Harley-Davidson, Inc. Q4 FY2025 earnings call

• Restoring dealer relationship: Roundtable discussions with dealers, adjusting fuel facility model guidelines, reevaluating e-commerce to support dealers. - Improving inventory management: Aggressively addressing inventory, reducing dealer inventory by 17% vs prior year end, focusing on reducing touring inventory. - Sharpening customer focus: Reorienting around dealers as customer number one, reemphasizing parts and accessories, changing brand storytelling to be more joyful. - Product portfolio: Actioning breadth and flexibility, sharpening product focus on price and dealer profitability. - Org structure: Making leadership team and organizational changes, reopening Juneau Avenue headquarters for better decision-making. - Financial actions: Conducting cost review, expecting at least $150 million annual run rate savings, renegotiating LiveWire term loan, HDFS transaction impact.

HDMC: Q4 revenue down 10% to $379 million, full-year down 13% to $3.6 billion. Q4 gross profit loss of $30 million vs prior year loss of $3 million; full-year gross margin 24.2% vs 28% prior year. HDFS: Q4 revenue $106 million vs $257 million prior year; full-year revenue $809 million down 16% from prior year. LiveWire: Full-year electric motorcycle units up 7%, Stasic units up 15%, but consolidated revenue down 3% due to increased incentives.

• HDMC: Expect retail and wholesale units 130,000 - 135,000; operating income positive $10 million to loss of $40 million. - HDFS: Operating income $45 million - $60 million. - LiveWire: Operating loss $70 million - $80 million. - Tariffs: Forecast cost of new or increased tariffs in 2026 between $75 million - $105 million.

• Macro-driven pressures: Some challenges are macro-driven. - Inventory management: Touring overhang still pronounced, need to continue managing inventory. - Tariff uncertainty: Global tariff environment volatile, $67 million cost in 2025, forecast $75 million - $105 million in 2026.

Q: Hey, good morning. Thank you for taking my question on HDFS. Just, you know, based on the message that came out of the HDFS transaction last year, I think the expectation was that HDFS operating income could be maybe half of what it used to be, so at least $100 million. Granted, that was just an expectation that came out of the presentation materials, but you're looking to be about half of that. Maybe help us unpack what's going on with the math behind HDFS and what the long-term profitability of that business should look like?

A: Alright. Craig. How are you doing? Thank you for your question today. So obviously, from an HDFS standpoint, as we take a look at what we're guiding to, as you say, for 2026, we have a guide for the HDFS business to come in between $45 and $60 million. As we flow forward and look to kind of a standard run rate for this business, which will probably take us, you know, two and a half, three years to get to that point, we would view kind of at the midpoint that HDFS would be, on a standardized basis, making approximately triple the midpoint. So that's where we think the business goes long term. As we think about some of the short-term related impacts and where is there a difference versus what we envision? We obviously have a cautious outlook relative to what we're looking at from the overall volume standpoint. And so we're being careful and considered there. And then in addition, with what you saw with our Q4 year-end results, with dealer inventory down significantly and more than what we envisioned, obviously, we have lower wholesale assets too, so that pressures earnings power of that. Hopefully, that explains what you're looking for and provides the perspective.

Q: Do you need more retail and more wholesale stock units in order to triple that income, or are there other adjustments?

A: Yeah. No. Just time for those time for the retail assets to kind of flow their way in. So, obviously, we need multiple years of building, kind of rebuilding the balance sheet in order to drive what we need for an income statement standpoint in that business. And then as we talk wholesale, wholesale levels are lower than what we envisioned. Arthur's focus on how we really maintain tight and disciplined inventory with our dealers.

Q: Hi. Thanks for taking my question. I guess just on kind of the wholesale guidance, you know, you kind of talked about a one-for-one dynamic. Obviously, the implication is, you know, shipment growth in '26. So I guess in terms of cadence, how should we think about that building through the year? And then on inventory levels, like, I guess, is the implication that you're kind of more comfortable now with where you're sitting at the end of the year? Thanks.

