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Bear Of The Day: Harley-Davidson (HOG)

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Harley-Davidson (HOG - Free Report) has been the symbol of mid-life crises for decades and has profited off the massive Baby Boomer generation, but there is a new group of consumers in town and there set of demands is quite different. The chopper is going out of style and leading its progenitor, Harley-Davidson, down with it. Analysts continue to pessimistically lower its already deflated EPS estimates for this seemingly antiquated stock, pushing HOG down to a Zacks Rank #5 (Strong Sell).

The End Of An Era

Harley-Davidson hit its peak sales & profitability in 2014 and has since been experiencing a decline. The massive demographic shift in consumption is catalyzing this demand slump. Millennials recently overtook Boomers as the largest consuming generation, and they are making some profound changes to the retail landscape (e.g., the retail apocalypse). One of the unfortunate victims of this consumption change has been Harley and its iconic motorcycles.

This is not to say the Harley isn't making an effort to shape its brand image around the evolving consumer. The company has come out with a line of fully electric bikes and has a pipeline of sleek new designs and an eBicycle, which are to be released next year.

These brand changing efforts may be fruitless as millennials, and younger generations turn against some of the brands of their parents' and grandparents' generations as they are no longer "fashionable." Unfortunately, I don't believe Harley will be able to easily shake its chopper brand association.

COVID, Financials & Chart

Harley has experienced 7 straight quarters of topline declines, with its profits tumbling from $254 million in the second quarter of 2018 to negative $54 million this past quarter. COVID-19 pummeled Harley's Q2 sales and drove the company's bottom line to its lowest level since the heart of the financial crisis in 2009.

This most recent recession was very different from the systemic financial downfall, and I would have thought Harley Davidson would fare much better in this medically induced recession. 

With mortality at the forefront of many consumers' minds, I think there is more demand for "exciting" purchases like Tesla's (TSLA - Free Report) and Malibu Boat's (MBUU - Free Report) , with their respective stocks reach an all-time high this year.

I would typically associate Harley with an "exciting" purchase, but the company couldn't perform. These shares are sitting 28% below where they were at the beginning of the year. This stock drop accentuates the downward trend HOG has been experiencing since mid-2014, and its all-time high remains in 2006. HOG is trading 65% below that old high.

Final Thoughts

People are no longer excited about Harley's. The business appears to be hitting a level of obsolescence as it looks at its glory days in the rearview mirror. 

There is still a glimmer of hope that this motorcycle giant will be able to rebrand itself into something millennial-friendly. The success of next year's product releases will be telling in whether the company can evolve with the progressing consumer.

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Tesla, Inc. (TSLA) - free report >>

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HarleyDavidson, Inc. (HOG) - free report >>