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CHICAGO — Harley-Davidson on Tuesday unveiled a five-year turnaround plan to target low double-digit earnings growth through 2025 after unexpectedly swinging to a fourth-quarter loss.
The latest turnaround strategy from the company, which has struggled for years to grow sales beyond baby boomers, comes after a decade-long effort to grow sales overseas and draw younger riders with cheaper and newer models.
Harley saw a 39% annual drop in revenue in the latest quarter as its motorcycle shipments fell 32% to 145,200 motorcycles in 2020, from the 214,900 it shipped in 2019.. Retail sales in the United States — the company’s biggest market — fell for the 16th straight quarter, resulting in an 8 percentage point decline in big-motorcycle market share.
The decline comes at a time when motorcycle sales have gone up on the back of a demand for socially distanced recreational outdoor activity.
Polaris Inc last week said retail sales of its Indian brand of motorcycles in North America were up more than 30% in the December quarter. In contrast, Harley’s sales in the region declined 15.4% year-on-year.
Harley said it would invest between $190 million to $250 million a year and grow its strongest motorcycle segments — touring, large cruiser and trike — to achieve mid single-digit growth in bike revenue. The company, which launched its first electric motorbike in 2019, said it is committed to electric motorcycle technology.
Under Chief Executive Jochen Zeitz, who took charge last year, Harley has shifted focus back to big bikes, traditional markets like the United States and Europe, and older and wealthier customers.
Harley’s shares, which have gained 38% since July when the company shared the plan to reboot its business, were down 14% in early trade.
As part of Zeitz’s strategy, the company has trimmed its workforce, global dealer network, eliminated slow-selling models and exited 39 markets where weak sales and profits do not justify investment.
To enhance the desirability of Harley’s brand, Zeitz is focusing on profitable growth. He has done away with promotional offers, tightened supplies and reduced inventory, enabling dealers to charge asking prices for Harley bikes.
This led to a 59% reduction in dealer inventory last year. A leaner inventory as well as a switch in the introduction of new models to January from August, however, took a toll on the bike sales in the latest quarter.
Analysts at Wedbush, however, reckon Harley’s depleted inventory can potentially become an incremental earnings driver this year.
Harley forecast a 5%-7% operating margin, or profit from sales, for 2021 on the back of a 20%-25% growth in motorcycle revenue.
It posted a quarterly loss of 63 cents per share, compared with a profit of 9 cents per share a year earlier. Analysts surveyed by Refinitiv, on average, expected the company to report a profit of 14 cents a share.