A: Sure. So why don't I start a little bit with cadence, and then maybe we'll have Arthur talk through total inventory levels and provide a little bit of commentary around that. So from a cadence standpoint, as we think about wholesale shipments and the way that will look on a year-over-year basis, again, we're being what I would define as, you know, careful and considered in what we're sending into the dealer network. So Q1 of 2026 will probably be down from a wholesale shipment perspective, down a little bit versus where we were in Q1 of the prior year. We think that we'll end up kind of popping up a little bit higher in early Q2, so making sure that we have dealers who are well-positioned for when the season is starting. So we're not asking them to carry that inventory in the January recovery time frame. But we do want them to be appropriately positioned from an inventory standpoint. So Q2 wholesale shipments will be a little bit higher than the prior year. Then as we take a look at how we walk into Q3, Q3, again, probably just a little bit lower as we work through some timing elements within the portfolio and some things that occur from that standpoint. And then as we end up, obviously, we were pretty measured in what we shipped into the ending Q4 dealer network in '25. So there's room for a pretty material change in what we're sending in in 2026. So, certainly, if you kind of take all of those different factors, a little bit more back-loaded from a shipment cadence in the second half of the year versus the first half. And even with that, sort of a little bit more towards Q4. Yeah. And then, Arthur, you can talk.

A: Yeah. No. Just broadly on inventory, you know, the focus is on supporting our dealers and selling through the touring inventory. We remain pleased with the progress there. There's still support there, and we'll continue to be. And we're also pleased with the '26 model year launch. A lot of enthusiasm in the market. So, you know, we'll be monitoring that closely. But you know? And in my script and in these comments, just want to be abundantly clear we're hyperfocused on healthy inventory levels, and the focus is on the model year '25 touring right now.

Q: Great. Thank you. I wanted to ask a little bit about the expectation for retail to be flat globally. Just wondering what that counts on for U.S. retail. And then also just kind of, you know, what's behind the expectation of flat, you know, just how you're thinking that how you're coming to that expectation. Then if I could just also, by the way, just squeeze in a quick clarifying point on LiveWire. I think previously, the expectation had been that you were limiting the kind of losses you would underwrite, and is it fair to say based on the guidance you're giving for '26 that you are willing to continue to invest or see LiveWire maybe lose more than, you kind of the commentary last year? Thank you.

A: Hey, Robin. It's Arthur. Thank you for the question. I'll take the LiveWire one, and then Jonathan will walk through the retail forecast. Yeah. On LiveWire, we, you know, we extended the $75 million loan, which is originally $100 million. So we worked through that with them, and they're actioning, you know, other sources of capital at this point in time. Funding the operating losses or so on, we've extended our commitment on the loan, and that's it. So, Jonathan, you can walk through the retail piece.

A: Okay. Sounds good. Thanks, Arthur. Hi, Robin. So on the, I think you asked about US specifically from a retail standpoint. So as we flow through and take a look at it, we're obviously really, really excited about what's happening with the introduction of the new limited. So as we take a look at where we are from an overall retail sales perspective, we do envision that we have a little bit of upside in terms of '26 versus '25 from a touring standpoint for a couple of reasons. You heard Arthur talk about our focus on '25 model year sell-down and how that was focused around touring. So at retail, that actually really helps us in terms of moving through the '25 touring bikes and what we have. Stacked on top of that is the new limited, and the new limited has been a hit, and we're really excited about those and the initial reception to that. So a lot of enthusiasm from our dealer network around sold orders and what they're seeing on that front. As we move along the retail side, we also have the introduction of the new trikes. Again, as we look at dealer enthusiasm, customer feedback around what those look like, we're really proud of what our engineering team has done from a suspension perspective. So if you think through handling and the way that that motorcycle performs, some real positives, I think, in terms of how customers will feel and enjoy that motorcycle. So a little bit of enthusiasm in terms of where we sit from a trike perspective. And then just a couple more pieces that I'll touch on quickly. As we take a look, we are being careful and considered in what CVO retail and CVO wholesale shipment looks like. We do want to make sure that those bikes really are put up on a pedestal and we're being thoughtful about what we're shipping in, which obviously will challenge retail a little bit within that particular family. And then overall, we have the full year of Softails. So really, really excited that we have dealers who are well-positioned. We kind of moved some price points in a way that are pretty customer-friendly. And so, overall, feeling good about where that is. So those are many of the puts and takes for 2020.

Q: Hey, good morning. Can you give the $150 million of annual run rate savings in 2027 and beyond that you guys called out? Is that spread among all three segments? And then also, is there any way to anything you can provide us kind of with cadence of that next year specifically would be very helpful as we build out our models? Thanks.

A: Yeah. Hey, Tristan. I'll take that. The $150 million would not incorporate anything at LiveWire. That would just be the motor company and HDFS. And in terms of cadence, you know, we would expect to realize some of those savings, you know, beginning in the back half of this year. We've not incorporated any restructuring charge in the guidance. So that would, you know, complement that. But we've been clear in saying we expect those savings to be realized on an annual basis starting in 2027.

