Based on our latest Harley dealer checks, we think May retail demand picked-up sequentially relative to April. Dealer inventories appear very tight (good for used bike prices and creating some scarcity) and should also benefit from this week’s production restart.
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We’ve seen improved demand across several segments of the consumer landscape. Most discretionary categories appear to have bottomed-out in late March / early April and have subsequently improved week-to-week, with less discretionary categories like home improvement enjoying healthy demand over the last 2-months. Changes in vacation spend and summer plans (fewer camps, sports, etc.), are likely helping, but the big unknown over the next few quarters is whether the demand we’re seeing is sustainable in light of higher unemployment and lingering economic impacts from coronavirus.
Earlier today (05/07/20), Harley Davidson announced that Jochen Zeitz would become its permanent President & CEO. We think that investors are likely to view this move favorably given his intentions to reset the company’s strategy with a more focused product offering and greater emphasis on Harley’s brand (something investors have been requesting for years). When we surveyed investors in early May more than 90% were neutral to positive about Jochen being named the permanent CEO (shares up +8% on the news).
Following recent earnings reports across restaurants, leisure, and hardlines retail, we are publishing updated estimates and price targets for each of the following: Brinker International (EAT), Brunswick (BC), Chipotle (CMG), Domino’s Pizza (DPZ), Dunkin’ Brands (DNKN), Harley-Davidson (HOG), McDonald’s (MCD), O’Reilly Automotive (ORLY), Polaris (PII), Restaurant Brands Int’l (QSR), Starbucks (SBUX), Tractor Supply (TSCO), and YUM! Brands (YUM), Amazon (AMZN).
The company’s search is currently on hold as Harley focuses on executing its COVID action plan and the recently announced Rewire strategy. Once those items are in place the company will likely focus hiring a permanent CEO.
Harley’s first quarter results showed a significant retail decline in the back half of March. This shouldn’t be a surprise, but we think it’s noteworthy U.S. retail sales were +6.6% prior to coronavirus disruptions (new product launches help). April U.S. retail remains in negative territory, but improved vs 2H March. The company outlined a new ‘Rewire’ strategy that refocuses on Harley’s core, and also aligns with recent suggestions from activist investors, but that seems like more of a multi-quarter catalyst.
We surveyed more than 1,000 U. S. consumers to assess coronavirus disruptions. This is the first installment of the survey, which limits our ability to opine on month-to-month variations, but compared to our Chinese survey work the U.S. consumer appears less willing to engage in everyday actives (dining at restaurants, visiting coffee shops, etc.) or undertake bigger ticket travel purchases (flying on airplanes, booking vacations, etc.). The Chinese economy appears farther along on its return to ‘normal’, so we’d expect some differences, but the magnitude of divergence suggests a relatively cautious attitude among U.S. consumers.
We recently conducted 5 proprietary surveys across various consumer segments and had the following takeaways: (1) China continues to normalize with restaurants leading the way; leisure travel still lags; (2) Home improvement do-it-yourself momentum is likely to continue/pro (contractor) segment continues to soften; (3) Grocery trends are likely to be robust and outpace dollar store growth.
We surveyed more than 1,000 Chinese consumers in late February, and again in late March, to assess changes in spending and behavior tied to coronavirus. Despite an improvement in manufacturing output in China over the past month (March Caixin PMI was 50.1 vs. 40.3 in February), our data suggests more modest changes on the consumer side. While there are certainly differences between purchasing habits in China and the United States, we think shifts in Chinese preference could provide a roadmap for consumer spending in the United States over the next few months.
We spoke with Thor’s Bob Martin (CEO) and Mark Trinske (VP of Investor Relations) following the company’s announcement to temporarily suspend North American production. We provide takeaways and a read-through on our broader leisure and vehicle coverage: 2020 Was Off to Strong Start Pre-Coronavirus – Feedback on the early part of the year was positive. Wholesale shipments were up YoY in January and February (up +13.2% year-to-date), the retail show season was strong, and momentum had continued into mid-March before COVID-19 hit and governments started issuing shelter-in-place warnings. Dealer inventory levels were largely normalized prior to the disruption.
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