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The bike maker seems to be using some dodgy tactics to make its shipment guidance.
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Falling Harley-Davidson sales stand in sharp contrast to rising bike shipments to dealers that just manage to get it over the low end of its guidance threshold. Image source: Flickr user filtran.
How many times will Harley-Davidson (NYSE: HOG) use this tactic to make its sales numbers? To me it's suspect, and investors should be wary that things might continue to get worse before they get better.
The big-bike maker's recent fourth-quarter earnings results showed Harley just making it over the hump of the low end of its dealer shipment forecast. After adamantly refusing to lower its guidance for most of the year despite every indication sales would keep falling, it finally capitulated after it posted its disappointing third-quarter results, reducing its dealer shipment forecast from a range of 276,000-281,000 motorcycles shipped in 2015 to 265,000-270,000 motorcycles. And when it reported its results late last month, it indeed made those numbers, albeit at the low end, with 266,000 bikes shipped.
Whew, right? Missing those numbers would have been horrible. Exactly! And that's what's troubling.
A year earlier, Harley-Davidson was also under pressure to make its shipment numbers. Just as it did last year, the bike maker was suffering from falling sales as competitors like Polaris Industries introduced popular new models, such as the Indian Scout, and Kawasaki, Suzuki, and Yamaha were discounting their bikes. Even Polaris bemoaned having to join in on keeping prices low to attract customers.
But Harley's been bucking the trend, refusing to give up the premium it charges for its bikes for the sake of market share. And as the past year proved, it lost share to rivals, even though it still does own almost half of the big-bike market.
Yet Harley also needed to keep up appearances, so despite falling sales in 2014, it still shipped more bikes to its dealers in the fourth quarter and just managed to squeak over the low end of its promised delivery threshold of 270,000-275,000 motorcycles, with 270,726 bikes. Boy, that was close!
However, there's little justification for Harley shipping so many bikes to dealers when they aren't selling the ones they have on their lots already. The fourth quarter is historically one of Harley-Davidson's slowest sales periods, and if you look back at 2013 and 2012, you'll see it actually shipped fewer bikes to dealers than it did the year before. And rightly so: Sales growth has slowed significantly since it rebounded sharply after the recession, so the bike maker was right to scale back deliveries.
While it did ship more bikes to dealers in the fourth quarter of 2011 than it had the year before, Harley also sold more bikes too, dramatically so, meaning it was justified in filling up dealer lots. But that wasn't the case in 2014 -- or this past year.
As I said a year ago, accusing a company of channel stuffing is a harsh thing to do, but investors should wonder why Harley-Davidson feels the need to send more bikes to its dealerships even though it knows sales are falling. That suggests to me the bike maker is more interested in making its business look better than it really is, and that bodes ill for future results and investors.