Harley-Davidson's sales growth struggle sends shares tumbling

CHICAGO (Reuters) - Harley-Davidson Inc HOG.N on Tuesday reported a decline in quarterly motorcycle revenue that outpaced Wall Street's estimates as retail sales in the United States dived again, sending its shares lower.

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Motorcycle revenue fell an annual 8.5% to $874.1 million in the December quarter, faster than a 3.4% fall predicted by analysts in a Refinitiv survey.

Its shares, after falling as much as 7%, pared losses to trade 2.5% lower at $33.96 on Tuesday afternoon.

Harley has for years failed to increase sales in the United States, its top market, which accounts for more than half of its motorcycles sold. As its tattooed, baby-boomer base ages, the Milwaukee-based company is finding it challenging to woo new customers.

Its bike sales in America last year were the lowest in at least 16 years. Falling sales in the past 12 quarters have forced the company to tighten the supply of its bikes to prevent price discount pressure and protect profit.

In 2019, the shipment volume of its bikes in the United States was the lowest in at least two decades. Global shipments were the lowest since 2010.

In a reflection of the demographic headwind, the motorcycle maker's stock price has declined by 44% in the past five years. By comparison, the S&P 500 Index .SPX has gained 63%.

Chief Executive Matthew Levatich is betting on building riders and new launches including battery-powered bikes to turn around the company’s fortunes in the domestic market.

The results have been elusive thus far. U.S. sales are forecast to fall again this year.

Levatich told analysts the challenges were “significant” as Harley’s heavy and expensive bikes were competing for “people’s scarce time, people’s scarce funding and commitment.”

Harley’s prolonged sales struggle at a time when the U.S. economy is having its longest expansion in history is fueling speculation over the company’s possible alternatives, including a potential sale of the company to help preserve its brand and maximize shareholder value.

On Tuesday, Levatich tried to parry that question by expressing confidence in the current strategy which includes expanding its business overseas, particularly in Asia, to account for half of revenue by 2027.

The company’s Asia-Pacific sales rose 2.7% in 2019, led by improved demand in Southeast Asia and China. The company also plans to launch a new small displacement motorcycle in China later this year.

Similarly, Levatich hopes to lift sales in Europe with the launch of new middleweight bikes. The European Union’s permission to let Harley ship bikes from its facility in Thailand, sidestepping the trading bloc’s 25% retaliatory tariffs on U.S.-built motorcycles, is also expected to provide a fillip to sales in the region this year.

Motorcycle revenue in 2020 is expected to be about $4.53 billion to $4.66 billion compared with $4.57 billion last year. Operating margins are projected to improve by at least 70 basis points, helped by lower tariff bill and higher savings.

Reporting by Rajesh Kumar Singh in Chicago; Editing by Nick Zieminski and Matthew Lewis