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Text: Mike Speetzen, our interim chief executive officer; and Bob Mack, our interim chief financial officer, have remarks summarizing the quarter and our revised expectations for the full year.
Then we'll take some questions.
You can refer to our 2020 10-K for additional details regarding these risks and uncertainties.
Once again, the Polaris team delivered an impressive quarter despite substantial supply chain challenges.
Our team has remained focused on meeting the needs of our dealers and customers, which allowed us to again beat expectations this quarter.
Consumer interest in powersports continued at record levels throughout the quarter, with strong growth coming from both existing customers and new customers.
I'm pleased to report that our ORV market share gains continued, which we expect to be an ongoing trend for the year.
I'm also pleased to report that motorcycles, snowmobiles and boats also had strong retail demand and gained share in Q1.
The strong growth we are experiencing is not only in our North American whole good retail.
Our PG&A business grew nearly 50% during the quarter, with all segments and categories up significantly year over year.
And our international business was also strong, with sales increasing 59% as countries impacted by the pandemic slowly began to reopen.
Q1 results reflect an all-out effort by the Polaris team to overcome numerous challenges.
We continue to operate our plants at maximum supply chain-constraint capacity and utilize every available tactic at our disposal to produce the products our customers were demanding.
While our dealer inventory remains below optimal levels, we largely met demand and expertly navigated supply chain constraints.
To do so, logistics, commodities and rework costs have increased substantially.
We are managing the cost as best we can and, where it makes strategic sense, have raised prices to compensate for this inflation.
And yet, despite these headwinds, given the overall strong and better-than-expected performance seen in Q1 and continuing into April, we are raising our full-year guidance.
Bob will give you more details shortly.
First-quarter North American retail sales were up a robust 70%, continuing the unprecedented levels of growth.
The comparables were easier in the last two weeks of March when the pandemic drove an abrupt shutdown of commerce in 2020.
Even after adjusting for that impact, our retail was up an impressive 50-plus percent for the quarter.
We continue to see an expanding customer base, with new customers growing 70% in Q1.
We are especially proud to see success in our strategy to further diversify our customer base.
While many of these new customers have been in powersports for only a short time, our early data indicates a strong intent of these new customers to stay with the sport and a stronger intent to purchase another vehicle versus what we have historically seen, which is a promising indicator to support ongoing strong retail.
And the continued growth in sales to our existing owners, which increased an impressive 40% year over year, reinforces our confidence that these customers will return.
As I indicated earlier, our ORV business gained over 4 percentage points of market share in the first quarter.
Both Indian and Slingshot's first-quarter retail was strong as well, collectively finishing up over 70% and market share increased about 3 percentage points.
boats retail was also strong, tracking ahead of the industry based on preliminary data.
Snowmobile sales were strong as well, with retail up low 20% range for the first quarter.
Let me spend a minute talking about the strong performance of our Snowmobile business.
While our Snowmobile business is one of our smaller product lines today, it is where we started over 66 years ago in Northern Minnesota.
The North American snowmobile industry concluded its strongest season in over a decade, with industry retail up approximately 16%.
Polaris retail eclipsed the market, growing in the mid-20% range, resulting in market share gains of over two points for the season, the best share position in 16 years.
We are seeing tremendous new customer growth in Snowmobiles.
During the 2020, 2021 selling season, new customers represented over 60% of the sales growth, nearly double the rate from the prior season ending March 2020.
During the quarter, we held our annual spring dealer meeting and, while virtual, it was one of the best attended meetings in over a decade.
Attendance was up almost 80% compared to 2020.
During the meeting, we introduced 22 new snowmobiles on the revolutionary Rider-First Matryx Platform, which delivers industry-leading ride and handling, both on and off trail.
Additionally, we introduced the company's first turbo-charged two-stroke engine, the Patriot Boost.
This new engine uses proprietary SmartBoost technology for unrivaled combustion stability, enabling 10% more power at sea level and 50% more power at 10,000 feet than our current 850 Patriot engine.
