Harley-Davidson Inc (HOG) 2018 Q1 法說會逐字稿

Good morning.

My name is Heidi, and I will be your conference operator today.

At this time, I would like to welcome everyone to the first quarter 2018 earnings conference call.

(Operator Instructions) Thank you.

Amy Giuffre, Director of Investor Relations, you may begin your conference.

Thank you, Heidi, and good morning.

You can access the slides supporting this call on harley-davidson.com.

Click About Us at the top right, select Investors from the drop-down and click the Earnings Materials box in the center of the page.

Our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different.

Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC.

Harley-Davidson disclaims any obligation to update information on this call.

Joining me this morning are President and CEO, Matt Levatich; and CFO, John Olin.

Matt, let's get started.

Thank you, Amy, and good morning, everyone.

In our press release this morning, we noted highlights from the quarter.

Among them, strong EPS, excluding manufacturing optimization costs, revenue growth, higher HDFS operating income and international retail sales growth versus last year.

We continue to make progress on our manufacturing optimization and see positive results from our commitment and actions to drive value for all stakeholders and maintain our brand premium, a cornerstone of long-term value.

We are also pleased with our cash generation and returns to shareholders through an increased dividend and share repurchases during the quarter.

Today, we're encouraged and focused, as many of our markets welcome spring.

Last year, we shifted our mindset from building motorcycles to building riders.

And on the momentum of the 2017 increase in the number of Harley-Davidson riders in the U.S., we embrace this time of year not only as the riding season but also the building-riders season.

We're in the debut riding and selling season for our all-new Softail motorcycle platform.

And we recently launched 2 additional 2018 motorcycles, including our sixth offerings with an MSRP under $10,000, another great price and power entry into our brand.

Initial dealer and customer reaction confirms we hit the nail on the head with both new Sportster models, the Iron 1200 and the Forty-Eight Special.

All our new models reflect our brand promise of All For Freedom, Freedom For All, and support our objective to build the next generation of Harley-Davidson riders globally.

As I mentioned last quarter, based on our data insights, our focus on ridership is way more than just inspiring new riders.

Ridership is a bigger idea, one focused on keeping riders engaged, riding and, importantly, purchasing.

Our actions are focused on building new riders and selling more Harley-Davidson Motorcycles & Related Products to fuel their passion.

In the U.S., dealers are offering our Freedom Promise, designed to reinforce value, instill purchase confidence and drive repurchase and brand engagement.

Purchasers of eligible Streets and Sportsters will get the purchase price back on a trade within a year, a great option for riders who are discovering their riding style and the type of bike that suits them.

In the first weeks of the program, dealers are seeing new customers coming in and believe this program dovetails nicely with the launch of the new Sportsters.

And there is more marketing and sales support queued up to deliver our spring sales goals, targeted programs to encourage the millions of hand-raisers to take the next step in becoming a Harley-Davidson rider.

Regarding our international performance, we're encouraged with the return to retail sales growth in Q1.

The Softails have hit the mark and our test rides and conversion rates continue to improve in many of our international markets as our teams and dealers continue to leverage the impact of test rides on Milwaukee-Eight-powered Softails and Touring models.

The power, torque and handling of these motorcycles speaks for itself, and there is no better way than a test ride to make that known in the hypercompetitive international markets.

We continue to expand our reach and impact with new dealer openings on track, and with the opening of our first lifestyle retail stores in China, India and Korea during the quarter.

Our strategy to engage with a larger audience through dedicated brand apparel stores is live and under way, helping to introduce Harley-Davidson to a new generation in Asia.

Whether it's vigorous product competition abroad or a challenged industry here in the U.S., we're encouraged by opportunities we see in our brand and are launching products and executing programs that will leave no free spirt behind.

Looking forward to the balance of 2018 and beyond, this summer, we plan to reveal significant additional steps we'll take to enhance our long-term strategy and accelerate performance through 2022.

Our view of the highly competitive global motorcycle market is grounded in a realistic assessment of the risks, opportunities and capabilities needed to inspire ridership and grow our business.

Our data-driven insights compel us to enhance our strategies, to ensure we deliver our long-term objectives and build the next generation of riders.

As we work to refine our plans, I can share with you today that we're being aggressive and innovative in how we view the work we must do to strengthen our company, our brand and this sport.

We see our path, as expressed in our 2027 objectives, as absolutely on point.

We must create the next generation of Harley-Davidson riders by inspiring people with new types of Harley-Davidson products and new ways to express their individuality and spirit, people who may find their path to freedom on 2 wheels differently than those before them.

This summer, we'll convey very specific action plans to capitalize on global opportunities we see for growth, plans that leverage our strengths as a company and brand, while pushing the boundaries and limits of what our focus has been over our living history.

Our aim is simple: Drive results and value more quickly and do so in a way that is reinforcing of all we stand for as a brand and company.

We plan to enter into new product spaces, initiate new market channels and establish partnerships and collaborations with proven leaders.

We expect the effects and results will elevate this great company and brand, a brand and brand promise with broad global appeal.

Our efforts will open our doors to the millions more that are seeking a reason to be and a reason to join, simply the next generation of Harley-Davidson riders.

As we said on the January call, we're being aggressive in seeking and prioritizing opportunities that drive profitability and cash flow, improve the company's current growth trajectory and leverage our significant capabilities, assets, dealers and employees to deliver strong returns.

And when we finalize the specifics, know that we will invest in opportunities that support our 10-year objectives and that deliver strong cash flow, top quartile ROIC and value to our shareholders.

We also said on the January call that we're increasing our investment in electric motorcycle technology to accelerate our growth strategy and position the company as the leader in the electrification of motorcycles.

We said we expect to invest an incremental $25 million to $50 million of annual operating margin in EV technology and products over the next several years and bring our first electric motorcycle to market before 2020.

As part of that effort, we announced last month our investment in and collaboration with Alta Motors, a true innovator in lightweight electric motorcycle technology.

Working together on technology and new product development will fuel our ability to reach customers in nontraditional spaces with a full array of premium products more quickly.

Our excitement about EV technology is borne of our mindset shift to build great riders, not just great motorcycles.

Last year, we issued the typical machine-based perspective and put the rider first in all of our thinking.

This shift in mindset already unlocked new ways of thinking.

It allowed us to clearly see our used motorcycles in the U.S. as a path to bring new riders into the Harley-Davidson experience.

