By Julie
Forster
jforster@pioneerpress.com
Pioneer Press (St.
Paul, MN)
Credit global warming.
Arctic Cat, best known for its snowmobiles, is becoming less
arctic and more temperate-and reversing a first-quarter loss in the process.
Sales of all-terrain vehicles helped the company turn last
year's loss into a profit, surprising investors who sent the stock up 20
percent during the trading day.
The company swung to a profit of $2 million in its fiscal
first quarter compared with a loss of $2.3 million in the same period last
year. Analysts were expecting a loss. Investors cheered further as the company
upped its guidance for fiscal 2013 earnings and revenue.
Driven by sales of its Wildcat side-by-sides, a hot-rod type
of all-terrain vehicle, plus more traditional "core" ATV sales,
revenue rose 49 percent to $111.3 million from $75 million. Sales of
all-terrain vehicles, Arctic Cat's largest business, grew 93 percent to $73
million. Snowmobiles were up 4 percent. Sales of parts, branded garments and
accessories were up 3 percent.
The increase in sales in Arctic Cat's all-terrain vehicles
was primarily because of strong dealer and customer demand for the all-new
Wildcat model and its Prowler side-by-side utility vehicle.
"Most impressive, in our opinion, was the 92.5 percent
increase in ATVs, which was driven by strong consumer demand for the
Wildcat," wrote Scott Hamann, an analyst with KeyBanc Capital Markets, in
a research note.
Side-by-sides differ from traditional ATVs is that they are
more like cars, with steering wheels instead of handle bars and with the driver
and passengers sitting next to one another.
Over the past few years, the company has focused on driving
down dealer inventory levels. Now dealer demand is picking up.
"Big picture, given the uncertain economic outlook, we
prefer consumer discretionary ideas that have lean dealer inventory and strong
product cycles-supporting our favorable view of Arctic Cat," wrote Craig
Kennison, an analyst with Robert W. Baird & Co., in a research note.
Claude Jordan, Arctic Cat's chief executive officer, told
analysts that the company is rolling out a new just-in-time ordering system
called RPM designed to keep dealer inventory levels lower. Dealers now can
order a month in advance, not only a few times a year as in the past.
Arctic Cat books its revenue once its units are shipped to
the dealer. Inventory can overwhelm dealers.
The new ordering system was welcome news to Roger Tuckner,
owner of Century Power Sports in Stillwater,
MN. He is just clearing out older
models, going back to 2009 inventory. Shorter lead times would help match
inventory to consumer demand for particular models.
Ordering so far ahead of time, up to six months in advance,
he's just guessing what consumers will want. Allowing an order time of two
months would help him replenish what seems to be popular models and forgo
buying so many that don't move as quickly. "You never know what products
are going to sell, and at six months it's just a guess."
"Our goal is to transition to a wholesale retail
mentality, where if dealers retail a unit, then we go ahead and ship a
unit," Jordan
said.
In August, Arctic Cat will begin shipping new model year
ATVs including five traditional ATV models and a new limited edition Wildcat,
offering upgraded styling.
The company revised its earnings guidance upward and now
anticipates fiscal 2013 earnings of $2.55 to $2.65 per share, up from previous
guidance of 2.40 to $2.50. Revenue also was revised up to a range of $662
million and $682 million, up from prior guidance of $631 million to $650
million.
Shares ended the day up 11 percent, or $4.17, at $42.15.
Julie Forster can be reached at 651-228-5189. Follow her
at twitter.com/bizbeatPiPress.