The strong model year lineup, along with continued demand from new customers entering the sport, has generated demand we haven't seen in years.
In fact, our SnowCheck orders, which concluded a couple of weeks ago, will make up over half of our Snowmobile build this year, eliminating much of the uncertainty around in-season sales required later in the year.
As you well know, strong retail demand in all of our businesses has continued to pressure our ability to fill the dealer channel.
Inventory levels declined further on a sequential basis and were down 71% year over year, with ORV realizing the most significant decline.
Supplier constraints and logistics delays remain the ongoing bottlenecks, and we are working all available options to ease the supply chain strain as quickly as possible.
I'll talk more about our efforts to manage the situation shortly.
As we've discussed in the past, presold vehicles continue to be a lever that our dealers can utilize to ensure they capture the sale.
This is enabled by our advanced manufacturing capability which provides visibility into and flexibility of our production plan.
This is just one of many examples of how the team is navigating this challenging environment to ensure dealers and consumers get the vehicles they want.
Given the current environment and our expectations that the supply chain constraints may not improve significantly until late in 2021, we anticipate it will likely take until sometime in 2022 to return dealer inventory to targeted levels.
That said, our ability to continue to expertly manage the supply chain through 2021 positions us well to meet consumer demand.
The number of suppliers impacted by COVID-related constraints has been somewhat of a moving target.
The Polaris team has been doing a tremendous job of keeping product flowing to fulfill demand by expediting shipping, working directly with suppliers on their staffing and supply base, rebalancing in-sourced and outsourced manufacturing, using alternative logistics lanes to shorten lead times, staging Polaris employees at ports to expedite customs clearance and optimizing the flow and location of inventory to fill backlog as quick as possible.
Additionally, we're adding capacity at select locations, including Monterrey, Mexico for RZR and GENERAL; Elkhart and Syracuse, Indiana for Bennington and Hurricane; Rigby, Idaho for climb apparel and Wilmington, Ohio for PG&A distribution.
We will be evaluating additional expansion needs with our board as the year progresses based on the trajectory of current demand.
These capacity additions, along with the anticipated supply chain improvements later in the year, will allow us to further ramp production in the coming quarters.
However, as I said before, we do not see dealer inventory returning to targeted levels until sometime in 2021.
Despite these distractions, I'm happy to report that we are still on track with our supply chain transformation and that the savings are being realized slightly ahead of plan.
This is an incredibly important strategic initiative for us with the goal of identifying suppliers that can provide the best quality, delivery, service, technology and value.
We have now made all sourcing decisions for two of the four waves, and we kicked off the third wave in February through a virtual supplier conference and are optimistic about the continued success of the program.
By the end of the year, we expect to be almost halfway to our goal of approximately $200 million of gross savings.
Currently, these savings are partially offsetting increased costs from logistics, commodities, rework and tariffs.
The good news here is when these costs abate, our sourcing savings will continue.
Our sports electrification is a very real opportunity, appealing to current as well as new consumers.
As we look into the future, EV technology will continue to mature and grow, both in terms of performance capabilities and consumer awareness and interest.
Our efforts today will set the stage and enable us to be well positioned for the future.
Our revved up strategy aims to position Polaris as the industry leader in electrification, both through the introduction of new vehicles and expansion of current offerings.
Our goal is to offer consumers an electric vehicle option within each of our core product segments over the next five years.
Last fall, we partnered with Zero Motorcycles, a global leader in electric motorcycle powertrains and technology, to bring to market an all-new 2022 electric RANGER by December 2021.
This all new electric powertrain will elevate the RANGER platform to a whole new level of capability, durability and performance.
We're also making investments to grow our current EV offerings with the co-development of a fully autonomous low-speed shuttle using our GEM vehicles, coupled with Optimus Ride's full stack of sensors and software to enable fully autonomous shuttles.
The vehicles are expected to roll out in the second half of 2023.
