Harley-Davidson (NYSE:HDI) shareholders might still be feeling the sting of Wall Street road rash with their shares. After a nasty skid back in early 2005, the stock has spent most of the time since then vibrating between $45 and $55 a share -- despite periodic calls from semi-famous investors that this is an unbeatable brand, and that the business just has to be strong.
Fourth-quarter results offer some interesting points of data regarding that notion. While the Street is reacting to the release with general enthusiasm, I'm not quite sure that this is enough to kick-start my interest in what I openly acknowledge to be a company with one of the world's strongest brands.
Working from the bottom up, investors were jazzed that earnings per share climbed 18% in the quarter and beat the Wall Street consensaguess. OK, fair enough. But Harley-Davidson's net income was up just over 10%, and revenue was up just under 10% (and actually missed the average estimate by a slight amount). So while the company is doing fine in terms of margins and stock buybacks, I'm not quite mollified yet on the sales side of things.
What's more, there are two enduring issues that make me nervous. First, the company upped its shipments by 8.7%, but retail sales were up just 3%. Harley-Davidson claims this will help increase dealer stock and reduce wait times, but I wonder about that. By and large, people will climb over each other to stand in line for goods they want (ever been near a Coach (NYSE:COH) store when new products hit the shelves?), so I wonder about the need to boost dealer inventories.
Secondly, the financing side of the business continues to look a bit squirrelly. Loan losses and delinquencies are up, and while I acknowledge that a spike in personal bankruptcies didn't help, this seems to be becoming a trend.
Maybe Harley-Davidson will succeed in expanding its business beyond its core market (namely, reasonably affluent white men). And certainly the cash flow picture is bright. But for all the significance of margins and cash flow, sales drive the bus. I'm just not so sure about the long-term sales outlook -- and certainly not sure enough to relax my margin-of-safety rules to buy stock in this motorcycle company.
Saddle up for more Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
