Wall Street Isn ' t Sharing the Hardwire Love
With this edition of AMD going to press ( July 14 ) before Harley ' s Q2 Fiscals were due for release ( July 27 ) I wanted to kick back over the traces of the background research I started to do at the time the Q1 Fiscals were published ( April 27 ) to see what , if anything , I could try and forecast . Always an exercise with ' Danger Will Robinson ' stamped all over it , but it ' s fun to try , and sometimes I get it right , or at least close-ish to the ballpark , though mostly , inevitably , I ' m not . I never beat myself up over that because hey , given that there are so few professional economists that can get it right even once in their careers , then I shouldn ' t feel so bad about at least having tried , right ? Being the fourth year of CEO Jochen Zeitz ' stewardship of Harley-Davidson as Chairman , CEO and President ( which leaves him with nobody to fire when things go wrong except himself ), and the third year of the Hardwire plan , the one that followed the Rewire plan to have a plan , is a crucial time for Harley ' s brave new future strategy . As Zeitz himself said in a recent interview with Morgan Stanley ' s Adam Jonas , when he took over from Matt Levatich he found a workforce ( from management right through to factory floor ) populated by an army of disappointed and demotivated employees who had started to see new super-duper , better than ever strategic plans coming at them in an annual ' we ' ll get it right this time ' ritual . Sure , cutting the workforce a slice of the ownership action bought Harley time , but it also raised the stakes - if his new super-duper plan didn ' t work out then it was no longer the company that they worked for that was screwed , but the company they owned that was being screwed . Like most industrial cities , despite its size Milwaukee is a tight knit community with up to three generations of some families having dedicated their lives to Harley " getting it right ", one way or another . So , the Rewire / Hardwire 5-year cycle was a high stakes game - for the employees as well as for the management , the investors , the dealers and Harley ' s loyal army of dedicated customers . When we published Harley ' s first quarter numbers in the June edition ( same problem of an unhelpful press date ), I embarked on a journey down a potentially very dark research rabbit hole and planned to stick as best I could to the task throughout the year because I wanted to be able to report on the Hardwire plan ' s progress , either way . As a shareholder myself ( full disclosure ), I of course hope Harley knocks it out of the park and add lustre to my retirement planning , but if the reverse is going to happen then I wanted to ' be there ' in terms of seeing it coming and being able to understand it . It is tempting to say well , what is so difficult ? After all , Harley is an engineering business first and foremost , isn ' t it ? Surely , it ' s just a matter of designing some great and market opportunity appropriate motorcycles , making them well and selling as many of them as possible , isn ' t it ? But with Jochen Zeitz nothing is that straightforward . That ' s not necessarily a bad thing , but the lens he views the job through is entirely different to the one that any of Harley ' s prior Chairmen and CEOs has looked through - with the probable exception of Richard Teerlink . down 1,800 new units in April
The former German shoe salesman ( as Adam Jonas referred to him in that interview !) is now engaged in a very different and likely career defining task than the one that faced him when he took over at Puma . That was just as tricky in its own way , but in running shoes and casual footwear you are engaged in a price point that makes its marketing disciplines far closer to those of fast-moving consumer goods than the near capital purchase high stakes that riders are embracing when they buy a top end motorcycle . With Zeitz there is nuance and subtlety . For him it is all about the much-vaunted theory of building brand desirability in order to build the balance sheet first and foremost . Doing so profitably buys you the right to then address the second part of the equation - profitably building the product itself . Build the brand first . The product is part of that of course , but comes second in that particular take on the chicken-and-egg equation . Zeitz managed to move sneakers from utility into luxury goods territory , so no surprise that he sees it as possible , indeed essential , to repeat the trick with motorcycles . No surprises then that he viewed a quarter in which the company sold 20,000 fewer bikes than the year ago as a " solid start ", but there is no escaping the fact that Harley shipped many thousands more bikes than it had been selling . For me it was reminiscent of the hugely damaging channel stuffing of the late noughties that Harley is still trying to build back from . Plus , being in 39 fewer markets is seen as a good thing - exiting unprofitable sectors rather than trying to make them profitable . Enduring the dealer churn that has been seen these past five years has been worth it in this world view , because the new capital base that the dealer network gives Harley access to is almost like having its own ATM . With profit margin up by six percentage points on the highest operating income since 2017 , this is the promised land of capitalism , surely ? Being able to make more from less ? Well , yes and no . Yes , if it can sustain . But what if the 1,800 or so fewer new models sold in April ( -5.47 %) YOY is a pattern that repeated in May and June ? That would be a big fat no . The ' C-Suite ' isn ' t going to be able to blame low inventory this time . Since the data Harley will be lapping includes the effects of last year ' s brakes problem triggered close down , beware the smoke and mirrors that makes it look like down is the new up - especially given how much of Q2 dealer retail income has already been booked as unit shipment income in Q1 . For the record , as at the time of writing Harley ' s share price was $ 35.62 - flat compared to the end of April - which suggests that Wall Street isn ' t sharing the Hardwire love .
Robin Bradley
Co-owner / Editor-in-Chief robin @ dealer-world . com