PII - Earnings call transcript Q2 2021

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Operator

Good day, everyone, and welcome to the Polaris Second Quarter 2021 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Richard Edwards, Head of Investor Relations. Please go ahead, sir.

Richard Edwards

Thank you, Cole, and good morning, everyone. us second joining earnings for you for quarter our call. Thank our presentation this ir.polaris.com, is slide website morning's accessible for A information at at additional which call. has Financial and Speetzen, and quarter questions. expectations year, Mack, Mike Executive full revised remarks Officer; the we'll Chief our in our our Chief then Officer; for the have summarized Bob take

results the which could statements. of forward-looking for considered the we call, be Act those from will During materially Reform purposes differ be Private of projections should XXXX. forward-looking Litigation discussing Actual various topics, the Securities the in

can for GAAP All these reconciliation schedules You to to refer quarter on details the to end the unless the to at non-GAAP XX-K our XXXX uncertainties. refer this additional otherwise and adjusted Reg are presentation Please for reported XXXX non-GAAP an our risks G second of guidance regarding adjustments. references basis, noted.

Now I'll to over CEO, Mike? Speetzen. our Mike turn it

Michael Speetzen

morning, continued said, second has to pressures, and Polaris team powersports deliver continued trend quarter. and it is want Good The we of to with their demand, quarter Richard. and a of share challenges last market second exceed the Boats Polaris commitment everyone, supply demand the the again to entire company. during expertly quarter and expectations. in to models, a remains significant in Demand, our lose chain significant ongoing joining team the particularly growing you great will impressed vehicle sales industry for again off challenges. up once prepandemic strong, focus costs input as both we to and paid the in for while into bikes continued remained anticipate gains the and mantra team increasing execution I XX%. commitment challenges Overview the given That share execution and of improves. the small and unprecedented by results. these impressive over XXXX also dedication, and this chain backlog. did, strong amount navigated enable gains We share quarter us however, experienced thank quarter that supply healthy incredibly India, down our Thanks, our we year have the navigated midsized be Focused I and second thank continue in QX logistical in as our from supply and was to ATVs market retail side-by-sides. us. for with share gains second levels the as levels resume of

snowmobile cadence heavily with off variation it's timing season our represented build for component Although be weighted fourth will high the half this our over toward even year being more by business given quarter of the our check deliveries. snow preorders, sales snowmobiles our near-record snowmobile in this our year

Our PG&A rate their also look I'd businesses experiencing quarter. well. also sales attachment PG&A note consumers performed the XX% and vehicles. the an we to PG&A increase International in quite during more were personalize that as are for up

outside North economies Our continued QX. the strength. America XX% continues International see improve grew to sales to We business as in

to impacted be demonstrating continue and and logistics by earnings global ability delivery chain and the challenges. expectations, outperformed overcome production were focused Our surprisingly, with Not to team's supply execution. challenges

lowest about moment. of strong at result this I'll levels in our in a a dealer are more demand, the As this inventories and decades. continued consumer talk

is by earnings full powersports, up growth continued our results, X-year give am demand strong half demand. reflecting hard-fought and again raising basis, strong more I details guidance. that XX%, On team's to consumer our our consumer continued year our execute, to driven shortly. in will Bob we are first a report Given pleased underlying ability retail

low of driven quarter gating XX% the sales, been impacts retail market significantly grew second have during is on down North the share ago our compared increase year quarter chain again Despite higher sales were sales from second retail retail likely XX% delivery. sales factor The expected, reported XXXX. without a impacts would to for today American the Retail As by the supply supply quarter. ORV dealer to inventory these impacts. in

ORV in X also percentage gained during point to Motorcycle grow, Our increasing retail quarter. continued business ATVs of over side-by-sides. XX% and share market both sales the

amount quarter Chief were availability However, sequentially. by our of down modest down industry. the Indian a share the driven and boat low year-over-year also very also ahead a on popular of continued retail XX% Dealer bikes, and basis levels ended and models. during lost the particularly quarter, Strong of remained Scout inventory

And Our lever more presold effective slide. in are they our lose dealers to order process I'll an detail sale. don't go a next this the continues that in to into utilizing ensure be

Looking of expected the are we anticipating the which improve. at are inventories issues dealer into the remain begin will lean remainder slowly to year, when is to QX, chain supply

supply our RFM dealer for inventory sometime to into constraints, levels levels now continued return to Given or is late in XXXX profile stronger-than-anticipated with expectations demand, even coupled XXXX.

constraints, dealer As advantage supply lows, disruption coupled at with retail received The they has inventory presold order placed I orders chain unprecedented demand, presold in dealers record significant the through effective, consumers to most profitability production our product the process. schedule. system and that our earlier, for is our way discussed and shipping and maximize created in for want, to secure the efficient our shipping the is priority the in customers to cadence. With our

priority dealers time PG&A addition, is consumers order. the receive the In placed at of vehicle can and

of for ORV of Pre-pandemic orders presold As a accounted were Exiting presold approximately increased significantly retail. have result, presold QX, pandemic XX% orders X% our retail. the since roughly began. orders

a order that change. presold of While cancellations remain found be some that We the were reasons X% process audits pre-pandemic can the to for less the there majority than at single-digit the registration percent, valid out found order changes, low change our had to there similar looking system have audit the where for names changed presold name point have from reports registration. at case. which at These is misused, the been also where the have levels. and the that order presold not time the be audits regularly I'd

Lastly, we this to within continues volumes confidence is analyzed by of levels. the high be all a order environment. X% bottom process, advantage to regions tiers, that have pre-pandemic there's presold inventory dealers patterns is line it in our were and in The shipping why which tight competitive very and

peak chain are plants capacity. manufacturing at Our supply operating constrained

to with manufacturing, our by meet ever-changing consumers our the component we Despite Our couldn't to a efforts, quarter. components. focus continue execute high demand very during a schedules vehicles with of and the the level, demand logistics meet driven and production singular all chain at managing supply teams high-quality and the dealers availability

