Harley-Davidson profit slumps on weakening demand, shares tumble 11%

By Bianca Flowers and Kannaki Deka

(Reuters) -Harley-Davidson Inc on Thursday reported a 24% yearly decline in third-quarter profit as customers cut back on discretionary spending due to higher borrowing costs and inflationary pressures, sending shares down 11%.

The Milwaukee-based company’s shares hit their lowest level in three years.

Customers have become reluctant to splurge on big-ticket leisure items as U.S. interest rates climbed over the past year while higher inflation forces them to focus on essentials.

“It is clear that the macroeconomic backdrop has been a challenge for our customers globally,” Chief Executive Jochen Zeitz said on a conference call.

Harley has maintained margin growth through its wealthier customer base, but hasn’t been as successful in luring younger riders with the its fleet of lower-priced models and the revamping of its apparel business, featuring a series of new collections and collaborations with A-list celebrities.

Company executives reassured investors they are focused on “what we can control” by managing inventory levels that are expected to be higher compared to the past two years but in line to meet demand. Yearly operating income guidance was unchanged.

Harley’s price increases and surcharges for popular models have lifted the manufacturer’s earnings per share in previous quarters, but analysts say slowing demand is reflective of a murkier outlook for the leisure retail sector heading into next year.

Harley’s retails sales were down across all of its regions. North America, its largest market, declined for a third consecutive quarter. The company attributed the revenue shortfall to higher borrowing costs and the discontinuation of its legacy Sportster model at the end of last year.

Sales from motorcycles and related products fell about 9% to $1.30 billion in the quarter ended Sept. 30.

Global motorcycle shipments decreased 20% during the period due to the production suspension announced late in the second quarter, the company said.

Harley’s net profit fell to $198.6 million compared to $261.2 million year ago. Earnings per share tracked by analysts came in at $1.38 per share in the third-quarter, slightly above expectations of $1.36.

(Reporting by Kannaki Deka in Bengaluru and Bianca Flowers in Chicago; Editing by Sriraj Kalluvila and Chizu Nomiyama)