Q2 2023 Harley-Davidson Inc Earnings Call
Thank you for standing by and welcome to the Harley Davidson 2023, second quarter, Investor and Analyst Conference call.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to Shawn Collins. Thank you. Please go ahead.
Thank you. Good morning. This is Shawn Collins, the director of Investor Relations at Harley Davidson.
You can access the slides supporting today's call on the Internet at the Harley Davidson Investor Relations website.
As you might expect our comments will include forward looking statements that are subject to business risks that could cause actual results to be materially different those.
Those risks include among others matters, we have noted in our latest filings with the SEC.
With that joining me this morning for the first part of the call our Harley Davidson Chief Executive Officer Youll concise.
Also chief Financial Officer, Jonathan Weird.
And likewise, our CEO Karim done it.
In addition for the Q&A portion of today's call Harley Davidson Chief Commercial officer.
Yellow element will be joining us.
It usually does.
With that let me turn it over to our CEO European sites.
Okay.
Thank you Sean good morning, everyone and thank you for joining us today.
Our Q2 results show appropriate on the delivery of our hardware strategy, despite the difficult macro environment and the unexpected production suspension impacting the business.
Revenues were down 2% in the second quarter, driven by a revenue decline of 4% at H, DMC, which was partially offset by revenue growth of 19% of HD vest.
Despite the challenges we saw global new motorcycle retail growth of 3% with North America up 1% versus prior year and solid international growth, especially in APAC.
24% increase in retail sales versus prior year.
Before we turn to our delivery against our hardware pillars. There are three points I would like to make about our performance for the quarter.
Firstly, we remained focused on growing our most profitable categories versus just growing total units.
In addition to the impact of the unplanned production suspension in Q2 total units have been impacted by portfolio choices in line with our strategy.
Including the shift of our second CDO launch to later in the year and most notably with the Sunset of the sports in North America.
While we intend to continue to participate in the small cruiser segment, leveraging both used and our ready mixed platform our priorities to grow profitably in our leading segments.
And while we expect <unk> to grow over time as customers become familiar with the new engine will continue to make choices consistent with our strategy, namely depending profit over retail units.
Secondly across our main geographies, we've seen clear impacts on customer demand and affordability with rising interest rates, giving pause to high credit customers. In addition to higher monthly payment challenges across the board.
We've also seen the impact of inflation on discretionary purchases.
On this note were investing and supporting our message of affordability, but protecting profitability by focusing on our core categories.
We continue to work with our dealers to design programs that drive traffic and help out more slowly customers with trade ins and rates.
Third we remain committed to desirability as we manage the dynamics of the year we.
We continue to monitor inventory levels in the channel as well as the MSRP price realization, while managing production and inventory mix to protect the long term health of the business.
Undoubtedly the production suspension late in the quarter created some unexpected challenges to that balance.
And uneven production ramp up based on parts availability in the high popularity of some models has led to an even mix in the channel and units that are delayed versus our original estimates.
However, we plan to work to correct the situation in the second half of the year.
Our focus on is our ability managing mix and prioritizing profitable growth of our overall unit growth has driven an improvement in our <unk> gross margin to 34, 8% this quarter.
Now I'll highlight select pillars of the hardware starting with pillar one profit focus.
Our performance in the first half of the year continues to be aligned to our hardware strategic pillar profit focus with strong mix and growth in our most profitable categories with touring and trike up 10% and crews are up almost 22% with these categories now representing 85% of the total volume versus 76% in the first half of 2000.
'twenty two.
Building on our commitment to strengthen and grow our leadership in our stronghold motorcycle segments, namely touring large crews and dry in April we introduced the new CBO motorcycles, the CBOE Street glide and CDO Road glide with motorcycles formally launching in June and first test strides being conducted as planned during the 100 <unk> Homecoming Anniversarying new.
Okay.
We think these two models from the ground up with advanced every aspect of the Grand American touring Motorcycling experience.
These models set a new standard for Harley Davidson performance technology and style accelerating the evolution of the world's most desirable motorcycle brand.
The global launch was met with strong response from our customers with over 40% of the volume already pre booked before the motorcycles, arriving USD dealerships.
Also aligned to profit focus building on our commitment to introduce a series of motorcycles that align with our strategy to increase our ability to drive the legacy of Harley Davidson in May we introduced the latest from our enthusiasts and icons collections. The 'twenty three edition to the enthusiast collection was the fast journey celebration of muscle.
