Harley-Davidson is selling fewer bikes and making less money

Harley-Davidson Inc.’s shares fell 11% after the company announced a 24% annual drop in third-quarter profit on Thursday. Customers reduced their discretionary spending as a result of rising borrowing costs and inflationary pressures.

The stock of the Milwaukee-based business fell to its lowest point in three years.

Due to rising U.S. interest rates over the past year and increased inflation, consumers are becoming less willing to spend money on luxury goods and are instead choosing to prioritise necessities.

“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 been able to sustain its expansion in margins by catering to a wealthy clientele. However, despite offering a fleet of more affordable models and revamping its apparel division with new collections and celebrity partnerships, the company has not been as successful in attracting younger riders.

Executives at the company reassured investors that their attention is on “what we can control” by controlling inventory levels, which are anticipated to be higher than in the previous two years but still in line with demand. The projected annual operational income remained unaltered.

Harley’s price hikes and surcharges on popular models have increased the company’s earnings per share in the past few quarters, but analysts believe that the decreasing demand is a sign of a more uncertain prognosis for the leisure retail industry in the coming year.

All of Harley’s regions saw a decline in retail sales. Its biggest market, North America, shrank for the third straight quarter. The company blamed the decline in income on increased borrowing expenses as well as the demise of last year’s Sportster model.

During the quarter that concluded on September 30, sales of motorcycles and related products by Harley-Davidson decreased by around 9% to $1.30 billion.

According to the firm, the production suspension that was announced late in the second quarter resulted in a 20% decline in motorcycle shipments worldwide during that time.

Harley’s net profit decreased from $261.2 million to $198.6 million in the previous year. Analyst-tracked earnings per share for the third quarter came in at $1.38, little higher than $1.36 predicted.

(With agency inputs)