We took a quick vacation this past weekend and brought the kids to Storyland in Glenn, NH. If you’ve never done it and have pre-teen kids, do it, it is a wonderful place.
Anyway, on the way back home we stopped in Meredith, NH to have lunch at Hart’s Turkey Farm (another great place). Now, for those of you not familiar with the NH geography, Meredith is right next to Laconia, which is essentially the center of the Harley universe in New England. Laconia is famous for two things, “Bike Week” and well, “Bike Week”. My sons and I sauntered over to the massive Harley Davidson (HOG) dealership for a stroll and to look at all the bikes. One thing immediately struck me. Evey single bike in the store, almost 100 had the same tag on it “Priced Below MSRP”.
I casually asked a salesperson, “What is going on, why is everything on sale”? He replied “can’t move ’em and the new models are coming out”. HMMMM
When I asked why he though they were not selling he replied that most people had been upgrading the last few years with two things, house money (home equity) or Harley financing which is now getting harder to get and much more expensive. He said that because of this people are either sticking with the bikes they have much longer and those who are buying, are buying cheaper, lower margin bikes. For instance, a bike that was selling for $10,000 last year was being offered below $8,000 yesterday. Both of these are very bad for Harley.
When I asked what would happen if he can’t move the old models when the new ones come out, he said that they will just cut back the new model orders. Even worse for Harley.
Earlier this year when shares were at $70 I recommended waiting until they reached the mid $50’s to buy. Based on my weekend visit, they may go lower still. This is a great company that makes a one of a kind product, but, people are not buying it now and that will hurt. I think we may see share prices in the $40’s before the year is out.
Be patient and you may get a fantastic buy, later…
2 replies on “Harley Davidson: "Below MSRP"”
Thanks for the info. I recently visited the largest Harley Davidson Dealership in the country and the manager there told me he expects retail sales to be up approximately 10% yoy. That location does ~ 0.5% of Harley’s annual retail sales volume. I also visited a location on Long Island and was told there was a weak April but since then sales have been strong. The company has admitted to having inventory problems among its dealers with some having shortages (as the dealership in long island) and others like the one you mentioned in New Hampshire having too much inventory. Given the company’s very strong share repurchase level and the fact that they have ~ $4 of excess cash on their balance sheet (finance loans held for investment) and their strong international growth of late, a stock price in the mid 40’s would really discount a lot, I mean we’d basically be talking about 10 X EV/earnings-interest. The U.S. consumer is certainly a HUGE concern regarding this stock (and a hell of a lot of others) as are concerns of market saturation. However, if was assume declining U.S. retail sales of 5% for the next three years then growing 3% thereafter and international sales growth of 12% for the next three years (which are fairly conservative assumptions considering sales haven’t been down YOY in almost two decades) you basically have a business with improving year over year earnings for the next three years (given price increases equal to inflation, and very slow unit growth) and strong growth thereafter (and we’re ignoring the opening of the Harley Davidson Museum next year). I just can’t imagine the market giving us such an opportunity as to buy it in the mid 40’s then again, stranger things have happened any thoughts?
anon,
thank you for reading..
i really did not think it would be selling where it is now when i first wrote on it to be honest..
that being said, HOG does not have to see negative growth for a share reduction. Even stagnant or very slow growth in today’s market could cause shares to dip fast…
it could get there with another scare or an earnings warning. i think long term they are fine because no one will take their place, short term, we may get a great price.