But given ongoing customers industry order As the I that period we see for are the our our tunnel. along supply and vehicles indicated it of of the the presold challenges, in end tight entire vehicles like waiting of the earlier, have will demand vehicle a powersports for high-quality and produce. it supplier high-performing the we, be for heightened year. at the to be say remainder I'd with appears light appears increased those the we significantly, able today levels to

were including will ensure doing are and competitive to materials of the select market. expediting win battle. work appropriate on spot materials keep Our we the and schedules, moving, substituting teamwork impressive components, products buying flow Focused adjusting build teams the execution

allow year. call, this last fill the and XX% production capacity our addition motorcycles. for in indicated will bring XXXX into This year and capability ORV are that more we also dealer to boats channel next later exciting capacity is new the demand, coming adding some between very needed on and products of As meet

the into unprecedented One drivers powersports. demand has of behind been new customers the coming

New remains new half coming customers family in comfortably XX% for high the X-year first customer slightly to over first over from pre-COVID ahead The down the XXXX. boats. of existing with the XXX,XXX XXXX first has at the while growth XXXX, and on Polaris of half customers a in of robust half basis remained ORV, approximately motorcycles, the rates new the of of comparable customers into snowmobiles total mix

are year-over-year exciting our Polaris in to which see turn our remains with grow our strong. it to over provides rate. Mack, the diversity updated Our and Overall rates intend by confidence existing summarize our with joining and second demand This a lastly, We on led family. also healthy the total for of customers, customers customers it's that us Hispanic basis. very female riders Bob I'll will to XXXX. repurchase expectations at continue now our who track the increasing sport. a grow, customer customers And remain results for quarter to the

Robert Mack

battles. Polaris quarter as are day battling good is meet components our demand we of Mike, the team everyone. this strong Thanks, of needed and for many winning those morning, indicate, to our consumers. And The the results each

boats. considerably XX% adjacent prior up GAAP Shipments versus year. ORV, all across were motorcycles, segments sales sales and quarter Second a aftermarket basis adjusted improved and and the on markets,

on XXX per grew and commodity during XXXX. of costs combination was shutdowns. chain actions to XX% driven Second $X.XX, to and down XXXX, QX XXXX. by heavily supply input the sequentially retail. expenses quarter of the was demand, goodwill higher year-over-year, were relative and dollars considerably plan the was revenue higher QX pricing somewhat and down to recognized This operating the operating requires labor the lower up taken primarily QX basis lower share expected the costs. driven strong performance of quarter was expenses which a intangible exceeding marketing basis per due by are which in This Operating was QX financing legal, operating quarter by expenses earnings partially up offset inventory to including growth, our XXXX cost Operating margins costs, leverage run points quarter, for to expenses which a XXX% by pressures. to short-term earnings impacted logistics, expectations. along minimal the sales dealer offset second asset versus timing input impairments promotional and was share were and with due to Adjusted increased with staffing up expense expenses rate $X.XX. additions. were in due associated half engineering approximately promotional gross prior the in promotional Adjusted constraints, GAAP strong by costs slightly COVID-XX be floor Adjusted and low drive muted quarter versus cost

dollar. were segments lower the Aftermarket From for were by by Canadian perspective, strong segments increased adversely up XX% about segment XX% quarterly Foreign exchange second continued was Boats on favorable up and demand. Adjacent increased promotional and Pricing Adjacent a XX%, by XX%, reporting XX%, Motorcycles high from benefited ORV/Snowmobile had primarily quarter. had product was markets QX the quarter the taken Average up lack were Boats up demand and segments increased all COVID-XX closures. ORV driven in also the relative positive model the All channel. reported which during impacted XX% to mix markets sales quarter driven increased a for up, our of actions selling XX% segment the XXXX, increased X%, Motorcycles impact for a sales costs XX%. quarter all the were given in and were prices approximately also up impact. results,

segments increased growing quarter, sales and sales to of parts, International garments across began the during business. economies that sales heavily growth as with all demand the categories the added our by during Currency to And segments regions XX% the increased Our the percentage countries increased again. driven for and quarter, lastly, quarter. International XX% accessories and points all open impacted XX their pandemic

to our on guidance Moving XXXX. for

even in performance earnings share. diluted increasing remainder and quarter, full to $X.XX year. is the inventory the per in promotional the XXXX continue to the in $X.XX per of for experienced year we as the Given driven low by expected the the stronger-than-anticipated that we expect to be high lower the the guidance levels and will increase through adjusted earnings demand The second for remain now environment share half range second quarter expectation our second is dealer are of

pleased component cost shortage higher prices, Additionally, and cost expected logistics higher incremental reductions costs. are commodity price These by incremental partially chain input upcoming and pricing increased benefits the we our basis. along we headwinds both escalating quarter. a model are increased cost in offset the increases on from expect manufacturing product benefit Overall, annualized increases provide and are with supply global dollar costs, driven for the promotional inefficiencies, offsetting and the expedites year, the by fourth year the that to the surcharges full particularly for cost

date. given narrowing guidance company our are at growth guidance to sales holding our by XX% We XX% raising end of the performance end the the upper total our sales range to and of lower growth range sales

presold end ample range. increase our have orders sales additional dealers would product allow typically in of hand top Our to guidance that with combined the us

of we given upper uncertainty guidance are around our end leaving However, component time. sales the unchanged the this at supply,

was P&L. by driven given to down to due Adjusted points. more needs financing in shop promotions current cash of delays are delivery. from to given to adjustments lower and/or with the the quarter versus in and materially as to as XX expected items is from continued and range guidance. financial points remains expected basis primarily income lower for of XXX a from the the be to decline. previously gross profit providers our the previously services their second issued higher is other have down driven Guidance costs now to accrual expected dealer in Moving expectations. to sales largely growth which the levels inventory promotional remainder inventory time unchanged be XX to basis operating improve with margins an year our the due last dealer of retail P&L in of percentage timing are issued range the buying more to are as our Adjusted down lower percent low now customers retail sources financing penetration quarter as guidance margins higher-than-expected This historically financing improvement expenses well now mid-XXs the sales the of by rates as XX Income