As we move through the year, watch for additional details on our revved up strategy in the upcoming RANGER product launch.
As you just heard, our first quarter far exceeded our expectations given the ongoing strong retail demand across the portfolio.
The Polaris team has met the challenges of supply chain shortages, logistics delays by working tirelessly with our suppliers, executing significant rework and coordinating with our logistics providers to deliver on our dealer and customers' expectations.
First-quarter sales were up 39% on a GAAP and adjusted basis versus the prior year.
Sales were up significantly for all segments of our business, driven by the ongoing strength in powersports, the boating industry and in our adjacent markets and Aftermarket segments.
First-quarter earnings per share on a GAAP basis was $2.11.
Adjusted earnings per share was $2.30, which was up significantly over last year's first quarter.
The results were driven by increased volume across the portfolio, lower promotional costs and operating expense leverage during the quarter.
Adjusted gross margins were up 352 basis points year over year primarily due to the lower promotional costs driven by the strong retail demand and lower floor-plan financing costs as a result of the low dealer inventory levels.
Supply chain constraints were an ongoing pressure point to gross margins as logistics and rework remained high.
And as we previously indicated, tariff costs were higher during the quarter as the onetime exemptions and refunds we saw in 2020 largely ended.
Operating expenses as a percentage of sales were down 584 basis points as we realized leverage from the strong sales growth and the timing of some R&D expenses and stock-based compensation costs being delayed into the coming quarters.
Income from financial services declined 18% during the quarter as income from the Polaris Acceptance joint venture, which dealers use to finance their inventory, continue to be down due to the lower level of inventory in the channel.
Foreign exchange also had a positive impact on our quarterly results, primarily driven by the Canadian dollar and the euro.
From a segment reporting perspective, all segments reported increased sales for the quarter.
ORV & Snowmobiles increased 50%.
global adjacent markets was up 27%.
And boats increased 29% for the quarter.
Our segments benefited from lower promotional costs, which has decreased considerably across the powersports industry, given the high demand and the lack of product in the channel.
And aside from boats, all powersports segments also experienced a negative product mix during the quarter as supply chain constraints caused a shift in the types of products we were able to produce.
Two additional highlights I want to point out are International and parts, garments and accessories businesses.
International sales were up 59% during the quarter.
All segments and regions experienced increased sales during the quarter, mostly driven by strong ORV, snow, motorcycle and PG&A sales.
About 10 points of the growth came from improved currency rates.
And our parts, garments and accessories sales increased 49% during the quarter.
All segments and product categories grew significantly during the quarter, driven by strong retail and installed base demand.
Moving on to our revised guidance for 2021.
Given the stronger-than-anticipated performance in the first quarter, we have increased our total company sales growth guidance and now expect sales to increase in the 18% to 21% range for the year, up from the 13% to 16% we guided in January.
We are also increasing our full-year adjusted earnings per share guidance for 2021 and now expect earnings to be in the range of $9 to $9.25 per diluted share.
The increase is driven by higher volume, increased pricing through growth, MSRP changes and continued lower promotional spending and floor-plan financing costs in addition to improved foreign exchange rates and operating expense leverage.
These positives are, however, being partially offset by continued manufacturing inefficiencies and higher logistics costs in addition to commodity and component pricing pressures driven by supply chain constraints.
While we are pleased with the strong demand we are experiencing, it continues to stress our supply chain as our supply partners attempt to match our demand trends.
This is putting additional pressure on gross profit margins for the remainder of the year.
We now anticipate that gross profit margins will be down 60 to 90 basis points, primarily driven by ongoing negative product mix we saw in the first quarter, along with increased logistics and manufacturing inefficiencies due to the high level of rework in our factories.
Additionally, we are seeing increases in commodity prices that we expect to hit our P&L beginning in the second quarter.
As a result, we are implementing price increases to help offset these pressures.
However, we expect it will take several quarters for the two to converge.
