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Arctic Cat Inc. (NASDAQ:ACAT)

F2Q 2013 Earnings Call

October 25, 2012 12:00 pm ET

Executives

Shawn Brumbaugh - Padilla Speer Beardsley

Claude Jordan - President and CEO

Tim Delmore - CFO

Analysts

Scott Hamann - KeyBanc Capital Markets

Mark Smith - Feltl

Craig Kennison - Robert W. Baird

Joe Hovorka - Raymond James

James Hardiman - Longbow Research

Joe Gagan - Atlantic Equity Research

Gerrick Johnson - BMO Capital Markets

Operator

Ladies and gentlemen welcome to the Arctic Cat Fiscal 2013 Second Quarter Earnings Conference Call on October 25, 2012. 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 will now hand the conference over to Shawn Brumbaugh. Please go ahead, madam.

Shawn Brumbaugh

Thank you, and thank you for joining us this morning. I am Shawn Brumbaugh with Padilla Speer Beardsley. Before the market opened this morning, Arctic Cat released results for fiscal 2013 second quarter ending September 30, 2012.

Participating in our call today to discuss the company's performance and outlook will be Chairman and Chief Executive Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we'll have time for your questions.

Before we begin please know that some of the comments made today will be foreword looking statements regarding the company's expectations of future performance. Such statements are subject to risk 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 for the Securities and Exchange Commission. We urge you to review these results for description of risk factors that may affect the results.

Now, I'll turn to call over to Arctic Cat CEO Claude Jordan, Claude.

Claude Jordan

Thanks Shawn. Good morning everyone, and thanks for joining us today. This morning I will cover the individual performance of our three businesses during the second quarter of fiscal 2013, as well as the progress we've made in the areas of sales, profitability and operational excellence. Following my comments, Tim Delmore, our CFO, will review our financial performance.

Overall, we are pleased with our financial performance for the second quarter. I would like to especially thank the entire Arctic Cat team for their hard work and dedication in delivering highest second quarter earnings in our 50-year history. As we mentioned in May, we set out to grow sales in all product categories, improve gross margins, increased earnings per share, generate additional cash and strength our balance sheet. Through the second quarter we are on track to accomplish each of these.

In regard to the individual businesses, Snowmobile sales were up 12% for the quarter primarily driven by increased international sales and to a lesser degree pricing and mix. Additionally, snowmobile dealer inventory for North America was flat the last year. With the dealer inventory in excellent condition and the increased orders we're seeing on the 23 ProCross and ProClimb snowmobile models we launched last year and the five new models we launched in March of this year, we are increasing our regional guidance to a revised higher guidance of flat to up 2%.

On the Retail side, we will not see any significant retail sales until our third and fourth quarter. However, we are once again targeting to gain market share this fiscal year and continue to expect the overall industry to grow in the low single-digits.

Regarding our new model year 2013 snowmobiles, we continue to be recognized by various industry trade magazines with numerous awards. Some of the awards we have received this year include Editors Choice for F1100 Turbo Race Replica, Best High Performance Snowmobile for F800 Sno Pro Race Replica. And finally, Best Crossover for our CrossTour 1100 Turbo. We also partnered with World Champion Snowmobile Racer Tucker Hibbert to create a limited edition Tucker Hibbert Race-Replica snowmobile, which was launched in August.

On the ATV business, sales increased 19% for the quarter. Key drivers for sales increased were North American and international sales of our Wildcat 1000 sport side-by-sides and North American CORE model ATVs.

Dealer inventory was again up, August and we were successful in lowering our North American dealer inventory of ATVs and Prowlers by 18%, excluding the Wildcat. Including the Wildcat, overall dealer inventory was lowered by 10%. As we move forward, we will continue to focus on matching wholesale sales with retail sales. With this in mind, we do not expect to see further significant decreases in overall dealer inventory.

For the quarter, North American ATV industry retail sales were down slightly by 1% and for our fiscal year industry retail sales were up 2%. Arctic Cat also saw a slight decline in second quarter retail sales. However, with the August launch of our five new ATV CORE models, we feel comfortable that we will see improved performance versus the market in our ATV business.

