Arctic Cat Q2 Sales Drop 28%

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Arctic Cat Inc. says net sales for the second quarter ended Sept. 30 were $205.2 million, down 28 percent from $285.3 million in the same period last year. Net earnings for the quarter were $13.9 million, or $0.76 per diluted share, down from $20.0 million, or $1.03 per diluted share, a year ago.

For the six months ended Sept. 30, net sales were $293.1 million, down 23 percent from $381.7 million in the first six months of last fiscal year. Net earnings were $6.8 million, or $0.37 per diluted share, down from earnings of $15.4 million, or $0.79 per diluted share, in the prior-year first half.

ATV
ATV sales for the second quarter totaled $77.5 million, down 42 percent from $133.8 million during the same three months last year. ATV sales for the first six months of Arctic?s fiscal year totaled $137.3 million, down 29 percent from $194 million in the prior-year six months.

Arctic officials say ATV sales for both the second quarter and last six months were impacted by lower production levels and a shift in ATV shipments.

Snowmobile
Arctic Cat's snowmobile sales in the second quarter totaled $97 million, down 20 percent from sled sales of $121.5 million in the prior-year quarter. Snowmobile sales for the six months ended Sep. 30 totaled $108.9 million, down 23 percent from $142.4 million in the first six months of last year.

Arctic executives say snowmobile sales in the second quarter and past six months declined primarily due to the previously announced 30 percent reduction in snowmobile production in fiscal 2008. The decline in production comes as a result of 10 consecutive years of lower-than-average snowfall that has led to lower industrywide retail snowmobile sales and higher dealer inventories.

PG&A
Representing a bright spot for the Minnesota-based company, PG&A sales in the second quarter totaled $30.6 million, up from $30 million in the year-ago period. For the six months, PG&A sales totaled $46.9 million, up from $45.3 million in the same period last year.

Outlook
Arctic Cat Chairman and CEO Chris Twomey says the company has been making progress on its strategic initiatives designed to position the company for improved growth and profitability.

"We continue to adjust our fiscal 2008 production levels to reduce dealer inventory and align it with anticipated consumer demand this year," Twomey says. "At the same time, we are committed to further enhancing our lean manufacturing and strategic sourcing capabilities."

Arctic's initiatives include:
  • A 30 percent reduction in snowmobile production in the 2008 fiscal year, as well as a shift in ATV shipments to future quarters, to better match dealer inventory levels with expected consumer demand;
  • Reorganization of the ATV, snowmobile, and parts, garments and accessories product lines into three separate business units, to be led by general managers focused on expanding each business; and
  • Relocation of the company's headquarters, certain corporate executives, general managers and sales and marketing personnel to the Minneapolis area early in the 2008 calendar year. The company's core manufacturing operations will remain in Thief River Falls, Minn., and will not be affected.
Furthermore, the September closure of Arctic's painting, welding and subassembly operations in Madison, S.D., is expected to save approximately $1 million a year in operational costs.

Arctic Cat has previously stated that it anticipates its revenues and earnings will be weighted more toward the second half of the 2008 fiscal year compared to previous years, as it produced and shipped fewer ATVs during its first two quarters, and fewer snowmobiles during the June through December quarters.

For the fiscal third quarter ending Dec. 31, Arctic Cat expects net sales to range between $170 million and $180 million, down from $228.1 million for the same period last year. Company officials say they expect net loss for the quarter to be between $0.30 and $0.37 per diluted share, primarily due to the reduction in snowmobile production.

For the year ending March 31, 2008, the company expects net sales to be in the range of $710 million to $736 million. Full-year diluted earnings per share are anticipated to be in the range of $0.89 to $0.95.