Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Arctic Cat Inc. (NASDAQ:ACAT)

F4Q10 (Qtr End 03/31/10) Earnings Call Transcript

May 13, 2010 11:30 am ET

Executives

Shawn Brumbaugh – IR, Padilla Spear Beardsley

Chris Twomey – Chairman and CEO

Claude Jordan – President and COO

Tim Delmore – CFO and Secretary

Analysts

Brian Freckmann – LimeStreet Capital

Joe Hovorka – Raymond James

Lisa Brozewicz – KeyBanc Capital Markets

Rommel Dionisio – Wedbush Capital

Steve Bowman [ph] – DB Shaw Capital [ph]

Operator

Ladies and gentlemen, welcome to the Arctic Cat fiscal fourth quarter 2010 conference call, the 13th of May 2010. Throughout today’s recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator instructions).

I would now hand the conference over to Ms. Shawn Brumbaugh. Please go ahead, ma’am.

Shawn Brumbaugh

Thank you. Thank you for joining us this morning. I’m Shawn Brumbaugh with Padilla Spear Beardsley. Before the market opened this morning Arctic Cat released results for its fiscal fourth quarter and full year ended March 31, 2010.

Participating in our call today to review the company’s performance will be Chairman and Chief Executive Officer, Chris Twomey; President and Chief Operating Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we will have time for any questions.

Before we begin, please note that some of the comments made today will be forward-looking statements regarding the company’s expectations of future performance. Such statements are subject to risks and uncertainties and actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors that may affect results.

Now, I will turn the call over to Arctic Cat’s CEO, Chris Twomey. Chris?

Chris Twomey

Thanks, Shawn. Thanks, everyone for joining us this morning. Fiscal '10 was another challenging year for the power sports industry including Arctic Cat. However, in spite of the challenges we’re that we’re able to greatly improve operating results and return the company to profitability on a significantly lower sales level. Besides these operating improvements which Claude will review in-depth in a moment, we also set out to improve our market share in both product lines and to improve the financial health by dealer network by continuing to help them reduce their dealer inventories. Both of these initiatives were accomplished.

During this fiscal year our ATV business gained one point of market share in North America and our dealer inventories declined by 24% over the prior year. Industry-wide retail sales of ATVs again declined every month throughout the year driven by continued uncertainties in the economy, relatively weak consumer confidence and unemployment figures at year historic levels.

We expect the same factors to impact retail sales of ATVs throughout this fiscal year as well. However, by year-end we expect enough change in the overall economic environment so that retail sales declines was slow to about half the level experienced in the 2010 fiscal year. Again, this year we will focus on gaining market share and reducing dealer inventories.

As we’ve always said introducing new models especially in segments where we underperformed is an important factor in helping us increase sales and grow market share. In fiscal 2011, we will introduce five new ATV models along with three new side-by-side UTVs, all in segments where we believe we can gain market share.

In addition, we will expand the number of models utilized in our new power steering feature which has sold well since its way 2010 model year introduction. Also, numerous features will be added to many of our models. All designed to enhance the rider experience. Overall, two-thirds of our 2011 ATV models will be new within the last three years.

In times of constantly declining markets it is imperative that investments in new models be made carefully. We understand this well, but also realize that wise investments in strategically important models and segments are important to establish our position in the market and provide for future growth.

After a 15% sales increase last year, sales of our European ATVs subsidiary declined 21% this fiscal year generally in line with what we believe happened in the entire European market.

While this is not surprising given the overall developments in the European economy during the last year we are still a relatively small player in this market and we continue to look for opportunities to grow our sales in spite of the market.

As always we believe this growth will come from new products which excite and satisfy the demands of our customers as well as improved distribution. For fiscal 2011, we have a number of new products for the European market similar to the North America market which will excite our customers, help strengthen our distribution, improve sales and increase market share.