upcoming performance, model of full second actions and from reported changeover, compared as expected earnings to the implemented year to performance the half first our XXXX our improved of is sequentially being our year at a While be second down pricing half half the guidance year-to-date results. result our and

clarity second some for on earnings. give cadence the me half Let

XXXX Our the XXXX. a half $X.XX, of first EPS half first finished XXX% at increase over

number a partially chain share, of equates an X% decrease both to First, to Given offset on EPS operating costs in the of half by the in expected half rework fourth cadence and commodities, by as to labor, and surcharges. XX% EPS $X.XX EPS second promotions, increases our as expense revised a as of margins, to XX% the our I is expected of driven ocean $X.XX key guidance, XX% a low spend. up that XX% are until QX. no on QX related and compared XXXX negative year, to truck range second basis, second and in base shipping decline also the add X-year at be Check of increased higher and half On well of to year-over-year range costs of would occurring majority in factors: half first end quarterly ship sequential timing product sequential our a won't principally the diluted of This transportation on second and over the for the second the weighted a approximately results QX supply in XXXX. EPS a is pricing to year by to XXXX. factors, of heavily unprecedented driven basis the the snowmobiles through more from second input our couple are half full the of prices a a per basis is compared a This half reduction positive in stronger expedite high XXXX. shortages including half quarter towards quarter These of of XX% rates EPS costs with high the to be basis

portion increases. take QX. surcharges having not QX, and until to Second, increases while These of thus larger offset are increasing cost late impact effect we the in a adding a selling prices do

by expectations quarter to sales prior The teens at snowmobile high of are me QX. the quickly fourth cover hitting the given percent. the Motorcycle unchanged versus modification shipments, ORV QX timing segment. remain disruptions shipped up anticipated low year, of down guidance from sales snowmobiles timing sales pricing supply guidance. of more and XXXX than XX%, being prior the with our only is as up Let slightly chain heavily earlier, in our indicated more be actions

and In our first production and increasing challenges Markets, growth by motorcycle factory continue in of are expect the an supply sales Boats, through supply expectations to enough business impacting given to to same we the the XXXX. compared shipments the sales driven cash shift into half share the due remaining segments, our realized $XXX inventory to for chain second to quarter While year, million, operating period are Year-to-date down finished last the XXXX. at Adjacent Aftermarket inefficiencies. Global XX% year, chain possibly increase flow grow some we take to

cash down to year full at unchanged compared performance year. expected flow Our last remains mid-XX%

quarter, second $XXX spent the repurchases. we share million During on

to throughout conditions. subject With final continue Mike that, with along business, organic the to will buybacks now investments back remainder prioritize thoughts. I turn to will We year, share our it some the market of in over for

Michael Speetzen

Thanks, Bob.

This of quarter's results drive of the the demonstrated Polaris team in face challenges. ongoing determination the and

effectively demand. remains environment for our continue earnings do the medium products consumer Demand The company in robust, to as term. will long we meet manage of to challenging underlying remains a the and our to not does changing that see financial health. We power strong

company not XXXX And the sometime component or early remains until challenge chain even expected to not XXXX dealer in XXXX. with sometime supply as until even early late to XXXX. for result, to a expected improve supply return or inventories late are normalized Our the top levels

we all-new of the the coming, with innovation along lifeblood of be exciting year been the much Polaris, products While continues of chain, model including on XXXX and RANGER, number have supply electric new the focus to has launches. a

challenging to navigating delivering time, while are rising focused input at shareholders. deliver that, environment, a that questions. for turn supply chain and close to on Let Cole our the same and it me costs the current our improved reiterating over and demanding results in products value the to line customers through I'll With we open winning challenges by we're remain to

Operator

Instructions]. And first Farley from with UBS. our Robin [Operator question will today come

Robin Farley

Just understate, talk there was in the about preorders to availability. preorders a been quarter, -- trying retail about to product what have be being a if to lost it's think retail but way to to would on how And if the the of I your -- have you record retail some still as quantify way products wasn't been if you were actually quantify what able a quantify to And fulfilled they percent would ways, when captured in made that is the what to and at floor there's help level, have demand of higher? sort the much going sales still think may by retail? it right, that kind well, of

Michael Speetzen

you, spoken or the the for product higher time the the it's it's they're a of we're Yes. I have the vehicle ground if or I mean shipments talked and to thousand we to now it's we're essentially XX% will back specific out probably over keep that several mean Robin, by is production at as you of already because I we team is I going the push it's had essentially quarter, it around put truck it, our would doing quickly of And components -- tell chart, be we can. it's is dealer, and From limitations. lands minute hard moving on you, operations number tell each on a as can on presold I'll or the our and even put side-by-side to things lines its on but retrofitting sold. as windshields I our incredible the my have work. going And then tell retail. because that on in about shocks at whatever way, we up make standpoint, factories production rework keeping the sure than given

or So showroom I on think retail assume committed sitting floor. higher, the product to been if safe substantially existing been had our the just it's would dealer either had delivered they inventory have as

Robin Farley

a And quick just follow-up. then as Okay.

