HOG

Thank you for standing by, and welcome to the Harley-Davidson 2026 second quarter investor and analyst conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Shawn Collins. Thank you. Please go ahead.

Thank you. Good morning. This is Shawn Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the internet at the Harley-Davidson Investor Relations website. As you might expect, 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 today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley-Davidson Chief Executive Officer, Artie Starrs, and Chief Financial and Commercial Officer, Jonathan Root. With that, let me turn it over to Harley-Davidson CEO, Artie Starrs.

Thank you, Shawn. Good morning, everyone, and thank you for joining us today for our second quarter 2026 results. Before I get into the quarter, I want to start by thanking our Harley-Davidson employees and our dealers around the world. The progress we are beginning to see is the direct result of your focus, your urgency, and your commitment to this brand. I also want to thank our riders and the broader motorcycle community for continuing to support Harley-Davidson and for holding us to the high standard this company has earned over more than 120 years. Last quarter, we introduced our new strategic plan, Back to the Bricks. We said that 2026 would be a transition year as we reset the business, rebuild dealer confidence, improve execution, and position Harley-Davidson for stronger, more durable performance over time.

We also said that the work would not happen overnight, but that we would move with urgency and discipline. In the second quarter, we are pleased with the early progress we made against that plan. At the motor company, our results reflect a business that we believe is beginning to stabilize and a team that is executing with greater focus. Domestic retail remains strong, with North America retail up 3%, the third consecutive year-over-year quarter of retail growth in North America. That continued strength is important. It shows that when we have the right motorcycles, the right dealer engagement, and the right marketing support in the market, riders respond. We are pleased with the overall domestic market share year to date and continued strength in touring in Q2. We also made continued progress on one of the most important priorities when I joined the company, dealer inventory health.

At the end of the quarter, dealer inventory position was meaningfully improved, over 85% of dealer inventory was model year 2026 product. That is the healthiest inventory position global dealers have had in years, an improvement year-over-year for the past seven quarters. This matters because a healthier dealer network is foundational to Harley-Davidson's long-term earnings power. When dealers have the right inventory at the right time with the right margin profile, they can focus on what they do best, serving riders, building community, and growing the brand in their markets. Dealer health was a central theme in our Q4 and Q1 discussions, I want to be very clear that it remains non-negotiable. Based on current trends, we expect domestic dealer profitability to double in 2026.

We are continuing our focus on aligning wholesale activity with retail demand, improving the quality of inventory in the channel, continuing to take actions that strengthen dealer economics. Those actions can create short-term pressure in certain areas, they are the right actions for the long-term health of the business. We are also experiencing encouraging signs from our product and brand work. In the past few months, we released two new motorcycles that reflect the direction of Back to the Bricks. Blank canvas motorcycles that are true to Harley-Davidson invite customization and give riders a stronger emotional connection to the brand. While we are highlighting the launch of the new Super Glide in our Q2 materials, both the new Super Glide and Deadwood models have generated meaningful enthusiasm across the community. These are motorcycles with real Harley-Davidson character.

They are designed so riders can make them their own, that is exactly where this brand has always been strongest. The early reaction from riders and dealers reinforces our confidence in the product direction. Sell-through on Super Glide has been strong, dealer enthusiasm has been high, MSRP realization is among the strongest we have seen in some time. That is an important signal. It tells us the market is responding to motorcycles that are authentic, desirable, and supported by a clear go-to-market approach. Deadwood motorcycles are hitting dealerships in the U.S. as we speak. The reactions from motorcycle media and riders on social have been overwhelmingly positive and enthusiastic, with many referencing iconic Harley-Davidson personality, the opportunity to customize, and the compelling price point for a large displacement Softail. Our marketing is also beginning to work harder for the business.

We've been more focused, more local, more connected to the rider community. I specifically want to call out the grassroots partnerships with custom bike builders and bike shop owners around the Super Glide and Deadwood launches. These partnerships are important because they put the brand back into the hands of the people who live motorcycle culture every day. That is where Harley-Davidson belongs. If you haven't seen the advertising for these two launches, I'd encourage you to do so. Our team has done a fantastic job maintaining the joy and swagger of our ride marketing platform while celebrating riding and the riding community. As we begin our strategic journey, we're also encouraged by the internal progress toward restoring our Parts and Accessories business.

