Polaris CFO on impact of COVID-19, ATV demand

Yahoo Finance’s Brian Sozzi and Alexis Christoforous speak with Polaris CFO Mike Speetzen about how the company is faring amid COVID-19, as people look to the outdoor industry for some relief.

Video Transcript

ALEXIS CHRISTOFOROUS: In just a few minutes from now, President Trump will sign the Great American Outdoors Act. It's an investment that will pump about three billion dollars into our national parks and public lands. It's the biggest investment in outdoor recreation this country has seen in about 65 years. And all week long, we are looking at how people are turning to the great outdoors after being cooped up inside for months during this pandemic.

And today, we have with us Mike Speetzen. He is the CFO of Polaris. And of course, company's off road vehicle and motorcycle sales going through the roof during this pandemic, up 57% in the most recent quarter. Mike, good to see you here. Give us an idea of how business is looking right now. And I'm curious how many of your customers are first time customers just discovering these off road vehicles?

MIKE SPEETZEN: Well, good morning, Alexis, and thanks for having me. Things are going quite well. As we talked about on our earnings call, July, we had anticipated things to slow down. And as of the earnings call, things were still moving at a very-- very good clip.

We talked on the call about the fact that almost 75% of the customers that we saw in the second quarter were actually new to Polaris. And what we're seeing is that's bringing in a whole new diverse set of riders-- younger, more families. We're seeing the sale of our what we call crew vehicles-- so multi-passenger where we can sit four to six people on either a Ranger or RZR. Those sales have been incredibly strong, as have our value models, which is usually indicative of new people coming into the space. So certainly a lot of new entrants coming in.

BRIAN SOZZI: Mike, you're the numbers guy there at Polaris, and you put out guidance. We're not seeing that from a lot of companies. What are you-- what are you seeing in the second half of the year that would give you confidence to put-- put an outlook out?

MIKE SPEETZEN: Yeah, we-- Brian, good to see you-- we had pulled guidance, because of the uncertainty we saw back in-- what happened in late March. The amount of retail that dropped off significantly. What we saw was the strength that started in April and then continued in earnest in May and June, and has obviously continued in July. And when we look at the channel of inventory that we have with our dealers, we know that we can be producing pretty much at full capacity for the balance of the year. Just to get the dealers close to where they need to be in terms of having available products.

And that coupled with the work we did around our recession planning, putting our recession playbook to work, gave us a lot of confidence in terms of the liquidity of the company, the cost structure of the company as we look forward for the balance of the year. And we felt giving investors insight into how we were feeling about the company was going to be key, because we knew there would be many others that may not be doing that. And certainly, that played well with the stock's reaction that we had shortly after the call.

BRIAN SOZZI: Have you been surprised, Mike, at some of the results you did, in fact, see in June and July? Pontoon boats sales are hot, Indian motorcycle sales, hot. We're in a recession here, and these-- these items, they're pretty expensive.

MIKE SPEETZEN: Yeah, it certainly surprised us. I mean, Scott talked about the fact that we missed our expectations by a country mile. And essentially, we'd expected retail was going to be down 20% or 30%. We used past recessions as an indicator. And I think what's different about this one is that the underlying consumers are still very strong. I mean, you can see it in reports that have come out terms of income levels were up in the second quarter, personal savings rates were up in the second quarter, we had a lot of stimulus in the system.

And people didn't have a lot to do. They were canceling vacations, they were canceling trips, and really looking for something they could do with their family in a safe way. And in so many ways, our products enable that, as I mentioned earlier, whether it's a pontoon boat or it's a multi-passenger side by side or even just motorcycles, where they can get out with a group of friends and be able to ride and do the proper level of social distancing. All of our products are playing very well to that.

ALEXIS CHRISTOFOROUS: You know that your dealerships, a lot of them had to shut down because of the pandemic. Have people been buying online more-- a sort of sight unseen, if you will? I know you also have a program where you're using technology to help people make the purchase, it's called Ride Ready. Tell us a little bit about that.

