Arctic Cat Returns to Profit in Q2

Dealer orders of snowmobiles and parts, garments and accessories helped Arctic Cat, Inc. return to profit in the second quarter following a $7 million first quarter net loss. The Minnesota-based manufacturer’s second quarter is usually a high-water mark for the company as dealers prepare for the coming snow season.

Arctic Cat says net sales for the fiscal 2009 second quarter, ended Sept. 30, were $204.3 million, down 0.4 percent compared to sales of $205.2 million for the same three-month period last year. Net earnings for the second quarter were $16.9 million, or $0.93 per diluted share, up versus earnings of $13.9 million, or $0.76 per diluted share, for the second quarter in fiscal 2008.

For the six months ended Sept. 30, Arctic Cat's net sales were $298.2 million, up 1.7 percent compared to $293.1 million in the first six months of last fiscal year. Net earnings were $10 million, or $0.55 per share, versus net earnings of $6.8 million, or $0.37 per share, in the prior-year first half.

“I want to caution everyone not to view this as a sustainable increase for the full year,” says Christopher A. Twomey, chairman and CEO. “Our second-quarter and six-month results primarily benefited from continued growth in our parts, garments and accessories business, and a lower effective tax rate. Year-to-date, we've also seen positive results from the snowmobile dealer inventory-reduction initiatives we took last year. We remain cautious, however, about our prospects in the last six months of our fiscal year, due to the challenging economic climate.”

ATV sales for the second quarter totaled $71.6 million, down 8 percent from $77.5 million during the same three months last year. ATV sales for the first six months totaled $125.4 million, down 9 percent from $137.3 million in the comparable prior-year period.

Arctic Cat says dealer ATV inventories are down 5 percent to 10 percent this year compared to last year. Executives say growth in the ATV market continues among units with large-displacement engines in both the ATV and side-by-side utility segments.

Prowlers represent about 15 percent to 20 percent of Arctic Cat’s overall ATV sales. “We see it being able to grow to 25 percent to 30 percent, but the key to that is getting the right product into our dealers,” Twomey says.

Arctic Cat's snowmobile sales in the second quarter totaled $98.4 million, up 1 percent from sled sales of $97 million in the prior-year quarter. Snowmobile sales for the six months ended Sep. 30 totaled $119.8 million, up 10 percent from $108.9 million in the first six months of last year.

Parts, garments and accessories (PG&A) sales for the second quarter were $34.4 million, up 12 percent compared to $30.6 million in the year-ago period. For the recently ended six-month period, PG&A sales were $53 million, up 13 percent compared with $46.9 million in the same period last year.

Arctic says PG&A sales growth in the second quarter came from “strong” preseason sales of snow-related products.

For its fiscal 2009 third quarter ending Dec. 31, Arctic Cat expects net sales to range between $179 million and $189 million compared with $159.6 million for the same period last fiscal year. The net loss for the quarter is estimated to be between $0.25 and $0.35 per share versus a net loss of $0.58 per share in the prior-year third quarter.

“Dealer inventory levels are critical to the overall health of our business and we are confident that last year's inventory reduction measures, and our strong product lineup, position us well compared to our competitors,” Twomey says. “We also remain focused on further cost reductions through our strategic sourcing initiatives and leveraging our efficiencies.

“Despite these positive factors, the current state of the U.S. economy, impacted by weak consumer spending and the global financial crisis, makes it difficult to fully assess the impact on our customers and business. As a result, we are not providing full-year guidance at this time. We will continue to closely monitor the macroeconomic environment, industry trends and dealer inventories."

Executives previously said they expected net sales for the full year, ending March 31, 2009, to grow between 5 percent and 8 percent, and be in the range of $650 million to $674 million. Full-year diluted earnings per share were previously anticipated to be in the range of $0.18 to $0.28.