We've appointed a GM of the business, have identified the key accessory categories we will be focused on in the near term, and are actively preparing for model year 2027 parts and accessories launch alongside our motorcycle launch. The team is demonstrating early green shoots as P&A is tracking ahead of our beginning of year plans. This is a critical part of the Back to the Bricks strategy, and our riders and dealers are excited to see us refocusing on customization. Customization is not an add-on to the Harley-Davidson experience. It is core to the Harley-Davidson experience. It drives rider connection, it creates important opportunities for our dealers, and it supports a stronger and more diversified revenue model for the motor company. At HDFS, the business continued to advance ahead of our plans, including progress on forward flow activity.

HDFS remains a strategic asset for Harley-Davidson and a critical enabler for our dealers and customers. The changes we have made to the business are designed to create a more capital-efficient model while preserving the important role HDFS plays in supporting retail sales, dealer financing, and the rider experience. Taken together, the progress in retail, dealer inventory, product launches, P&A, Apparel and Licensing, and HDFS give us confidence to increase our guidance for the year across retail, HDMC operating income, and HDFS operating income. Jonathan will provide more detail on the financial results and updated outlook, but from my perspective, the headline is simple. We are still early in the work, but the business is moving in the right direction. That said, we also have areas where we need to improve and areas where the operating environment remains uncertain. First, Europe remains a challenging market.

We are not satisfied with our performance there. We are making portfolio adjustments that we expect will significantly help over time, and we are applying the same discipline in Europe that we are applying across the broader business. Better alignment between product, price, customer demand, dealer economics, and local market needs. One prime example of that is the return of the Sportster 883 in 2027, which our European dealers are particularly excited about. Second, we are working through a couple of domestic supplier challenges. Our team has done an excellent job managing through these issues, but they have had an impact on margins in 2026. We are focused on improving reliability, reducing friction in the supply chain, and ensuring that our manufacturing and product teams have the support they need to deliver with consistency and quality. Third, tariff uncertainty remains an ongoing factor.

We remain committed to further strengthening our U.S. manufacturing, and our employees and dealers are particularly excited about our recent announcement to move Rev Max production for North American motorcycles back to the United States. The tariff environment continues to evolve, and we will continue to be transparent with our investors on the impact of tariffs on our financial results. The most critical actions as we confront these challenges remain in driving a more balanced portfolio of motorcycles in service of our riders' needs, alongside effective inventory management that promotes dealer profitability improvements. I am very pleased with our initial results in getting Back to the Bricks. Now, I will turn it over to Jonathan to go through the specifics, which include taking our full year guidance up for fiscal year 2026 in a number of areas. Jonathan, over to you.

Thank you, Artie, and good morning to all. I plan to start on page six of the presentation, where I will start on HDMC retail performance. In Q2, North American retail sales of new motorcycles were up 3% versus prior year, with approximately 30,000 motorcycles sold. In Q2, all regions, with the exception of EMEA, achieved small retail growth. Retail sales of new motorcycles outside of North America were down 5% versus prior year, with approximately 13,000 motorcycles sold, resulting in Q2 global retail sales of new motorcycles being up 1% versus the prior year, with a total of approximately 42,500 retailed. We remain relatively pleased with the start to the year, particularly in the U.S. We remain mindful of the global consumer discretionary landscape, which remains uneven.

We are aware that pricing continues to be on the top of customers' minds, given the current global setup that includes inflationary pressures, interest rates that continue to run above recent historical lows, and global geopolitical uncertainty. In North America, Q2 retail sales were up 3%. This followed the very strong year-over-year retail growth of 14% we demonstrated in Q1. Results were driven by continued strength in our redesigned trike models as consumers reacted well to all of the advancements in this redesign. In addition, North America saw strength across the portfolio, in particular in both our sport and adventure touring families, with a positive response to our 2026 motorcycle lineup and through increasingly targeted customer incentives. This translated into continued significant market share, with Harley-Davidson reaching 32% of the U.S. 601cc-plus market.

Dealer inventory in North America declined 15% year-over-year, reflecting a more balanced setup as we are in the midst of the riding season. In EMEA, Q2 retail sales posted a decline of 9%, which was more challenged than what we saw in Q1. In the quarter, overall performance reflected a subdued economic environment in Europe, although the region did experience positive results in the touring, sport, and trike family categories. In addition, from a market share standpoint, after growing share year-over-year in Q1, in Q2, we moved from 4% to 3% in the European market compared to the prior year. In Asia Pacific, Q2 retail sales were up very slightly. This marked a nice improvement from the Q1 year-over-year change. From a retail standpoint, Australia and New Zealand led APAC with growth of more than 20% versus prior year.