Our culture, and it's racing heritage featuring factory direct custom paint and graphic treatments across the three Harley Davidson models.
The low rider S. T Street glide S T and the road glide S T.
The third installment of the icon smoother cycling collection program, we launched the electric light Highway King inspired by the 1968 Appalachia Electric light model.
We've seen a strong customer reception to both collections with most selling out ahead of delivery.
Pillar two selective expansion.
The company continues to selectively focus on opportunities in segments that we believe have the path to in market success and profitability capitalizing on our brand strength product capabilities and selectively complemented with partnerships.
Building on the launch of the HD X $3 50, and 500 in APAC early in the year in July we successfully launched the export <unk> India.
The launch marked the start of a new chapter in India for Harley Davidson and the first product as part of our partnership with Hero Motor Corp, which began in 2020.
We've been extremely pleased with the exception that the export <unk> has received since launch with pre orders exceeding initial expectations from launch.
Pillar five customer experience.
The hotwire puts customers at the forefront of Harley Davidson products experiences and investments in defense customers as people who've made dream of Motorcycling or just learn to ride all the way to ride us we're deeply passionate about and invest in the holiday and lifestyle.
With that in mind following our successful introduction of our pre owned market place in 'twenty. One we have now expanded with new capabilities to search and configure new motorcycles online.
Culture, and Harley Davidson fans to connect engage in right with one another while enjoying personalized benefits rewards and experiences.
So its level holiday membership is free to join offering multiple ways for members to tailor their experiences engaged with the holidays and community and earn rewards.
Members, who look to further enhance the experience and benefit package may elect to add the excess costs for riders and non riders with exclusive access to key brand events and content as well as benefits such as enhanced rewards and partner benefits.
And another option for riders of any motorcyclists, the Writeup pass, which includes tools content and benefits such as roadside assistance motorcycle service benefits and partner benefits to enhance the driving experience.
And lastly, our holiday owners group received several key enhanced program benefits.
Since launch over 125000 holidays membership profiles have been created with the majority being new members not previously highly owners group affiliated.
We've also increased our hope renewal rates since the launch of HD membership.
We're excited for what this capability, we're bringing in terms of building an activating ridership.
In 'twenty, two we announced the launch of our project Q program and initiatives to redefine the Harley Davidson customer experience, leading with footprint transformation to provide a much needed redesign of our dealerships.
In Q2, we launched our first updated dealership in North America as part of the program designed to transform the in person customer experience. In addition to providing enhanced omnichannel purchase capability for new bikes and parts and accessories.
In the coming quarters, we will start a steady cadence of updated dealerships coming online with the expectation that the full network domestically and internationally will be updated over the 10 year cycle.
Before I hand, it over to Karim our new level of Lifeway CEO I wanted to share my conviction in our strategy.
As we evaluate the first half of the year. It is clear that despite the challenging macro economic environment for the business and our customers, we're making progress in our core hotwire objectives.
We are proud of several standard launches this year, including a road glide three breakout anniversary models, but most significantly our transformational CBOE delivering on our hardware promise of innovation as part of our focus on core categories.
We're also proud of the ongoing success of our large cruiser category with one specific example, being the low rider S T.
Is resonating with younger riders showing a new path forward in the category through proudly lead.
Hugo Motor Corp. In queue, Jay are solid examples of innovative participation models in geographies that matter as part of a selective expansion strategy.
Overall, we've been pleased by the reception with orders exceeding expectations from launch.
Importantly, these partnerships not only increase ridership, but bring new lawyers directly to the Harley Davidson brand.
In the first half both parts and accessories and apparel and licensing together continue to grow as complementary offerings to a motorcycle product underscoring our growth beyond bike focus.
With our dedication to optimizing the customer experience. In addition to a few program we are transforming our omnichannel capabilities and the pre and post purchase journey with.
<unk> continued to invest in improving our allocation and distribution model, which will improve our efficiency in the future.
The hotwire is underpinned by our key strategic principles of profitability and desirability.
20, threes, a year, where we continued to demonstrate our commitment to both by driving the most profitable segments of the market, where we command chair and by prioritizing the long term health of the business.
These principles remain the foundation to what we intend to deliver over the remainder of hotwire.
Continued to adjust according to the macroeconomic realities that we expect to play out through the change in the business environment.
However, we remain committed to our six pillar hardware strategy.
Thank you and with that I'll hand, it over to Graeme to talk <unk>.
Thank you Johan and good morning, everyone.