-- fair you digits think single much the full availability. of where that what words, about no down had quarter the change you down because that full other In ago some quarter, year? retail Is at you logistical quarter for being over your kind -- how or the still in year terms product the of last last thought expectations, from retail in it of maybe issues? think I in Is talked year can that it's point the the single low a that -- retail overcome about sort low still real in of you

Michael Speetzen

motorcycles RV about, up pretty is Yes. down an be And as mid-single we've will to digits. helpfully or talked be expected

just got of the single compare is we're I'll teens right you high but compared probably So when up against XXXX. we substantial patterns year-over-year that expecting as you to be the XXXX. kind remind that what that We're that digits down XXXX, out lift year so on low a it now, to still going in

still to healthy levels. growth pretty relative So pre-COVID

Operator

next our Morningstar. come question And with from will Katz Jaime

Jaime Katz

I'm on maybe chain comment goods of a for is on you there's books? given that segment finished you way the the to And some supply year? disproportionate of a the a inventories. up can is there bump the Obviously, hoping the quantify there inventory of impact particular significant any constraints rework amount mentioned, has composition of owned that

Robert Mack

Sure.

goods decision parts X them rework as in. short the we we out increase parts as in come into mean the strategic motorcycles primary put rework if and to them ship them and taken ORV or is goods, can So relates to and I have then finished X products in when once it the and finished they're build

driving So to finished trying can. obviously, goods. as ship goods that's we have in out as the -- fast really increase finished Any we're we

stock safety to really rework we're got demand We've driving what's that increases channel. the the also as and we the some in seeing raw higher product in both that. in is materials bring more meet So for

high quantifying quarter rework. digits and rework what's into the going terms and In to year -- it's of building double for the rework, it's of for we're

Jaime Katz

inventory Slide aim the Is about way you had over guys Okay. to imply was, the X, And of basically of that like flattish the then capacity it rest we year, I deck, that if have it? to would look that in assuming which think you sort else think, would the equal, all think. at I at dealers slide the right

Michael Speetzen

Yes. we've an I showing us unconstrained just in across we're been a spot that to decent were got mean dark supply a we've that things. the And I Bob you dynamic It's a we allowing see in we'll conveying mean, it what to really, chain environment, shortfall to relative quarter. fourth that from of the rework a in in there, and really One couple in environment. make the capacity that's in is constrained trying and that get got the the is us standpoint. for the what that quarter the third happening have just blue referenced is essentially line up fourth

essentially, similar end help and satisfy fourth quarter the the get we'll on third second to amount with that door completed to what will -- third So in vehicles quarter. going out rework -- anticipating retail the the fair those the And we quarter end essentially was we're a of it's increase the in quarter.

Operator

Our will from Craig come next question with Baird. Kennison

Craig Kennison

relationships. doing a going a to forward. ever, getting It's of larger would more best Polaris dealer network. has to what dealer ensure dealer on The your is I you're your certainly think curious pandemic to dealers that disrupt partners. potential I'm than the pick position you're the the share in

Michael Speetzen

to are put bit months better. challenged the the margin environment more that for terms dealer work at Menneto this making margins of doing doing very smaller sure been and was I to is And look, marketing we've with consistent the a a that And his sure being Bob a as right. have in and little the were the coming has right and healthy. to that presold dealers, positive, run Certainly, programs position feedback it getting and dealers you're out the than how as performance to many that of do majority their are our puts make with efficient dealers some never the team ago, Steve make something positive years fulfillment. Polaris we was as and vast that be reception now reducing we where But going just I work network to the in and order high. well like we different that doing view and sales. we And them put we're where into Craig, partner from something sure think able out several of ORV a number position were do a XXX% in others, about the money promo to can were incredibly of retain we're it Steve dealers process. X.X you're -- a Well, the dealers

script sequence with with in I the fact worked made even same have and able comment them. at area an We that's time take a because the PG&A my and where orders they about the we're that to vehicle try that make obviously margin. more

me, be us. #X. through they continue go And get dealer with And honest are to every believe And brutally working We sentiment. and that. so we're quarter we

the overlaps of As network you with our majority know, competitors. the

#X get dealers. into outperform making So that that a now, sure it's we've And of our how pretty snapshot right we're objective the product got. That's in competitors good with to getting we the doing. continue we

Operator

next come Wedbush. Hardiman will our with from question And James

James Hardiman

to So back retail that showing -- of third the would quarter bunch way read in Is why And in information more steps the I wanted that wanted down to to the the the I manufacturing steps read a the demand numbers be output, case? to the up that? X. as I Slide despite that here. retail unsurprising lot a then circle being that overall you're But that here, fourth quarter. but Obviously, conveyed just

Michael Speetzen

deliver. It's we're able a of actually what more to factor

reflecting But third substantial look for producing us is demand. demand above fourth retail. a to It's be a have blue the ton our and that bar, the which meet you product more at We really you step that that quarter to rework, the consumer down. when put into won't to ability vehicles position the don't we're So of anticipate in retail meet is what likely see a really, that's to demand.

Many this. we our of alone so signaling and of we taking of order are dates. checks the network because pushout to And dealer do, delivery the know in we're not around competitors

be an anticipate that's The to process is quarter. pick is we've a of that, allow up to got third momentum that to incredible So we and challenge. to really going bit dealers, to out that good quarter vehicles news a the going and us fourth reworked in those is, little get

James Hardiman

it. Got

both to is in a so you're what you're third as -- basically, that cases, to here than you're is lot be -- get got quarter. going the going dealers. that to number to to the many And conveying in It's fourth able you out units just in higher retail you're it's as quarter, that

Michael Speetzen

Yes. to our think slightly really but factory we're dealer we there. improve with just essentially really move best to is going move QX, with not that from up production. to trying I it's going keep And of conveys we out as that much retail And current as can inventory demand

strong. of they're a because in come shocks, -- time every give point more between some shipments But of meet just keeping from get at has because that some we're just with retail to we're where hearing of in we is it's issues everyone going those and inventory up. And the could the plastics, ourselves demand could a And industry, things receiving even what remained we're every anticipate And lot this job they as that we quarters, a whether only we're that, we drive dealer and doing wish and remain dealing but really batting credit sense pushing So to would because it's given though all they're team industry, I I our not look, moving. good start point, is it's frustrating even my dealers. down substantial about semiconductors.

Operator

And James. Joe Altobello question come our will with from next Raymond

Joseph Altobello

to margin couple on the gross bit had I full looks outlook, a questions year better second your of but a which seems worse. half get little

obviously, temporary? currents guess, might I that And So of much think a next number how the of I input margin first, a higher how gross we to gross structural should of pricing and benefit costs. given this about year, lack promotion guess the all much margins, be second, between How directionally is mentioned headwinds. versus cross of And you the surcharges year?