It triggered the EagleRider partnership to provide more avenues for people to experience our great motorcycles.

It was a catalyst for the work we're doing with rider development and how our Riding Academy can be augmented, both before and after the class itself, to ensure people interested in riding become confident, safe and avid riders.

And it has driven us to take a deeper look at what more we can do to accelerate our progress.

While our enhanced strategic plan is about driving significant growth sooner and for the long term, we also maintain our determination to optimize near-term performance.

As I noted earlier, we have smart traffic-driving stimulants in place in the U.S. to encourage spring sales momentum.

And we continue to expect international sales to be up year-over-year.

We also remain resolute in our focus to aggressively manage for balanced supply of new motorcycles in the retail channel and position the company and our cost structure to better compete in challenging and competitive markets the world over.

Our disciplined supply management actions continue to support lean retail inventory, and we saw used bike price improvement in the U.S. for the third straight quarter.

Our manufacturing optimization is progressing as we anticipated, and we're on track to deliver expected annual ongoing savings.

Also, we expect our new Thailand manufacturing plant to begin production later this year.

This plant will support more competitive retail pricing by eliminating much of the tax and tariff burden that fully assembled imports carry in important-to-growth markets in Asia.

We expect more competitive pricing will drive profitable share and increased demand, volume growth that would not materialize had the motorcycles been shipped from the U.S. and subject to import duties.

In summary, we enter this year with full awareness of the headwinds we face, and we're making progress against our plans to address challenges both near and long-term in nature.

We're moving forward with determination and creativity, leveraging the significant potential of our great brand to accelerate our performance and propel us toward growth with the next generation of Harley-Davidson riders around the world.

Now John will walk you through the financial details for the first quarter.

John?

Thanks, Matt.

During the first quarter, Harley-Davidson posted strong financial results despite prolonged weakness in the U.S. industry sales performance.

In the face of ongoing retail sales headwinds, we remain focused on reducing U.S. retail inventory, reducing costs and investing in our strategy to drive value for our riders, dealers and shareholders.

The summary of our Q1 results is on Slide 11.

In the first quarter, revenue was up despite decreased shipments compared to last year's first quarter.

As planned, motorcycle operating income was down behind a $46.8 million restructuring charge and increased SG&A.

Financial Services had a very strong quarter, with operating income up 20.8%.

Consolidated net income was down 6.2% due to lower operating income, partially offset by a benefit of considerable -- considerably lower tax rate.

EPS was $1.03.

When excluding manufacturing optimization costs, EPS was $1.24.

Please note that we adopted a new accounting pronouncement, which resulted in classifying certain pension items in nonoperating income.

Accordingly, we have reclassified last year's results to be comparable.

We remain focused on delivering strong margins and strong returns over the long-term, despite significant near-term headwinds.

On Slide 12, worldwide retail sales of new Harley-Davidson motorcycles in Q1 were down 7.2% versus prior year.

Sequentially, the year-over-year Q1 sales rate improved compared to the Q4 2017 sales rate, which was down 9.6%.

In the U.S, as we expected, Q1 retail sales continued to be adversely impacted by very weak U.S. industry sales.

In international markets, we experienced retail sales growth that was slightly ahead of our expectations behind strong performance in Europe and Latin America.

We expect our year-over-year Q2 worldwide retail sales rate to improve compared to the Q1 rate.

For the full year, we continue to expect retail sales to be down in the U.S., albeit at a slower rate than we experienced in Q1.

We expect U.S. declines to be partially offset by growth in international retail sales.

We recognize this was another difficult quarter for the industry.

However, we are encouraged by our strong revenue growth, international retail sales growth, our U.S. dealers' inventory position and certainly by the actions we are taking to build ridership.

Let's take a closer look at the U.S., on Slide 13.

U.S. retail sales were down 12.0% in Q1, which was within our range of expectations but at the low end.

The U.S. industry was down 11.1%.

We believe the new motorcycle industry sales continue to be adversely impacted by soft used bike prices.

Sales of used Harley-Davidson motorcycles continued to outperform sales of new, despite increased used bike prices for the third straight quarter in dealerships and the broader market.

Also, Q1 used Harley-Davidson wholesale prices at auctions increased above year-ago levels.

And pricing services, such as NADA and Black Book continued to publish higher retail values year-over-year for Harley-Davidson motorcycles.

Stronger used bike prices reinforce our disciplined focus on driving premium value for our riders, dealers and the brand.

Moving on to new motorcycle market share.

Harley-Davidson's share in the quarter remained at a very healthy 50.4%.

Our share was down 0.9 percentage points on limited availability of new motorcycles and a highly competitive marketplace.

While market share remains a key focus, the slight contraction in our first quarter market share came with a more profitable mix and less promotional support than in the prior year.

We remain focused on our approach to optimize profitability and maximize brand value.

At the end of the quarter, retail inventory was down approximately 9,100 motorcycles compared to the prior year.

We believe our discipline to reduce supply and improve model year mix in the U.S. retail channel delivered the intended results, and retail inventory was well positioned as we move into the selling season.

On Slide 14.

International retail sales in Q1 were up on a year-over-year basis, and slightly better than our expectations.

As we expected, our Q1 retail sales rate significantly improved from the Q4 2017 sales rate.

During the quarter, retail sales were driven by strong growth in EMEA and Latin America, largely offset by weak sales in Asia Pacific and Canada.

In EMEA, Q1 retail sales were up a strong 6.8% versus prior year.

We experienced growth across most Western European markets, partially offset by lower retail sales in emerging markets.

In Europe, our sales were up 8.1% in the quarter, and our market share was up 1.3 percentage points.

Harley-Davidson's retail sales and market share gains was driven by strong sales growth of the new Softail motorcycles.

The year-over-year retail sales rate in Asia Pacific region continued to be soft in Q1, but showed sequential improvement compared to the Q4 rate.

During the first quarter, Asia Pacific retail sales were adversely impacted by lower sales in Australia and Japan.

We are addressing these markets by focusing on national test ride campaigns and providing finance offers to help dealers close sales.

Emerging markets in the region were also soft behind a lack of inventory in China, as our model year 2018 motorcycles were not homologated and approved for shipment into China until March 29, which was later than the year-ago period.

We experienced strong Q1 retail sales growth in Latin America, which was offset by a decline in Canada.

Finally, in line with our strategy to increase brand access internationally, we continued to expand our international dealer network and added 7 new dealers during the quarter.