I'm happy to be with you today to talk about lifestyle.
Thanks to the embankment Paul will be made and the continued support from our shareholders.
I believe <unk> is poised to have a massive impact into the electrification of the industry.
As we report on the second quarter of 2022 LIBOR.
<unk> moving the <unk> del Mar into production and launching the brand in Europe .
The benchmark report back on the <unk> two platform with the core EDC and software developed from the ground up by the <unk> engineering team.
We are seeing strong customer interest in the new design and the advanced technology offered by the bank that we've been working on for the past five years.
The price point of just above <unk> <unk> brand more accessible to a broader segment of right.
We believe anticipation for the demo contributed to lower year on year volume of Liza one.
Gliders waiting to learn more about later.
We're happy to report that we have been building powertrain and with constant over the past few weeks and the close but have been assemble online in Pennsylvania, just this week.
We look forward to ramping up production swap AGA and getting any customer on the wall.
Although the next two years.
We expect the <unk> two platform to <unk> and.
Continuing to build on our momentum.
With Whitewater Walden now available in.
Del Mar with full quarter al.
Our retail partner up on <unk>.
Running in our four priority countries.
Following the launch of the brand in the second quarter.
Good events in Paris, Berlin, London and Amsterdam.
We look forward to the region, becoming a critical piece of the <unk> growth.
Our investments and associated expenses.
We're in line with our plan for the quarter.
We believe the business is currently well financed for the next stage of our development with $216 million in cash and cash equivalents at the end of the quarter and.
And the option to add $200 million under non binding term sheet with Harley Davidson.
And now I'll hand, it over to Jonathan.
Thank you and good morning, everyone. The second quarter of 2023, as the third quarter under our new reporting structure with the three business segments of HTM C H DFL and LIBOR here.
In Q2, we experienced the impacts of an unplanned production suspension at our U S manufacturing operations, where global wholesale shipments decreased by 10% year over year, Yes, global pricing was able to partially offset unit declines, allowing us to turn in strong margin performance and unit mix and productivity are key areas of focus.
In addition, we continue to invest into building core competencies and our hardware.
Turning to our financial results in the second quarter total consolidated <unk> revenue of $1 4 billion.
Was down 2% compared to last year.
The components of this were at Herc revenue declined by 4%.
Harley Davidson financial services revenue grew by 19% and that likewise revenue declined by 44%.
Total consolidated HDI operating income was $221 million, which was $56 million lower than the prior year.
The components of this were at AT&T operating income of $194 million was 8% lower than the prior year at Harley Davidson financial services operating income of $59 million declined by 31%.
The year over year basis.
But lightwater, an operating loss of $32 million was in line with our expectations.
Second quarter earnings per share of $1 and 22 compares to $1 46 last year as a result of the factors noted above.
Okay.
As we flip the page to first half results total consolidated <unk> revenue of $3 2 billion was up 9% compared to last year.
The components of this were at.
<unk> revenue increased by 8%.
At Harley Davidson financial services revenue grew by 17% and likewise revenue declined by 35%.
Total consolidated HDI operating income was $591 million, which.
Which was $24 million higher than the prior year.
The components of this were at AT&T operating income of $530 million was 23% higher than prior year.
Reflecting a strong operating margin of 19, 2% in the first half of the year.
Harley Davidson financial services operating income of $117 million declined by 32% in the first half of the year and likewise, an operating loss of $57 million was in line with our expectations.
Year to date earnings per share of $3 27 compares to $2 91 last year or up 12% versus the first half of 2022 as a result of the factors noted above as well as consistent share buybacks throughout the first half of 2023.
As Yakov mentioned earlier global retail sales of new motorcycles were up 3% versus the prior year.
In North America, Q2, retail sales grew by 1% driven by strength in core categories, such as touring and cruiser motorcycles, which were up 7% in Q2.
This was offset by declines in the sport motorcycle category. Following the discontinuation of our legacy Sportster models at the end of 2022, resulting in less units in the market and the year before.
In Asia Pacific Q2, retail sales grew by 24% as we continued to experience strong demand across a variety of markets.
In EMEA Q2, retail sales declined by 6% driven by the planned unit mix shift towards profitable core product segments.
Core categories were up 7% in the EMEA region in Q2, and overall profitability continued to improve.
Latin America Q2 retail sales grew by 4% driven by growth in Brazil that was partially offset by weakness in Mexico.
