3 Key Areas of Growth for Polaris

Polaris Industries (NYSE: PII  ) has a fairly straightforward goal of obtaining $8 billion in sales and $800 million in net income by 2020. With current yearly revenue of slightly less than $3.8 billion, the company still has a long way to go before it achieves its objective. With high growth from its parts, garments, and accessories (PG&A), heavyweight motorcycles, and international businesses, the company is moving in the right direction amid competition from Harley-Davidson (NYSE: HOG  ) and Arctic Cat (NASDAQ: ACAT  ) .

Indian brand rises
During the fourth quarter, Polaris saw motorcycle sales increase 94% year over year from $35.4 million to approximately $68.8 million, driven by its new line of Indian brand bikes. Polaris launched the historic Indian brand in August with three new models that include the Chief Classic, Chief Vintage, and Chieftain. This jump in sales follows a 6% drop in motorcycle revenue during the company's third quarter that was attributed to year-over-year shipping adjustments.

Polaris is competing against top hog Harley-Davidson for market share in the heavyweight motorcycle segment. Harley last reported a market share of 56.5% in this segment, but Polaris COO Bennett Morgan recently said, "Polaris motorcycles, that's Victory and Indian combined, gained a bunch of share in the fourth quarter." The rekindled rivalry will hopefully continue to spark innovation for both Harley and Indian in the coming years.

There are currently 60 of the 140 signed Indian dealers retailing the bike, but the company expects both of those numbers to grow in 2014. Motorcycle sales, Indian and Victory, only account for around 6.3% of Polaris' total revenue.

PG&A hits a growth spurt
Revenue from Polaris' PG&A division grew 33% to $611.3 million during the last quarter with parts, accessories, and apparel up 24%, 30%, and 150%, respectively. Apparel's high growth was driven mainly by the KLIM brand that was acquired at the end of 2012. Apparel may be growing fast, but it only accounted for 9% of the category's sales, with parts and accessories at 43% and 48%, respectively.

Arctic Cat competes directly with Polaris' PG&A business and recently had a reasonably successful quarter in the division. The company had quarterly sales growth of 13% to $29.5 million, primarily driven by its accessory business, which increased 19%. Despite the positive performance in this segment, Arctic Cat recently reported disappointing earnings and lowered its guidance for its fiscal year ending March 31.

Polaris introduced 800 new PG&A products during its most recent quarter and is focused on growing this high-margin segment at a pace that exceeds its competition.

International efforts
Polaris' international business is another of the company's key, fast-growing segments with sales increasing 46% for the fourth quarter and 29% for the fiscal year.

The fastest-growing international segment is the EMEA (Europe, Middle East, and Africa) market. Sales here increased 61% for the fourth quarter and 38% for the year driven by Aixam. Polaris acquired Aixam last April and has used the business to drive sales in its small vehicles division. With global market share gains in off-road vehicles, snow, and the new Indian motorcycles, the company would have posted was double digit revenue growth in the EMEA region without Aixam.

Despite overall success, the Asia Pacific market has struggled with sales, which fell 4% for 2013. Moving into 2014, Polaris anticipates that the release of Indian motorcycles in Australia will help reverse the recent sales decline. The company has also partnered with Eicher to expand its presence in India and plans to release these new products in the second half of 2014.

According to plan
Polaris CEO Scott Wine recently said, "Consistent with our strategy, our international and adjacent market businesses each grew faster than our core business." The company's off-road vehicles business still managed an impressive 16% increase in revenue for the fourth quarter and currently earns 60.8% of the company's revenue. Moving forward, look for off-road vehicles to become a smaller piece of the revenue pie as Polaris continues to grow its motorcycle, PG&A, and international businesses.

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