Analyst Note| Jaime M. Katz, CFA |
We believe wide-moat Polaris’ underlying product demand and brand strength are being overshadowed by near-term higher costs and supply chain strangulation. While the company reported stellar second-quarter wholesale sales growth of 40% (to $2.1 billion, up 19% from 2019), North American retail sales told a story of scarcity. In fact, North American retail sales fell modestly faster than the industry as a whole, down 28% in the period, hindered by low product availability. More specifically, a shortage led to Polaris suffering a market share loss in motorcycles despite high-20% retail sales growth (industry retail sales rose faster), but the firm was still able to grab gains in all-terrain vehicles, side-by-sides, and boats as peers appear to be as constrained as Polaris in these verticals. Also, owned inventory was up 48%, indicating nearly finished goods are waiting for final parts before shipment to dealers, constraining product throughput, and weighing on the retail sales metric.