Higher production in the second half of 2022 and in the first half of 2023 has allowed us to improve product availability at our dealer network over the last 12 months.
On a year over year basis average inventory in Q2 was up by more than 90% to healthier levels compared to the exceptionally tight level of 2022.
Dealer inventory continues to be materially down versus 2019.
From a retail pricing standpoint U S. New motorcycle transaction prices finished within our desirability threshold plus or minus two percentage points of MSRP.
At the <unk> segment revenue declined by 4%, primarily due to the production suspension at our U S manufacturing operations that occurred primarily in Q2.
Looking at the <unk> revenue bridge and focusing on the key drivers for the quarter 10 points of decline came from decreased volume at AT&T.
This was driven by the 10% decrease in wholesale motorcycle unit shipment mentioned previously.
Four points of growth came from pricing through both global MSRP increases and pricing across the parts and accessories and apparel businesses.
Mix contributed two points of growth as we continue to prioritize our most profitable models and markets.
And finally, one point of negative impact from foreign exchange.
<unk> operating income of $194 million in Q2 was 8% lower than prior year, driven by lower wholesale shipments and higher operating expenses.
Reminder, our commentary is now based on the updated definition of AT&T, which exclude Blackwater.
Let's look more closely at AT&T margins.
<unk> gross margin in Q2 was 34, 8%, which compares to 39% in the prior year.
Improvement of four points or 400 basis points was driven by pricing plus productivity and unit mix more than offsetting the negative impact from reduced volume and foreign exchange.
We experienced more modest cost inflation, which was approximately 1% in Q2.
On a year over year basis, the deceleration continues to be largely driven by logistics, including lower expedited shipping expenses and ocean freight rates.
Raw materials and metal market have also continued to moderate.
<unk> operating margin came in at 16, 2% in Q2 from 16, 8% in the prior year.
The decrease was due to higher operating expense, including higher people costs and marketing spend.
For the first half of the year at Herc operating income of $540 million is a 23% increase compared to prior year.
<unk> operating margin of 19, 2% through the first half of two four points.
Higher than prior year, the increase is due to pricing productivity and favorable mix more than offsetting FX and higher operating expenses.
At Harley Davidson financial services revenue increased by 19% driven by higher finance receivables higher interest income and increased investment income.
Hff's operating income in Q2 was $59 million down 31% compared to last year.
The Q2 decline was driven by higher borrowing costs as well as higher provision for credit losses.
Due to an increase in credit reserve and realized credit losses.
In Q2, <unk> annualized retail credit loss ratio came in at two 6%, which is down from three 2% in Q1 of this year.
During the quarter losses, followed by typical seasonality curve with performance in line with expectations.
These levels compared to an annualized loss of one 9% in fiscal 2022.
The increase in credit losses was driven by several factors relating to the current macroeconomic environment.
In addition, the allowance for credit losses for the second quarter increased to five 3% up from five 1% in Q1, which is the level. It had been during fiscal 2022.
Total retail loan originations in Q2 were down 14%, while commercial lending receivables were up 54% to $936 million.
Behind stronger product availability compared to prior year.
Total quarter end net financing receivables, including both retail loans and commercial lending receivables was seven 5 billion.
Which was up 6% versus prior year.
Total interest expense in Q2 was up $38 million or up 80% versus prior year.
The increase was driven by a higher cost of funds at lower interest rate debt matured and was replaced with current market rate back.
During the first half of 2023, we raised approximately $2 billion in the capital markets and at the end of Q2, Austin committed bank and conduit facilities resulted in an <unk> liquidity position of $2 $4 billion we.
We believe this has put us in a very strong position from both the funding and liquidity perspective.
Put a lifeline segment second quarter revenue decreased from 13 million to $7 million due to lower unit sales of both electric motorcycles and electric balance like <unk>.
<unk> operating loss of $32 million was as Karim highlighted in line with expectations and was driven by product development spending associated with the launch of the del Mar Electric motorcycle.
Well I think I'll quote Harley Davidson, Inc. Financial results in the first half of 2020 through we delivered $411 million of operating cash flow, which was up from $244 million in the prior year.
The increase in operating cash flow was due primarily to less new working capital needs in the first half of 2023 versus the first half of 2022.
Total cash and cash equivalents ended at $1 5 billion, which was $672 million lower than at the end of Q2 prior year.
<unk> cash number includes $216 million from last quarter.
Additionally, during the first half of 2023 is part of our capital allocation strategy, we bought back $4 1 million shares of our stock at a value of $156 million.
