In the first 10 weeks of the year, Milwaukee-based Harley-Davidson was on pace for one of its best quarters of U.S. retail sales in the last six years.
Retail sales were up 6.6% during that period in the U.S., but ended the quarter down 15.5%. Had the initial pace continued, dealers would have sold 29,945 motorcycles in the quarter. Instead, just 23,732 motorcycles were sold during the quarter.
The company began March with just 4% of its dealers closed and ended the month with 55% closed as stay-at-home orders to combat the spread of the COVID-19 coronavirus put limits on economic activity. As of Tuesday, 59% of the company’s dealers are closed, chief financial officer John Olin said.
It’s not as if Harley-Davidson was in a great position coming into the quarter, which also saw the departure of chief executive officer Matt Levatich and chief operating officer Michelle Kumbier. The motorcycle maker has struggled in recent years with declining sales as older riders exit the sport, used motorcycle prices make new bikes less appealing and competition for time and attention increases.
For the first quarter, worldwide retail sales were down 17.7% at 40,439. Motorcycle related revenue was down 8% at slightly less than $1.1 billion while financial services revenue increased 5.1% to $198 million. Net income ended the quarter down 45.6% at $69.7 million.
“I knew pretty well what I was getting myself into,” acting CEO Jochen Zeitz said of the company’s challenges, acknowledging an economic crisis brought on by a global pandemic wasn’t exactly in his plans. “When I agreed to take on this role I assumed this would be a tough ride.”
Zeitz noted that he was clear when he took the job that he would be acting CEO, not interim, and is already launching efforts to change Harley’s direction.
Dubbed “The Rewire,” the company is taking a number of actions that largely set aside Harley’s previous “More Roads” plan in favor of a new five-year strategic plan.
Zeitz, a Harley board member since 2007, said the company had become overly complex and leadership had become somewhat isolated and overly centralized.
“The speed of decision making needs to increase,” he said.
Zeitz also said morale had suffered from several rounds of cost cutting and employees had become accustomed to the company not meeting high expectations.
He said Harley’s new plan would set achievable and realistic goals and “reignite our Harley-Davidson soul and culture.”
The Rewire calls for enhancing the company’s core strength and balancing expansion into new spaces. Zeitz said Harley may have over-indexed on new riders and pursuing new market growth. Going forward the company will narrow its focus to the markets, products and customers that offer the most profit and potentials, including building on its position in the U.S.
Harely will also shift its product launch schedule to the start of the calendar year, timing it with the start of the riding season instead of August.
“I don’t see any reason why we should go back to the old schedule,” Zeitz said.
The plan also calls for building Harley’s parts and accessories and general merchandise businesses to their full potential and making changes to the organizational and cost structures and operating models to reduce complexity.
Laying out extensive plans to alter Harley’s strategic direction prompted analysts on the company’s earnings call to ask, repeatedly, if Zeitz would ultimately be the CEO going forward. Each time the issue came up, Zeitz declined to answer, saying that, acting or not, a CEO should develop a five-year plan and there was nothing to report on the current executive search.
He did say the new plan would draw on elements of the previous More Roads plan, including Harley’s entrance into the adventure touring and streetfighter motorcycle segments and increased focus on electric motorcycles.
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