MIKE SPEETZEN: Yeah, so we did a couple of things. I mean, our power sports dealerships where we sell Rangers and RZRs, they did shut down, but they were able to open quickly under the CISAR requirements. And a lot of that has to do with we supply municipalities with products and so they were deemed essential. Boats and motorcycles, the dealerships took a little bit longer. Motorcycles eventually got added to the CISAR list for transportation, and then boats really, the dealerships started to open when the economy started to open under various state mandates.

We did a click deliver ride program, which essentially allowed people to buy vehicles by contacting through a portal that we established-- contacting our dealers and do it really in a contactless manner, where the vehicle would be delivered to them. You're right-- we introduced a process called Ride Ready, which essentially is mobile service. One of the things that we know is that a lot of our customers don't return to dealers to have their vehicles taken care of. They either do it themselves or they don't. And one of the big hurdles is how do you transport a vehicle into a dealership.

That coupled with the current environment we're in with social distancing and not wanting to have a lot of contact seemed like a prime opportunity for us to put that mobile service out. And it's enabled by an app. Customers can go in, they can use the customer portal to load their vehicle in with specific services or accessories they want, and have that all taken care of at their home or have the vehicle picked up and taken to the dealership.

BRIAN SOZZI: How have you-- your main rival in the motorcycle business, Harley Davidson, has really been struggling. New CEO. My sources told me that they have been laying off a good number of folks internally. How have their struggles helped Indian over the past few months?

MIKE SPEETZEN: Well, you know, I think there's a couple of things. One, demographics. You know, Harley's strength is its brand. One of the weaknesses is also just the strength of that brand with a specific customer segment. The Indian brand plays to a lot of different elements of the demographics, and we've seen that play out. Our ridership is much younger, more diverse. The sale of our mid-sized bikes or the Scout lineup has been incredibly long strong, as well. And that really just points to people looking for maybe something a little bit different from a brand standpoint.

The one thing we have seen from them here recently is, you know, they've constricted the amount of inventory going into the dealers, and they've pulled a lot-- pulled it back on promotional spending, which has been helpful for us, because that puts us in a position where we're not having to discount motorcycles, and we can really just play to the brand strength that we have.

ALEXIS CHRISTOFOROUS: You also have one of your brands, Sturgis, going to be holding its 80th anniversary motorcycle rally in South Dakota. I think over 200,000 people expected to be involved. What do you make of that move during this time, during this pandemic?

MIKE SPEETZEN: Well, you know, I know from our standpoint we're planning to approach it in a very careful manner. We're limiting the number of employees that will be exposed. We're really leveraging our dealerships. You know, our dealerships have proved they've got a true capability to ensure customer safety. So that as we do demo rides and allow people to experience our products, we'll do it in a way that keeps them safe and make sure that we're keeping the employees and the dealership employees safe that are interacting. But it's an important part of the business in terms of getting customers the ability to have access to the vehicles and get to touch and feel and see how great the products can be in that part of the world.

BRIAN SOZZI: Do you think snowmobiles-- you also own a-- obviously are pretty big in snowmobiles-- how do you see that business playing out in the fall?

MIKE SPEETZEN: Yeah, we're-- you know, we, in many ways, created the snowmobile segment. The company started in Roseau, Minnesota up north, and, you know, it's a big part of our heritage and our heart. We've come out with some great platforms. There's a lot of excitement. We were fortunate enough to be able to do our snow dealer meeting down in Dallas, Texas right before everything shut down from COVID. And the excitement from the dealers-- I was there with our investors as well as our team-- and the excitement from dealers was just off the charts.

We do a snow check program, where there's advanced orders. We do a lot of customization. We're very confident-- and obviously, nobody can predict what's going to happen with the snow conditions-- but assuming we get, you know, a decent winter play out, I think we're in a position to continue to take share like we did last year.

ALEXIS CHRISTOFOROUS: All right, Polaris CFO, Mike Speetzen. Good to see you here this morning. Thanks for being with us.

MIKE SPEETZEN: Thanks for having me.