Rants and Raves: Arctic Cat - The Future

Snowmobile Sales Off But ATV Side Shows Growth

Sep. 01, 2007 By Jerry Bassett

Snowmobile sales off but ATV side shows growth

By Jerry Bassett

Attending Arctic Cat’s annual shareholders meeting in Thief River Falls, MN this month seemed more like being present at a small town wedding. There was a big hall filled with folding chairs and podium center stage. Audiovisual screens flanked the speaker’s rostrum so all could witness the proceedings. The corporate staff and their wives sat on the left with common shareholders on the right. A brief call to order and invocation of some obtuse federal securities mumbo-jumbo by the presiding corporate financial officer and we were underway.

New ATV products like the 1000cc Thundercat drive Arctic Cat growth.

No Longer A Snowmobile Company

Cat’s chief executive, Chris Twomey outlined the past year as it had been stated in the annual report. Arctic Cat is no longer a snowmobile company. Arctic Cat ATVs account for 55 percent of the company’s revenue with snowmobiles making up 32 percent and parts, garments and accessories (PG&A) adding13 percent to round out the total.

Twomey reiterated how ATVs grew nine percent in what can be construed as a maturing market. PG&A, mostly driven by ATV-side accessorizing, was up four percent. The head Cat executive noted that although sled sales were down, the sale of Cat’s newest models accounted for a 32 percent growth spurt of the total new Cats sold. He also stated that 80 percent of the 2007 model line represented entirely new snowmobile product. As a result of the consumer interest in these new products, sales were up just over 18 percent in Canada. In the United States, where there had been good snow, the Cat president noted, "…Cat’s innovation drives buyers.” He pointed out in that those areas receiving good snowfall sales had increased by 60 percent from the previous season.

Snowmobile Buyers Waiting For Snow

After the meeting Twomey would tell this reporter that based on Arctic Cat’s own market surveys, he was confident that snowmobilers were not abandoning the sport, but simply waiting for good snow to return. He told Off-Road.Com that the Cat survey reflected a mere four percent of respondents getting out of the sport. The vast majority claimed to be waiting for new snow and many surveyed snowmobilers indicated that they had snowmobiled as much or more this past season than the season prior.

During the shareholders meeting, Twomey admitted that 2007 had been the worst snowmobile sales season in a decade. But he was quick to assure shareholders that Arctic Cat was working to maintain Arctic Cat profitability and that Arctic Cat management had taken positive steps regarding its snowmobile product to meet the challenges. He noted that the 2008 model year reflected a 100 percent changeover in models in the past two years. All new Cats reflected the twin-spar design and new styling. He also pointed out that Arctic Cat had implemented a four percent workforce reduction to help control costs. He stated that Cat’s sales had undergone an inventory adjustment by reducing manufacturing that would result in dealers holding up to 30 percent less inventory this season.

Arctic Cat?s snowmobile line is all-new since 2006 with Twin-Spar chassis and new styling.

Cat Reorganization

A reorganization of Arctic Cat had already been announced prior to the shareholders annual meeting, but Twomey updated those present of the upcoming change, restating that engineering and manufacturing operations would remain in Thief River Falls. The sales, marketing and executive offices would move to an as yet undisclosed location in the western suburbs of Minneapolis. Twomey noted that Arctic Cat would be divided along product lines of ATVs, snowmobiles and PG&A. Each will have its own general manager and dedicated product staff.

Post-meeting, we learned that as of the meeting not all general managers were in place. Further, we were told that an exact office location had yet to be determined. Of course, all this change isn’t scheduled to take place until the fall quarter.

Longtime Arctic Cat veterans in engineering and product development will remain in Thief River Falls. We have been told that the current ATV general manager expects to stay in Thief River Falls as well. Although Arctic Cat has an engine facility in St. Cloud, MN, just northwest of Minneapolis, the company has determined that an office site closer in to the Minneapolis metropolitan area is preferred.

Cat’s Cash

For Arctic Cat’s future Twomey stated “…initiatives to further lower costs should see success by 2009.” Often overlooked is the simple fact that despite the awful winter snows and dreadful recent history of snowmobile sales in the United States, Arctic Cat as a company has done very well in ATVs and especially well in sales of its side-by-side Prowler UTV. The sales success of these products contributes to the growth of PG&A. Plus, even more frequently overlooked is Arctic Cat’s cash position, which is very good and can counter these short-term downturns in a single product category.

As for the near term, Twomey was asked how the current concern in the economy as relates to discretionary purchases by powersports enthusiasts might affect Arctic Cat. He noted that potential buyers might feel squeezed by lost equity in their homes and they might be less inclined to purchase recreational products. To make Arctic Cat products more “buyable” he indicated that Arctic Cat has undertaken an effort to offer great value, sometimes at lower price points to attract sales.

Still, he noted that the most active portion of the snowmobile market has been in the sales of the most expensive models. “We are selling down to a hardcore enthusiast who has to have the newest and latest,” he explained.

Fuel Prices Not The Problem

When questioned about the impact higher fuel prices might have on snowmobile and powersports sales, Twomey explained that price isn’t the concern as much as the availability of fuel. He didn’t feel that people are scared away from buying an ATV or a new sled because of fuel prices. He was quick to note that $3 per gallon fuel prices didn’t impact sales in Canada, which has dealt with higher fuel costs for years.

But he did agree that the snowmobile business has declined by nearly half from what it was a decade ago. Last season there were 160,318 new snowmobiles sold worldwide versus 260,735 units in 1997. Of course, that pales when comparing sales to the 495,000 sleds sold in 1971!

In keeping with the feeling of attending a small town wedding, we all retired to the hall outside the presentation room for some idle chitchat, a bit of fruit punch, cheese and crackers and assorted hors d’oeuvres. We caught up on local gossip, who’s kids were doing what, how old “what’s his name” was doing in retirement. The type of thing you do when you visit at a small town get-together.

Cat reports strong sales of top-of-the-line models to hardcore enthusiasts who must have the newest and latest models like the 1000cc M-Series mountain machine.

Business Future

Arctic Cat shareholder meetings may seem like a throwback to an easier time, but the seriousness of business remains and Arctic Cat believes it is poised for the future, implementing steps to keep the company a player in the powersports business for years—if not decades—to come.

Don't forget to come back next month for another rant from our resident snow guru Jerry basset, only on Off-Road.com!

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