Our North American ROV retail sales experienced strong growth as sales increased over 50% for the quarter, and year-to-date our ROV sales have increased over 67%, driven by those are Wildcat and Prowlers HDX utility vehicle. Wildcat retail sales continue to be strong and match our expectations. In addition to our base Wildcat 1000 model, we also launched a Wildcat 1000 limited model in August that is also achieving strong sales. With a lower dealer inventory, increased focused on product development and the increased orders we are seeing for overall ATV business, we are continuing to expect our ATV business to grow sales 36% to 41%.

Although, our ATV and snowmobile business are showing year-over-year growth, we did see a slight decline in our PG&A business for the quarter with sales declining by 2%. Year-to-date sales for PG&A are flat for last year and we continue to expect full year sales to grow 1% to 3%. The primary reason for the decrease in second quarter sales was the drop off in snowmobile garments. On the positive side, we did strong growth in Wildcat parts and accessories and expect this to continue throughout the year.

In regard to operational performance, we stated back in May that our focus would be on improving gross margins, controlling our operating expenses and strengthening our balance sheet. In the area of gross margins our goal was to increase gross margins by 20 to 60 basis points. During the second quarter, we did see a slight increase to our gross margin driven by higher volume, product cost reduction efforts and higher selling prices on the select models. These positives were all set by the decrease in the PG&A sales, which is our highest margin business. We continue to expect PG&A sales to increase in the second half of the year, which will drive overall improvement to our gross margins. Goss margin improvement will remain a focused area and we continue to expect gross margins to improve by 20 to 60 basis points for the year.

In regard to operating expenses, we stated at the beginning of the year, our goal was to hold operating expenses flat as a percent of sales. With this in mind, we have continued to focus throughout the business on all aspects of expense control. At the same time, we have continued to invest in product development, which has resulted in launching various new models for both the snowmobile and ATV business. Year-to-date, we were successful in decreasing operating expenses as a percent of sales by 200 basis points, while at the same time increasing our R&D spending by 19%.

Based on our plan for the remainder of the year, we continue to believe we will be successful in holding our operating expenses flat to down slightly at a percent of sale, while continuing to invest our investment in new product development.

Final area of focus has been working to strengthening our balance sheet. During the second quarter, our year-over-year inventory increased to support our sales growth and to allow the business to build snowmobiles earlier than last year. Over 67% of the increase in inventory growth was targeted earlier start to producing snowmobiles. The shift in our snowmobile production will benefit our dealers as they will receive all snowmobiles prior to December, which is the largest retail month for snowmobiles. As we look forward, we will remain focused on having the right amount of inventory on hand to support growth need of the business.

In regard to the cash, we ended the quarter with roughly $24 million of cash and short-term investment and no long-term debt. This amount is down from the prior year quarter by $73 million. However, the decrease was completely due to the $79 million we used to purchase Arctic Cat shares from Suzuki this past December. Going-forward, we will continue to focus on our cash position and expect to generate positive cash-flow this fiscal year.

At this time, I would like to turn the call over to Tim to review the second quarter financials.

Tim Delmore

Thanks, Claude. Good morning everyone. I would also like to welcome you to our conference call. Today, I'll focus on reviewing highlights of our second quarter and year-to-date financial performance, and our increased guidance for full year fiscal year 2013.

Net sales for the second quarter increased 12% to $229 million from $204.8 million for the same quarter last year. ATV sales increased 19% to $69.7 million from $58.8 million. ATV sales are higher primarily due to strong sales of our award winning Wildcat sports side-by-side vehicle. We still expect ATV sales to increase 36% to 41% for the full year, and are on track to deliver those numbers.

Snowmobile sales increased 12% to $128.6 million from $114.7 million. Parts, garments, and accessories sales decreased 2% to $30.8 million from $31.4 million for the same quarter last year or pre-season snowmobile related parts, oil, and garment sales were offset to a certain extent by Wildcat parts and accessories sales. We still expect our parts, garments, and accessory business to be up at year-end.