Robert Mack

it's Joe, Bob.

a would I ways. So about think few gross different margins

about it exemptions you XXXX a we XXXX. from don't there's we on year because repeat just -- didn't of negative in that at had full we point tariffs basis, If X.X look in

mainly in a second So levels think half, promo, going inventory. then just year the hole. It's promo get you the of because the is to impact in dealer we not half. bigger than a We about impact don't but a the getting the a little that decline full promo sort And price bigger as with price of was the in started see higher bit lower for promo either. they're first in year,

as So down, dealer comes inventory come -- then and the reserves down.

there's the XX a of in of So about quarter. that. basis points little impact That bit was

year. you a for equal impact. continue. that and that's not raised but think will go structural, comes down the they're there's the rates, really labor logistics, commodities things, Obviously, So a it's about going significant and labor to relatively As of It combination that's right? We to not away.

steel. and like XXX% and things our at XXX% versus average. look Steel X-year you up right X-year now So is

massive increase and all versus XX% a in X- steel. up those averages. to and X-year Aluminum, copper XX% resins are So

a has stuff the fairly that impact significant and year. accelerated through So has really

started level, we Xx we when we thought commodities. it it's the level the be now So was going be to from thought a impact would the year,

So of that's of that that out on our price. seeing some is also or is we're The normalize. as is out which commits that normalize. volume unprecedented -- QX commit we says a to nothing dynamic the And about won't think levels. to quarter are these to we This pace in normalizes, I really that purchases expect of the part there it we benefit at in question. There's terms commodity And it locked are detriment.

water down, see the price up, for that's or And don't relative we so it again, there's it. That's a go will The logistics that comes over price it away. roughly quarter, delayed. a goes the side, stuck bulk see quarter. the inventory but the that's of expedite we It's not exact, on the if expediting of don't math. We're top for

are We now, rates container $X,XXX to a go premiums, like and ocean containers away. right on expect ocean that truck Things spot average $XX,XXX.

XXXX, say, also look it. Where smaller you to a out, If part back was but plays $X,XXX. it of that harder it's at

than and this truck the labor supply correct will see other think ease as chain the what itself then we majority commodities So and of normalize, as ocean rates. challenges and with we'll happens

Michael Speetzen

means level the -- key. environment to hold remain I promo inventory think think a and position would positive, going Obviously, mean good still things if made Bob's timing think historically. dealer hopefully said like and go in Joe, that I is than point continue feels which will a back. a And we've on it's I to under to. think has costs Yes. setup tracking that in the 'XX that I a abate, for doing the start we're moves really like make but that But a of be around pricing is job to I anticipate we're it good we surcharges And prepared challenged, to these my better remarks will that.

around setup feels it really just the So good. It's of question timing. is like more a

learn year lot to back much a 'XX. half talking and for into So better guidance get we're of understanding a the through have going go about as once the we we

Operator

our Scott from question Stember come will CL King. And with next

Scott Stember

And sounds clearly indeed total It segment? Can could by talk retail in be maybe to you an unconstrained that in about up year. that if environment this it talk possibly is that? sales about that

Michael Speetzen

all, Well, Yes. motorcycles of will retail that and first be up I for is constrained. mean,

would I better than So where it be at. anticipate even we're

as Chief for well new charts. comments, as upfront as have as Bobber well the our the off the general for in demand model indicated the in I Scout As been

whether share. not there's think get team is an say better I better, much would competitors, or where where better executing and us retail our I'm in Slingshot. going the we From presold that so it -- motorcycles And at a on has an good to thankfully, but to left increase than process it's it our order year. spot of in that point, relative in the environment, plus goes I same is. would today And ORV are really comment year the it's we to be for continue to gain make be it substantially would even flat to safe a unconstrained because up back too be standpoint, a think and put this much of than for many see that yes, much would substantial to

Scott Stember

just it. just us last incremental for remind what Got will you tariffs. Can question XXXX? be And headwind the on

Robert Mack

Yes. Sure. Incremental for 'XX is about $XX million versus 'XX.

Scott Stember

Got it.

Robert Mack

[indiscernible]. About

Operator

from with And Markets. question Johnson our next come BMO Gerrick Capital will

Gerrick Johnson

I I questions, have if two may.

caught affects guard consumers. price maybe surcharge and I services and also where then the how don't I then how increase of And so the is you What why get they financial average Financial dealers there? increases. First, talk the second and But the for is Can expectations your are changed of the quickly. what price you quantification off mechanics outlook that are. understand about Services

Robert Mack

I'll it's environment. take On both Financial second the just I'll of first. answer one those. Services, the really

get people cash impact so to longer credit think of of are they're vehicles, things. waiting I all as shopping and kind and unions are people waiting to those their

buying buying people to then all third-party the are dealership. just of get back So the think in-house things will really We financing penetration. That's walking at programs. and advantage real as seeing and across the the normalize in and board, normal the are that that -- lower passes the time dealership partners

pre-pandemic there's challenges really the repeat the dealer seeing the your think what you floor that a so inventory. into of fact that is on with And We're not that other back interest there to Price... people down go piece obviously, credits. because question? of then is rolled floor normalizes, first not plan that we'll when see And lot I is levels. Can getting of plan. And

Gerrick Johnson

question also... first on The is pricing and

Robert Mack

Sure.

announced implementing average X.X% the pricing, a last price and yes, we of into were X. May increase on that we an quarter about So that went effect

all year, model QX. price late in on increases surcharges and the On coming new vehicles that's at

to that will still And working that we're be. as so what through

lot there comparable in our a with surcharges of out people seeing and out to related and transportation. industry commodities in are both industries go We

for look And go-forward year. then, pricing on at we'll also think going so to look we're what be at basis needs And to model a that. we a

versus going and the But trying for do So what be to this be commodities some of that relative we we we're numbers haven't we with to think be do price to going trade think term year. later short is challenges. in what set balanced permanent yet we is those to