Industry-wide retail sales of Snowmobiles in North America also declined this year. However, like last year, Snowmobiles retail sales outperformed every other recreation of vehicle category in North America. While retail sales of Snowmobiles are certainly affected by the economic environment they are also impacted by snow conditions.

In the U.S. snow conditions were generally good for the third year in a row which helps Snowmobiles retail sales outperform the other recreation of vehicle categories. Canada, on the other hand, experienced very poor snow conditions throughout most of the eastern half of the country, which had a significant negative impact on retail sales.

Retail sales of Arctic Cat Snowmobiles outperformed the industry and we gained nearly three points of market share. At the same time we reduced the inventories by 20%. Dealer inventories reduction has been an ongoing part of our strategy for three years and during that time we have reduced dealer inventories by 54%. There is still room for further reduction and we have that in our plan for the upcoming year.

Arctic Cat’s retail sales performance this year was led by models which incorporated the powered-up 800cc engine. In fact, our 2010 M8 Mountain Sled was the No. 1 selling new model Snowmobiles in the mountain category in the U.S. We expect pent-up demand as well as customer and dealer enthusiasm to continue strong retail sales of this and other 800 cc models again in 2011.

Ample snowfall in most of the European Snowmobiles areas resulted in good overall wholesale and retail sales performance for Arctic Cat’s distributors and their dealers. With this sales performance and modest 2010 distributaries we believe distributor and dealer inventory is low and we expect to see improved distributor orders in fiscal year 2011.

Snowfall also affects dealer profitability and that it creates more riding opportunities for our customers which generates greater sales opportunities for Parts, Garments and Accessories at our dealers.

Over the last two years dealers have told us that additional PG&A sales and related shop work have improved their profitability. This also helps explain why PG&A revenues did not decline as much as unit revenues.

Part of our strategy over the last few years has been to focus on PG&A sales separately from new unit sales. The installed base of Arctic Cat’s Snowmobiles and ATV riders is very large.

Everything we know about our customers tells us that even with the uncertainty and difficult economy; they continue to use their Snowmobiles and ATVs for recreation and work, creating profitable sales opportunities for our dealers as well as Arctic Cat. We will continue to focus on new product offerings and garments and accessories to drive this business.

At this time I would like to turn the call over to Claude Jordan, our Chief Operating Officer, to review the operating performance for the last year. Claude?

Claude Jordan

Thanks, Chris. Good morning, everyone. Our goal is going into fiscal year 2010 were into improve our gross margins, lower operating expenses, improve our cash position by lowering factory inventory and lower our North American dealer inventory. As a result of the various initiatives we have implemented throughout the year, we have successfully achieved each of these goals.

In the area of gross margins we mentioned at the beginning of the year our goal was to improve gross margins by up to 300 basis points. The primary focus throughout the year has been working on our supply chain to lower our material and product costs, as well as various engineering cost reduction initiatives.

In the area of material costs, we’ve been able to achieve reductions driven by lower commodity prices. In addition to improve commodity prices, we also saw an improvement to gross margin driven by product mix, lower transportation costs, currency, and higher selling prices on select models. These actions have allowed us to improve our gross margins in the fourth quarter by 630 basis points compared to the same quarter last year. In year-to-date, we have seen our gross margins improve by 370 basis points.

In regard to operating expenses, we stated at the beginning of the year, our goal was to achieve a reduction of 12% to 17% compared to last year. With this in mind, we implemented numerous initiatives that have resulted in a reduction during the fourth quarter of 22% and year-to-date of 16%.

Operating expense reduction will continue to be a major focus of the business, and we will continue to identify new areas for further reduction without impacting our goal of becoming a stronger business as the economy recovers.

Another area of focus has been working to improve our cash position through improved factory inventory management. Throughout the year we focused on aligning our production with the demands of the market to ensure we were building a proper mix and quantity of products. With the improved planning throughout the business, we have been successful in lowering our overall factory inventory by 33% or from a 120.8 million last year to 81.4 million this year. The improvements to inventory came from every component of the business.