As we look to the rest of 2023 based on our results to date and our business outlook. We are revising our <unk> guidance on the <unk> segment unit sales guidance.
We are reaffirming our H DFL likewise, our operating income.
<unk> Capex guidance.
At <unk>, we now expect <unk> revenue growth.
<unk> to plus 3%.
This revised forecast is in line with our overall strategy and addresses the impacts caused by the production suspension at our U S manufacturing operation.
<unk> operating income margin of 13 nine to 14, 3%.
We continue to believe.
<unk> positive impact from pricing and our cost productivity efforts within the supply chain will offset expected cost inflation and currency headwinds.
At <unk>, we now expect unit sales of 600 to 1000.
This reflects the updated del Mar motorcycle will go to market time LIBOR here, we continue to expect an operating loss range of $115 million to $125 million.
As we look to the rest of 2023, we are reaffirming our full year guidance for HD vest and the HDI Capex guidance.
At <unk>, we continue to expect Hff's operating income to decline by 20% to 25%.
In Q2, we experienced lower realized credit losses than in Q1, our seasonality played out as we had expected.
We continue to stay focused on several actions underway to effectively manage the business in today's credit environment, including increased investment behind collections and stronger repossession methods.
And we continue to build other revenue sources, including licensing revenue and insurance revenue, which was up more than 30% in the first half of 2023.
And lastly for total HDI, we continue to expect capital investments of $225 million to $250 million as we continue to invest behind product development and capability enhancements.
Through the first half of the year, we have seen cost inflation generally in line with our expectations and continue to expect in aggregate about two points of inflation for the full year 2023 compared to 4% in 2022 labor.
Labor and warehousing cost continued to be the primary drivers of inflation with deflation and moderation expected within logistics freight raw materials.
We now expect $100 million and cost productivity in 2023, taking into account the adjustments and volume and updated production environment.
For <unk>, we expect the operating income declines to moderate in the second half of the year as we begin to lap the interest rate increases that took effect in 2022.
As we look at capital allocation for the remainder of 2023, our priorities remain to fund growth of the hardware initiatives, which includes the capital expenditure as mentioned previously paying dividends and executing discretionary share repurchases.
In summary, we are pleased with the resiliency of our financial results through the first half of the year, especially our margin performance. Despite a complex retail environment and with that I'll turn it back to the operator to take your questions.
Thank you as a reminder to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question. Please press star one again.
We also ask that you limit yourself to one question and return to the queue for additional questions. Thank you.
Our first question comes from Craig Kennison from Baird. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking my question I imagine there will be plenty of focus on the U S market, but I'm curious about the strategy in India, where the demographic story looks much different.
You frame the market size and opportunity and the economics of your licensing arrangement with hero.
Yes, Greg Thank you.
As you know, we exited India, which was a subsidiary which are service also through a manufacturing facility that we had in 2020.
And we entered into a license agreement with hero Motor Company.
So thats the first to the first.
Important point, it's a license agreement with our partner Thats essentially.
<unk> provides us.
License income.
At the time when those bikes.
Being shipped into the market with minimum.
I wanted to you said, we've agreed per contract so those bikes will not hit our P&L.
Yeah.
And they are also our wholesaler honest distributor for our big bikes 600 Cc plus now.
Now I look at India as a long term opportunity there is huge.
Huge market overall, but the premium premium segment that Harley Davidson is operating in is relatively small as we've seen based on our own experience in the past.
That said there is a premium segment that we are now entering into with our partner <unk> and that is anywhere around.
In terms of price points.
Yes.
Certainly a lot lower than our traditional Harley Davidson price points, but premium in the Indian market. We believe that this is a great.
Entry for $4 40, which is competitively priced by a hero and has really led to a lot of enthusiasm in the market. If you. If you look at search it.
Theres lots of reporting and interest and our partner overall is extremely happy with the results achieved so far so and to date there has really only been one competitor.
In the market that is essentially.
Essentially had a monopoly and then that we are trying to.
Breaking into providing an alternative with a strong international brand name the strongest brand in the world of Motorcycling, Harley Davidson, but coupled with the distribution network that complements our holiday with some distribution in dealerships.
And therefore should provide a pretty broad.
Opportunity in terms of units that we're able to say to sell.
I have to leave it at that.
Because it's really heroes that's community communicated in India I'm sure there will be reporting on the pre orders that we've received so far since we launched not even four weeks ago, but overall very pleased with the reception since the launch that I also participated in but while being in India.
