Commenting on the first quarter results, Arctic Cat’s chairman and chief executive officer Christopher A. Twomey said: “Economic conditions remained difficult during the quarter and continued to affect the recreational products market overall. Given the current recessionary environment, we are pleased with the company’s improved results on lower sales. We made significant progress on our goals to reduce our cost structure and strengthen the balance sheet.”
Among the highlights of Arctic Cat’s 2010 first quarter financial results versus the same quarter last year:
- Operating expenses declined 23 percent to $16.2 million from $21.0 million;
- Inventories were reduced 19 percent to $127.1 million from $156.2 million;
- Total cash and short-term investments at quarter end increased to $7.9 million from $5.8 million; and
- The company had no short- or long-term debt versus $12.1 million in short-term debt in the prior-year quarter.
“Through strong inventory management, expense controls and a rescaled business, we are on track to deliver improved operating results this fiscal year on lower sales,” said Twomey.
During the fiscal first quarter, Arctic Cat entered into an amended credit facility agreement on June 17, 2009, that extends the agreement until March 31, 2010, and increases the company’s borrowing capacity to $60 million.
Business Line Results
All-terrain vehicle (ATV) sales totaled $32.2 million in the first quarter versus $53.8 million in the same period last year, as Arctic Cat rescaled its business to align inventory levels with present wholesale and retail demand.
Commented Twomey: “With the current retail ATV sales slump driven by the recession, we are working harder than ever to offer consumers the innovative products they want, in the ATV segments that currently show some signs of improvement.” These include special-purpose recreational vehicles, such as Arctic Cat’s: side-by-side Prowler utility models; the two-rider TRV; as well as vehicles with large-displacement engines exemplified by Arctic Cat’s Thundercat 1000, which remains the industry’s most powerful engine. Pursuing this strategy, Arctic Cat expects to maintain or increase its North American ATV market share again this year.
Snowmobile sales were $17.9 million in the first quarter compared to $21.4 million in the prior-year quarter, due to economic factors. Although Arctic Cat anticipates lower worldwide snowmobile orders in fiscal 2010 as a result of the recession, the company expects to maintain or increase its North American market share by continuing to offer consumers leading-edge technologies, such as the new powered up 800cc engine which will be used in models across all market segments and aligns with the company’s reputation for offering the world’s fastest snowmobiles.
Sales of parts, garments and accessories (PG&A) in the first quarter were $19.3 million, up from $18.7 million in the prior-year quarter. To help fuel PG&A sales in fiscal 2010, Arctic Cat is expanding its product offerings to generate additional revenue and profit through the company’s established dealer network. The company’s new PG&A products include the Drift line of snowmobile garments, which is designed to appeal to more price-sensitive shoppers and has the potential to attract new customers. Also new for fiscal 2010 are two lubricant products.
Arctic Cat is implementing operational efficiency initiatives aimed at returning the company to long-term profitability on lower anticipated sales volumes. The company’s fiscal 2010 outlook includes the following assumptions: the continuation of the weak global economic environment negatively impacting sales of recreational products; increasing gross margins up to 300 basis points through global low-cost sourcing, improved commodity pricing and greater efficiencies from lean manufacturing; achieving a 12 percent to 17 percent reduction in operating expenses; and improving cash flow from operations and ending the year with more cash on the balance sheet by lowering inventory.
Arctic Cat continues to estimate sales for its fiscal year ending March 31, 2010, in the range of $425 million to $460 million, based on achieving ATV sales of $188 million to $203 million, snowmobile sales in the range of $140 million to $152 million and PG&A sales of $97 million to $105 million. Arctic Cat has not provided fiscal 2010 earnings per share guidance, although the company expects improved per share results compared with fiscal 2009.
Commenting on the company’s outlook, Twomey said: “We continue to expect that this will be a challenging year for the recreational products industry in this recessionary economic environment. Near-term, we remain focused on conservatively managing our business to meet lower anticipated demand. We are continuing our efforts to improve the company’s operational performance. We also are taking appropriate actions to preserve cash and maintain dealer health, as well as developing select innovative products that position Arctic Cat to emerge as a stronger company once the economy recovers.”
About Arctic Cat
Arctic Cat Inc. designs, engineers, manufactures and markets all-terrain vehicles (ATVs) and snowmobiles under the Arctic Cat® brand name, as well as related parts, garments and accessories. Its common stock is traded on the Nasdaq Global Select Market under the ticker symbol “ACAT.” More information about Arctic Cat and its products is available at www.arcticcat.com.
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