Q3 2026 Harley-Davidson Earnings Conference Call - HARLEY-DAVIDSON INC

Explicit Guidance:

• FY2026 HDMC Retail Sales: Raised to 135,500–139,000 units (previous range: 133,500–138,500).
• FY2026 HDMC Wholesale Shipments: Raised to 130,500–137,500 units (previous range: 133,500–138,500).
• FY2026 HDMC Operating Income: Raised to $25M–$55M (previous range: $10M–$50M); includes $31M in restructuring costs.
• FY2026 HDFS Operating Income: Raised to $60M–$70M (previous range: $55M–$75M).
• FY2026 HDI Capital Investment (Capex): Reduced to $140M–$165M (previous range: $175M–$200M).
• FY2026 Tariff Costs: Full-year gross tariff costs expected at $105M–$120M (raised from prior $75M–$90M estimate); net impact on operating income expected to be negligible due to recoveries.
• FY2027 Tariff Outlook: No expectation of higher gross tariff costs than FY2026 assuming current structure; no further recoveries anticipated.
• FY2027 Cost Savings: Commitment to achieve $150M in fixed cost savings and $350M in HDMC EBITDA.
• Share Buybacks: Continued commitment to opportunistic repurchases of excess capital beyond operational needs and liquidity requirements.

Business-Segment Outlook:

• North America: Domestic retail rose >9% in Q3 2026; dealer profitability is tracking ahead of plan to double in 2026. Q4 2026 wholesale is expected to slightly exceed retail to ensure inventory readiness for 2027.
• International (EMEA): Q3 retail down 5% (improved from Q2); market share up to 4% from 3%. Performance remains challenged by macro conditions in Germany and France, though positive growth seen in Spain, Portugal, Italy, UK, Ireland, and Eastern Europe.
• Product Launches:
  • Harley-Davidson Sprint: Launching internationally at EICMA (late Q4 2026), hitting select markets late 2026, with global rollout in H1 2027. Targeted at new riders and experienced riders seeking a versatile bike; expected to drive Riding Academy conversion yields.
  • Sportster 883: Scheduled for H1 2027 launch. Critical for European dealer mix (previously 30–40% of portfolio in some markets) and filling price gaps ($6k–$10k range).
  • Superglide & Deadwood: Early success generating enthusiasm; MSRP realization at two-year highs; significant share gain in U.S. Softtail.
• Parts & Accessories (P&A): Tracking ahead of plan; leadership team expanding 2027 portfolio for Sprint and Sportster launches.
• Apparel & Licensing (MotorClothes): Tracking ahead of beginning-of-year plans.
• HDFS: Executing well as a capital-efficient model; 2027 outlook expects continued support for retail sales and dealer financing without operating losses.
• LiveWire: Withdrew FY2026 guidance due to substantial doubt about going concern status; management does not intend to fund operating losses; special restructuring committee formed.

Market and Competitive Outlook:

• Share Gains: HDMC U.S. market share in 601+ CC segment reached 37% (up 3 percentage points YoY). EMEA share up to 4% (from 3%).
• Product Demand: Strong sell-through on "blank canvas" motorcycles (Superglide, Deadwood) filling portfolio holes in price points not previously addressed.
• Portfolio Strategy: Focus on shifting from e-commerce to "back-to-the-bricks" (dealer-centric) approach; new products expected to expand rider base rather than cannibalize existing sales due to distinct use cases and price points.
• Inventory Management: Dealer inventory down 26% YoY globally; 91% of NA inventory is MY2026 model year. Expect inventory to adjust upward modestly in the future as portfolio broadens.

Macro / Industry Outlook:

• Tariffs: Environment remains uncertain with frequent policy changes and legal challenges. Net impact on FY2026 operating income neutralized by recoveries; no further recoveries expected in FY2027 unless tariff structure changes.
• Cost Inflation: Anticipated headwinds from raw materials (metals, diesel/freight); offset by manufacturing efficiency gains and cost-out initiatives.
• European Economy: Subdued macroeconomic environment impacting sentiment, specifically in Germany and France; however, underlying brand enthusiasm remains strong in other regions.

Strategic Initiatives:

• "Back to the Bricks": Sustained operational reset focusing on dealer profitability, inventory alignment, and rider connection. Progress includes 91% inventory mix of current model years and double-digit dealer profitability growth.
• 125th Anniversary: Formal planning underway for 2028; 2027 to be used for building excitement via rider-centric events and a new motorcycle lineup.
• Dealer Engagement: Completed third North American Roadshow and 2026 Global Dealer Forum (2,000 attendees) to align on 2027 strategy; ongoing engagement in Asia and Europe.
• Marketing: Shift toward grassroots partnerships with custom bike builders and shop owners; focus on authentic storytelling and community.
• Supply Chain: Improving reliability and reducing friction in the U.S. to address manufacturing quality and margin impacts.

Risks and Headwinds to Outlook:

• Europe: Ongoing challenges in Germany and France; portfolio adjustments (Sprint/Sportster) are not yet fully realized in this region for FY2026.
• Supply Chain: Supplier challenges in the U.S. continue to affect margins, though reliability is improving.
• Tariff Uncertainty: Dynamic environment with potential for further policy changes; net impact on FY2027 operating income assumes no further recoveries and stable tariff costs.
• Livewire: Financial viability and future of the subsidiary remain uncertain; no future capital injection planned.
• Raw Materials: Inflationary pressure on inputs could pressure gross margins despite internal efficiency measures.

Management Tone on the Future:

• Confidence Level: High confidence in the strategic direction and ability to execute "Back to the Bricks," citing tangible proof points (retail growth, dealer profitability, inventory health).
• Hedges: Management notes that "back to the bricks" is a sustained reset requiring continued discipline; acknowledges significant work remains, particularly in Europe and regarding supply chain.
• Sentiment: Optimistic regarding the 2027 lineup (Sprint, Sportster, 125th Anniversary) and its potential to broaden the rider base and drive earnings power. Explicitly stated the business is "moving in the right direction."

Miscellaneous:

• Dividends/Share Count: No specific dividend change announced; focus remains on discretionary share buybacks ($91M in Q3).
• Events: Expecting strong momentum at SEMA (upcoming) and EICMA (Milan) for the Sprint launch.
• Financial Model: Transition to HDFS capital-light model continues to reduce cash flow volatility but has lowered top-line revenue; net cash position at HDMC remains attractive ($1.4B cash vs. $297M debt).