Gross profits for the quarter increased 12% to $64 million from $57.1 million. And the gross profit percentage for the quarter improved slightly increased to 28% from 27.9% for the second quarter last year.

Selling, general, and administrative expenses increased 4% to $25.3 million from $24.2 million for the same quarter last year primarily due to higher research and development expenses. Selling, general, and administrative expenses as a percent of sales declined to 11% compared to 11.8% for the same quarter last year.

Our interest income was 4,000 versus 20,000 and our interest expense was 62,000 versus 4,000.

Net earnings increased to 17% to $25 million from $21.4 million and our second quarter diluted earnings per share increased 57% to $1.80 from $1.15.

Next, I'd like to review our ARPU -- our financial performance for the first six months of fiscal 2013. Year-to-date net sales increased 21.7% to $340.3 million from $279.8 million a year ago. Net earnings increased 41% to $27 million from $19.1 million, while diluted earnings per share increased 90% to $1.95 from $1.02.

On a year-to-date basis ATV sales increased 48% to $142.6 million from $96.7 million. Again the increase was primarily due to sales of our Wildcat sports side-by-side, as well as Prowler side-by-side vehicles, and Core ATVs.

Snowmobile sales increased 11% to $146.6 million from $132 million. And parts, garments, and accessories sales increased to $51.1 million from $51 million.

Our year-to-date gross profits increased 21.1% to $86.5 million from $71.4 million and our year-to-date gross profit percentage was essentially flat at 25.4%.

Year-to-date selling, general, administrative expenses increased 6% to $44.6 million from $42.1 million primarily due to increased investments in research and development expenses for the ATV/ROV and snowmobile businesses, and higher selling cost, administrative cost, due to higher sales levels. Selling, general, administrative expenses as a percent of sales declined to 13.1% compared to 15% for the same period last year.

Looking at our balance sheet as of September 30th, we end the quarter with $24 million of cash down from $96.6 million for the same quarter last year. A remainder last December we used $79 million of our cash to re-purchase Suzuki's Arctic Cat stock.

Receivables decreased 8% to $88.6 million due to lower U.S. floorplan receivables related to the timing of shipments during that quarter. We had zero short-term borrowings as of September 30th, and no long-term debt.

Inventory increased to $144.7 million from $103.6 million chiefly due to our strong wheel production schedule and related inventory as Claude had mentioned. Year-to-date capital expenditures totaled $5.6 million and depreciation and amortization was $7 million.

Regarding our updated outlook for fiscal 2013, we now anticipate sales for the year to end in the range of $664 million to $684 million, an increase of 13% to 17%. We now expect earnings in the range of $2.65 to $2.75 per diluted share, up 54% to 60% from last year. Previously we had expected sales in the range of $662 million to $682 million and diluted earnings per shares in the $2.55 to $2.65 range.

We continue to expect ATV/ROV sales to increase 36% to 41% for the full year driven by our shipments of our new Wildcat sports side-by-side models. We expect snowmobile sales to be flat to up 2% and PG&E sales to end the year up 1% to 3%.

Our outlook includes the following assumptions. Gross margins, as Claude mentioned, they increased 20 to 60 basis points. Operating expenses remained flat to slightly down as a percent of sales and our tax rate to be about 35.5%.

We expect to end the year with increased cash on the balance sheet from cash flow, from operations.

I like to thank you for your attention and now operator we would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) The first question comes from Scott Hamann from KeyBanc Capital Markets. Please go ahead sir.

Scott Hamann - KeyBanc Capital Markets

Just in terms of you're -- what you're seeing on the dealer side. Are you seeing continued expansion and additional dealers wanting to come online with some of the new product offerings?

Claude Jordan

Hey Scott, this is Claude. We are actually across the Board, not just on the ROV side, but you would normally expect the Wildcat. But we've actually added net dealers to our ATV business, our Prowler side-by-side business as well as snowmobile business this year.