Overall, this improvement in inventory has allowed the business to improve the year-over-year cash position from $11.4 million last year to $71.1 million. Our goal is to continue to staying focused going forward, while at the same time ensuring we have the right amount and right mix of the inventory to meet the needs of our customers.

Final area that we’ve been working on is lowering North American dealer inventory. By lowering production and aligning the dealer inventory to the needs of the market, we have been successful in reducing the amount of inventory at our dealers. During our fourth quarter, we successfully reduced dealer inventory by over 23% compared to the same period last year. We will continue to staying focused on reducing dealer inventory, which will allow the business to be well-positioned when the economy recovers.

As Chris mentioned earlier, fiscal year '11 will be another challenging year for the power sports industry. And with this in mind, we will continue to focus on operational efficiencies throughout the business. By continuing the same focus we had in fiscal year 2010, we will be successful in improving gross margins by 100 basis points to 200 basis points holding operating expenses flat as a percent of sales, reducing dealer inventory by 25% to 30% and ending the year with more cash than fiscal year '10.

As a business we’re much stronger today than 12 months ago and believe that by the end of fiscal year 2011, we will be well-positioned when the power sports industry fully recovers.

At this time, I would like to turn the call over to Tim, who will review the fourth quarter and year-end financials.

Tim Delmore

Thanks, Claude. Good morning, everyone. I also like to welcome you to the conference call. Today, I will review our fourth quarter results, our year-end financial performance as well as our outlook for fiscal 2011.

Net sales for the fourth quarter decreased as expected to $84 million versus $90.7 million for the same quarter last year. ATV sales were $55.8 million compared to $64.1 million. Snowmobiles sales improved to $597,000 due to increased sales compared to a negative $3.4 million in the prior year quarter. Parts, garments and accessory sales were $27.6 million compared to $30 million.

Gross profits for the quarter were $7.9 million versus $2.8 million. The gross profit percentage for the quarter improved to 9.4% versus 3.1% for the fourth quarter last year. The increase was primarily due to higher margin percentages for all product lines resulting from efforts we have undertaken to rescale our business, product cost reductions, price increases and benefits of a stronger Canadian dollar.

Selling, general and administrative expenses decreased 22% to $20.4 million versus $26.2 million for the same quarter last year, primarily due to lower R&D expenses and administrative costs.

Our interest income was $8,000 versus $1,000 for the same quarter a year ago and interest expense decreased to $1,000 versus $74,000.

The net loss for the quarter improved to $9.6 million versus a loss of $16.7 million for the fourth quarter last year and diluted loss per share improved to $0.52 versus $0.93 loss per share a year ago.

Next, I would like to review Arctic Cat’s financial performance for the full year fiscal 2010. Year-to-date net sales were $450.7 million versus $563.6 million a year ago. Arctic Cat return to profitability in fiscal 2010 of net earnings of $1.9 million versus a loss of $9.5 million in '09. Diluted earnings per share were $0.10 versus a loss of $0.53.

On a year-to-date basis, ATV sales were $188 million compared to $247.3 million. Snowmobiles sales were $162.9 million versus $207.3 million. And parts, garments and accessories sales were $99.9 million versus $109 million for the same period last year. Sales for all three product lines decreased because of lower demand due to the challenging economic conditions.

Our year-to-date gross profits were flat at $83.2 million on lower sales. Our year-to-date gross profit percentage improved to 18.5% versus 14.80%, again, primarily due to higher margins for all product lines.

Year-to-date selling, general and administrative expenses decreased 16% to $81.9 million versus $98 million, primarily due to lower R&D expense, sales and marketing expenses, and were partially offset by higher admin costs due to increased Canadian hedge costs.

Looking at some balance sheet highlights. We ended the year with $71.1 million of cash versus a $11.4 million a year ago and have no short-term or long-term debt. Accounts receivables decreased $9 million to $29.2 million, mainly due to the timing of Q4 ATV shipments and their collections. Claude mentioned inventories decreased to $81.4 million from $120.8 million.

