What happened

Shares of iconic motorcycle company Harley-Davidson (NYSE:HOG) are falling today, after the company reported a sharp drop in revenue for the second quarter of 2020. Furthermore, it's still early in its five-year transformation plan, and the Q2 results might be leading investors to question the plan's trajectory.

As of 11 a.m. EDT on Tuesday, Harley-Davidson stock was down 8%, and it's still significantly down year to date. 

HOG Chart

HOG data by YCharts.

So what

For Q2, Harley-Davidson generated revenue of $865 million, down 47% year over year. This resulted in a net loss of $92 million. It hadn't previously given financial guidance because of COVID-19. But both of these figures fell far below Wall Street's expectations.

Were Wall Street's expectations too high given the pandemic? Perhaps not; Harley-Davidson's peer Polaris Industries (NYSE:PII) reported a very different quarter. Overall net sales were only down 15% in its second quarter, and its North American retail sales actually surged 57% from last year. The company cited strong motorcycle sales as a contributing factor.

For a more apples-to-apples comparison, Harley-Davidson's retail motorcycle sales for North America fell 27% in Q2. By contrast, consumer retail sales for Polaris' motorcycle segment in North America went up by a "mid-20s" percentage in its Q2, the company said. Given the disparate results from these two motorcycle powerhouses, it's not surprising to see investors' disappointment with Harley-Davidson.

A frustrated man places his hands on his face with a down stock chart in the background.

Image source: Getty Images.

Now what

With a disappointing quarter in the rearview mirror, investor attention should be firmly fixed on Harley-Davidson's five-year strategic plan. It's currently in a preparatory phase it's calling the Rewire. This stage of the plan includes cutting costs, aligning product launches with riding season, and reducing outstanding inventory. To that end, the company is making progress.

The real plan is called the Hardwire, and it's expected to be revealed in the fourth quarter of this year. Management today said, "The driver of the new plan will be Harley-Davidson as the most desirable motorcycle brand in the world for its customers, employees, community and investors." I have to agree that few brands enjoy the recognition and loyalty of Harley-Davidson, so it does have that going for it.

But the company's revenue and profits were steadily falling pre-COVID. Therefore, it's important for investors not to get too excited before actually seeing the plan. When researching stocks, we're concerned with a company's profit potential. That's hard to predict with Harley-Davidson until the details of the strategic plan are revealed.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.