Michael Speetzen

And financial down, thing to Gerrick, financial the services rate is also not we're promoting that coming for with means remember buydowns. those

portion offsets up that So we that. pick of a essentially good favorability

Gerrick Johnson

dealer increase the with not do charge what then just in want MSRP. That's can That's he to I clarify an on surcharge. additional an the the and to it. dealer wants

Michael Speetzen

knows is it can doing way why we do be that eliminated the it. and very customer reason easily the because And we're Yes. it

once down you're easily that be level the freight to back not And removed MSRP. surcharge comes around so if it's freight a environment with can and messing reasonable more a the

Operator

question next Capital. come our Spak will from And RBC Joseph with

Joseph Spak

They've commodities summer. headwinds. commodities when you to the going have obviously last and sort of logistics I been maybe hit Maybe of because just timing didn't just those And margin to being -- start outlook Bob, just on up. some the as get gross they appreciate commodes up comments and of -- is since the this for

help guidance, versus implied lower. just XXX gross the look on second the first you basis -- us half with margin like the it's if you can So at half points

a also you of pricing and higher, bit but that sort I and us offset. an commodities so the help if was just the I you is little mix that logistics get And XX points. wondering could impact, maybe help bridge are maybe basis of have bucket

Robert Mack

Sure.

that the what XX don't really that. of price. to And a volume than know more we HX days out buy versus part obviously, secure because you commodities little we locked seeing QX, So advance cases, bit out. are hedge, you're we dynamic in lag In in HX is the most

which that forward the in and benefit saw market saw in see started the of May as we in commodity pricing didn't we QX, was has hit out were the we on quarter in what quarter. the impact the the the We commodities. buying So of actually much

So really have really us to allowed from well, in good gross that up margins perspective, the lined quarter. it

account rate. points. You to adjustments reserve really Like in is lower QX and adjustments. run and reserve from benefiting XX basis were get was about Promo promo I pricing to the QX, some the said, both that

consistent, ramp relatively QX, and seriously pretty pricing consistent QX is into promo stays in commodities get start the up relatively You to QX.

freight right is we of half that's biggest see are relatively far the back driver. year, least So as certainly and the away higher it now. the in at Expedites the Ocean consistent.

Michael Speetzen

just as the point. but hedging, pointed Bob half. we do did half, mean, Because first we don't that. math to plus rolling in out, what it I second Xx mean the just stuff impact I do forward Joe, it inventory was commodity rough was the things And is of locks in we a do lot Bob's like -- Xx and what Yes. through is we're

were the commodities mounting even further half. pressure the first obviously put just we went even scale when And impact into more into the cost then second up that's that actually dampening So half.

Joseph Spak

support electric sale helpful. That's And both Okay. in on dealers need Or just been to that's add the is on electric secondly, by impacted of semis any And of these challenges has on could some make just order also batteries, RANGER, that investments and the to early be track? you product. year end the to challenges? maybe if the industry on of supposedly type in unveiled

Michael Speetzen

Thankfully, you going have of Really, electronics -- the we're start to We've 'XX. in very tracking the as production and mentioned, closely. that battery. the Yes. been

the that that starting got to -- point, we I there's but time, and this out did went we've team made impacts, when sure some this we track. this team would happen with small earlier for year, say rest business stuff the this the of saw been at much is still given we on program. the So We protected like

important that stock impact that we didn't how wanted were shortages sure or it is outs knowing to we So going that. make to have

keep in to with this that on we're E RANGER. X The thing is other partnering mind

relationship that used like not suppliers Zero a components. supply these has with to got with it's So long a producing we're we're of that's brand-new not stepping base lot a into. these starting

our to as advantage, suppliers see access and certainly for us that So volume. those given an good with to prepare we work it's

Operator

KeyBanc. will question next from come Brett Andress our And with

Brett Andress

want to it, you're the So expecting digits bars double don't make for you imply overcomplicate going I baseline just if low that you the XXXX back did flow to to versus Slide baseline, I want using XQ retail right as that that to in a X. that. XQ. but we're do use sure

Michael Speetzen

is being anticipate that's but the I we XXXX we quarter, consumer industry had And whole because versus It's have -- I chain that's -- just think not there's not much as just third not Yes. mounting the -- to the now. reiterate, will facing supply demand again, right in mean we it we challenges shortfalls. been. as want up still that

So our do Obviously, business. the plan know how obviously, got you we've against we team guys and geared to execute than better that.

sure So which we're pushing continue our teams. And to we've that done last is X we're that we group quarters, the we'll making so the outperforming grow can continue what do the the in share. to rest of

Brett Andress

Got it.

I then And any, making across And XXXX. there shifts increase are that new or I labor that are in and the capacity guess, mentioned added Okay. to capacity the builds think -- adding then expansion? XX% greenfield you're investments much you ORV? being in business more in How is

Michael Speetzen

that as know that well work been existing would had Monterrey campus. mean used on building for I I a It's it as we previously are warehousing. "greenfield." our don't light call facilitizing I

size year this what But ORV, the adds boats capacity demand capacity as there making facilitation that business, PG&A, 'XX focused anticipate pretty beyond. or given predominantly arena. are that as the and would be in we that it adds of seen shell. will the given the just uplift So whether of are obviously, across facilitization will on we And much the into in continue we I we've be existing chart, or as -- mentioned well

Operator

with David Research. Longbow And question from come our next MacGregor will

David MacGregor

that I might from for end there. that kind quarter the been new seeing as patterns the be my quarter that I'm you just changing and sure how what presold And retail orders did margin beginning how the in guess the an quarter how But of over evolved to through of incoming terms orders what quarter, quarter. wondering just I'm that's incoming which average new number on is is the at of -- quarter. evolve question the may number, the the retail through and well? have I guess the XX% of

Michael Speetzen

e-mails on And I are quarter. want get, continued increasingly based to would you, through consumers product. number of the I the increase It that tell --

strong. perspective there. is that demand has hang the long is remained has have, and concern everybody will underlying the sure our quite I'm Obviously, environment how so And in consumers we

hands have we're product from lead getting with If preorders, making we the consumers, communications and sure we get -- factory we not doing are margins product to them sparing them our direct to updated reflect, we we're we're sure are So Where And we around the the any can our we're we keeping to dealer that that to expedite the the hands expense. as can. making as of in have quick ship our for the dealers, of times through into our consumers extent communicating the we that. the obviously, as to with do.

