Harley-Davidson Inc. is forecasting its motorcycle business will see revenue grow 4% to 7% this year, but chief executive officer Jochen Zeitz says it is too early to know how consumer demand will play out amid economic uncertainty.
“Time will tell,” Zeitz said on the company’s earnings call Thursday.
He noted demand signals have been in line with expectations for January but also cautioned the industry has not entered the heart of the motorcycle riding season, which is when demand is strongest.
“Overall, what we’re seeing now is good demand, but it’s very early, so any demand signals now cannot be taken as indicative of demand signals for the coming months,” Zeitz said.
Gina Goetter, Harley’s chief financial officer, said loan applications have continued to be strong at Harley-Davidson Financial Services across both prime and subprime applicant categories.
The company finished 2022 with an 8% increase in revenue to $5.76 billion. Net income improved 14% to $741 million.
Harley’s motorcycle segment saw a 9% increase in revenue behind a 3% increase in motorcycle shipments.
Harley has worked hard in recent years to reposition the company with a focus on its brand desirability. Those efforts have included streamlining its model lineup, shifting the announcement of the model year to the start of the calendar year, right-sizing dealer inventories and many more initiatives.
In 2021, dealer inventories swung too low, ending the year with an average of 23,000 units for the fourth quarter. In 2022, dealers averaged 36,000 units on hand in the fourth quarter. While the figure is up 57% from the prior year, it was down 39% from the end of 2019.
Harley’s efforts have also improved profitability. In 2021, operating income margins for the motorcycle segment was 10.6%, up from negative 3.4% in 2020 and 7.6% in 2019.
Operating margins climbed to 13.9% in 2022 and the company is forecasting margins of 14.1% to 14.6% this year.
In part, Harley will benefit from an improved supply chain. In 2021, logistics costs were up more than 100% and they climbed another 12% in 2022. This year, the company expects logistics costs to be flat to up 2% as declining ocean freight rates are offset by warehouse and labor cost increases.
On materials, Harley is projecting a 2% to 3% increase for the year as declines in commodities are offset by higher labor costs at suppliers. Still the materials outlook is an improvement from the 3% increase in 2022 and 5% in 2021.
Higher labor cost also factor into Harley’s manufacturing cost forecast, which calls for a 3% to 5% increase. The forecasted change is generally in line with what the company saw the past two years.
Even with an optimistic outlook heading into the year, there are concerns about a potential economic downturn. Zeitz made clear Harley plans to maintain the gains the brand has made in recent years if the economy hits a rough patch.
“We want to absolutely make sure the desirability of product, MSRP in market and the desirability, is maintained, so whatever the demand will bring, will adjust accordingly to protect our profit margin,” he said.