At the motorcycle level, the region experienced positive results in the sport, trike, touring, and CVO family categories. In Latin America, Q2 retail sales delivered another strong quarter, with retail sales up 4% after being up 21% in Q1, which is four quarters in a row of year-over-year growth. From a country perspective, Mexico was up significantly, while Brazil, our largest Latin American market, was down. Touring was the standout category in market. Turning to page seven, dealer inventory at the end of Q2 of 2026 was down 17% versus the end of Q2 of 2025 and down 7% versus the end of Q1 of 2026. Specifically, North America dealer inventory was down 15%, and dealer inventory outside of North America was down 24%. This has allowed Harley-Davidson dealers to continue throughout the 2026 riding season with what we believe is a largely appropriate or balanced setup.

In addition, the quality of dealer inventory is healthier today than one year ago, as it is more current from a model year standpoint. At the end of Q2 in North America, 85% of dealer inventory was comprised of current model year 2026 motorcycles. This compares to the prior year period, where less than 75% of all dealer inventory was current model year. We expect this combination of lower total inventory levels and healthier inventory model year mix to pay dividends in future periods and to set Harley-Davidson and our dealers up for greater success. This dealer inventory discipline is also demonstrated in our motorcycle finished goods company inventory, which was at its lowest Q2 level since Q2 of 2021.

As we think about dealer inventory longer term, we must recognize that as we broaden our product portfolio and aim to achieve our Back to the Bricks strategy metrics, inventory levels will need to adjust accordingly. With that, before we get into revenue, let's conclude with some information on wholesale shipments. From a wholesale shipment perspective, in Q2 of 2026, we delivered 39.2 thousand units compared to 35.8 thousand units in Q2 of 2025, which is up 9% year-over-year. As we are now underway in the prime riding season in North America, we have begun to hear from our dealers that they could benefit from more inventory with regard to particular locations, models, and trim levels. This is a good signal from our dealers. Inventory management and discipline continues to remain very important to all of us.

As such, we expect that we will ship a similar number of units in Q3 of 2026 as we did in Q3 of 2025. In Q4 of 2026, we expect to ship more motorcycle units, largely due to the reduction of shipments that occurred in Q4 of 2025. Also, as we work to pull model year timing forward from January into the fall, we expect to ship a greater proportion of model year 2027 motorcycles in Q4 of 2026 than the proportion we did in Q4 of 2025. Turning to page eight and HDMC revenue performance. In Q2, HDMC revenue increased by 6%, coming in at $1.1 billion. From a business line standpoint, motorcycle revenue came in at $848 million, P&A came in at $177 million compared to $187 million in the prior year period.

Apparel and Licensing came in at $62 million, compared to $61 million in the prior year period. Other came in at $17 million compared to $18 million in the prior year period. The drivers of overall revenue at HDMC in Q2 of 2026 were increased unit shipments and favorable foreign exchange effects, partially offset by net pricing. Turning to page nine and 10 in HDMC margin performance. In Q2, HDMC gross profit came in at 27.5%, which compares to 28.6% in the prior year or down 108 basis points versus prior year. Gross profit was impacted favorably by manufacturing and other costs, including a tariff recovery that benefited gross profit. The favorability was offset by the following unfavorable impacts: product mix, net pricing, raw materials, and foreign exchange effects. Second quarter operating income margin was 6.6%, compared to 5.9% in the prior year quarter.

In Q2, operating expenses totaled $232 million, which was $6 million lower compared to prior year, driven by lower labor costs and lower professional services on a year-over-year basis. This amount includes $3 million in restructuring expense in Q2 related to the company's new strategy. Before restructuring expense, Q2 operating expenses would be $8 million lower compared to prior year. In Q2, HDMC had operating income of $72 million for an operating income margin of 6.6%, which compares to operating income of $61 million in the prior year period and a margin of 5.9%. This amount includes $3 million in restructuring expense in Q2 related to the company's new strategy. Before consideration of restructuring due to HDMC, operating income would be $75 million for an operating income margin of 6.8%.

At the EBITDA level at HDMC in Q2, HDMC Adjusted EBITDA came in at $115 million for an Adjusted EBITDA margin of 10.4%, which compares to an Adjusted EBITDA of $97 million in the prior year period and an Adjusted EBITDA margin of 9.3%. Some brief comments on tariffs in Q2 and the full year 2026. You can see on slide 20, we continue to expect the cost of new or increased tariffs to be in a range of $75 million-$90 million, same as what we expected at our last earnings. In Q2, before recoveries, we incurred $22 million in tariff expense. We also benefited from tariff recovery in Q2 of 2026, primarily surrounding IEEPA recoveries.