-- that advance. make recover we in the consumers, costs to know putting road, are can that those those product down especially we're down the sure we So getting want the we of them that and money as much into on hands

David MacGregor

guess you might And motorcycles were quarter, smaller talk just be improvement the bikes more. as I'm well mix? those Can because respect question just the around is sustainable but were which of margins considered there's weaker things very wondering, nicely. how that because Is about in just this in the just with Slingshot be? up it to And second Great. is I to gross Great. moving your margins, a motorcycle lot

Michael Speetzen

Yes.

been The quarter building stated, focus and the to So have Slingshot quarters. portfolio. have and prior the motorcycles, pretty as mix, out of heavyweight add both there's as been no was chief portfolio. motorcycle the a But we for motorcycle question we've than with product higher percentage talked full in helped a bike margins to they the about, being you in big sort robust we've last the needed

be focused now more So and derivatives focused on we'll on profitability.

team has focused go on path a profitability improve pretty business. to tough that to after, to objectives and their that we're to So continue

Operator

question Capital. next our with And come Smith Street will Lake from Mark

Mark Smith

Another question just on motorcycles.

competition look supply? in impact versus we bikes, maybe the primarily any As purely just midsized quarter competition, from at in

Michael Speetzen

key I competitors, think, certainly which their helping footing, found has obviously, is Well, one our of think, do them. I

And fair this their the for lack probably of amount given dampened is relative they product a produce high. recognition incredibly are to at was demand perspective think those what our simply had we biggest us impact components of just supply our that our to hearing challenges the bikes. point, do. given brand we're insourced But the I from is ability

competitive really feel that came We there's good. we news that So some out. know

best team the got assessment, we've Our the done market. think the has in we that product and still

Mark Smith

additional you And just me Okay. talk Monterrey, then second is back capacity. what one are if demand to start about be there we supply at new in a capacity here, out for longer as just capacity? And opportunities added facilities your a look needed? circling term, get to reach we primarily robust, chain that's point facility continues and issues other some to do adding and in And you've can worked where

Michael Speetzen

Yes.

we're shutdown serve largest some manufacturing our took that in environment. at and much think able it's the But shuttered that are have But larger we're working capacity we're through be in this obviously probably make capacity team and hurricane when to going distribution making to Ohio it's reached. Monterrey, current I to handle better. limit to -- Rinker Indiana making facility attention a I sure we with gets mean -- position our point, Coast refacilitizing -- The space we on help able adds. and we environment So next that to dealers to more are adding Larson be this dealers say to forward to Board. focused we'll eyes brand. be going we to going we us be mean, and that, we obviously East do for to trying where is our XXX% just are We're we reevaluate see of managing southern given I capacity boats. adding discussion a actually a in keep We had much moves. our when sure added and we're is have the to

evaluate position. that we we once we teams things the in constraint to because abated, to labor though did get given we really our were really wasn't pushed chain even us the that One labor strong hard a sure make those supply the challenges, wanted go for a markets was of

sure supply to labor that so challenge. really looking labor that to each to did retain our job facilities chain team and next at become of adjustments the a and make And so did able we're challenges the doesn't when of start good market-specific the attract abate,

So I job. team have a good really lot doing the of is confidence a

capacity as good long term, near-term moves So put I potential think in spot. both really that well the the as we're we'll business a making the

Operator

question our Morgan Kovanis And with Billy will Stanley. come next from

Billy Kovanis

opening your remarks, inventory 'XX. In could late back early you get normalized mentioned levels to 'XX, by levels

that delayed flat in is you confirm, to wanted to versus line? the you given new and despite have retail the time And worry losing this and Just enhanced capacity strong replenish it on QX take pretty think you growth coming sales even some growth line a of calling inventory environment for customers will the about then XX% XXXX? share in time do plus

Michael Speetzen

product to an historically for when going that, assuming the couple they're been, And level, the math levels to the half. The And with not that in alone. the And don't customer We're of that to they've that's forward, continuing go reason components. puts spot. It largely it's as to low best low rate is with made in markets second of these in comments And you incredibly 'XX all nowhere out. got got dealing same and dealer know that know get the we abate. these to inventory understands that look and resolved inventory resins in anybody's long middle the around a and to performance. mean, and a it And to the we specialty -- around the be are would 'XX a there's the these retail up. is we dealer I low building a buy like delivery stock. can as with at. and said There's levels. lot do just back out not time is, adds, year, When even kind mid-single we worked there's market. and started to of to digits be return 'XX best that growth Most at our capacity that in perform that late we us we certainly had to it's we priority you where going of we're a it take the at inventory the that as when or is product challenges I have supply many steel view we really year, would the issues actually, has team reason and go. levels we guess even going you Well, good -- aluminum and by We've the pretty the

I everything and team's think got we make improve really that stay do which we're vehicle presold and and like order make boating locked get got focused going to the the they've to or the have process So we important, gives season, that that. next And to ability we can about sure riding for is to us been. sure in the consumers upon the get excited it

Billy Kovanis

And don't of substantial a consider increase it. pressures, cost of that would the cost And to towards end the inflation price on for the some be new able there? in abate just if 'XX, these Got you models fully 'XX? mitigate would

Robert Mack

Yes. what's I going costs. and mean, logistics with obviously, commodities we're on evaluating weekly

X of the motor ORV a to we at a actually And look side. done year, as the And year look develops. have we're took Boats model unscheduled as next price going price year midyear price we week. on pricing. was increase at, We already at head an increases. a we'll relooking cycle increase We're couple into said, has as to review We that continue once that surcharges.

