Arctic Cat Reports Fiscal 2012 Second Quarter Results

Arctic Cat Inc. (NASDAQ:ACAT) today reported that net earnings increased to $21.4 million, or $1.15 per diluted share, on net sales of $204.8 million for the fiscal second quarter ended September 30, 2011. In the prior-year second quarter, Arctic Cat reported net earnings of $17.8 million, or $0.97 per diluted share, on net sales of $175.8 million.

"We are very pleased to report double-digit sales and earnings gains in the second quarter,” said Claude Jordan, Arctic Cat’s president and chief executive officer. "Once again, revenue grew across all product lines. Sales in the quarter benefited from particularly strong snowmobile sales, driven by the introduction of our extensive new 2012 snowmobile model line-up. We also continued to improve profitability through operational excellence and a lower cost structure.”

Among the highlights of Arctic Cat’s fiscal 2012 second quarter financial results versus the same quarter last year:

• Net sales grew 17 percent;
• Operating expenses as a percent of sales declined to 11.8 percent compared to 13.6 percent;
• Operating income increased 20 percent;
• Total cash and short-term investments at quarter end rose to $96.6 million, up from $80.9 million; and
• The company had no short- or long-term debt.

Gross margins in the fiscal 2012 second quarter were down 126 basis points, primarily due to sales incentives on early season snowmobile sales, increased international shipments and product mix. Year to date, gross margins are down 39 basis points versus the prior year. The company expects higher gross margins in the fiscal 2012 second half of the year, and continues to expect full-year gross margin improvement of 20 to 60 basis points.

For the six months ended September 30, 2011, Arctic Cat’s net earnings were $19.1 million, or $1.02 per diluted share, on net sales of $279.8 million. In the first six months of last fiscal year, the company reported net earnings of $13.3 million, or $0.72 per diluted share, on net sales of $239.2 million.

Business Line Results

Snowmobile sales rose 25 percent to $114.7 million in the fiscal 2012 second quarter, up from $91.5 million in the prior-year quarter. Sales were fueled by Arctic Cat’s extensive new 2012 model line-up, announced in March 2011, with 23 all-new snowmobiles representing 75 percent of the current offerings. The company anticipates that the breadth of its new models and innovative technologies will have a positive impact on fiscal 2012 snowmobile sales. To date, two of Arctic Cat’s new 2012 model snowmobiles have been named as 2012 Sled of the Year – the F1100 Turbo high-performance model and the XF1100 Turbo SnoPro.

All-terrain vehicle (ATV) sales increased 4 percent to $58.8 million in the fiscal 2012 second quarter versus $56.6 million in the same period last year, primarily due to increased international ATV sales. Arctic Cat continued its strategy to match wholesale sales with actual retail demand, while introducing new models and features in segments with the greatest consumer demand.

During the second quarter, Arctic Cat began to roll out its all-new Wildcat V-Twin 1000i H.O. pure-sport recreational off-road vehicle (ROV), which was officially unveiled in July 2011. The Wildcat is a full-production version of what was previously reserved for off-road race vehicles, offering 17 inches of front suspension travel, 13 inches of ground clearance, a full-perimeter exoskeleton chassis and the largest displacement engine in its class.

"The Wildcat gives consumers a pure-sport hot rod and marks our first entry into the growing sport side-by-side market,” said Jordan. "Dealer demand for this off-road vehicle is very strong and we remain on track to begin shipping it to dealers in the third quarter of this fiscal year.”

Sales of parts, garments and accessories (PG&A) in the fiscal 2012 second quarter grew 13 percent to $31.4 million versus $27.6 million in the prior-year quarter. Contributing to higher PG&A sales were preseason snowmobile-related parts, garments and accessories, as well as the e-commerce initiative launched earlier this year. Arctic Cat also continued to expand its PG&A offerings and introduced nearly 40 Wildcat accessories for vehicle customization in the quarter.

Company Raises Fiscal 2012 Outlook

"We are again raising our full-year sales and earnings outlook for fiscal 2012, based on better than anticipated second-quarter results, higher anticipated volume, and a continued focus on controlling costs and leveraging our operating efficiency,” said Jordan. "The company remains well-positioned for future sales growth across all product lines. We continue to expect higher snowmobile sales, due to our new model line-up. We also see continued gains in our ATV business, due to the competitive strength of our core ATV and Prowler side-by-side offerings, and the growth potential for our Wildcat pure-sport ROV model. Additionally, we remain focused on further enhancing the company’s profitability through operational efficiencies.”

The company’s fiscal 2012 outlook includes the following assumptions versus the prior fiscal year: ATV industry retail sales declining approximately 10 to 15 percent; snowmobile industry retail sales up approximately 5 to 10 percent; Arctic Cat dealer inventories decreasing 10 to 20 percent; achieving lower operating expense levels as a percent of sales; increasing cash flow from operations; and ending the year with more cash on the balance sheet. At this time, the company expects gross margins to improve between 20 to 60 basis points in fiscal 2012, although commodity costs will remain a challenge for the foreseeable future.

For the fiscal year ending March 31, 2012, Arctic Cat now anticipates sales in the range of $530 million to $545 million, an increase of 14 percent to 17 percent versus fiscal 2011. The company estimates that fiscal 2012 earnings will increase 57 percent to 64 percent and be in the range of $1.10 to $1.15 per diluted share. Previously, the company expected sales in the range of $520 million to $530 million for fiscal 2012 and earnings per diluted share in the range of $0.94 to $1.00 per diluted share.

Conference Call

A conference call is scheduled for 10:30 a.m. CT (11:30 a.m. ET) today. To listen to the live webcast or replay of this call via the Internet, go to the corporate section of www.arcticcat.com. To listen to a telephone replay of the conference call, dial 800-406-7325, passcode 4481594. The telephone replay will be available through Thursday, November 3, 2011.

About Arctic Cat

Arctic Cat Inc. designs, engineers, manufactures and markets all-terrain vehicles (ATVs) and snowmobiles under the Arctic Cat® brand name, as well as related parts, garments and accessories. Its common stock is traded on the Nasdaq Global Select Market under the ticker symbol "ACAT.” More information about Arctic Cat and its products is available at www.arcticcat.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. The Company’s Annual Report, as well as the Report on Form 10-K, its Quarterly Report on Form 8-K and other filings with the Securities and Exchange Commission, the Company’s press releases and oral statements made with the approval of an authorized executive officer, contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. The words "aim,” "believe,” "expect,” "anticipate,” "intend,” "estimate” and other expressions that indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to: product mix and volume; competitive pressure on sales, pricing and sales incentives; increase in material or production cost which cannot be recouped in product pricing; changes in the sourcing of engines; interruption of dealer floorplan financing; warranty expenses and product recalls; foreign currency exchange rate fluctuations; product liability claims and other legal proceedings in excess of reserves or insured amounts; environmental and product safety regulatory activity; effects of the weather; general economic conditions and political changes; interest rate changes; consumer demand and confidence; and those set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011, under heading "Item 1A. Risk Factors.” The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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