Arctic Cat's Q1 Sales Sink 26%

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Arctic Cat Inc. experienced a net loss of $5.9 million on sales of $69.4 million for its first quarter ended June 30. The results compare to a net loss of $7.0 million on sales of $93.9 million during the same three-month period last year.

ATV sales revenue during the recently ended first quarter totaled $32.2 million, down compared to $53.8 million during the same three-month period last year; snowmobile sales totaled $17.9 million, down compared to $21.4 million; and sales revenue of parts, garments and accessories (PG&A) totaled $19.3 million, up compared to $18.7 million in the prior-year quarter.

Despite the continued financial losses, Arctic Cat won't close its doors any time soon. The company entered into an amended credit facility agreement on June 17 that extends the agreement until March 31, 2010, and increases the company's borrowing capacity to $60 million.

Furthermore, Arctic Cat leadership says the OEM continues to implement operational efficiency initiatives aimed at returning the company to long-term profitability on lower anticipated sales volumes. Previous efforts included a reduction of 12 percent of the workforce, a one week shutdown of the business in April and July, and a hiring freeze. Ongoing efforts include conservatively managing the business to meet lower anticipated demand by pursuing low-cost sourcing, greater efficiencies from lean manufacturing and lowering inventory.

INVENTORIES
Another part of Arctic Cat's plan is to lower production and align dealer inventory with the needs of the market.

"We are closely monitoring dealer inventories as one important measure of the overall health of our dealer network," says Arctic Cat Chairman and CEO Christopher Twomey. "At quarter end, dealer snowmobile inventories were down 13 percent and dealer ATV inventories were down 23 percent."

"Our goal is to continue this same focus throughout the year to allow us to have the right amount and right mix of inventory to meet the needs of our customer," adds Arctic Cat President and COO Claude Jordan.

Arctic Cat this year changed its dealer ordering system to include three ordering periods throughout the year instead of one in June. It's a move Twomey and Jordan say had an impact on first quarter results but ultimately benefits both the company and dealers.

"Sales of ATVs for the quarter were down 40 percent as we shifted ATV dealer sales later in the year so that dealer inventories would continue to decline and to better match the introduction of our 2010 with the height of the retail selling season which occurs in September and October," Twomey says.

"The primary advantage we're getting (via multiple dealer ordering periods) is the fact that our dealers are able to plan ahead and forecast in shorter increments," Jordan says. "So, instead of planting an order in the month of June for the next 12 months, the dealers are now able to go ahead and plant orders in June, August and January. That has been very positively received by our dealer network."

OUTLOOK
Arctic Cat estimates sales for its fiscal year ending March 31, 2010, to range between $425 million and $460 million. The company expects ATV sales to be between $188 million and $203 million, snowmobile sales to be between $140 million and $152 million, and PG&A sales to be between $97 million and $105 million.

Company officials say they anticipate ATV and side-by-side sales to dealers to be down 18 to 24 percent, snowmobile sales to dealers to be down 25 to 32 percent, and sales of PG&A to be down four to 11 percent.

"We continue to expect that this will be a challenging year for the recreational products industry in this recessionary economic environment," Twomey says.

—Submitted by Guido Ebert