We were not planning for any additional meaningful tariff recoveries for the balance of 2026, although we note the overall complexity and fluidity of the tariff environment that we all find ourselves in. Turning to HDFS and page 11. At Harley-Davidson Financial Services, Q2 revenue came in at $117 million, a decrease of 55%, driven by lower interest income due to the decline in retail receivables related to the sale of loan assets as part of the HDFS transaction that was completed last year. Other income within HDFS revenue was favorable year-over-year, due primarily to new servicing fees. HDFS operating income was $22 million in Q2, representing an operating income margin of 18.5%.

On the expense side, interest expense and the provision for credit loss expense were both significantly lower, which was due to the decreased size of the retail loan portfolio and related debt on a year-over-year basis. As expected, with the change in strategy associated with the HDFS transaction, HDFS operating expenses came in at $47 million for Q2, which was $3 million higher than the prior year's amount due to unfavorable insurance captive-related expenses and higher employee costs, partially offset by lower depreciation expense. Turning to page 12. In Q2, HDFS's annualized retail credit loss ratio on managed loans was 3.0%, which compares to 3.3% in the year-ago period. We are pleased with HDFS loan origination activities, as total retail loan originations in Q2 were up 10%, coming in at $940 million in Q2.

Total gross financing receivables were $2.7 billion at the end of Q2, where retail receivables were $1.7 billion and commercial receivables were $1.0 billion. Turning to slide 13 for the LiveWire segment. During the second quarter, LiveWire began production of the S4 Honcho, with the first units expected to arrive at authorized LiveWire retail locations later this summer. LiveWire also completed the acquisition of Dust Motorcycles, which they expect to accelerate their expansion into the growing off-road category and strengthen their long-term product strategy. For the second quarter of 2026, consolidated revenue increased 52% over prior year same quarter, driven by increased unit sales of both electric motorcycles and STACYC brand electric balance bikes. LiveWire continued to reduce its use of cash with an 18% improvement in net cash used by operating activities through June 30th of 2026 as compared to the prior year.

Turning to slide 14 and 15. Wrapping up with consolidated Harley-Davidson, Inc. financial results, we had net cash use of $59 million from operating activities in Q2, which compares to $509 million of operating cash in the prior year period. Operating cash flow was lower than the prior year due to reduced cash inflows at HDFS under its new capital-light model. Also at HDFS, the operating cash flow decreased due to new originations of retail finance receivables under the forward flow arrangement that were classified as held for sale, which is classified as an operating activity under U.S. GAAP. The originations to be sold to our strategic partners for outflows reduced cash flow from operations as there were no comparative retail finance receivable originations classified as held for sale in the first half of the prior year.

This was partially offset by inflows from the proceeds from the sale of retail finance receivables classified as held for sale. This will remain a distinct year-over-year item as we move through 2026 as a result of the HDFS transaction, which concluded throughout the second half of 2025. The outflow from retail originations demonstrates the growth in retail sales and HDFS's strong retail loan penetration in the domestic market. In Q2 of 2026, we repurchased a total of 1.3 million shares worth $30 million on a discretionary basis, and therefore have purchased 7.9 million shares worth $158 million in the first half of 2026. Returning capital to shareholders continues to be a top priority at Harley-Davidson, especially via share buybacks in this moment. We believe the company's strong balance sheet allows for the support of our capital allocation priorities.

At the end of Q2 of 2026, we had $1.9 billion of cash equivalents. This compares to $1.6 billion a year ago at the end of Q2 of 2025. Turning to slide 15, we point out the unique balance sheets of each business segment. For the HDMC balance sheet, cash on its balance sheet is $1.2 billion at the end of Q2 versus total debt of $297 million at the end of Q2, resulting in a very attractive net cash position at HDMC. For the HDFS balance sheet, net debt is $1.8 billion at the end of Q2 versus total finance receivables that are held for investment of $2.1 billion. At the parent level or HDI level, we point out that total debt plus total deposit levels of $2.8 billion at the end of Q2 of 2026 compares to $7.4 billion at the end of Q2 of 2025.

This is a result of the HDFS transaction that we announced about one year ago and closed in Q4 of 2025. As a reminder, the HDFS transaction was a strategic partnership that HDFS entered into with KKR and PIMCO that reduces the capital intensity of the HDFS business and converted some of HDFS's economics from interest spread to income from servicing fees and gains or losses on sale of finance receivables. Now, turning to slide 16 of the presentation, I will briefly summarize consolidated financial results for the second quarter at the Harley-Davidson, Inc., or HDI, level.