Year-to-date capital expenditures totaled $6.3 million and depreciation was $22.8 million. Arctic Cat estimate sales for fiscal year ending March 31, 2011, in the range of $447 million to $460 million, based on ATV sales being down 3% to 6%, Snowmobiles sales being up 5% to 7% and parts, garments and accessories sales are being flat to up 3%. The company expects earnings per share to improve to the $0.18 to $0.33 per share range for fiscal 2011. We expect 2011 capital expenditures to total approximately $16 million and depreciation to be about $17 million.

For example, financial modeling purposes, we aren’t giving quarterly guidance but keep in mind the majority of our revenue traditionally occurs in our September and December quarters and most of not all our profits occur in these quarters.

I would like to thank you for your attention. And now, operator, would you open it up for questions? Operator, could you open it up for questions, please?

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) The first question comes from Brian Freckmann from LimeStreet Capital. Please go ahead.

Brian Freckmann - LimeStreet Capital

Hey, guys, how are you?

Chris Twomey

Good. How are you?

Brian Freckmann - LimeStreet Capital

Good. Good. Two real quick questions, I can take them both off line, they’re just numbers. Number one, what’s the dollar amount of inventory volume? And then the second question I can take off line is can you help me understand contingent liabilities? Maybe what that number was this quarter? And then why it spiked last quarter? I can take both those off line, that’d be great. Thanks.

Chris Twomey

Let’s see. Contingent liabilities, are you talking –

Brian Freckmann - LimeStreet Capital

Yes, they were 94.65 last quarter, up from 37. I think part of that has to do with your new credit agreement, the calculation, but what was the contingent liability this quarter?

Chris Twomey

I think you’re referring to the repurchase liability under our new floor plan agreement with GE.

Brian Freckmann - LimeStreet Capital

Yes, you guys call it a contingent liability in your filings. So that’s what I’m referring to.

Chris Twomey

Traditionally, in any floor plan agreement, there is a repurchase contingency.

Brian Freckmann - LimeStreet Capital

Right.

Chris Twomey

And with that new GE agreement, that increased. However, we like to repossessions, we like to make sure they get placed in the appropriate markets.

Brian Freckmann - LimeStreet Capital

I understand what you guys are doing. Could you just help me and give me the number this quarter because I just track them quarterly. So I was curious if you had that number handy?

Chris Twomey

I do not have that handy. That will be coming out in the K in June.

Brian Freckmann - LimeStreet Capital

Okay. And then the second thing just when you talk about sort of inventory at the channel, maybe if you could give me a dollar amount. You give sort of percentages and it’d be great if we could, as a newer person in this Company sort of have to be able to equate percentages to a dollar amount at least one.

Chris Twomey

We don’t have a dollar amount. We just have units. We track the units that we sent to the dealers and then we subtract those units that are reported back as registered at retail, but we don’t have a dollar amount for the inventory at the dealer level. I mean, you could use an average kind of a dollar number for Snow and ATV, but it wouldn’t be necessarily all that accurate.

Brian Freckmann - LimeStreet Capital

Right, that’s kind of what I thought. I was trying to get a number. All right. Well, thanks, guys. Take care. Thanks.

Operator

Thank you. The next question comes from Joe Hovorka from Raymond James. Please go ahead.

Joe Hovorka – Raymond James

Thanks, guys. I just had a couple of questions about your fiscal 2011 outlook. We’ve got retail sales down for the industry, 10% to 12%. In that environment you also want to reduce your dealer inventories by 25% to 30%. And then we’ve got a revenue guidance number, that’s basically flat to up a couple percent. How do we foot all of that? Are you anticipating gaining significantly more share than you did in 2010? How do I close the loop between all those assumptions that would seem to point to flat or down revenue, we come up with up revenue?