We remain confident in and committed to the great potential that international markets offer to Harley-Davidson.

We continue to leverage our brand, products and distribution opportunities to drive sustainable growth in international markets.

On Slide 15, wholesale motorcycle shipments were down 9.7% in the quarter and within our shipment guidance range.

Touring as a percent of total shipments was significantly higher compared to last year's first quarter when we constrained Touring shipments to allow dealers to focus on selling through the model year 2016 Touring motorcycles ahead of the 2017 bikes, which featured the new Milwaukee-Eight engine.

In the second quarter, we expect Touring as a percent of total shipments to be down as the overall mix returns to a more normal allocation.

On Slide 16, revenue for the Motorcycles segment was up in the first quarter, despite significantly lower year-over-year motorcycle shipments.

On January 1, we adopted the new revenue recognition accounting standard, which includes some shifting of revenue between line items and the breakout of licensing revenue.

Prior year has been reclassified to make revenues comparable.

Q1 average motorcycle revenue per unit was up over last year's first quarter.

The increase was due to a richer product mix, favorable currency exchange and higher pricing.

P&A and general merchandise revenue growth significantly outperformed motorcycle retail sales during the quarter, in part driven by favorable currency exchange.

On Slide 17, gross margin in Q1 was largely flat behind very strong product mix, favorable currency exchange and higher pricing, offset by decreased shipments, higher manufacturing expense and rising raw material costs.

Manufacturing expense was unfavorable versus prior year, driven by lower absorption on lower production and shipments, and higher depreciation.

Raw material costs have been rising primarily behind increasing steel and aluminum prices.

On Slide 18, operating margin as a percent of revenue for Q1 was 12.7%, down 5.1 percentage points compared to last year.

Operating margin percent was adversely impacted by higher SG&A spending as we invested in higher levels of marketing and product development, and a $46.8 million restructuring charge related to our manufacturing optimization.

Profitability and strong cash flow are a key focus.

It is our aim to further leverage our established capabilities to continue to drive profit, cash flow and top quartile ROIC into the future.

HDFS's Q1 operating income, shown on Slide 19, increased 20.8% compared to last year.

Operating income was positively impacted by a lower provision for retail loan losses of $14.2 million, driven by lower credit losses and a slight reduction in the reserve rate compared to a rising reserve rate in Q1 of 2017.

Net interest income was down $1.9 million due to higher borrowing costs.

HDFS's operational results are on Slide 20.

Originations were down 8.3% versus prior year, driven by lower retail sales in the U.S. Market share was down 4.3 percentage points during the quarter compared to last year as we lapped a 6.1 percentage point gain driven by finance offers to support sell-through of noncurrent Touring motorcycles.

At the end of the quarter, there was $350.5 million of cash and cash equivalents at HDFS and $1.12 billion of liquidity available through bank credit and conduit facilities.

During the quarter, HDFS paid a dividend of $110 million to Harley-Davidson, Inc.

On Slide 21, the 30-day delinquency rate for retail motorcycle loan receivables on our balance sheet at the end of March was 3.31% or 14 basis points higher than Q1 2017.

The annualized retail credit loss rate for receivables on balance sheet was 2.15% or 16 basis points lower than 2017.

We were encouraged to see a lower year -- to see a year-over-year decline in credit losses, after having experienced an extended period of increases as credit losses have normalized.

HDFS continues to maintain a robust liquidity position and contributed strong profitability to the company.

The remaining Harley-Davidson, Inc.

financial results are summarized on Slide 22.

Operating cash was up $31.7 million or nearly 20%, driven by lower wholesale financing during the quarter.

Our effective tax rate was 21 -- 24.1% in the first quarter, which was considerably lower than last year, largely due to the impact of the Tax Cuts and Jobs Act.

And finally, regarding liquidity, the company has and intends to continue to maintain a minimum of 12 months of projected liquidity needs in cash and/or committed credit facilities.

We believe the charts on Slide 23 demonstrate that we are in a class of our own when it comes to generating cash and returning cash to our shareholders.

We benchmarked very well against various peer groups for a period of 2015 to 2017.

One of our 5 objectives guiding our business strategies and execution through 2027 is to deliver superior return on invested capital as measured by Motor Company ROIC in the top quartile of the S&P 500 and by a best-in-class return on equity at HDFS.

Harley-Davidson is a leader in ROIC at the Motor Company and ROE at HDFS.

As indicated on the slide, Harley-Davidson is a clear leader in our ability to generate and return cash.

Slide 24 illustrates our recent history of returning cash to our shareholders.

In the first quarter of 2018, we increased our dividend to $0.37 per share and repurchased 1.4 million shares for $65.1 million.

Driving superior value for our stakeholders is our top priority.

We will continue to look for opportunities to grow value, first and foremost by disciplined investments to maximize the performance and long-term potential of the company and the brand.

We have a robust process for our investment decisions, and we are disciplined to it.

After investing in our business, we intend to return excess cash to our shareholders in the form of increasing dividends and continued share repurchases.

On Slide 25 is a summary of our expectations of our multiyear manufacturing optimization initiative.

We expect this optimization to result in a reduction to operating income of $170 million to $200 million through 2019, of which roughly 30% will be noncash write-downs of existing assets.

We also plan to invest approximately $75 million of capital and expect annual ongoing cash savings of between $65 million to $75 million after 2020.

We believe these investments have very attractive returns.

When completed, we expect this initiative will simplify our manufacturing footprint, provide focus in our operational investments and improve gross margin by approximately 1.25 percentage points.

During the first quarter, we initiated the manufacturing optimization and incurred $46.8 million of restructuring expense, driven primarily by employee severance and accelerated depreciation.

We also incurred $0.7 million in related temporary inefficiencies.

A summary of our expectations for 2018 is on Slide 26.

Our expectations for 2018 are largely unchanged, however, there are a few things to note.

First, due to strong first quarter results at HDFS, we now expect HDFS operating income will be flat to down modestly.

Second, as we noted last quarter, operating income has been adjusted to exclude certain components of pension expense.

We adopted a new accounting pronouncement in 2018, which requires certain pension costs to be recorded in nonoperating income.

This change has been implemented retrospectively.

We expect full year nonoperating income of about $2 million in 2018 compared to $9.2 million in 2017.

The reduction is due to higher amortization of actuarial losses following the first quarter remeasurement of our pension plans required as a result of the consolidation of our U.S. assembly plants.