Our next question comes from Robby <unk> from Bank of America. Please go ahead. Your line is open.
Hey, Good morning, My question is going to be on the.
The U S trends, so I was hoping we could get.
Maybe some color on retail trends through the second quarter and into July .
And then also just on the dealer inventory levels.
However, U S dealer inventory levels versus your expectations right now and maybe also global.
Dealer inventory levels.
Maybe the.
Sorry, Im throwing three in here and then any color we can get on just the back half motorcycle revenue declines.
What the U S shipping cadence should be that we expect maybe for the back half and just the timing of the new CEO shipments.
Have a meaningful impact on what shipments might look like in the U S in the back half.
Yeah, Let me let me just start with the question about what we're seeing in July as in Q1, I would really prefer not to comment on the next quarter.
We're not even a full month in and as we know there are swings from months to months. So I'll keep it now and in the future and just comment on the on the past quarter Robin.
Commenting on trends early on in the quarter and then the data that you want to take the risk.
Yes.
Thank you Robbie for the question, let me start by the trends that we saw in Q2, specifically in North America retail.
As the open alluded to in his commentary will continue to be a year that is challenging for customers in terms of inflation rates. The overall look for.
Stability in that.
Certainly with a prevalent trend in Q2 as well and we also had the impact of the production suspension that even though it was made in the quarter. There were specific banks that we were expecting and that our customers are expecting that were disrupted and this certainly had an impact upon our overall retail performance in the back half of June .
That said I think we're very pleased with the overall progress on the on the trajectory of our core stronghold categories. Both in the U S and internationally we saw growth.
In our core touring trike top tail categories. We are also very pleased with the reception of the CBL, which as you alluded to in the third part of your question, we will see come into full force in the back half of the year.
These are already shipping and already arriving in our dealerships in North America.
Overall, we continue to be focused on our pillars.
Desirability and profitability.
Managing and monitoring inventory very closely as it comes back online towards the production suspension to make sure. We are prioritizing the right unit.
That we are ensuring that we have the tools in place to smooth out some of the Lumpiness as you can imagine is resulting in the network given that production suspension. We don't have all the bikes that we want and we don't have all the bikes in the right place.
Working with our dealers to adjust that and we will continue to do so in the back half of the year.
But overall, our intention to your point around shipping and managing dealer inventory is to ensure that we are at healthy levels of inventory and we want to protect 2024, we want to make sure that we're managing.
Maidens supply that is in line with those overall objective.
We'll continue to do so as we have in the fantastic year in the back half of the year.
Our next question comes from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.
Guys just one follow up and then a separate question I know you opened in the past you talked about full year retail being flat to slightly positive wondering if that's still the case and then.
Second question can you just give an update as far as the revenue built it's in that flat to plus 3%. How do you sort of see units mix and price shaking out for the full year.
Yes, I'll, let Jonathan take the second question.
Overall, it really depends on how the third quarter.
It turns out and that has very much a reflection of our ability to ship the ride bikes store with the right cost right dealerships.
Yes.
<unk> alluded to the disruption of our production facility.
Sort of led to a bit of an imbalance that we need to sort out and are sourcing out every day and to really comment on retail trends at this point is I think not.
Advisable.
Yes, so I'll have to leave it at that.
Okay.
Okay, and then I think.
So a little more information in terms of what we're looking at from a guidance perspective, so as you touched on.
Revenue growth of flat to 3%.
Our revised forecast includes wholesale unit decreases of around 1% to 3% and then obviously as we look we continue to expect one to two points of mix as we focus on our profitable core business and also a one to two points of pricing as we offset a little bit of a more moderated inflationary outlook.
The other piece that I'll touch on is as we look at the PNA and A&H business.
We do see those businesses continuing to grow year over year.
Our next question comes from Joe <unk> from Raymond James. Please go ahead. Your line is open thanks.
Hey, guys. Good morning, I guess first could you quantify the impact.
Don had on shipments and retail in the quarter and maybe how much of the decline or the.
Impact on retail from the discontinuation of sportswear.
Thank you, Joe well difficult to pinpoint with precision as you can imagine for those for those bikes that we have named in last names of our customers and those that were in highest demand like our anniversary models is an easier task to identify the impact of the production suspension, but overall we know.
That it has led to some imbalance in the network in terms of where the inventory is difficult to pinpoint exactly for the broad assortment, but certainly one that we feel.
