Back in August, it looked like the ride was over for Harley-Davidson Inc. (NYSE: HOG). After fighting up to north of $35 at the beginning of 2010, shares had flopped about 30% in three months and there were rumblings that the iconic motorcycle manufacturer would be closing up its Wisconsin Harley plants.
But in mid-September, a concession-laden contract saved the Milwaukee sites – and a turnaround in Harley’s September sales and an upgrade today from RBC Capital has sent HOG stock soaring — up over 7% today alone!
So what’s the secret for Harley’s recent success? The answer is pretty surprising. Rather than rely on big spending from burly dudes in leather chaps, the numbers indicate gains among motorcycle riders with business suits – and yes, even skirts and heels.
The move makes sense. Reeling from the continued troubles of weak consumer spending, Harley has increased advertising to well-off males and females alike. For instance, in July it introduced the $8,000 SuperLow bike, an accessible motorcycle with the lowest seat in the company’s 32-bike lineup and 150 pounds lighter. The model is specifically engineered for women and first-time riders, a move meant to broaden the brands appeal.
Investors and consumers alike have been overlooking Harley-Davidson bikes as an impractical purchase amid weak consumer spending, but these moves show a marketing savvy that could pay off. At least, RBC seems to think so judging from the September numbers released by HOG. U.S. retail sales for Harley increased last month after falling in each of the previous four months, and the firm said that “Harley’s retail trends improved meaningfully in September has positive implications for the stock. This marks the first indication of improving U.S. retail demand since April.”
It’s worth noting that shares was 20% higher in April of 2010 – a significant upside for investors if you believe the company is returning to those levels.
Of course, the road ahead isn’t completely smooth for Harley. Easier year-over-year comparisons and generally good weather conditions from this summer won’t last. Harley-Davidson missed earnings expectations by over -40% in its Q3 report back in 2009, so the company’s earnings on October 18 will easily be an improvement over that mess. Similarly, HOG lost money in Q4 of 2009 so even a slim profit to finish the year will be a sign of growth.
But if Harley is going to ride out this recession it needs to continue to reach out to women and other groups to rebuild its sales base. The bottom line is that consumers are being very tight-fisted about transportation right now, and a Harley is hardly a practical choice for families, colder climates or long trips.
But who knows, maybe Harley can continue to expand its product line to combat these hurdles as well. Personally, I’m waiting for a hybrid Harley with a plush sidecar that gets 200 miles to the gallon.
Hey, if people will tool around in those phonebooth-sized Smart Fortwo contraptions, why not?
As of this writing, Jeff Reeves did not own a position in any of the stocks named here. Follow him on Twitter at @JeffReevesIP.
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