Arctic Cat's turnaround hits another bump with third-quarter loss

Arctic Cat Inc.'s CEO said Thursday that he is optimistic about the company's turnaround plan, despite another quarter of disappointing earnings that fell well below Wall Street analysts' expectations.

CEO Christopher Metz said Arctic Cat is on track to be profitable in fiscal 2017, working to reinvigorate the business by concentrating on improving its dealer network, ramping up end-user focused new products, pursuing partnerships and bolt-on acquisitions and creating more brand awareness.

"Our current fiscal 2016 [that ends March 31] is one where we are rebuilding and repositioning the company," Metz said during a conference call with analysts.

Arctic Cat has made progress already on several fronts, Metz said, including inventory control and new product development. A former Black & Decker executive and turnaround specialist, Metz arrived at Arctic Cat in late 2014 to try to energize the ATV and snowmobile maker.

Yet the task will be made more challenging because of a changing marketplace, said Wells Fargo & Co. equity analyst Tim Conder in a research note that called Arctic Cat's quarterly report "disappointing."

"Management now faces incremental headwinds from a softening off-road vehicle [ORV] market while balancing channel inventory levels ahead of new product introductions," he wrote.

Others are fighting the same forces. Indeed, Medina-based Polaris Inc., following several positive quarters, reported on Tuesday a drop in quarterly profits and said it was facing similar market issues. It warned of a larger dip in the first quarter of the year, which ends March 31.

Arctic Cat issued a similar warning for its fourth fiscal quarter, which also ends March 31. The company's board also voted to suspend regular quarterly cash dividends, which will save the company about $6.5 million annually.

But Metz also pointed to signs of progress at Plymouth-based Arctic Cat. For example, in the last 90 days, Arctic Cat added 10 new dealers. Metz said the company hopes to add 75 dealers within the calendar year.

Next month, Arctic Cat will begin shipping new all-terrain and off-road vehicle models. Arctic Cat will continue to develop an exclusive, five-year product development and marketing agreement with racer Robby Gordon.

And the company continues to raise its brand profile with partnerships such as one with racing legend Tony Stewart to sponsor his spring car racing series.

By the end of summer, its headquarters will move from Plymouth to Minneapolis.

Yet the company cannot escape the same pressures facing other U.S. corporations with the strong U.S. dollar or the changing ATV market. The company sold $60 million in ATV and side-by-side recreational off-road vehicles during the third quarter. That's down from $83.9 million in the same period a year earlier. Sales of parts, garments and accessories were $22.9 million vs. $28.3 million in the prior-year quarter.

Snowmobile sales rose 2 percent in the quarter to $83.1 million despite low snowfall and unfavorable foreign currency exchange rates, especially with the Canadian dollar. About 30 percent of Arctic Cat's annual sales are to Canada.

Overall, quarterly revenue dropped to $166 million from $193.7 million the year prior.

Arctic Cat reported a net loss of $2.4 million, or 18 cents per share, for the quarter. Analysts were expecting an 11-cents-a-share profit on sales of $190.5 million.

In the same quarter a year ago, the company earned $7.5 million, or 57 cents a share.

Despite the challenges, Arctic Cat executives said they were optimistic about growth and still remain committed to reaching the goal of $1 billion in sales by the end of fiscal 2020.

The company's stock closed at $11.01, up 60 cents or about 5.8 percent.

Nicole Norfleet • 612-673-4495

Twitter: @nicolenorfleet