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Back to basics may propel Harley’s profit although Street is wary of volume gains By Reuters

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© Reuters. FILE PHOTO: Harley Davidson motorcycles are displayed for sale at a showroom in London, Britain, June 22 2018. REUTERS/Henry Nicholls/File Photo

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By Ankit Ajmera and Rajesh Kumar Singh

(Reuters) – The big question hanging over Harley Davidson Inc’s second-quarter results on Wednesday will be a familiar one: has the 118-year old brand sold enough bikes?

After struggling to broaden its appeal beyond middle-aged and affluent riders for several years, the company has gone back to what it knows best, which is selling big bikes, and the decision is making inroads under Chief Executive Officer Jochen Zeitz.

Analysts are still skeptical on whether the plan will be enough to boost volumes, which have fallen for six years through a struggle to target others riders.

Zeitz’s plan includes selling used bikes, scraping entry-level models and ramping up investment in touring, large cruiser and trike bike segments – its main profit engines.

The company has also cut its production and reduced inventory to drive up the average selling price of new bikes.

“Reducing production doesn’t necessarily stimulate demand for a product when sales have been declining for six years,” UBS analyst Robin Farley wrote in a note.

TARGETED PLAN

Waning interest in motorcycling as a recreational activity as well as the price of Harley bikes, which can cost as much as a car, have hurt the company’s efforts to woo younger riders.

Zeitz has aimed for low double-digit earnings growth through 2025. Since his plan was unveiled, Harley’s stock is about 26% higher, a sign of confidence in Zeitz’s abilities to turnaround Harley’s fortunes, analysts say.

The company also reported a 31% year-on-year jump in retail sales in the United States in the first quarter, its first quarterly sales increase in its biggest market in six years.

Earlier this month, Harley launched its first electric bike from its LiveWire brand priced at $22,000, in a move aimed at hitting younger and more environmentally conscious riders who could eventually lift Harley’s volumes as its core baby boomer audience grows old.

“From a from a turnaround standpoint, I think Jochen Zeitz (CEO) has done, a very good job, at least so far,” Raymond James analyst Joseph Altobello said.

“(Harley’s) prior management team lacked focus and kind of lost their way.”

For interactive graphic click here: (https://tmsnrt.rs/3hQlDSw)

THE FUNDAMENTALS

* In April, Harley raised its 2021 motorcycles segment revenue growth outlook to a range of 30% to 35%, from prior range of 20% to 25%.

* Analysts’ mean estimate for Harley’s second-quarter revenue is $1.41 billion, up 111% from a year earlier. Quarterly profit is expected to be about $180.5 million, compared with a loss of $92.2 million, a year earlier.

WALL STREET SENTIMENT

* Of 17 brokerages, eight rate Harley’s stock “buy” or higher, seven “hold” and two “sell”.

* Wall Street’s median price target for Harley is $52, about 24% above its last closing price of $41.92.

For interactive graphic click here: (https://tmsnrt.rs/3zfWRBc)


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