Scott Hamann - KeyBanc Capital Markets

And is there a geographic thing that you're seeing, where there are certain regions that are kind of gravitating towards these products?

Claude Jordan

Well certainly on the Wildcat side you're going to see it more in the Southwest than you'll see it in other parts of the country. And other than that I would say primarily U.S. as opposed to Canada. Canada we've had a pretty long and stable dealer network in Canada. So there's really not a lot of changes that take place there. So we may add a dealer or two here and there. But that's a territory that's pretty well established. As we look at the U.S. especially the southern part, we've always mentioned that give us an opportunity for us to further expand. Thus we're really focused on our efforts as we go forward.

Scott Hamann - KeyBanc Capital Markets

Okay. And then just on the international side, it seems like you're getting a little bit of attraction with some of the new side-by-side stuff. Can you talk about may be what the plan is there as you continue to rollout more products within that portfolio?

Claude Jordan

Yeah I'll break that down in a couple of areas. First of all on the snow side we are seeing continued attraction on the international side. There is no doubt that, as we look at the market today, basically anywhere that they sell snowmobiles they probably already carry Arctic Cat. But with that in mind we're seeing increased expansion into the Russian market. We're seeing increased expansion into Scandinavian countries such as Norway and Sweden. So, I think those will be, solid growth opportunities for us as we go forward.

On the ATV side-by-side part of the business, that's an area there, once again we're seeing expansion into I'll say Norway, Sweden, as well as Russia. But with that business we also have a further opportunity to go ahead and attend the trade market that are fairly new to us. And so, as we look at Q2, we just recently signed up a brand new distributor in Mexico, which will provide some significant volume going forward. We're looking at a couple of other countries. I don't want to really mention them right now. But that will provide opportunities for growth as well. So that's a business, it's a combination of product as well as new territories that we're expanding into, I think will provide some great growth going forward.

Scott Hamann - KeyBanc Capital Markets

Okay. And then just finally on the ATV business. Obviously guidance implies a petty meaningful acceleration from the growth you saw in the second quarter here. In the visibility, which you have, I mean can you kind of may be talk about the RPM platform and the successes you've seen there and may be, how you feel comfortable that's still a good number that you can get to?

Claude Jordan

In ATV business we feel very good about the 36% to 41%. As we look at the numbers we started off by saying ATV's were going to be up 26% to 32% and at the end of Q1 based on the results that we had there, we increased the guidance to 36% to 41%. For us to get to where we need to get to, the second half of the year on ATV we're going to go ahead and count by about 26% to 30% -- I'm sorry, 28% to 36%. And as we look forward we feel very good about that.

Even with the Wildcat, which is continuing to do well, we have the Wildcat Limited, which we just launched in the month of August, and as we mentioned at the beginning of the year, that's an area that we like a great deal and we intend to launch some additional product point -- price points this year. And so, as I sit here today, I like the plus 36% to plus 41%.

The one thing just to add a little bit of color here, when you look at that business, we mentioned the Southwest, there is a little bit of seasonality in that business and so last month I was in Glanusk. Glanusk is in the -- it was sand dunes between San Diego and Phoenix, and so when I was out there we were doing some product testing and the temperature is 115 degrees. The only, I saw one other person that was a Border Patrol person and so you know this is a product that primarily starts to get, people start buying and riding that November, December, January, February timeframe. So when I look at Q2 sales, we are very pleased with the plus 19% that we showed. But there is a seasonality portion to that business as well. And you just don't see a lot of people out there riding out there when it's 115 degrees.

Operator

The next question comes from Mark Smith from Feltl.

Claude Jordan

Mark?

Operator

Excuse me; there is a technical fault one moment please.

Mr. Smith, your line is open now.

Mark Smith - Feltl

Tim. Can you guy have me there, Tim and Claude?

Claude Jordan

Yeah, we have you.

Mark Smith - Feltl

Off-road vehicles, excluding Wildcat can you just talk about how this trended?

