Polaris Inc. inventory levels fell 47% from last quarter, the lowest recorded in over 20 years in the North American division, said Chief Executive and Chairman Scott Wine in an earnings call last week. The reduced inventory may be attributed to a spike of new customers flooding into the powersports industry as well as slowed production, he added.
Nearly 75% of sales in the second quarter were customers new to Polaris, Wine said. “Our core customers are great, but they’re somewhat insular. As we bring these new customers in, they are more likely to invite their friends to come along for a ride, they are more likely to be in line for a second vehicle over time.”
Production also slowed across the board for the powersports entity, Wine said, noting that the OEM had to shut down its factory network for about 10 days, and its 702,870-square-foot plant in Monterrey, Mexico, was forced to stay closed even longer.
The closure of the Monterrey factory put heavy pressure on production, said Mike Speetzen, executive vice president and chief financial officer, adding Polaris has been “chasing demand and trying to replenish stock and we’re not making a lot of progress right now.”
North American production, however, has helped to offset global shutdowns, Wine said. “Our significant U.S. footprint was an asset that enabled us to respond quickly once we came back online. With factories rapidly ramping up to full production, we expect to make progress toward replenishing dealer inventory throughout the second half of the year, although yearend levels are likely to be down substantially.”
Global sales fell 15% year over year to $1.5 million in the second quarter, with all markets reporting decreases. The sales slip was an extension of the first quarter, when Polaris reported $1.4 million in sales, a 6% YoY fall, despite a successful end of 2019 that led Polaris into a 7% uptick in YoY sales to $1.7 million. North American sales in the second quarter, however, diverged from the downward trend and increased 57%, although Polaris only reports the YoY change and does not break out unit numbers by region as a point of comparison.
But the second half of the year may not be as profitable for Polaris as the second quarter, Speetzen said. He projected the third quarter will likely see slowed growth and fourth-quarter sales may begin to dip.
“The fourth quarter is when we anticipate things will go negative,” Speetzen said. “We’ve seen how volatile the environment can be and, depending on how things shake out with how COVID will be dealt with, we’ve [also] got the election uncertainty. There’s just a number of different things that could interject a lot of volatility and quite frankly, give us uncertainty.”
Any recovery that takes place in the second half of the year will most likely be driven by the company’s RV, snow vehicle and boat businesses, Wine said. “We anticipate continued weakness in adjacent markets given the dependence on government, university, commercial and rental sales.”
Originally published on Auto Finance News