(Bloomberg) – Investors at Harley-Davidson Inc., who applauded the appointment of a restructuring artist, don’t like the early version of their makeover for the sick motorcycle maker.
Jochen Zeitz, a former Puma SE boss who became CEO in February, has been working to downsize the company and narrow its focus amid a five-year sales slump in its central US market. It reduced approximately 14% of the workforce, reduced its dealer network, and delayed product launches.
“We are not willing to sacrifice the strength of our legacy in a quest for future pure volume growth,” Zeitz said in a conference call. “We are an extraordinary and desirable brand, but that doesn’t mean we want to become everything to everyone.”
That sobering message came after Harley released its first quarterly red ink in more than a decade on Tuesday. The bike maker reported a loss of 35 cents a share, omitting the analyst’s lower estimate and below consensus to make a profit of 18 cents a share.
Investors reacted by dropping their shares as much as 11.3% to $ 25.98, the biggest drop in four months.
Zeitz, who joined the Harley board in 2007, rose to fame by reviving a nearly bankrupt Puma in the early 2000s. Since taking over the handlebars at the motorcycle maker earlier this year, he has sketched a recovery plan called “Rewire” and has promised a five-year strategic plan for the fourth quarter, which he calls “Hardwire”.
His steps so far include starving new bike sellers to remove excess inventory, a move the company says helped him collect the full price for 2020 model year bikes. Zeitz told the Analysts on Tuesday say their goal is to increase the brand’s convenience by putting quality above quantity.
The Milwaukee, Wisconsin-based manufacturer said it would accelerate the restructuring by cutting approximately 30% of its model lineup and focusing on 50 markets. Harley said in its latest annual report that it had distributors in some 100 countries around the world.
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The Zeitz belt adjustment was not enough to offset a 59% drop in Harley’s second-quarter shipments after the coronavirus halted production at its factories in the US and Thailand and temporarily closed dealerships throughout the world.
There may be more pain to come, as Harley is delaying the debut of its first adventure touring bike, the Pan America, in early 2021 instead of August.
The CEO said he will invest the savings from cost cuts in new marketing campaigns. It is reorganizing the company’s structure to reduce complexity and improve the reach between its local offices and its headquarters in Milwaukee.
Harley declined to give financial guidance for 2020, saying the impact and duration of the pandemic is still too uncertain.
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