Polaris Earnings: Weak Recreational Demand Hangs Over Continued Market Share Gains; Shares on Sale

Wide-moat Polaris is tactically managing shipments in 2024 because the big-ticket discretionary-goods consumer is remaining cautious, partly because of high financing rates. As a result, Polaris delivered first-quarter sales declines of 16% in off-road, 14% in on-road, and 53% in marine, as the firm tries to optimize dealer inventory levels proactively. The total decline in sales (20%) was not only affected by lower unit shipments, but also by lower pricing, as promotional cadence has been elevated in recent quarters. The impact from lower absorption was significant, leading to the lowest first-quarter adjusted operating margin since the onset of the pandemic (3% including financial services). That said, we commend Polaris for acting strategically, pruning unit shipments to protect inventory from persistent promotions if demand fails to pick up over the remainder of the year. If we hinge the return of demand on falling interest rates, we could have to wait until fall to see retail sales pick up in earnest.