With the launch of its e-commerce site in Canada, Arctic Cat now offers online PG&A sales throughout North America. The company also launched a wide range of accessories for Wildcat vehicle customization.

“With product innovation driving increased sales and our continued progress on operational excellence and execution, we are raising our fiscal 2012 sales and earnings guidance for the third consecutive quarter,” Jordan said. “We remain well-positioned for future sales growth across all product lines.”

Arctic Cat continues to expect higher snowmobile retail sales in fiscal 2012, due to its new model lineup. The company also anticipates continued gains in its ROV business, fueled by the competitive strength of the Prowler side-by-side and the growth potential for the Wildcat.

Arctic Cat’s fiscal 2012 outlook now includes the following assumptions versus the prior fiscal year: ATV industry retail sales declining approximately 10-15 percent; snowmobile industry retail sales up approximately 3-5 percent; Arctic Cat dealer inventories decreasing 10-20 percent; achieving lower operating expense levels as a percent of sales; increasing cash flow from operations; and ending the year with more than $60 million in cash on its balance sheet and no debt.

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