Next, we continue to expect to incur approximately $120 million to $140 million of costs to execute our manufacturing optimization initiative during the year.

Of that total, we expect second quarter manufacturing optimization charges to be approximately $20 million.

And finally, we continue to expect to ship 231,000 to 236,000 motorcycles in 2018.

In the second quarter, we expect to ship approximately 67,500 to 72,500 motorcycles, down 11% to 18%.

Given Q1 actual shipments and our expectations for Q2 shipments, we expect first half shipments to be down 11% to 14%.

Consequently, to achieve our full year shipment guidance of down 2% to 4%, we expect back half shipments to be up roughly 12%.

We believe this shipment cadence will result in tight U.S. retail inventories through the selling season and an improved level of carryover inventory at model year changeover.

Timing of shipments is expected to result in flat year-end retail inventory in the U.S., and it supports our very disciplined supply strategy, which we believe is delivering its intended results.

Finally, we expect the shipment cadence will also impact timing of our operating margin in each of the remaining quarters of 2018.

In the second quarter, we expect Motorcycle operating margin to be down approximately 5 percentage points versus last year behind the following impacts: first, as I mentioned, unfavorable shipment mix; second, approximately $20 million of manufacturing optimization costs; also, lower fixed absorption behind lower shipments, which we expect to recover in Q3; and finally, SG&A up behind higher investment in marketing and product development compared to last year.

To wrap up, we continue to be disciplined in our management of supply, drive premium value for our dealers, riders and our brand, amplify our cost management efforts and relentlessly focus on our long-term objectives.

We look forward to finalizing and reviewing our plans to accelerate our strategy to build the next generation of Harley-Davidson riders.

We will continue to focus our investments, deliver strong returns for shareholders and drive growth for the company for the long term.

Now let's take your questions.

(Operator Instructions) And your first question comes from the line of Craig Kennison with Baird.

Matt, I wanted to ask you a question about this Big Data project you've been investing in to understand rider behavior better.

That seems to be informing your 2022 plan.

And I know you are still refining that, but I'm curious what your initial assessment of that data suggests about the U.S. market, about millennial buyers and about your international opportunities?

Thanks, Craig.

I -- it has a wealth of information.

And in fact, I think we're just at the tip of the iceberg at really fully taking advantage of all that it has to offer.

As we said in the January call, there were 257,000 new-to-Harley-Davidson riders in 2017.

I would say that, that number was larger than we expected.

And it also implies that the people that exited were also larger than we expected.

So the flow through the sport is more than we thought -- I guess, that we would have thought initially.

And that represents opportunity for us, as we see in movement, how do we channel that movement, how do we look at the competitive movement from competitors into Harley, and how do we better leverage the tools like Riding Academy and so forth to increase the number of riders.

And I said it in my opening remarks.

It emphasizes the importance of ridership in a bigger sense.

How do we keep existing riders riding and participating?

That's a huge lever for us to pull to keep the sport vital and keep people active and keep the number of riders up the way we needed to be for the long term.

So I would say, Craig, it's early days.

The insights are tremendous that we've already received.

The teams continue to dig and mine for other insights, including competitive flows that help us sharpen our efforts and target our investments.

But it's a tremendous asset that we have as a company that we're continuing to find new ways to leverage.

Your next question comes from the line of Gerrick Johnson with BMO Capital Markets.

Couple of questions.

Maybe you could comment on what you're seeing so far in April, and also what your retail would have been if you included used products, so total demand for the Harley brand.

And my last one is Riding Academy.

How many dealers do you have now?

How many do you plan on having in the future offering Riding Academy?

Thanks, Gerrick.

We don't comment on the in quarter, but what we can say is the weather that started out in April was pretty difficult around the United States in terms of temperature as well as precipitation.

So overall, a little bit slower start than we would like, driven entirely by weather.

It reminds me, as yesterday, I drove in to work and saw the last of the snow melting away here in Milwaukee.

So weather is breaking, and we're very excited about the spring selling season starting in earnest.

I think the second question that you asked, Gerrick, was with regards to retail sales of used and new, if I got the question right.

We are a month lagged on used retail sales but when we look at the marketplace through January, February, used was down a bit in the first 2 months.

Again, cautious on -- these are 2 of the smallest months that we have.

But used was down, as was new.

And then finally, the question -- the third question was with regards to Riding Academy.

I think we trained last year 62,000 riders in Riding Academy.

We would expect to do a little bit more than that this year.

We're off the start.

The first quarter, we had good conversion rates, one of our focuses.

So conversion of people buying those motorcycles is improving.

And the folks that are buying bikes that took the class compared to last year is also up on a year-over-year basis.

Your next question comes from the line of James Hardiman with Wedbush.

I wanted to square a couple of things here.

And we've talked about some of this before.

But -- so used pricing sounds encouraging.

It was up year-over-year.

I think you said this was the third straight quarter.

But as we think about the declines, particularly in the U.S., which are pretty large, obviously, used pricing continues to be the primary culprit there that you guys talk about.

So maybe square those 2 things.

Is the gap between new and used any smaller than it was a year ago, which would maybe be the better metric to think about?

The new bikes that you're selling right now as opposed to some of the used bikes.

And I guess, in your answer to the previous question, total demand, it sounds like, is down the first couple months, and it sounds like it was flat to down last year.

Why do you think total demand is decelerating, as I think about that whole used and new dynamic?

Thanks, James.

So as you pointed out, we are very pleased to see used bike prices rising.

And as we talked about, we look at used bikes in 3 different areas.

One is at auction, which really tends to kind of trigger the changes in pricing, and auction prices were up in the first quarter on a year-over-year basis.

And actually that represents the fifth straight quarter.

It was a year ago first quarter that we first turned used bike prices at auctions around or saw them start to

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decline.

So auction prices are up.

Second piece of it is what pricing services are publishing.

So they price -- publish retail prices to people that want to use the data that are looking to buy used bikes.

And in the second -- or, the first quarter of this year, that was also up.

And when we look at NADA and Black Book and look at a 2-year-old Harley on a comparable basis year-over-year, one of the services had us up on an average of 4% and the other, up an average of 7%.

So that goes a long way to starting to close that gap that we see between new and used.

But those are pricing services published in books.

Now we need to see that translate to the broader market.

And in the first quarter, we did see prices of used motorcycles that are transacting in our dealerships and data that we get outside -- of other dealerships outside of ours, is Harley-Davidson motorcycle used bike prices are increasing.