Claude Jordan

Yeah, what we are seeing is a few things. One, I think in North America, as we look at the CORE models, the 400, 450, 500, as well as a couple TRVs, both of those I think all five of those are doing fairly well. Our HDX utility vehicle continues to do well and that is the vehicle we launched about a year and a half ago, but that one continues to do well.

On an international basis, market such as Russia, as I mentioned to Scott, Russia, Norway, Sweden continue to do well.

On the other side of the equation, there is no doubt that we starting to see some softness over in Europe specifically, we have been very dependent in the past on Germany and France but we also sell in the Italy and Spain, U.K. and those are countries that are certainly feeling the impact of their economy over there. So, I'd say that those specific areas are being challenged on our, let's say, on road business because those were on road vehicles over there.

But you know that now I think they we're pretty much inline with the industry you saw or at least I commented in my comment that, dealers inventory we've continue to go in and lower that. So, we are still retailing units probably pretty much inline with where the industry is. And the industry was down 1% for the second quarter and we were just slightly below that. So, I think we are more or less with the industry on those types of products. And then, on the new products that we are rolling out, they are the ones that are really driving growth.

Mark Smith - Feltl

And then, timing of snow shipment this year, as we look at good growth here in Q2, as we look in December quarter, is this year going to fit much more in kind of your historical normal shipping, compared to last year?

Claude Jordan

I would not say, last year we were a little late and actually we were shipping product through the middle later part of December. And typically, we like to have those snowmobiles out at the dealers, prior to the 1st of December because December is the biggest retail month for them. I think, last year was probably the exception, this year is probably more of the norm where we will start shipping products right in the beginning of June, maybe late May and we will ship it all the way through Thanksgiving.

Mark Smith - Feltl

And then, last question. I think you guys have talked little bit about potential new products in the pipeline. And I want to say that you said maybe in an announcement before the end of the year, maybe I will clear it down. Is that a calendar year or fiscal year?

Claude Jordan

That is going to be a fiscal year.

Mark Smith - Feltl

That is a fiscal year. Okay, perfect. Thanks guys.

Operator

Our next question comes from Craig Kennison. Please go ahead.

Craig Kennison - Robert W. Baird

I will follow-up on the last question just like a better understanding. If you could, when you see launching new products in general in the side-by-side category, when seasonally is the best time to introduce those products? And then, when would you start to fill that channel, it sounds like after December?

Claude Jordan

Yeah. So, what we said so far is that on the new product side we will continue to go it and launch that product when the product becomes available. And so, I think historically we would look at our new models going out on the 1st of August and you always want to have some new things in that timeframe as well. But the other thing I would say is, there are other opportunities to go in and launch new side-by-side and that is what we have been doing.

So, if you look at the Wildcat itself, last year we took some limited orders in December and really started shipping that product in February and that was a big time because seasonality-wise, there are a lot of those units being retailed in our fourth quarter, which is that January, February, March timeframe.

What we said about going forward, we would have a couple additional price points in that sport side-by-side segment, we sort of like that. We did just mention that that was a fiscal year, not calendar year. So, between now and end of March, I think you can expect to see some additional new products in that category.

Craig Kennison - Robert W. Baird

That is helpful, Claude. And then, just in terms of the impact on guidance. To what extent does guidance incorporate the impact of any product launch you foresee?

Claude Jordan

I think we have been very upfront. We came out in beginning and if you are talking about the ATV business, we started off the year we said, we are going the up 26% to 32%. We had a great first quarter. We are increased by guidance to 36% to 41%. We know when the products are coming out. We have a pretty good forecast to what we think we are going to generate. And so, as we sit here today, we maintained our guidance of 36% to 41% and we feel very comfortable about that.

Craig Kennison - Robert W. Baird

And lastly, just regarding some of your non-dealer channels any progress and initiatives to maybe sell your product to some alternative channels?