It was a factor in the back half of <unk>.
Of June .
We continue as Juergen mentioned to work through how and what we bring back in what order of priority to ensure that we have the right levels of inventory and that we are supporting.
Retail growth in the back half of the year.
Our next question comes from James Hardiman from Citi. Please go ahead. Your line is open.
Hi.
Thanks for taking my call I wanted to dig in maybe that last point.
About the right level of inventory can you help us figure out what the right level of inventory.
Whether it's sort of a.
Total units or weeks on hand to finish the year, obviously you've pointed out.
Inventory levels are down pretty substantially versus 2019, but so was retail relative to 2019 by probably pretty similar about.
And I think the way that you had previously.
Contextualize. This was that you were way too high as we think about 2019 in terms of weeks on hand, so maybe maybe any incremental color on how to think about where you finished the year I can appreciate that it's difficult not really knowing where retail is going to shake out, but presumably at retail is down.
Inventories would need to be down more.
So help us walk through that.
Yes.
Thank you for the question you are right we look at it in three different lenses. We look at total number of units. We look at days of coverage and we looked at it relative to historical trends as well as actual sales.
Our estimation will indicate that we are in fact much lower in terms of inventory than in the decline in sales versus 2019, and this is very much in line with our strategy of being more prudent.
With our inventory and making sure that we're protecting desirability, we intend to continue to manage that balance towards the end of the year.
The inventory levels overall fluctuate throughout the year of course, we wanted to have higher levels to support the riding season, but we continue to monitor that to the three lenses total number of units as well as the dental coverage looking forward into 2024, as well Thats, where we are versus historical levels.
As you indicate that will be a balance that we will continue to manage through Q3 and into Q4, we intend to make sure that we are managing the production returned to that the variability, but it is certainly something where we believe and intend to continue to remain on strategy in terms of a much lighter inventory load even accounting for it.
Declining sales versus 2019.
Yeah.
Our next question comes from Tristan Thomas Martin from BMO Capital markets. Please go ahead. Your line is open good morning.
I just had a question on promos you introduce some promos in the quarter the rate buy downs.
Our money down on some of the trading credits does that kind of what we should expect moving forward and then also what levers do you have to pull if let's say you want to choose retails and that all of it.
Thank you as you indicate our main priority in Q2 was around two aspects. The first is driving traffic to our dealers. So aside from promotional spend when you certainly ramped up our overall marketing investment and generating leads and generating traffic to dealers.
<unk> component and we intend to continue to maintain those activities things like our open houses that we have held a couple throughout the second quarter were extremely successful and we think very very.
Very well received by both customers as well as dealers.
The second are the promotional aspects that you indicated our focus is really around the topic of affordability. We have been looking both at promotional rates in conjunction with our dealers as well as trade in and trade up promos that allow us to address some of the challenges that our most loyal customers have I think through an upgrade cycle.
In the year of 2023, given dynamics with interest rates.
We intend to continue to look at those levels in the back half of the year all within the broader framework of managing the variability we want to make sure that we remain in healthy levels, but also need to address those imbalances.
Production and inventory.
We look towards the back half of 2023.
Our next question comes from Noah <unk> from Keybanc capital markets. Please go ahead. Your line is open.
Alright, Thanks for taking my question just one for me.
The unchanged in GFS guide.
Obviously year over year in the first half kind of tracking below full year guidance. So just wondering if you could provide some color on kind of the puts and takes.
We should be thinking about in terms of the second half an improvement there.
Yes.
Okay. Thanks, Noah so as we look at the <unk> guidance and kind of leaving that unchanged throughout the year.
We obviously track what we see from an overall delinquency and loss perspective, and as we look at that through the quarters, we're gaining confidence in terms of.
That being contemplated in terms of where we are from an overall guidance standpoint.
Part of what allows us to feel comfortable if we look at some of this.
One of the changes that we've made from a servicing activity standpoint.
So through what we're doing in terms of engaging with consumers who are late engaging better technology in the way that we do that from a tax perspective.
As well as email integration.
We've also introduced artificial intelligence into the way that we monitor our call activity to ensure that our agents are actually engaging with consumers.
Kind of a path that we enjoy.
We also have seen within the HFF business, some nice engagement and improvement in the revenue side of the equation. So we've been engaged in taking rate where we can following the fed actions and then in addition, we are seeing some improved revenue from the commercial lending side of the business and then lastly.