So we're moving in the right direction.

And that would be 3 months -- or 3 quarters within our dealer network that we've seen that rise.

But again we are fighting off a 13-quarter decline and a pretty large price gap.

So we are moving in the right direction and seeing that gap close a little bit on a year-over-year basis.

We couldn't be more focused on that.

And certainly our actions of how we're managing our inventory are helping to drive that outcome.

I think the next question you asked is with regards to the total demand.

Total demand is starting to turn a little bit negative.

In the back half of last year, it started to be slightly negative.

And in the first couple months, again, I take it with a lot of grains of salt because of the small sales months and weather plays a huge part in the first quarter, but it was down a bit.

Used is still well outperforming new.

But overall total demand is down a bit.

And those are the things that we've been talking about.

And that is why we've got a long-term focus on building riders and going back to the question that Matt just answered, is we couldn't be more focused on building riders, and we are seeing good things come off that.

We had more riders in 2017 riding Harley-Davidsons than in the history of the company, both new and used.

But we are fighting some near-term headwinds with regards to the U.S. industry.

Your next question comes from the line of Joe Altobello with Raymond James.

Just wanted to kind of dive into the 2Q shipment outlook a little bit more in detail.

If you look at the numbers, it sounds like you guys felt pretty good about inventory coming out of the first quarter.

And if my math is correct, assuming international is up a bit, it looks like the U.S. shipment number would be down about 20% in the second quarter.

And then secondly to that, you're looking for a big jump in the second half.

You do have a tough compare in the fourth quarter.

So help us understand the dynamics of that shipment guide versus 2Q as well as in the back half?

Great, Joe.

So when we look at the shipment outlook for Q2, it is to be down 11% to 18%.

I think you mentioned 20% but it will be down in the range of down 11% to 18%.

We do not expect in any way, shape or form retail sales to be down that amount.

So we will take more inventory out of the system in the second quarter.

And as you had mentioned, Joe, we feel very good about where we ended up in the first quarter.

We took out 9,200 -- 9,100 units in the first quarter, and that was on top of taking out 8,000 in the year ago quarter.

So we have significantly tightened things up and again we are seeing the intended results of doing that.

So we feel good about it.

We will see more of that in the second quarter.

And that will allow us, again, to have a tight system moving in the model year changeover, which will happen in August.

Now to get to and address your question on the back half, you're absolutely right.

If you take our first quarter actuals, down 9.7% in shipments, our second quarter expectations down 11% to 18%, our first half will be down about 11% to 14%.

And to get to shipment growth of 2% to 4% down, we would need to ship in on average about 12% more in the second half of the year.

That does not mean to say that we expect retail sales to be up 12%.

What that is, is much more of a function of what happened last year than what is happening this year.

This year, we are normalizing our shipments across the 4 quarters making sure that we are diligently managing inventories in the first half in the selling season of the year.

But really what you're seeing is what happened last year.

And if you recall last year, we had a very tough second quarter.

The industry had a tough second quarter.

And that required us to cull down volumes in the third quarter.

We took out a lot of volumes and shipments in production out of the third quarter.

And so last year was not a normal shipment cadence.

We are making it normal this year.

And so we will ship in more product in the back half, because we took it out of the back half last year.

So hopefully that helps.

Overall, we expect our shipments to be down 2% to 4%.

We feel good as to where we sit today within -- with regards to that overall shipment guidance.

And we are managing the inventories to make sure that we continue to drive things that we are seeing at retail.

Your next question comes from the line of Sharon Zackfia from William Blair.

I was hoping that maybe you can help us frame the opportunity on the electric motorcycles side from your research kind of from a demand perspective.

What percent of consumers that are interested in that kind of vehicle might be new to motorcycles?

And then are the demographics very different from the traditional Harley rider?

And how do you expect that demand to kind of look U.S. versus overseas?

Thank you, Sharon.

It's a great question.

It's Matt here.

I -- we couldn't be more excited about what electric technology represents for both inspiring and enabling people to join the sport.

Our LiveWire, investment back beginning in June of 2014, the demo rides that we did, about 12,000 people worldwide -- we took those motorcycles out to real riders, in real settings around the world -- the feedback that we got was phenomenal.

And that feedback was from across the entire demographic spectrum.

Obviously, these were on road trials, so these were existing motorcyclists.

But many of the people that rode, and myself included, were inspired by the ease with which the electric technology enables people to ride, people commenting that it's easier to ride than a bicycle, for example.

The way LiveWire was constructed, it's very light and nimble and maneuverable, with excellent throttle response.

There is no shifting, no clutch, no heat.

The slow speed maneuverability makes it particularly useful in urban settings, where our traditional product doesn't necessarily -- that isn't the sweet spot for our existing traditional product.

So we see electric as playing a very key role in opening up new spaces and opportunities for the company to grow with different demographics and in different settings and including international, in particular, urban.

And the partnership arrangement with Alta around their technology and our ability to incorporate that into other lighter-weight EV products is part of that learning and that knowledge that we have about how we use EV to open up growth channels for the company.

Different people in different places with different ideas about how they want to, if you will, experience freedom on 2 wheels.

So we're excited about it.

That's about all that I could share at this stage.

But we will reveal more this summer.

So thank you.

Your next question comes from the line of Rod Lache with Deutsche Bank.

A couple of questions.

One is, you mentioned that you feel better about the year-over-year retail declines in the U.S. moderating over the course of this year.

If you can give us a little bit of insight into what is driving that expectation?

The -- secondly, the work with Alta, could that actually accelerate or change the trajectory of electric motorcycle launches?

And then lastly, any comments on steel just given the volatility of that commodity and how you're looking at that affecting your numbers this year?

All right, Rod, I will take the first and the third and I will leave the second for Matt.

When we look at the year and how we really ended last year in terms of pretty weak retail sales, if you recall on a worldwide basis, retail was down 9.6% in the fourth quarter.

Again, the fourth quarter is our smallest quarter and highly volatile as is the first quarter.

But as we planned this year out, we were looking for certainly sequential improvement as we moved into the first and second quarter.

And we got that improvement in the first quarter.

The U.S., we were looking at near-double-digit decline, and it ended up being a little bit more than that.

Certainly disappointing driven by the U.S. industry, but not out of line with what we were expecting.

International was a little bit different.

Actually international we were planning the first quarter to be down and it came in up slightly.

So very pleased with that.