Claude Jordan

Well, yes, today we do sell our ATVs and side-by-side through Bass Pro. We have an exclusive range with them and that's work out very well for us. We did just recently bring on a person that is running our national accounts and part of their job will be to go ahead and find additional partners as we go forward. But there is no doubt that there are opportunities to go ahead and look at that channel and to increase that as well.

Operator

Next question comes from Joe Hovorka from Raymond James.

Joe Hovorka - Raymond James

Couple of quick questions. First on, again need this Wildcat thing but yeah, but the new products that are coming, is it -- there's a limited addition that you announced, I guess, is one of those three skews that you were talking about, but it did not really address a different market. I am assuming that the next couple of them will start to maybe address a different market than the existing Wildcat or is that something you could provide a little more color on?

Claude Jordan

Yeah, I can probably provide a little color. We're not going to go ahead and get into the specifics in terms of what the products are. The one thing I would say is all the categories we're talking about are the sports side-by-side. And so, you could look at other players that are out there and they have a pretty wide range. They're still sports side-by-side; they're just different sizes may be in terms of width or length or different engine sizes. So as we go forward, the one we launched in August, the Wildcat Limited, was basically the Wildcat itself and we've added some additional features to it. As we go forward, the next couple that we look out will probably be a little bit more extensive than just colors and seats.

Joe Hovorka - Raymond James

And then, just a question on the new guidance. If I look at the incremental increase in revenue, which I think was $2 million both on the top and the bottom and when I look at the incremental EPS it looks like you got about actually a little bit more that 100% flow through. So can I read that that you've got a little bit more confidence or that that may be operating expenses or gross margins are going to be may be at the better end of the range or what's driving that large incremental flow through from top-line to bottom-line?

Tim Delmore

Well, I think, we're half way through our year, we have a better idea of what our direct sale mix is going to be, sales mix what our costs, our costs are coming in, and also how our operating expenses are flowing through. So we're just more knowledgeable at this time.

Joe Hovorka - Raymond James

And then I'm not sure if I caught this but did you give the ROV retail sales increase in the quarter?

Claude Jordan

We -- what we gave -- yeah, the ROV we did. We said for the quarter that they were up over 50%.

Joe Hovorka - Raymond James

At retail?

Claude Jordan

Those are retails. Yes.

Operator

Our next question comes from James Hardiman from Longbow Research.

James Hardiman - Longbow Research

I'll continue to drive this one into the ground. Just the lumpiness of sales numbers in the ATV business up 92% in the first quarter, 19% in the second quarter I think that Claude point that's going to need to re-accelerate in the second half. You talked about some seasonality of the business so that it sort of helps the December quarter and then some new products in the March quarter. How should I think about that re-acceleration, big challenges that you're going to then be comping against the initial selling as you pointed to of the Wildcat in the last March quarter. But ultimately as I think about sort of sales growth between the fourth quarter and the first quarter -- I'm sorry the third quarter and the fourth quarter in terms of your ability to get to usually the ATV guidance. Any additional color you can give us on that?

Claude Jordan

Yeah, James I don't know if I can give you much more color than what I've said. We've obviously looked at our product line up for the third and fourth quarter. Obviously we're into our third quarter right now. If we thought that there was any residue, we would have gone ahead and revived the guidance, we did not. So as we see it today, we feel very good about the plus 36% to plus 41%. You know, I do -- obviously I know what the sales were in Q1 and Q2 and I know what they were last year. Some of it, the sales in Q2 $69.7 million was up 19% over last year. But I would say some of that is Wildcat and some of that is also the fact that this year we changed our shipping as well when you look at the way we're shipping today on ATV and our Prowler business.

If we go back to FY'12 we really shipped a lot of products on the ATV side in that first quarter. This year we shipped ATVs, Prowlers, as well as Wildcat sports. You're seeing somewhat of an update comp in that first quarter because of the way we changed or modified our shipping. Second quarter we've always shipped a lot of ATVs, though we shipped a lot of Prowlers. So, you're not going to see a lot of incrementals there and really what you saw in the second quarter was pure Wildcat.

