Polaris incentives up 34% since yearend

Powersports manufacturer Polaris increased its promotional activity in the second quarter as North American retail sales and dealer inventory rose year over year. Polaris increased sales promotions and incentives to $170.6 million, up 34.3% compared with all of 2022, according to the company’s 10-Q filing with the SEC . Polaris attributed its increased promotional spend to offsetting elevated interest rates , Chief Executive Mike Speetzen said during today’s earnings call. “If you look at our promo spend, a good portion of it is directed at buying rates down, and I would suspect we'll continue to be aggressive in that area,” he said. “That's the area we see the greatest opportunity to help consumers get over the bubble relative to the rates that just a year and a half ago they were able to finance. They're higher and, even though it's not a tremendous impact on the payment, it's still a bit of a shock when the buyer gets into the showroom floor.” Dealers have indicated promotions are contributing to increased retail sales, Speetzen said. “Dealers expressed optimism about how promotions and product availability can positively impact retail and our quality scores improved across all product lines [in Q2],” he said. “Promos are still down relative to where they were historically, which I think is a good thing, especially given how much we're having to push towards supplementing high interest rates right now.” Dealer inventory grows The increase in incentives comes as more inventory hits dealership lots. Dealer inventory increased 160% compared with Q2 2022 but remains down 20% compared with pre-pandemic 2019, according to the presentation. Dealer inventories are near optimal levels and Polaris expects inventory to continue increasing in Q3, although there is concern about non-Polaris inventory, Speetzen said. “Regarding dealer inventory, we continue to be in a much healthier position relative to last year and are diligently working to get new products and more Ranger NorthStar to dealers' floors,” he said. “We view this level as near optimal and dealers seem to agree.” The marine segment especially is feeling the negative impact of the current inventory and interest rates, Speetzen said. “Dealers seem a bit reluctant to take on additional [marine] inventory given the combination of a healthy inventory position, higher flooring costs and soft retail,” he said. Rising floorplan amid high interest rates Polaris’ income from financial services, which includes income from its floorplan financing affiliate Polaris Acceptance , increased 102% YoY to $20.6 million, as dealer inventory grew, according to the earnings release. Polaris Acceptance is a private-label financing arrangement with Wells Fargo Commercial Distribution Finance founded in 1996 that provides wholesale floorplan financing to Polaris dealers. The manufacturer invested $98.7 million in its finance affiliate in Q2, an increase of 166% YoY, according to the release. Improving macroeconomic conditions could change the company’s approach to sales promotions and incentives, Speetzen said. “With hopefully what sounds like good news on the broader economic front, I hope that starts to at least take off some of the pressure,” he said. “ If we get stability coming out of the [ Federal Reserve ], where people feel less concerned about where interest rates are headed, that could work in our favor, and we're going to steer promotion to make sure we're able to help consumers out.” North American retail rises, marine drops [caption id="attachment_7117" align="aligncenter" width="1024"] Courtesy of Polaris [/caption] North American retail sales volume increased 14% YoY but declined 1% compared with 2019 as on-road and off-road demand grew while the marine market softened, according to the earnings presentation. Worldwide sales rose 7% YoY to $2.2 billion with North American sales, which includes wholesale, accounting for 85% of total sales at $1.9 billion. On-road retail sales totaled $361.6 million in Q2, up 20.8% YoY, according to the company’s earnings release. Meanwhile, off-road retail sales totaled $1.6 billion in Q2, up 9.5% YoY. North American “on-road is up more than 50% YoY due to strong demand and availability of our Indian motorcycle and Slingshot products,” Speetzen said. “In off-road, it was encouraging to see positive retail trends for both utility and recreation.” Marine retail sales declined 18.1% YoY in Q2, landing at $223.6 million, according to the release. The decline in marine sales was a result of soft demand and an unfavorable product mix, Speetzen said. “Our marine business did see some retail softness in the quarter,” he said. “What we saw so far in the May-June timeframe was that some of the smaller boats were starting to come back stronger from a retail perspective, which lends credence to the concern we're hearing from dealers that the high finance rates ... are biting more in marine, which would drive consumers towards the smaller sizes.” Shares of Polaris Inc. [Nasdaq: PII] were trading at $132.81 at market close today, down 1.28% or $1.72. Polaris has a market capitalization of $7.56 billion. Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas. To learn more about the 2023 event and register, visit autofinance.live / afs / .

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