So as we sit here at the end of the first quarter, we are in line with our expectations for the year and to delivering our full year shipment guidance.

And we are looking for that sequential improvement to move into the selling season.

So again, we feel good as to where we're at right now.

The second quarter -- the second question that you asked Rod is with regards to steel prices.

And if you don't mind I'm going to expand that question a little bit out into the overall tariff situation.

If you recall our guidance coming into the year, we talked about raw materials and we expected raw materials to be up.

And in the first quarter, they were up.

They were unfavorable by $4.2 million.

And I want to make that clear that, that was largely driven by steel and aluminum rising.

But that was not driven by the tariff announcement that we saw in the middle of February.

So we expect the raw materials to be up and they are in the first quarter.

In the middle of February, as everyone knows, the U.S. government came out and announced tariffs on steel and aluminum, 25% and 10%.

Since that announcement on -- middle of February, we have seen aluminum and steel prices rise even further.

And the broad markets are up anywhere from 5% to 15%.

I think steel is up about 15%, and aluminum is up about 5% as of yesterday.

So with that we expect even higher unfavorability in the raw materials part of our P&L.

So looking at the impact of tariffs, every information that we have now, highly volatile situation, who is in, who is out, what's happening to the market prices, but we would expect an additional $15 million to $20 million on top of already rising raw materials that we expected at the start of the year.

So that's going to provide quite a headwind for the company over the next several quarters.

Again, we didn't see it in the first quarter.

It will start to flow through the inventory and into our P&L in the second through fourth quarters.

And we are looking at ways to mitigate it.

We're holding our operating margin guidance.

That puts a little bit of pressure on that.

But looking for ways to mitigate the unplanned increase in steel and aluminum.

Rod, this is Matt.

I'll just build a little bit off my comments to Sharon's question.

The Alta investment and partnership is really about products beyond the EV product that we're planning to launch by 2020, which is really a derivative based on LiveWire.

So the research from LiveWire as well as our consumer research, going back to Craig's question about looking at the rider migration knowledge base that we have, this is all about the EV portfolio beyond that initial LiveWire derivative.

And as I mentioned in my comments, Alta is really an expert in lighter-weight EV technology.

So you can start to imagine that younger, urban consumer, and the technology, and the price point, if you will, of EV that Alta brings to the party for us, opening doors to those growth opportunities for the company.

That's really all that I'll say right now.

That's what the investment is about.

We will talk more about it and I think we'll talk very specifically about it this summer, what we see the EV landscape representing to the company's portfolio and our growth prospects as well as our -- the value that we will build for shareholders as a result of this part of our strategy.

Your next question comes from the line of Joseph Spak with RBC Capital Markets.

John, thanks for the commentary on the balanced capital allocation.

I wanted to probe a little bit further because if you look back at '17 and the dividend and buybacks' return were a little bit over $700 million, which is almost all of your total company free cash flow and certainly more than the free cash flow just from the motorcycle company.

And it seems like a similar dynamic played out this quarter, so we think about 2018, where your guidance does imply lower cash flow.

Is that the dynamic we should continue to expect where almost all of it is returned?

And if so, I just wanted to understand some of your thinking as to why we should -- you should continue to do that now as you embark on this phase of reinvestment and restructuring and you might not even know all the opportunities that lie ahead of you.

And then I also had just one housekeeping clarification.

It looks like you called out the nearly $47 million in restructuring.

And based on the prior gross margin guidance, I was sort of under the impression, and maybe this is my error, that it would run through there.

So I guess I just want to understand when you say flat gross margins ex-manufacturing optimization, is that just the temporary inefficiencies that you called out in the block or is that all -- ex-all manufacturing optimization?

Thank you, Joe.

I will answer the second one first.

With regards to the manufacturing optimization, it's made up of 2 costs that will hit the P&L in 2 different places.

One is temporary inefficiencies, and that is slowing lines down to move equipment, and so on and so forth.

The duplicate resources as we keep one plant running and move equipment.

We expect that to be $20 million to $25 million and that will hit in gross margin.

The second piece is the restructuring, which is largely severance, accelerated depreciation, moving equipment and those type of costs.

That's $100 million to $115 million.

So the total of $120 million to $140 million is what it will cost us to garner those savings of $65 million to $75 million ongoing.

If you exclude the $120 million to $140 million out of this year's results, we would expect operating margin and gross margin to be largely flat to last year, to 2017's results.

I hope that helps, Joe.

Secondly is with regards to capital allocation.

We have said many times as we just said in the preamble is that we will invest the cash that we have in great returns to deliver a top quartile ROIC.

We will continue to do that.

We are doing that this year, and coming out this summer, we'll talk more about opportunities that we have to invest our free cash flow and great opportunities to deliver shareholder returns.

Beyond what we invest in the business, we will return and continue to return all excess cash to our shareholders.

So first, we will find the great projects that drive the top quartile ROIC; and beyond that, we will deliver those -- that cash to our shareholders in the form of rising dividends and share repurchases.

(Operator Instructions) Your next question comes from the line of Felicia Kantor Hendrix from Barclays.

I just, John and also Matt, I had some questions on your international business.

I was just wondering if there was a way to think about same-store sales in international.

I'm just trying to figure out how much the growth of the new dealerships helped drive the international growth in the quarter.

And then also if you just want to look at 1 quarter as a trend, then it does look like international sales have turned.

So with the continued steep declines in the U.S. and the market share losses there, I'm just wondering what you can take from your learnings internationally and apply to the U.S.?

And then just one part of the tariffs that you didn't touch on, is it affecting demand internationally at all or is that something you are concerned about?

Thanks, Felicia.

Felicia, we do not measure sales on same-store basis.

I know it's very common in some retail environments.

We don't do it.

But if you look at on the quarter, the EMEA was up 6.8%.

We didn't add a lot of new dealerships there.

It's been more steady in terms of overall dealerships.

So same-store dealer sales were up a fair amount.

The corollary to that is in AP.

AP retail sales were down in the quarter 7.8%.

Still struggling with areas in Australia and Japan.

And with that, our same-store sales are down.

And there's where we've added some of those.

That majority of those 7 dealerships that we opened were in that market.

So we have got the mix of both going on.

International, in particular in Asia Pacific, has been a tough slug over the last couple of quarters.

And we believe the back half of the year will certainly improve in Asia Pacific.

But overall, same-store sales in the last couple years and international have been down as we have added dealerships and have not added overall growth in those markets.