And as Mike indicated, our supply chain initiative now in its third year will help offset some of the additional supply chain costs.
While our gross profit margins are expected to be down for the year, as I stated on our last earnings call, if you exclude the impact of tariffs and supply chain disruptions, our gross profit margin rate would be up over 200 basis points compared to last year.
Adjusted operating expenses are now expected to improve 80 to 100 basis points as a percentage of sales as sales growth outpaces operating expense growth.
Our guidance for operating expenses in dollars for the full year hasn't changed.
The improvement in operating expenses as a percent of sales is entirely driven by the escalating sales growth anticipated this year.
Income from financial services is now expected to be down in the high single digits percent, driven entirely by the expectation that dealer inventory levels will remain low.
Retail financing availability remains at acceptable levels.
Guidance for the remainder of the P&L items remains materially unchanged from our previously issued guidance.
Given our strong performance in Q1, our expectation for sales and earnings per share are relatively consistent across each of the next three quarters.
Seasonality of products will have some impact but, in general, we will produce -- be producing the maximum number of vehicles our supply chain will allow.
As I mentioned earlier, we expect supplier constraints to continue to negatively impact our sales mix.
Additionally, higher commodity costs will begin to materialize in Q2 and are expected to remain for the balance of the year.
Both of these factors will result in lower gross profit margins as compared to the first quarter.
We expect operating expenses in each of the remaining three quarters to be approximately 10% to 15% above Q1 given the timing of spending.
Moving on to sales expectations by segment.
The increase in total company sales is driven by the sales increases in all of our businesses, given the strong first-quarter demand and significant order backlog.
As we have stated, the gating factor in meeting the current demand and beginning to fill the dealer channel is the ability of our supply chain and the logistics network to be able to deliver materials to the factories.
Our operations and sourcing teams continue to work diligently to maximize production levels.
First-quarter operating cash flow finished at $56 million compared to a negative $71 million in the first quarter of last year.
While our first quarter is typically a heavy cash use quarter given the working capital timing, our strong cash from earnings was able to overcome the cash needs and provide positive cash from operations.
Our cash flow performance expectations for the full year remain unchanged as we work to rebuild dealer and factory inventory to more acceptable levels.
Our bank leverage ratio improved sequentially to approximately 1.3 times as our debt levels continue to decline as anticipated.
Our expectations for use of cash for 2021, outside investing in the business, remains a combination of debt reduction and share repurchases.
During the first quarter, we spent almost $300 million on share repurchases.
Of the $300 million spent, $130 million was generated from the exercise of options.
This helps minimize the dilution of our shares.
We anticipate continuing to buy back shares throughout the remainder of the year, subject to market conditions and available authorizations.
Our expectations for capital expenditures of approximately $250 million remain unchanged.
And on January 28, the board of directors approved a 2% increase in the regular quarterly cash dividend, which is the 26th consecutive year of Polaris increasing its dividend.
During the quarter, we experienced broad-based retail strength across all of our businesses.
New customers continue to drive significant growth during the quarter, supplementing strong demand from our dedicated installed base.
Our supply chain's ability to keep pace with demand trends will remain an ongoing challenge for longer than originally anticipated.
But our size, agility and seasoned Polaris team gives me confidence in our ability to match supply with demand better than anyone in our industry.
The company is in the best financial position in years, with a strong cash position, debt below our targeted leverage ratios and all segments expected to grow sales, improve profitability and gain market share in 2021.

user
compname says q1 earnings per share $2.11.
polaris first quarter 2021 earnings results.
q1 earnings per share $2.11.
q1 reported and adjusted sales increased 39% to $1,951 million.
adjusted net income for q1 was $2.30 per share.
north american retail sales increased 70% for quarter compared to last year driven by broad-based strength across biz.
full year 2021 adjusted sales is now expected to be up 18% to 21% over prior year.
now expects full year earnings to be in range of $9.00 to $9.25 per diluted share.

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