Chris Twomey

I think, Joe, the mix will drive revenue. There’s higher mix in our model plan this year, so there’s higher mix in both ATV and Snow. There’s also some higher units on the Snow side of the business. But again, given the level of inventory on the Snow side at least if the sales are flat to down 5% or even up 5%, given where we’re going with wholesale on units, we expect that the dealer inventory will drop again this year and it’s a combination of what they went into the year with and what we’re going to sell at wholesale and then assuming the same kind of flat level of retail for next year.

Tim Delmore

Joe, one of the things is from 10% to 12% you’d mentioned that was on the ATV retail side we were giving guidance, obviously, Snow, we said, plus or minus 5%, so, that’s a difference between the two businesses.

Joe Hovorka – Raymond James

That’s fair. Yes, I guess if you combine those and just take kind of a flat number for Snowmobiles, we’re still looking at maybe down mid single digits type of number for the wholesale.

Tim Delmore

We’re talking about retail and wholesale. A little bit different there. We’re certainly wholesaling a lot less units in order to drive that inventory down at dealer level than the retail. Retail has been much more solid than wholesale side of the business.

Joe Hovorka – Raymond James

Right. Let me ask it this way then. If you had let’s say flat unit shipments at the wholesale level right now, you would still be under producing retail with a down, call it 5% or down 10% retail environment?

Chris Twomey

Yes. And again, Joe, we’re planning to up Snow sales.

Joe Hovorka – Raymond James

At wholesale?

Chris Twomey

At wholesale. Right.

Joe Hovorka – Raymond James

Okay. And you said the mix will be driving. How much of that will impact ASPs? Is that 500 basis points? Is it a couple hundred basis points on the revenue line?

Chris Twomey

Yes, more on ATV than Snow, but that’s yes, above right.

Joe Hovorka – Raymond James

In that range?

Tim Delmore

The other factor in wholesale sales is international. The component of that’s international. So it will impact the revenue line item.

Joe Hovorka – Raymond James

I see. Okay. We are expecting international growth in '11 versus '10?

Tim Delmore

Yes.

Joe Hovorka – Raymond James

Okay. And then it sounds like you’ve got several new products introduced for fiscal 2011 or you will be. What do you see in R&D over the next, call it 12 months plus 24 months? R&D has been cut from the kind of the $20 million-ish range down to a little less than $13 million. Is that kind of a run rate or will we expect R&D to start to ramp-up again, as we look for future new products?

Chris Twomey

We don’t have R&D ramping up in 2011. In our 2011 plan, we have significant projects going on, in both Snow and ATV, in that period. Maybe not as many projects as we had in the past, but certainly projects that should propel us going forward. So we’re okay with the level of R&D that we’re at now. Some of the higher R&D levels were impacted, I think, with some ATV engine development when we got into that business, but generally, as we look at '11, we don’t see an R&D increase, maybe '12, but I would also caution everybody to not assume that that we don’t have some exciting new stuff coming out just because R&D expenses are flat. It’s really strategically focusing on where we need to be and getting that delivered.

Joe Hovorka – Raymond James

Okay. And then just one modeling question. What’s the tax rate you are using for '11?

Tim Delmore

I think you could use an annualized average tax rate of around 27% range.

Joe Hovorka – Raymond James

27? Okay. Thank you.

Chris Twomey

Thanks, Joe.

Operator

Thank you. The next question comes from Scott Hamann from KeyBanc Capital Markets. Please go ahead.

Lisa Brozewicz – KeyBanc Capital Markets

Good morning, guys. This is actually Lisa Brozewicz, filling in for Scott.

Chris Twomey

You didn’t sound like Scott.

Lisa Brozewicz – KeyBanc Capital Markets

Okay. My first question was could you guys prioritize for us how your team is thinking about deploying capital?

Chris Twomey

What are you thinking about, Lisa, on that?

Lisa Brozewicz – KeyBanc Capital Markets

The excess cash that you guys have.