James Hardiman - Longbow Research

Got it. And then on the Wildcat it seems like at least on the 2012's there are a lot of dealers you can talk to, it seems like they're starting to discount those by basically getting them more in line with some of their competitors, is that a dealer funded discount or you're helping them fund some of those discounts and was there any of that in the third quarter -- I'm sorry in the second quarter numbers?

Claude Jordan

I don't have the specific program in front of me but typically the way the programs are written so I can't refer to the Wildcat, but typically any non-occurrence these are OEM funded and so every year, every quarter we will come out with new rebates for our dealers on any non-occurrence. And so that's pretty much industry standard whether it's ours or any of the other Yamaha Players Kawasaki and so forth. We all look at the non-occurrence and if there are non-occurrence need to be removed, that need to be moved, we'll go ahead and add additional rebates to it. Sometimes rebate, sometimes add extended warranty, sometimes we will do something on the retail financing but they're all -- those are all paid for by the OEM.

James Hardiman - Longbow Research

And so without a significant line item in the second quarter for you guys?

Claude Jordan

Not really. Nothing outside the norm. I mean, we continue to look at and track and send this within the business, and certainly it wasn't a much higher number than what we've seen historically.

James Hardiman - Longbow Research

Got it. And then last question on the snowmobile side, you talked about the earlier timing of production and it seems like generally things are going to get to the dealers a little bit earlier, was that also the case in the second quarter? In other words, did you -- were there some timing differences in terms of your shipments into the second quarter that helped you get to the really impressive growth number that we saw. And if so, can you help us quantify how much that contributed?

Claude Jordan

Well, what I would say is we, our guidance on the year for our snowmobile business is up 0% to 2%. And so, as we sit here today when we are tracking on a year-to-date basis 11%. So, yes, we are shipping earlier then what we did last year. So I think I'll go back to what our guidance was. And if you look across the board, we said plus 13%, plus 17%. Snowmobiles will be up slightly 0% to 2%. Our PG&A business will be up 1% to 3%. And then our ATV business will be up 36% to 41%.

Operator

(Operator Instructions). The next question comes from Joe Gagan, Atlantic Equity Research.

Joe Gagan - Atlantic Equity Research

I just have a couple of questions. On the ATV and side by side business, somebody else, another industry person said that retail sales for the third quarter were, for the industry, were like mid single digits. And you're projecting here that ATV may be 0% to 5% and the side by side is going to be like over 10. I'm just trying to like get that straight as far as what the actual retail environment is out there and then what you are projecting here for the industry, because it seems like the figures that you had given a higher than what people who work in the industry are thinking?

Claude Jordan

Yeah, we also work in the industry. And so, the way that sort of works is we know what everybody's retail sales are because we are all part of the same association there, and so what we have said for the second quarter that retail sales, and when I say second quarter I'm talking about calendar year-wise that will be the third quarter, but our second quarter. That retail sales were down 1% is what we said. And year-to-date what we said for our fiscal year which is the first six months of the year, that retail sales were up 2%. And we continue to hold our guidance for the year by saying retail sales will be up 0% to 5%.

Joe Gagan - Atlantic Equity Research

For side by side and the ATV you mean?

Claude Jordan

That’s' for ATV's.

Joe Gagan - Atlantic Equity Research

But you're projecting -- what exactly are you projecting for your sales for ATV and side by side? Thinking not retail, but for your sales to the channel.

Claude Jordan

For a wholesale sales?

Joe Gagan - Atlantic Equity Research

Yeah.

Claude Jordan

For the full year we said our guidance is up plus 36% to plus 41%.

Joe Gagan - Atlantic Equity Research

And what is -- so that's your guidance for the whole year for ATV and side by side, right?

Claude Jordan

That's correct.

Joe Gagan - Atlantic Equity Research

So how do you, like how does that at all make any mathematical sense whatsoever, if retail sales are say like zero to mid single digits and just saying over 30%, how does that make any sense?

