Chief executive officer Matt Levatich acknowledged during Harley-Davidson’s earnings call Tuesday that the company is far from where it was before the Great Recession, but he also said Harley is not the same company it was three years ago.
In 2006, Harley brought in more than $5.8 billion in motorcycle-related revenue and shipped more than 360,000 motorcycles. Last year, the company’s motorcycle revenue was $4.57 billion, down 8% from 2018.
After a rebound following the recession, Harley’s motorcycle revenue has generally trended down since a peak of $5.57 billion in 2014.
Net income has followed a similar path, dropping 20% last year to $423.6 million as the company dealt with millions in increased tariff costs. Harley’s net income was as high as $844.6 million in 2014.
But Harley has also been investing millions to reverse its downward trends, including trying to attract and retain new motorcycle riders, strengthening its dealer network, and introducing new products like LiveWire, an electric motorcycle launched last year, and middleweight models, a new segment for the company scheduled to launch this year.
Next year is when Harley’s plans call for a return to significant growth, but there are some signs of life despite 2019’s decrease in revenue. The fourth quarter’s revenue decline was the smallest in the U.S. in 12 quarters. Harley also saw a net increase of 55,000 riders last year, up from 26,000 in 2018, and the company has identified key areas to target for improved rider retention.
“Our return to growth is not off in the distance, it’s right around the corner,” Levatich said, calling 2020 a “pivotal” year for the company.
Harley’s guidance for 2020 calls for motorcycle revenue of $4.53 billion to $4.66 billion. At the high end, it represents a 1.9% increase that would be its best growth since 2014. The midpoint suggests 0.5% growth that, along with 2018, would be just the second positive year in the last six.
That Harley is giving revenue guidance at all is a change as the company traditionally gave guidance for shipments of heavyweight motorcycles. John Olin, chief financial officer of Harley, said revenue represents a more comprehensive view of the business as the company moves into smaller displacement and electric motorcycles along with an increasing emphasis on its general merchandise.
In addition to launching its middleweight motorcycles this year, Harley also plans to introduce an electric bicycle and launch a small displacement model in China.
“We have a lot of growth platforms beyond just increasing ridership in the United States,” Levatich said when asked if Harley’s board and management would consider the sale of the company if ridership didn’t pick up in the next couple years.
Harley has set a goal of having 4 million riders in the U.S. by 2027 and currently has 3.1 million.
“Clearly we have to pick up the pace to close that cap,” Levatich said.
He said shifting the company’s focus from building motorcycles to building new riders is “challenging the culture of the company” and is different from other transformations like improving or optimizing manufacturing processes.
“This one is the most significant because we’re thinking differently about what we’re here to do,” Levatich said.
Harley’s analysis says that the company actually added about 527,000 new riders last year in the U.S. while it lost 472,000. Levatich said the company has identified the group of riders with less than three years of experience as a prime opportunity for retention, arguing that those who leave during that period often haven’t developed the confidence to be committed to the sport.
“That’s the single largest driver of that exit number,” he said.
To counteract those declines, Levatich said Harley is working on programs focused on other riders recruiting and coaching new riders, making it easier for riders to ride anywhere and any time and encouraging riders to go on their own “epic journeys.”
Levatich said it can be something as simple as a rider making a first overnight trip that helps them become committed to the sport.
“It is important for this organization ourselves in the way that we are to become a customer creation company here in the United States,” Levatich said. “It may prove that that is a very difficult, durable problem to solve but we are all about it because it’s important that we be about it … the challenge today is significant.”