Consolidated revenue in the second quarter was down 6%, driven primarily by HDFS revenue being down 55% as it moved into a new capital-light model after the closing of the HDFS transaction, where we sold a significant part of the retail loan book and agreed to a forward flow in which we expect to sell approximately 2/3 of future originations. Consolidated operating income in the second quarter came in at $76 million, compared to operating income of $112 million in Q2 of 2025. In Q2, earnings per share was $0.75, which compares to $0.88 in Q2 of 2025. Turning to page 17. In North America, we are in the main riding season, where we remain pleased with our dealer inventory levels and leading market share position in the U.S.

In addition, we are pleased with the market's reception to our new model year 2026 motorcycle lineup, including the new limited touring motorcycles and especially the all-new redesigned trike models, along with our recent introductions of the Super Glide and Deadwood models. As a result of this, at HDMC and HDFS, we are increasing our financial guidance for 2026. We continue to remain pleased with the pace of recovery of our overall business, and we are also pleased with the early actioning of our cost-reduction work. For the full year 2026, the company now expects, at HDMC, retail units of 133,500-138,500 units. This is up from our previous range of 130,000-135,000 units, and wholesale units of 133,500-138,500 units. This is up from our previous range of 130,000-135,000 units.

We believe that global dealer inventory levels are at healthy levels, and therefore, we expect retail and wholesale to continue to have a largely one-to-one relationship for the rest of 2026. In line with my earlier comments versus prior year, we expect shipments to be relatively flat to those shipped in Q3 and then up in Q4 on a year-over-year basis. At the same time, we continue to expect production units at HDMC to be lower than wholesale units shipped in 2026 as we work to prudently manage overall company inventory levels. For 2026, we expect this will have a deleverage impact, which will put pressure on operating leverage and operating margin, but we expect to come into alignment by next year. At HDMC, we now expect operating income of $10 million-$50 million.

This is up from our previous range of positive $10 million to a loss of $40 million. At HDFS, we now expect operating income of $55 million to $70 million. This is up from our previous range of $45 million to $60 million. As a reminder, the new business model at HDFS, given the HDFS transaction, where HDFS now employs a capital-light, de-risk business model and has a new baseline financial earnings profile, which is expected to grow over the coming years. For LiveWire, we continue to forecast an operating loss in the range of $70 million to $80 million. There is no change to financial guidance here. With that, I'll turn it back over to Artie.

Thanks, Jonathan. Before we go to Q&A, I'm pleased with our results in the quarter and year to date, specifically on North American retail and dealer profitability, two key tenets of our Back to the Bricks strategy. Our recent motorcycle launches of Super Glide in Q2 and Deadwood in Q3, while early, have our community highly engaged. The Super Glide sell-through is encouraging. Deadwood is hitting dealerships as we speak. We believe we're on track for the $150 million of fixed cost savings in 2027. The $350+ million of HDMC EBITDA target we referenced in our last call. With the Sprint and Sportster motorcycles coming, we are very excited about 2027. Our leadership team is looking forward to seeing many of you at Sturgis this year.

Sturgis is always a powerful reminder of what makes this brand special: the riders, the roads, the freedom, the community, and the unmistakable look, sound, and feel of Harley-Davidson. Thank you. Now we'll turn it over for questions.

Thank you. As a reminder, to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star one again. We also ask that you limit yourself to one question and return to the queue for additional questions. Thank you. Our first question comes from Craig Kennison from Baird. Please go ahead. Your line is open.

Hey, good morning. Thanks for taking my question. Just first, a point of clarification, does guidance for HDMC include the $20 million IEEPA refund? The main question is, I think you mentioned the Sportster and Sprint would launch in 2027. Can you confirm that and maybe give some color on what a reasonable shipment expectation could be? I know at one point you sold over 40,000 Sportsters, but that may be aggressive in year one. Thank you.

Hey, Craig. Thanks. It's Artie. I'll take the second one first, and I'll let Jonathan cover the guidance. As it relates to Sprint and Sportster, restating, we expect to ship Sprint end of this year, and Sportster, we're not giving a date yet, but it'll be in 2027. In terms of the volume expectations, I think you're referencing the 40,000 on Sportster. We'll just go back to the retail targets that we put forward of mid-single digits. We think those are prudent and judicious. There are obviously some upside in those numbers vis-à-vis the number that you mentioned. The enthusiasm we're hearing from riders and dealers about both motorcycles, which dealers have now seen has us very energized. The focus is just appropriate and exciting launches with great marketing around them.