Q: So, any help you could give us sort of bridging what I think is about 4% to 8% wholesale growth if I sort of use the wholesale guide to where you ultimately land in terms of operating income still being, you know, a modest loss on the HDMC side. Obviously, there's some tariffs in there. Sounds like there's some deleverage as we think about sort production versus wholesale. And then I guess I'm also curious on the ASP side or the mix side. I think what I'm hearing is that even though inventories for the year will be flat, touring will be down. So you're gonna be undershipping touring. Just curious what impact that might have on ASP and or mix.

A: Thanks. Okay. Yeah. Great question. Thank you, James. Hope you're doing well. As we take a look at where we are, we certainly have a number of factors that come into play as we look at motor company operating income in '26 versus '25. So you're right. If you kind of look at where we land from a midpoint perspective, really, really close to flat. We have a number of factors that come into play. So we have a full year of tariff exposure. So that adds about a $25 million headwind year over year. Again, going back to the tariff update page that we included within the deck, you can see some of the details there. Obviously, as we complete our final year of getting disciplined back into the operating environment in terms of balancing out wholesale and production, that poses a little bit of a deleverage challenge. And then we certainly have some associated supply chain impacts that we're contemplating. As you talked about, we do have a broadly one-to-one relationship between retail and wholesale, which does have an offsetting positive. And then as we look, there's some non-motorcycle implications around P&A and A&L. So all in, as we look at where we are, if you do a midpoint comparison, just effectively sitting right on top and, obviously, an improved setup for out-year performance as we work through our final issues in '20.

Q: Good morning. Thank you for taking my question. I just had a question around the used versus new pricing spread. How do you feel about where that spread is right now? And obviously, with all this promotional activity, do you see that spread tightening as you kind of pull away the promotional activity, or is this something that the spread gonna keep expanding as maybe prices go higher? And it seems like people are digging in lower and lower, you know, into the used value. So for a deal. Just any comments there on the spread? Thank you.

A: Okay. Thanks, Brandon. I'll start with a couple of numbers, and then maybe Arthur can provide some perspective in addition. So I think from a couple of different factors that you speak about. So as we think about where we're sitting today from a Q1 standpoint, we were forthcoming in terms of the charge that we took in '25 in order to make sure that we were positioned to clear through touring in the way that Arthur has talked about. So relative to the factor on the new side, as we think about affordability, monthly payments, and impacts for consumers, we recognize that we're doing, we're putting some programs in market at the moment that are helping drive a reduction in the gap between new and used motorcycles. So we have some stimulus that we think is helping drive a really nice value equation for our customers. I think what's really exciting is that in addition to that, as we take a look at what we're seeing on used values, we have seen sort of stabilization of some nice improvement in used values and what we're seeing come through at both auction and retail on the used side. So I think that that dynamic is also helping us from an overall consumer standpoint. So a couple of nice factors that bring that together.

A: And I think one of the insights we're seeing is that some of the parts of our portfolio that we've walked away from in recent years, the used values have jumped. So it's informing some of our product development work. So it's encouraging to see core equities that we've been known for a long time really responding quite well in the used market. And it's informing some of the innovation that you're gonna be seeing from us.

Q: Hi. Sorry. I'm hoping that you guys can talk about maybe what you envision as the potential for the motor company operating margin beyond '26. Like, do we go back to a high single-digit rate? Do you guys see more opportunity to expand margin, if maybe we can get some volume improvement to take hold and just sort of what you see as the potential for that segment over time?

A: Yeah. Jaime, that's a great question and something we're gonna clearly call out in our May, you know, investor meeting and strategy discussion and earnings. So if you, you know, tune in then, I'll give you more detail. Obviously, we don't think the current results reflect the full potential of the company. So a lot of upside and look forward to updating you in May.

Q: Okay. And then do you have a target for leverage metrics at the 2026 given that you're still paying down some debt?

A: Yeah. I think, you know, everything from an overall capital perspective, as Arthur talked about in our Q1 earnings call that we do in May, we'll make sure that we walk through strategy, overall capital allocation, our approach to the way that we're running the business on leverage for HDMC as well as HDFS, and then what we look at on a go-forward basis. We will be sure that we cover all of that then.

A: No target. The one thing I'd just remind is the €700 million note that we're gonna be, you know, paying off. That's the one thing that we've called out.