Harley Davidson 2015 Annual Report Download - page 25

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25
Outlook(1)
In October 2015, the Company laid out its plans for how it intends to increase its focus, investment and resolve to drive
demand in 2016 and beyond. The Company has five clear objectives:
• Lead in every market by achieving and holding the number one market share of the 601+cc motorcycle
segment.
• Grow the sport of motorcycling in the U.S., in part by growing the number of U.S. core customers and
growing the U.S. outreach customers at a faster rate.
• Grow U.S. retail sales and grow international retail sales at a faster rate. The Company has a plan to grow its
international dealer network by 150 to 200 new dealerships by 2020.
• Grow revenue and grow earnings faster than revenue through 2020.
• Outperform the S&P 500
For 2016 and beyond, the Company plans to significantly increase its spending to drive demand. The Company intends to
offset this increased spending by reducing spending in other areas, primarily support functions and through a reorganization of
its commercial operations aimed at being both leaner and stronger.
In 2016, the Company expects to increase its spending on customer-facing marketing by approximately 65% from 2015
levels and it expects to increase its spending on new product development by approximately 35% from 2015 levels. This
spending reallocation would represent an approximate $70 million increase in the Company's spending to drive demand
compared to 2015.
The Company's increased spending will be focused in four key areas:
• Increase product and brand awareness.
• Grow new ridership in the U.S. This includes the Company's target to more than double the number of riders
trained annually through the Harley-Davidson Riding Academy to 100,000 globally by 2020, with the
majority in the U.S.
• Increase and enhance brand access. The Company intends to continue to expand and enhance its global dealer
network, develop new retail formats for urban centers and urban tastes and expand eCommerce.
• Accelerate the cadence and impact of new products and extend its leadership in features and technology that
it believes matter to customers.
On January 28, 2016 the Company announced the following expectations for 2016.
The Company believes 2016 global retail sales of Harley-Davidson motorcycles will face headwinds as the competition
continues to be aggressive with discounting and new product introductions. The Company also anticipates global macro-
economic challenges including weakness in oil-dependent areas. Internationally, various markets are experiencing economic
challenges. In particular in Brazil, the Company expects significant pressure to continue. In response to the nearly 50%
devaluation of the Brazilian real last year, the Company raised prices over 20% in 2016, and it expects lower retail sales in
Brazil in 2016.
The Company expects to ship 269,000 to 274,000 Harley-Davidson motorcycles during 2016, up approximately 1% to
3% over 2015. This includes 78,000 to 83,000 Harley-Davidson motorcycles that it expects to ship in the first quarter of 2016,
approximately down 2% at the low end of the range to up 4% at the high end of the range over the first quarter of 2015.
The Company expects 2016 global retail motorcycle sales to grow year-over-year with international retail sales growing
at a faster rate than the rate of growth in the U.S.
The Company expects the 2016 operating margin percent for the Motorcycles segment to be between 16% and 17%
compared to 16.5% in 2015.
The Company expects gross margin as a percent of revenue will be down year-over-year.
The Company expects that the 2016 gross margin percent will benefit from motorcycle pricing and strong productivity
gains offset by unfavorable foreign currency exchange and higher year-over-year start-up costs as it implements its enterprise
resource planning (ERP) system at its Kansas City manufacturing facility. If foreign currency exchange rates on January 27,
2016 remained constant throughout 2016, which is a hypothetical expectation in what is a very volatile foreign currency
exchange environment, the Company estimates the adverse impact to its expected Motorcycle segment revenue from currency
exchange in 2016 would be approximately 1%. Under this scenario, the Company would also expect an unfavorable impact to