balanced to offset to can we So system. increases think a versus are those be. costs how between moving of price the we bit going as we're a be but will the we as long to be And that's costs in continue target, to trying aggressive stay

Operator

from James come next with our will Hardiman Wedbush. question And

James Hardiman

in estimate you to I believe teens retail to clarify, to comparable a want be the think XX% quarter Mike, you I up to XX%. high XXXX. ago estimate just call, you how versus expect versus said I the wanted still earlier you Do was make of where of sure if an ago? much apples-to-apples. are like numbers a basically feel that where is -- issues months versus supply result those as these X were you retail And so, X you've chain we lost

Michael Speetzen

Yes. a was more of The ORV was expectation. of things. teens an mixing probably couple I high

mid-XX% that total the still range. in For low to it's company,

James Hardiman

Okay.

both ago? ultimately unchanged thought you it months versus it's for X So how about

Michael Speetzen

Yes.

James Hardiman

the and between talking And you how the that about no answer obviously, to going be But about likelihood have through. getting legislation differences thinking tariff exclusions when some Senate of Okay. politics. speak obviously, then just are to reinstitute? the House great you're But there's the bills these maybe here come

Michael Speetzen

optimistic. wish I was I more

good there's Yellen record, on Janet supportive not tariffs. the been think I of has has the rationale.

I think specifically some with going we USCR China. movement it's around around the to deal take how want to

I the of be going frankly, been now moves the view some -- backing of any the as think I think a that going with And light. off have to China, going viewed is going to be there's tariffs on that with is don't time. kind we

way is opportunities really can an we the I the has we that And to of so know impulse outside table. We look had. widening. China got for get China. drive imbalance don't to source if trade The the continue we business to

And figure had going to administration a them. what tactic is out certainly it to impact So think the to has I huge want take. they on have not

we're So to going on count not sit back it. and

chain with point what the team we it's more So as continuing we've continued But frankly, as at these taken obviously, to as much back far covered, to manage to than Bob because, we're quite tariffs. challenges seat supply all this supply chain can. expensive they're side relative push a the

when us the agenda. the So it. make to pushing hill. monitor on time We've we'll we folks continue right for got that we're the right, that sure advocate And is

James Hardiman

Makes sense.

Michael Speetzen

Cole, Okay. can. we A couple of more calls,

Operator

Yes, sir.

from come will question next our Shawn with Citigroup. Collins So

Shawn Collins

year. coming autos. The RANGER on and is electric the fourth is question out next really the vehicle in up My revolution in steam quarter picking electric

out seen and in the you've So any I RANGER. electric so ORV far on on best soon-to-be wanted your general? how the And thoughts guess in world on released reaction plays to what powersports ask

Michael Speetzen

around being that bought electric The had performing the the perform feedback and the we've the looked been at ranger proposition And Yes. least RANGER have at positive. teaser better. we've the reception immensely our electric the obviously RANGER it and is people past, we'll who value have videos has historically around this in will gotten highest people

think continue And to electric that so then portfolio think off-road sense. And of that's other to areas of could there's We there's a going there's explore. that lot attractive. other we a of our portions areas makes a positive. Obviously, going heck vehicle that we're where be do in youth to be

is same challenges. well vehicles that and as are start those you the lot charge to the at case how as products are used, Now times use charging time, used talking like a and the of they're short the When Razor infrastructure them means and there's the tough. about that areas opportunity run

not and be So ideas likely fast the infrastructure use We've we in. just around excuse others to And around we're partnerships as not some to look at a our to things that follower charging in RANGER. investing go going like an be going XXXX. that we the on we're likely got do anything. the how in of full product. got launched and force full plate of the excellent sure end is get we've team we've with But that. It's And consumers to in the the make with year an at got hands what that will

Operator

our Xian Paribas. from next Siew And BNP will come with question Exane

Xian Siew

question. for the Thanks

were So Vietnam, challenges And in you X of that Southern India pressures some COVID and the recently. on Southeast for highlighted lockdowns there Asia. now, example, one Slide like places in was

if So give you these maybe the remind for to on guys? can update And there you us if regions. maybe exposed could of situation you how an just you us are

Michael Speetzen

those back source or manage and as from mean do the either vehicle the elements the that And got rework we frankly, all with to supply. buys we alternative business, of we once and we those the the opportunity the to had and do of much And get will able comes try we've we're component missing an where advanced like with I continuity have we've produce go then location, of components Yes. out can. best regions. supply other

the containers, different job of in are a literally one demonstrated, there's great And shipping we've thing has It's another. that. or is as managing geography, literally we a done managing of the So a rail, shutdowns after team, specific lot variables. it trucks whether availability of availability of

improved. continue could us, I a be think not discussion. argue That's to So industry. going with just becoming for hasn't variant but challenge, Delta a And to the entire manufacturing bigger bigger, the you backdrop the think for I obviously necessarily

Xian Siew

just Okay. quick a And one.

to were ORV consumer I like if people Just have preorders, of sense how wait. long a a the the for now, to order would are long delivery? wait how -- an presales the to willing to For get trying

Michael Speetzen

relative is, job preorders fallout we rate of to the Yes. and there on a they thing from where ordering, And incredibly moment supply. I really dealers good and vehicle out, at, been end, the say consumers at it the be on date. that that X so mean for of be depending has XX type keep you good depends is as to on could but weeks, pointed you're And we're low. either anywhere we're that up can vehicle the just going could to to variation it's doing with communicating

to to So wait consumers definitely wanting are get vehicles. their

Richard Edwards

interest day. want this morning in your look forward talking have to thank next you Okay. and I to for everyone Again, good quarter. we to Goodbye. participating and Polaris, a

Operator

attending has concluded. for Thank now today's presentation. you conference The

You lines at may this time. disconnect now your

Polaris (PII) 27 Jul 212021 Q2 Earnings call transcript