When we saw the Polaris 40% guide down to ≈ $3.70, we admittedly jumped to the conclusion that this is a major tell for the state of the consumer/economy. After all, it is due largely to lower unit sales associated with its RZR Turbo product, which at $24,999 (plus delivery and setup) is the poster child for a toy that average middle-American male can no longer afford to lever up to buy (check out image below). While we are bearish overall on the Macro environment, after digging further, we think that 50-75% of the miss is company–specific. It’s related to fixing issues that are already known, but underestimated by the company and to a lesser extent – the market.
If you own/are short the stock, you already know this. We have not done a tremendous amount of work on this one in the past. But if you saw the headline and are assuming the worst as it relates to a read on the consumer (as we initially did), then we’d caution you to think again. Is part of the weakness due to weaker overall demand. Definitely. Is the company spending up to ensure customer satisfaction to ensure its top positioning (by 2x relative to Japanese brands) in the powersports market? Yes, and it’s probably the right move.
We think this is actually a good company in the grand scheme of things, with a management team we’ve been impressed by in the past. The stock was off nearly 20% over the past 6 weeks ahead of this announcement. So clearly, someone either got the memo or did some good research. We wouldn’t really chase it down here based on what we know today given our view on the economy at large, and at 15x multiple on what’s likely real underlying earnings, it might get cheaper before it’s worth stepping in. We’ll likely do more work on this along with Todd Jordan’s team (Leisure) if the stock weakens further.
This is what's causing PII's issues:
Source: Polaris July Analyst meeting