Second is with regards to the tariffs and are we seeing the tariffs affect demand internationally.

The answer is no.

There is no change to our pricing due to the tariffs at this point.

So there would be no consumer change in the overall tariffs.

There haven't been any tariffs on our products internationally, so the cost hasn't changed.

Certainly one of the concerns is potentially retaliatory tariffs.

We have been cited by the EU in terms of putting tariffs on Harley-Davidson motorcycles if the U.S. government goes through with tariffs on steel and aluminum for the countries in EU.

So we're keeping a close eye on that, working with trade groups and the various trade officials in both countries to work through that.

But no, we have not seen any impact of the tariff on our sales either in the United States or international markets.

Your next question comes from the line of Gregory Badishkanian from Citi.

So just one question, a follow-up.

So you have had 2 model years of very innovative new products.

Well received by the dealers that we talk to and others, I am sure.

But it didn't drive retail sales.

I am assuming that's more of a marketing issue.

You did talk about some of your plans.

What's different this year, for the upcoming year and when your new products come out in the summer, that maybe is different than the previous year or 2?

And then also just a follow-up on the weather comment.

You mentioned April was a little bit -- was a slow start.

Does that mean that April was actually -- the growth rate was weaker than that 12% decline you saw in the first quarter?

And then did you also see a weather impact in the first quarter?

So Greg, I'll start with your second quarter question first, because I can remember the best.

With regards to April weather, we don't provide in-quarter retail sales.

It was just a comment that overall weather was pretty difficult in the first couple months of April.

I don't think that's a surprise to anyone.

I think there's only 2 parts of the United States, Florida and a little bit of Arizona, that had better than normal weather during that first 2 weeks of April.

With regards to the first quarter, we don't see a big impact of weather.

When you look at it, last year's -- or, first quarter temperatures and precipitation was really in line with normal levels.

2017 was certainly better than the average.

But we were at an average weather in the first quarter.

Some places in the Northeast, a little bit out West with the rain did affect us.

When we look at some of our regions, the Northeast region was behind on the overall average sales.

So weather had a little bit of impact, but not enough to really talk about for the first quarter.

Second question was with regards to model year -- or, I'm sorry, new product.

We have come out with absolutely spectacular product, and you're right, Greg, and thanks for pointing that out.

Dealers love it, customers love it, and our riders love it, but it hasn't delivered the results, in particular, in the United States.

And the headwinds on the industry have been very significant.

And with the price gaps that we've got -- I tend to call it bad economics out there sometimes -- is that the price gaps are so large, it does impact our good product and our good marketing.

We do not believe it is an issue with marketing.

Because our marketing is fantastic and as we look at the key indicators of how we are reaching out to customers, marketing is strong.

We are seeing a dislocation in used-bike prices and we are seeing more people, despite the good product that we're bringing to market, buy those used bikes.

And we talked about that earlier.

Used is outperforming new.

So we've just got big headwinds in the United States.

When we look at internationally, where we don't have issues -- as big as issues with price gaps the new Softails are selling absolutely fantastic.

Europe, we are up 8% in 16 countries and the market was down 7% in the first quarter.

And that's all driven by our great new product.

Your next question comes from the line of Jaime Katz with MorningStar.

I am curious about the mix of sales in the international markets.

Has this become the bigger part of the mix for the business?

I'm just trying to ascertain whether there might be more gross margin pressure or alleviation depending on whether touring and custom might be a bigger part of the mix, which it sounds like it is now, versus the Sportster bikes?

Thanks, Jamie.

The overall allocation or mix of products internationally is at an inherently lower mix.

So in the United States, over 50% of sales are Touring bikes.

Internationally, Sportster and Street make up a bigger percentage.

So as we grow, there will be pressure on overall margins.

But we don't think that's any amount that we can't overcome.

We've got a lot of focus on growing Touring around the world.

And we have seen Touring outgrow the rest of our portfolio in the last year.

So we are focused on that.

And the new Softail is a very high-margin product and that is growing very well.

So our overall product portfolio and life cycle -- we have a balanced mix of product coming out between high and not-as-high margin.

We're managing it the best we can.

But as we go internationally we might see a little bit of headwind with regards to margin.

Your next question comes from the line of Timothy Conder with Wells Fargo Securities.

Couple of questions here.

Matt or John, whoever wants to take this, you talked about the new partnership on the EV side, and it sounds like you guys may be hinting about something that could be coming here in calendar '18.

But just in general within the broader framework, are you -- Matt, you talked about other sleeves and other things to grow overall participation in ridership.

Could that be in other sleeves of motorcycling or even on the fringe or right outside of motorcycling?

Thanks, Tim.

To be clear, and I mentioned earlier, the Alta partnership is about the EV portfolio post the launch of the LiveWire derivative which we expect in about 18 months.

So we are focused on opportunities to grow the business, reach new customers in new spaces.

We see EV as a great opportunity, as a part of doing that, not obviously the entire answer.

As I mentioned earlier, the ease of use, the suitability toward urban environments, the appeal to younger demographics, we see EV being very critical in -- as a part of the mix in that growth vein for the company.

But there is no hint or no suggestion that the Alta partnership is about anything sooner.

Your next question comes from the line of Seth Woolf with Northcoast Research Partners.

Just wanted to take a step back, big-picture question on international market.

Matt, you had mentioned that with the manufacturing facility going online abroad it's going to give you more favorable market pricing dynamics, which could lead to share gains.

Just curious if you've done any work to try to quantify what that can mean?

And then, John, if it's a meaningful number, how should we think about incremental margins in that business?

Seth, thanks.

I would -- we see tremendous opportunity particularly in Southeast Asia and the investment in the plant in Thailand to get around the egregious tariffs and duties as a part of accessing a very important market.

A market, I would say, by the way, that most of our premium brand and European competitors already have a beachhead in manufacturing in Thailand so they're already enjoying favorability at retail pricing.

And we need to be there and be relevant and grow our share as well as our volume to have our dealers be profitable and so forth.

So it's very important to the long-term growth of the company as a segment within the international growth opportunity.

We plan to talk more about that as part of our discussion this summer, on ways in which we can accelerate our growth trajectory.

And Seth, we talked a little bit about the mix.

Inherently as we grow International, there will be pressure on overall margins.

Nothing that we don't believe we can't manage through.

And the other piece of it, and much more important, is the mix change because of growth is currency.