We also see growth in fee income products associated with things like visa protection products insurance and much of our approach in internationally.
Okay.
Our next question comes from David Macgregor from Longbow Research. Please go ahead. Your line is open.
Good morning, everyone.
On the riders Academy and just specifically on conversion rates and just.
I Wonder if you could just talk about how.
There's a number of rider academy graduates that.
Graduate to buy a bike compare with what you were seeing a year ago.
Those who do buy a bike or you're seeing any change in terms of their preferences for new bikes versus used bikes.
Well the the riding Academy in the first quarter was down and that was purely weather related because a lot of the riding Academy initiatives. We're riding Academy is couldnt happen due to bad weather pretty much throughout.
America, so but.
The riding Academy is overall the causes are fully booked and we expect that to continue.
And maybe there is an opportunity that the.
Leather coat stays stroke with stays better throughout the year and longer suddenly nobody is going to do a riding academy.
And whatever.
Fahrenheit, but.
Weather hasn't be benefiting riding academy, but when the course has happened.
And bookings for our courses are very strong and continue to do.
Be strong throughout the year if weather permits.
And maybe a question I was wondering.
Pushing rates.
Yes, sorry, I just wanted to add a little bit on that as long as your question on new versus used so we continue to see a very strong conversion rates coming out of our riding Academy classes. These are one of the main avenues that we have for new to support riders to join the Harley Davidson brand we find that.
Can you just point writers are actually well distributed between both new and used obviously used at the bigger component overall.
But they are both in new and used.
It is also true that many of those new to support writers are entering across the full gamut of our motorcycles. So not necessarily just on smaller <unk> motorcycles, but also in some of our broader.
Motorcycles. So it is a in excellent Peter.
We do see conversion of earnings to support rider them to both new and used motorcycles across the full gamut.
<unk>, all the way up into our to our range.
Our next question comes from Jamie Katz from Morningstar. Please go ahead. Your line is open.
Hi, good morning.
I'd be interested to hear given.
The suspensions you had last year and this year is there any particular protocol you guys have.
Got into place to ensure the quality.
The products.
The suppliers that you're dealing with and then if you just could you clarify whether or not EV is really back on track with the startup of the del Mar.
<unk> ship.
I think cadence that was previously expected.
Yes, I mean, we have a top notch quality control in place the issue that we see last year and this year or not.
Not related to it first of all in the way from a tier two supplier, which is pretty much quality wise supervised by our tier one supplier. So why do we have overall quality measures in place and have a chief quality officer, as well and very clear mechanisms of how how we control quality.
Through doing production in particular, and thereafter, obviously with product in the field.
We cannot control.
Every every single component that is being delivered from tier two suppliers to tier one suppliers, there's some level of.
Control that needs to be provided by the tier two supplier themselves, obviously, and then our tier one supplier as well.
Working on reducing those components into their assistance so.
And the two as I've mentioned is two <unk>.
Aspects were not related and we treat that as a quality issue and.
Through the control that.
We had we were.
We found out that there wasn't issue.
Tier two and tier one supplier so thats as much as I can say.
And then.
Okay.
Yes, it's a real good morning, Jimmy so forth easing back on track, what I guess, we got a bit delayed on the start of production for the del Mar, but we're happy to report that the first backs actually were produced yesterday. So now we have the ramp up coming in August . So we will be back on track with the Delmarva Richard now.
Our next question comes from Brandon <unk> from D. A Davidson. Please go ahead your line is open.
Good morning, Thank you for taking my questions.
Quick question on the uneven mix in the channel do you believe given where dealer inventories are at and maybe a little light in some categories are you expecting a richer mix of products shipped in the back half of the year.
Thank you Brandon for your question I think that our main objective is exactly as you pointed out and those timelines when we have a lower coverage or where we have customers awaiting their bikes that to make sure that we are prioritizing those.
I'm sure you have heard many of you have heard through our dealers.
Many of them are anniversary bikes.
Second in the network as well as the increased interest in our truck lineup, particularly on the back of the launch this year, which has been incredibly successful. So we are trying to be very precise answer the question on inventory not only in the overall total levels domestically and internationally, but also the mix of those units starting by customer orders as well.
As those families. When we have the best combination of demand and the lowest inventory in the network and so I would expect that that will continue to be our priority in the back half of the year to manage to that inventory coverage on a family level.
There are no further questions at this time.
This concludes today's conference call. Thank you all for joining you may now disconnect.
Okay.
[noise].
Yes.