More to come next quarter where we'll update you a little bit further, but we don't have anything to add at this point. Jonathan, you want to cover the guidance?

Sure. Craig, it's nice to hear from you. I think if you go through and take a look, we obviously, from a guidance standpoint, updated in a couple of different areas. From a unit standpoint, we are up 3,500 units, from a guide perspective versus where we were previously. Operating income for Motor Company increased from where it was to a positive $10 million to a positive $50 million. We also increased financial services operating income up about $10 million from where it was in the range. Relative to the IEEPA refund, the dollars that we have in the quarter that we disclosed of about $20 million are included in the updated guidance too.

Our next question comes from Stephen Grambling from Morgan Stanley. Please go ahead. Your line is open.

Hey, just to follow up on a couple of the questions there around inventory. You're talking about inventory levels adjusting accordingly for the Back to the Bricks. Can you just maybe, one, elaborate on the magnitude of that? Two, have you done anything at this point in terms of the strategy to improve the response time and forecasting with the dealers as they think about ramping up some of the new models?

If you can maybe clarify the first question as it relates to inventory, I'm not entirely following it. I'm sorry, Stephen.

In your intro remarks, I think you said as you broaden out product portfolio and achieve Back to the Bricks, inventory levels will need to adjust accordingly. Just looking for more color on that.

I think I'm really calling out what we've done to date, which I think has been tremendously successful. If you talk to dealers and look at MSRP realization and things, we're restoring, I think, a more appropriate supply and demand framework. I wasn't intending to forecast a material change from where we are. Obviously, we're expecting retail volumes to continue to grow as we expand the portfolio and meet rider needs a bit more overtly. What's happened over the last two to three quarters is we've gotten inventory to levels that we think are appropriate against current retail demand. When I talk to dealers, if I look back to the fourth quarter versus today, quite a seismic shift. In the fourth quarter, the vast majority of dealers, their primary concern was too much inventory.

At this point in time, I'm getting more phone calls that many would like more bikes. I think we're at an appropriate place right now when we look at the Super Glide and Deadwood launches, which just occurred over the last four or five weeks. We've got some nice, an accessible price point, blank canvas motorcycles entering the channel in Softail, which is news that I think that was needed. These bikes are selling through. I think we feel good about where the inventory levels are right now. Relative to retail, we would deem it broadly appropriate. To your second question, we can always get better at improving mix, color scheme, family by dealership, by region. I would tell you that's an active conversation with our dealer advisory council, in particular here in the U.S. and around the world.

We actually have a meeting next week with them specifically on continued improvement in the modeling there. I think we have upside in making sure that we got, even at current inventory levels, having the right bike in the right place at the right time, and it's, I'd say, a natural extension of the work we started earlier this year.

Stephen, the only pieces that I would add is as you look at dealer inventory and expectations as we flow forward over the next couple of quarters, broadly speaking, as you triangulate to our guides and what we've laid out from a retail and a wholesale perspective, you can see that continuing to move broadly in line with each other. That obviously would imply, as Artie talked about, we feel pretty good about where inventory is in total. Don't expect that you're going to see an increase in dealer inventory in any significance or any numbers over the coming quarters. What we do want to make sure that we are talking about a little bit is that as we get to model proliferation in the portfolio, we're really, really excited about that.

As you heard Artie say, as we serve our customers better, give them more options, we do want to make sure that our dealers are appropriately inventoried, and that's something that we will certainly be working on very actively with them.

Our next question comes from Robin Farley from UBS. Please go ahead. Your line is open.

Great. Thank you. I do have a question, but just one quick clarification. Jonathan, a moment ago when you were answering a question, you mentioned about the $20 million of tariff refund. You said it's included in updated guidance, but that was also in your previous guidance, right? I feel like we knew about that. That was in your guide already previously, correct? I just want to make sure that you're not saying there's a change in that in your updated guidance.

Yeah. No, if you look at our tariff slide from current quarter and then what we had previous quarter, you can put those two side by side, and it's very clear in terms of where we are, as well as what timing of a lot of the tariff impact has looked like over time. We can certainly walk through that in more detail.

No, great. I thought the slide was clear, it was unchanged. It was just your comment a minute ago saying it was included in updated guidance. That's what sounded like it. Just, no, that's helpful. Thanks. Just confirming obviously that was in previous guidance, too. Thank you. My question is, looking at the results here and thinking about your expectations for 2027, I think you kind of reiterated what you've previously given as 2027 targets. Just wanted to ask sort of on the plus and minus side of that, because I already called out this domestic supplier challenge, but it sounds like you don't expect that to change your 2027 in terms of cost saves or anything regarding margins.