Chris Twomey

We watch that cash judiciously. While we look at other opportunities we don’t have any that are close. We’re looking at a couple of opportunities and then, of course, as we always do and then of course, the Board watches the cash and the cash projections and we’re looking at the possibility of reinstating the dividend, which was canceled a little over year ago.

Lisa Brozewicz – KeyBanc Capital Markets

And then also, what type of commercial environment are you guys seeing on the ATV front?

Claude Jordan

In terms of retail financing, we’re seeing those low as 1.9, we’re seeing the 3.99 that are out there, and 5.9, so I think it’s somewhat aggressive in terms of retail financing. Rebates, obviously, is by model, but we’ve seen those go as high as 1200, and sometimes even a little bit north of $1200, but, once again, it’s by model by competitors. So depending on who the competitor is some are a little bit more aggressive than others we do not expect FY '11 to be much different than FY '10.

Lisa Brozewicz – KeyBanc Capital Markets

Okay, great. I think that was all I had. Thank you.

Operator

Thank you. The next question comes from Rommel Dionisio from Wedbush Capital. Please go ahead.

Rommel Dionisio – Wedbush Capital

Thank you. Good morning. I wonder if you could just discuss the promotional environment and how you see that going forward for both Snow and for the RV sector. It seems like it’s gotten pretty aggressive on the ATV side, by some of your competitors lately. I was just wondering if you could comment on what your thoughts are going forward on that for that sector as well as Snow.

Chris Twomey

Let me do Snow first. The year just completed we saw promotional incentive spending, very similar to the year before, again, retail sales were down significantly, but for a big part, that was driven in Canada, and if it doesn’t snow, as we saw from kind of a central to the entire east side of Canada, no matter what you have for promotions, if it isn’t snowing, people aren’t buying. And so it didn’t make sense to significantly change that.

So overall, I would say that as we look at last year snow was very similar to the year before. Our plan going into this year is not a significant change from last year. We think that got the retail sales certainly with the level of promotion we had, we outperformed the market, so that doesn’t causes to increase on those. There’s a potential issue sitting out there with Canadian currency and we’ve taken that into account in our planning and modeling for the year. So, we’re comfortable that. In Snow that '11 will look very much like '12 and the only possible change would be the Canadian currency issue and we’ve taken that into account in our modeling.

Rommel Dionisio – Wedbush Capital

How about the ATV side, Chris?

Claude Jordan

ATV side, as I just mentioned, I think things were a little bit aggressive last year, especially with the retail financing, so rates go down as low as 1.9. We had 1.9 on multiple months last year and certainly allowed us to drive some retails. In a year we picked up share, so we feel good about that. But the 1.9 is a fairly expensive product to use. We’ve gone back before too to 1.9, 3.9 and even a little bit higher on that side.

On the rebate side, depending on the model, as I mentioned you, some of the rebates have gone as high as 1200, but we look at in terms of what the competitors are doing out there. We try and make sure we’re competitive with the competition. Chris had mentioned that FY '10 versus FY '11, we’re planning since we’re somewhat aggressive in that by demo planning to be at the same level aggressiveness in FY '11. The only unknown right now will be a little bit on the Canadian currency side depending on which direction it went, that could force us to be a little bit more aggressive on the rebates up in Canada.

Rommel Dionisio – Wedbush Capital

Great. Thank you very much.

Operator

Thank you. The next question comes from Steve Bowman [ph] from DB Shaw Capital [ph]. Please go ahead.

Steve Bowman – DB Shaw Capital

Good morning, guys. Sort of the dealer inventory question. Maybe one thing. I'm having a little bit of trouble thinking about this, so maybe one thing that would be helpful is if you guys can talk about what you guys think retail sales did in the fiscal year that you just reported. So, you gave guidance for segment retail sales in 2011. Is it possible for you to give us your estimates of what those were in 2010?

Chris Twomey

In terms of dollar retail sales or?

