Arctic Cat cuts loss, but forecast still looks gloomy

  • Article by: LIZ FEDOR , star Tribune
  • Updated: July 30, 2009 - 12:11 AM

Arctic Cat CEO Chris Twomey said Wednesday that his business plan is built on the assumptions that consumer spending will be "anemic" through next year and that the unemployment rate will stay above 9 percent well into 2010.

The maker of all-terrain vehicles and snowmobiles is attempting to claw its way back to profitability, but Twomey acknowledged Wednesday during a conference call with analysts that he expects purchases of recreational products to lag the recovery in overall consumer spending.

Arctic Cat reported Wednesday a net loss of $5.9 million on sales of $69.4 million for its fiscal 2010 first quarter that ended in June. That was a 26 percent sales slide from $93.9 million a year earlier, when it lost $7 million during the quarter.

The company's loss amounted to 33 cents per share, well ahead of the 46 cents per share loss that was the average estimate of analysts. The stock soared on the news, rising nearly 14 percent to $5.80.

Twomey braced investors for a rough economic terrain for the rest of this year and next year.

While he anticipates the U.S. recession will end in the current quarter, he expects the recovery in the United States will be "very sluggish" and that recovery in the global economy will trail by one or two quarters.

Arctic Cat executives contend they'll be among the last to experience an economic recovery, because their power sports machines sell for several thousand dollars and rely on consumers making discretionary purchases.

In the 2010 first quarter, Arctic Cat's ATV sales plummeted 40 percent to $32 million, snowmobile purchases dropped 16 percent to $18 million and the sale of parts, garments and accessories rose by 3 percent to $19 million.

For the full 2010 fiscal year, Arctic Cat is maintaining its forecast of total sales within a range of $425 million to $460 million, which means the company will be much smaller than it was just two years ago when sales reached $622 million.

Arctic Cat has been paring inventory to better meet weaker consumer demand. During the first quarter ending in June, Arctic Cat sliced its ATV dealer inventory by 23 percent and its snowmobile dealer inventory by 13 percent.

In the same quarter, the company reduced its operating expenses by 23 percent. Since the recession took hold, its workforce has been cut by 12 percent.

Arctic Cat President Claude Jordan said the company is saving money by canceling its "massive show in Vegas" for dealers. Historically, dealers placed orders once a year in June for new model year products, but Arctic Cat has changed that practice and district managers will now take orders from dealers three times a year when they visit dealerships.

Arctic Cat hasn't released a full-year earnings forecast, but executives indicated the company will perform better than its last fiscal year when it lost 53 cents per share.

Liz Fedor • 612-673-7709


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