No one has mentioned currency, so I will take the opportunity mention it.

We had a great quarter in terms of currency.

After 2.5 years of watching it go the other way, we garnered $15.5 million of gross margin in currency.

So that's a much bigger driver to overall margins than the shift that will happen over time in terms of mix.

Your next question comes from David MacGregor from Longbow Research.

Just wanted to maybe go back to your very first question where you were asked your Big Data work.

And -- or maybe just anecdotal commentary that's coming back to the dealerships.

But one of our concerns has just been people getting priced out of the market at the higher end.

I'm just wondering if you're seeing more evidence now of consumers becoming more price sensitive.

And if so, what's kind of the price point threshold where you are seeing a -- greatest change in purchasing behavior?

And then just secondly, back to the raw material question, you gave the incremental for 2Q, 3Q, 4Q, that 15% to 20%.

Should that be uniformly distributed, or is it more skewed to the back half?

So David, I will take the first part of the question.

We're not seeing, in a specific sense, what you alluded to with pricing.

We have invested a tremendous amount in new product.

We have added tremendous amount of value.

Part of the value is to separate new from used.

And that value carries commensurate increases in pricing; the pricing, we pay very close attention to what competitors are charging for new motorcycles to make sure that we continue to maintain our relative competitiveness and our market share in the United States so we feel good about that.

Market share is very important.

It's very strong.

We gave away a little bit of market share in the first quarter.

But honestly, at 0.9% of a point on a 50% share is sort of normal variation.

So we're focused on our relative competitiveness to the competition.

We are focused on adding value through our products, driving increasing demand from existing riders and new riders.

And then, obviously, we talked a lot about the used bike population and the dynamic that, that has on the decision that people make about whether to buy a new Harley or a used Harley.

And I don't think I need to repeat all that.

But all those demand dynamics are part of our work to optimize our business in the United States as we focus on ridership as the core goal, with other strategies to do that as well.

And Seth (sic) [David], to add on to that just to point out that Softail, which we did raise the price with in the first quarter, in the segment that it competes in large cruisers, the market share was up nearly 9 percentage points.

So I would say that people are accepting the value that we've added and certainly paying for it.

And secondly, David, you asked about the cadence of potentially higher raw material cost of $15 million to $20 million.

#1 it's an estimate and it's based on what market prices are and they have been very volatile since the announcement of tariffs in February, middle of February.

But we would expect as our inventory flows through that most of it would get picked up in the second quarter.

A little bit less than in second quarter and then full boat in the third and the fourth quarter.

So I would say, by and large, equally between the quarters adjusted for sales volume, because we've got higher quarters in the second and third -- higher volumes flowing through.

Net of all of that, a little bit higher in the second quarter, the highest in the third quarter, and a little bit less in the fourth quarter.

Your next question comes from David Beckel with Bernstein Research.

Two quick questions that are sort of follow-ups on previous questions.

Around the acceleration and strategy, you threw out some interesting words such as new spaces and channels.

I was wondering if you could maybe just elaborate a little bit on how far adjacent you are willing to go strategically to accomplish your goals.

And then as a follow-up to James' prior question about used bike pricing, I was wondering specifically, are you -- are -- at what point you think that rising used-bike prices will actually have a positive effect on sales, as it seems like it hasn't really materialized as expected?

And are we right to continue to assume that an increase in used-bike prices will positively affect sales going forward?

This is Matt.

I would urge you to revisit my remarks in the preamble, because they're carefully chosen.

We are being creative.

We are being determined at how we grow value in our business and grow our overall business.

We are diligently working on refining the strategies to accelerate our progress, in line with our 2027 objectives and in keeping with who we are as a brand and a company, leveraging our substantial strengths.

Just to reassure everyone that we are being bold.

We are being very open-minded.

But we are being very responsible and acknowledging the strengths that we can leverage and the opportunities that we can pursue.

And we're looking forward to finalizing that work and getting out in front of our investors here this summer.

And David, with regards to your question as how much more do we need before we see a different outcome, we don't have a percentage that says, hey, 5 more points we are there.

Or 7 points or 10 points, everything is going to be good.

What we have is a price dislocation now and a disparate growth between used and new motorcycles.

And as that gets balanced and that value equation comes back into line, we will see both new and used grow at about the same rate into the future.

So I wish there was a way to say that here's when it would be and here's how long it will take.

We are doing everything as a company to make sure that in the levers that we can pull, that we are working it.

And the good news is, is that we're executing against our plan and it is delivering the intended results, but we still need to continue to close that gap.

Your last question comes from the line of David Tamberrino from Goldman Sachs.

Couple of questions.

With the decline in U.S. sales both new and used, how are you thinking about your total amount of dealerships for the amount of sales you have currently?

And then the second question, how do you think about the contribution margins on the new Softail comparing to the, call it, 40% to 50% you've talked about traditionally given you consolidated the architecture behind the vehicles?

So this is Matt, David, I'll take the first question on the U.S. network.

We actually feel very good about the composition and profile of the U.S. network.

And keep in mind, they're leaning into the opportunity to grow riders through our used business.

So as independent businesses, they have got the lever to pull, to maintain their profitability.

And when we think about strategies like Riding Academy and the other levers that we are pulling to build riders, our dealers are a critical part of us achieving those strategies in the United States, and we feel the coverage is very well placed to do that and we are working diligently with the dealers on strategies to be even more effective at that work.

And your final question, David, was with regard to contribution margin around Softail.

We feel very good about where we're at it.

We increased price, but we also increased the cost of those.

Overall margins are up slightly.

We are seeing very good productivity in our plants.

We will see more of that comes as we've streamlined the number of engines and the number of frames that we have and really simplified things in the plants.

We did see good productivity in the first quarter.

And the manufacturing line item was overshadowed by lower absorption and higher depreciation costs.

But we did drive good productivity in the factories, partly due to the simplification of Softail offers and combining 3 different platforms into one.

Thank you, John, and Matt.

And thank you, everyone, for your patience.

As we tried to get through all the questions in the queue, we did not.

So for those who are still in the queue, I'll follow-up with you with you after the call today.

And thanks everyone for your time.

The audio and slides will be available at harley-davidson.com.

Or for the audio, call (855) 859-2056 or (404) 537-3406 until May 7. The ID is 4076918.

We appreciate your investment in Harley-Davidson.

Thank you.

This concludes today's conference call.

You may now disconnect.