Steve Bowman – DB Shaw Capital

Yes, exactly the same. Just in terms of what it did on a percentage basis, 2010 versus 2009. So, in 2000, you gave guidance for ATVs to be down 10% to 12% at retail in 2011. What do you think they were down in 2010 at retail?

Chris Twomey

Snowmobiles, generally that’s not information. That’s the confidential information that the industry shares a month itself, but nobody is supposed to report that information outside of the industry reporting. So I can’t really tell you exactly what the industry has done. What I can tell you is that on the Snow side of the business we sold less units than we sold in 2009. We retail less units than we sold in 2009, but we performed significantly better than the industry causing us to gain roughly 2.7 points a share. So if you want, and you look at that on the Snow side you’d say the industry was down X and we’re down about half of as much as industry was down, which allowed us to gain the share. I just can’t tell you what those numbers are because again we’ve agreed not to share those.

Steve Bowman – DB Shaw Capital

Okay. Let me ask the question in a different way. Because what I’m really trying to understand is whether or not weeks of inventory at the dealer came down. And you guys gave I think that’s dealer inventories in ATV, were down 24%, Snowmobiles were down 20%. What do you guys think on weeks’ basis those numbers look like?

Chris Twomey

The weeks of inventory both Snow and ATV are down at the dealers.

Steve Bowman – DB Shaw Capital

Can you help me with the magnitude? Do you think it was a couple weeks of inventory that was down? Is it significantly more than that?

Chris Twomey

I don’t have those exact numbers, but we can run a number like that. I just don’t have that number. What I can tell you is that rather than just focusing on for the purpose of call like this, we’re talking about generally what the total overall reduction in dealer inventory, the percentage overall reduction. The way we kind of look at it in the business is what percent of our dealers had flat or reduced inventory, so it goes back to more of a health of the individual dealer, rather than just a gross overall number.

What I can tell you is on the Snow side of our business, about 76% to 77% of our dealers had flat or less inventory this year than they have last year. So that’s a significant reduction and a big improvement over the year before. So if you went out there and said, who you’re dealing with, who the guys want to do business with and then you said what’s their inventory, look like 75% of them have either flat or down inventory and that’s a significant improvement over last year. The numbers are very similar on the ATV side of the business as well.

Steve Bowman – DB Shaw Capital

Okay. I think I’m having trouble understanding how retail is down, what you guys have guided to, and then how your sales into the channel are going to be significantly better than that without building inventory in the channel. But I suspect I am just not understanding something and being a little bit dull this morning. So I’ll follow up with you guys off line. Thanks very much.

Chris Twomey

Another point is that we have international sales to distributors and we do not track their dealer, they track their dealer base, we don’t have access to that information. So on the Snow side, additional increases in international sales would be a piece of that and that wouldn’t be factoring into the North American dealer inventory.

Steve Bowman – DB Shaw Capital

Got you. That might be what I’m missing. Thanks very much.

Chris Twomey

Okay.

Operator

The next question comes from Joe Hovorka from Raymond James.

Joe Hovorka – Raymond James

I suspect you may not answer given the last question, but I was curious if you could give us an update on retail sales in the month of April, since we kind of know what happened through March?

Chris Twomey

I’ll take the easy one, Joe. We didn’t saw many Snowmobiles in the month of April. I wish Tim. I’m going to hand over to Claude; he can handle the ATV side.

Claude Jordan

Call me on that one because I actually didn’t bring April up, obviously, we have a flash, tell you truth, we’re down slightly year-over-year. I haven’t got April numbers for the industry this yet, but year-over-year our retails were basically flat. You got to look at side by side versus ATVs and we were down slightly a flat, let’s say.

Joe Hovorka – Raymond James

Your retail sales were down slightly to flat?

Claude Jordan

Yes.

Joe Hovorka – Raymond James

And then you would assume that you’re outperforming the industry?

Claude Jordan

We’ve been outperforming. Last year, we took share on 11 months out of 12 months, so we feel pretty good compared to what we’ve seen in the industry.