Claude Jordan

Well, because the second one when I said up plus 36% to plus 41%, included side-by-side as well.

Joe Gagan - Atlantic Equity Research

Yeah. Right.

Claude Jordan

The first number at that side was going to be zero to 5% was just ATV, CORE ATV.

Joe Gagan - Atlantic Equity Research

Right. But I guess, what I am saying is that, the other industry person they said for -- they call an ATV and side-by-side mid single-digits for both I mean, so the numbers that are coming out in the industry about retail sales are not jiving with what you are saying with the wholesale numbers, do you agree with that or you can explain?

Claude Jordan

No. I cannot comment on who you are source is because I don not know them.

Joe Gagan - Atlantic Equity Research

Right.

Claude Jordan

The only think I can tell you are facts. The industry for ATV is, not side-by-side, but for ATV the industry was down 1% in the last quarter.

Joe Gagan - Atlantic Equity Research

Right.

Claude Jordan

Year-to-date in the first six months, April, May, June, July, August, September the industry for ATV is only is up 2%.

Joe Gagan - Atlantic Equity Research

Right.

Claude Jordan

That does not consider the ROV side which is side-by-side. Side-by-side, there is no industry date in and anybody that is providing that would be incorrect because we do not have that data, nobody does.

Joe Gagan - Atlantic Equity Research

Right.

Claude Jordan

What we have given diagnose on is our best estimate in terms of side-by-side. And we said, retail sales for the entire industry would be up 10% to 20%, not necessarily us because we continue to retail though the second quarter year-to-date -- I am sorry, for the second quarter our retail sales on our side-by-sides were up over 50%. And for the first six months of this year our retail side-by-side sales were up 67%. So, when you are retailing comp at 50% and year-to-date is 67% you will see your ATV ROV business increased by 36% to 41%. That math makes sense to me.

Joe Gagan - Atlantic Equity Research

Yeah. Well, my point is that when I say its mid-single-digit for industry I mean, side-by-side and ATV that is what somebody else was saying.

Claude Jordan

That would be incorrect.

Joe Gagan - Atlantic Equity Research

Right. Well, okay. Well, do you think that eventually that wholesale sales will match up with retail sales or do you think that that will always remain the wholesale much more than retail?

Claude Jordan

Well, I think over a long period of time it certainly will, depends on whether you are entering new market segments or not. But there is doubt that over a period of time, otherwise you are going to be adding inventory into the marketplace.

Operator

Our next question comes from Gerrick Johnson from BMO Capital Market.

Gerrick Johnson - BMO Capital Market

Can you guys give us an update on the build out of the engine capacities for snowmobile?

Claude Jordan

In terms of where we are at, in terms of our transition?

Gerrick Johnson - BMO Capital Market

Yeah, exactly.

Claude Jordan

Yeah. As we mentioned before, this year we are using Suzuki as our power plant in our snowmobiles. And what we had said that, we will also be purchasing Suzuki snowmobiles through December of 2013, which is next December and next model year. And then after that model year we will no longer be using Suzuki in our snowmobiles.

Gerrick Johnson - BMO Capital Market

All right, so no real change there. Can you give us an update on the attach rate for parts and accessories for the Wildcat either on a wholesale or retail basis?

Claude Jordan

I don’t have the attach rate with me. I can say that as we look at the PG&A business, what we've said is year-to-date its flat. I can say that a large portion of the sales have come from the Wildcat parts and accessories. On the other hand, we've also had some decrease in snowmobile garments which have offset that. So, you had a good guy on the Wildcat side and you had a bad guy on the garment side for snow.

Operator

(Operator Instructions). There appear to be further questions. I'm having the call sent back to Claude Jordan now.

Claude Jordan

Okay, thank you. I appreciate everyone joining us today. As a recap, we're excited about the first half of the fiscal year 2013 and especially our record earnings for the second quarter. As we look forward to the remainder of the year, our focus will continue to be on growth, product development and operational excellence. We appreciate your time today and look forward to updating you again in January. Thank you.

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