Also on the plus side of 2027, some of the targets you've given for 2027, you're kind of already hitting here in Q2 in terms of the motor company EBITDA margin and the growth margin for the motor company. Just any thoughts about that doing better than the-

Sure

targets you've given already for 2027?

Yeah.

Thanks.

Thank you, Robin. Let me first take the supplier topic. Our team's done an outstanding job on the first six months of this year. We're not alone. Many OEMs in auto and motorcycling have dealt with similar issues. The reference is really to things that had happened year to date. We're not forecasting anything beyond than what's happened, but we'll be prepared. No impact at this point in time in terms of how we're thinking about 2027. I'm just calling out that there has been an impact year to date, and our team's done an exceptional job in managing through it, evidenced by raising guidance today and I think the overall performance year to date versus what our initial expectations were. As it relates to broadly on 2027 and the performance in Q2, I think you're right.

We are seeing performance ahead of the initial plans that we put forward. I'm not prepared to adjust any of the 2027 targets at this time. We're super focused on the top priorities of the business and dealer profitability and keeping the inventory level stable. Frankly, the launch of these two motorcycles has our whole community super excited and galvanized. We'll update you on 2027 later this year certainly, but at this point in time, we all feel very optimistic about how some of the metrics are coming through.

Robin, I would just add, just to make sure that we are lined up on the tariff piece, we obviously disclosed the $20 million in recoveries from a tariff perspective. Our $75 million-$90 million for the year that we have guided to both last quarter and this quarter highlight the fact that we exclude the recovery from that amount. We are making sure that we are disclosing what the gross tariffs look like. The $20 million in recoveries wasn't in there, and you'll see that, just if it helps, in the third footnote that's on page 20. Yeah, page 20 to help with that.

Our next question comes from Anthony Bonadio from Wells Fargo. Please go ahead, your line is open.

Yeah. Hey, guys. Thanks for taking our question. I just wanted to talk a little bit more about the retail environment more broadly. I guess, some of our inter-quarter checks suggested demand picked up somewhat across the industry in Q2. I guess, one, would you agree with that? Two, just thoughts on drivers there, and maybe help us parse out how much of the growth that you've seen is coming from that versus maybe some of the measures that you guys have implemented to get momentum going again?

Yeah. I assume you're specifically talking about North America.

Yeah, that's right.

Yeah. I think we would characterize the retail environment as good. Obviously, the second quarter was up 3%, the first quarter was up double digits. We had more promotion in the first quarter. The second quarter, I think, was more consistent with a more normalized promotional environment. The fact that we're able to grow in that environment has us pleased. When we look at the balance of year guidance, where the midpoint of what we put forward implied a +1% in the second half, it's a pretty meaningful change on a two-year basis from where we were in the first half to the second half.

When I look at the second half, even though the overall growth in North America would imply it'd be slightly lower, that global number of one, it's a pretty strong change in the first half, second half on a two-year basis. What we're seeing from a market share perspective, which is probably at the core of your question, market share year-to-date, market share in the second quarter was good. Second quarter, particularly good on touring. The portfolio adjustments that we're making, I think, are evidenced by Super Glide and Deadwood, which are iconic Harley-Davidson motorcycles that are at price points and use cases that more motorcyclists can access. We feel quite good about our position in the second quarter and going into the third quarter. The portfolio adjustments are certainly helping.

One thing that we haven't really touched on with much specificity, even though the numbers are a little smaller, Nightster continues to be a successful motorcycle for us this year. Once again, it's a smaller bike. The price point's a little more accessible, and it meets the needs of non long haul touring, which is an area that we see room for us to grow. I think, overall, the retail business in the second quarter in North America, we feel good.

Our next question comes from Joe Altobello from Raymond James. Please go ahead. Your line is open.

Thanks. Hey, guys. Good morning.

Sure.

A couple questions if I could. Good morning. First, Jonathan, could you quantify the impact of production units being below shipments this year? Maybe secondly, give us a sense for how retail cadence was throughout the quarter. Our checks seem to indicate that things slowed a little bit in June. I'm curious if you saw the same thing and what's going on in July. Thanks.

Sure. Joe, how about I take the production units piece? Artie can provide some additional commentary on Q2 again for points that we may not have touched on. From an impact of the production units, I would certainly highlight a lot of what we covered last quarter from an overall Back to the Bricks strategy standpoint. Within that, we talked about our excitement as we get into 2027 of getting alignment between production, what we're wholesaling, and what we're retailing. You've heard Artie talk pretty excitedly about the work that's in process to make sure we get right bike to the right place at the right time. That shows up in 2027 in our guide in a number of different areas.