Chris Twomey

January, February, and March, we definitely outperformed the industry on the ATV side of the business. We don’t have the final numbers, but I was encouraged and actually I thought Joe that as I look at the March industry numbers, I was telling Claude that maybe we’ve finally seen the bottom and it’s going to start bumping around that bottom and then some of the April numbers that came in for some of the other companies led me to question that.

So you kind of look out there and saying when are we going to see the bottom of this? I thought we had seen it in March and April would tell us that even though we performed almost at the same level as we did last year, the entire industry didn’t, so I am not sure that we’re at the bottom. I’m not ready to call a bottom at this point.

Joe Hovorka – Raymond James

Right. Then I think you’re right that March was actually significantly better than January and February. And I was just curious, did your retail sales in March also kind of be that flat to down slightly or is the April showing a sequential improvement on a year-over-year basis for you?

Claude Jordan

March was different. In terms of March, we did significantly better. We positive comp significantly. And in April, as Chris mentioned, we thought that the entire industry which had seen improvement in the month of March, we thought because if you look at January, February and March was slowly improving, and same thing was up, difference being the industry was down slightly in March, we were up significantly on a positive comp basis. And then April, the industry sort of dropped back down. We outperformed the industry but as I had mentioned, we were basically flat or slightly down.

Joe Hovorka – Raymond James

And then the other question I had was the international business. What percent is that for the full-year fiscal '10? And if you have it by ATV versus sled?

Chris Twomey

I don’t have that breakdown yet, but Tim can get you that.

Joe Hovorka – Raymond James

Okay. Great, thanks, guys.

Operator

You have a follow-up question from Brian Freckmann from LimeStreet Capital. Please go ahead. Mr. Freck, your line is now open.

Brian Freckmann – LimeStreet Capital

Sorry. Thanks for taking my follow-up. Just a quick question would be what percentage of your sales are financed versus non-financed? I forget that number.

Chris Twomey

Generally, what we can see is sales that are financed through our Sheffield, who does our retail financing and that number has traditionally been in that 30% to 35% range. The last year, it’s fallen back; our approval rating at Sheffield is good. So I mean they’re making financing available, but probably the percent of sales is not at that 35% level now.

And really, the way we look at that is you can finance it through ours or Sheffield or you can finance it through your local bank or credit union. And I think our view is that customers are finding maybe more aggressive opportunities from their local banks or credit unions, who for the most part really never shut up in the financial crisis because these were purchases that they could repo if they had to, they were also small picket purchases, and they also knew the customers very well. So we think that there is more financing going on there and that is that we don’t have access to.

What we see happening is when you look at sales we have a finance program, as Claude referred to, a 1.9, 3.9 or whatever, or we have other options that they could take. If they don’t take the financing, they might take a rebate. And so, you can see our rebate expenses maybe tracking higher and our financing expenses tracking lower, which just tells us that to get finance some place out and take in the other options that they have. Generally, again, it’s been around 35, and it’s less than that now through our source but we don’t think it’s any less than that through the other sources and in fact we think the other sources for our customers have stepped up.

Brian Freckmann – LimeStreet Capital

Great, thank you for all the color. I really appreciate it.

Operator

(Operator instructions). There appears to be no further questions at this time. I’ll hand the call back over to Chris Twomey. Please go ahead, sir.

Chris Twomey

Thank you everybody for joining us today. I can tell you that we’re all feeling much better about this call this year than we were last year at this time. (inaudible) we said we were going to do is return the company to profitability. We think we got a strong plan for next year. We continue to work all aspects of the business and we think that we will be very well-positioned when this market turns around, which we think will occur at the end of '11 or early in fiscal '12. Thanks, everybody and we look forward to updating you at the end of the first quarter. Thank you.

Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Arctic Cat Inc. F4Q10 (Qtr End 03/31/10) Earnings Call Transcript
This Transcript
All Transcripts