As you heard Artie talk about, we remain committed to the targets that we put out in Back to the Bricks, and certainly the leverage benefit is contemplated within there.

Great. Then on the quarter specifically, we're not going to give July guidance. I think what we saw in the quarter was overall quarter was in line with what we were expecting. The beginning of the quarter was maybe a little bit stronger, and the end of the quarter was a little bit stronger. The middle was a little bit softer, but you got weather, you got timing of events and rallies, you got our own timing of when we launch motorcycles. I wouldn't read too much into that other than to say the overall quarter performed in line with our expectations. Once again, we're really excited about the two bikes that we just launched.

Our next question comes from James Hardiman from Citi. Please go ahead. Your line is open.

Hey, good morning. Just a real quick clarification. Artie, you had made a point about second half retail being up a little bit in terms of the guidance. Then there was something about the two-year basis. I'm not sure everybody caught that. Could you just walk us through that real quick and then-

Yeah.

I have a question.

If we go back to 2024, we look at the first half of the year versus the second half of the year, the second half of the year is stronger on a two-year basis than the first half. That was all I was saying.

Okay. Got it. To the question, it didn't seem that you thought there was too much to read into it, sort of the cadence within the quarter, sort of strong at the start and the end. Maybe a little bit weaker in the middle. Maybe overlay that with the promotional piece. My guess is that April probably looked a little bit more like the first quarter where you were seeing elevated promo. That tailed off towards the end of the quarter. I don't know. Maybe I'm trying to-

Yeah, no.

Make two and two equal five. Yeah, go ahead.

There was an elevated promo. The more significant promotional activity ended in March in North America.

Okay.

There wasn't anything in April. There no promotional noise in that.

Ultimately, the strong finish to the quarter was at a normalized promotional rate, and that's the most recent

The overall, we're not going to get into the months, but I would tell you that, I'll say two things. The overall quarter was normalized, and we launched two motorcycles, one at the end of Q2 and one just recently at the beginning of Q3. I think if you talk to dealers on sell-through rates on Super Glide, which have been in dealerships the last few weeks, you'd hear very high sell-through rates and very high MSRP realization.

I think there are a couple of other pieces that I would highlight too, James. If you look at where we are, you can see this in the marketplace. In terms of where we are from a consumer promo, obviously, as Artie came in, he really prioritized making sure that we were focused on improving dealer health, getting models moving through in the right way. You saw us action that through what he had outlined in both Q4 and Q1. Promo certainly was a factor in driving the pretty exceptional results that you saw in Q1 from a retail perspective. As we moved into Q2, our Q2 consumer promo year-over-year is actually down from a spend perspective, even with the sales growth that we talked about in North America.

Our next question comes from Noah Zatzkin from KeyBanc Capital Markets. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. Maybe just to drill down a bit on the tariff front. I think there was a recovery in 1Q as well. Just wondering if that's included in the guide. With 122's ci expiring tomorrow, if you could just walk through how you're thinking about 2Q or, sorry, second half, from a tariff perspective, any kind of investigations that are ongoing or just any thoughts about what's embedded in the $75-90 million, versus what's uncertain. Thanks.

Okay. Thank you, Noah. I'll take that. From a tariff standpoint, really good questions around that. In Q1, we had a fairly long-dated EMEA tariff recovery. If you go back a number of years, that's something that we've been working on. There was a sizable benefit that showed up in Q1 associated with very historic tariff activity. Something that was from a number of years ago. As we take a look at what we saw within the quarter, about $20 million within Q2, we obviously continue to make sure that we're scrubbing the environment, looking for any kind of recovery that could make sense and that we're due. That's something that we continue to be really focused on.

Relative to the total year guide, as we talk about our gross recoveries, and we see that on the slide that I referred Robin to a little bit earlier, you'll see that that total tariff amount remains unchanged from what we put in the prior quarter. No change in tariff expectations versus what we put out there. We also break out the recovery amount at the bottom of the page in the footers from a clarity standpoint, and you can also see what prior year timing looked like. As we think about some of the quarters and quarterly cadences, certainly, within this year, the Q1 tariff amount is greater than what we both envision and experience in the balance of the quarters.

Our next question comes from Tristan Thomas-Martin from BMO Capital Markets. Please go ahead. Your line is open.

I'm just a little confused about tariffs in relation to guidance, like tariffs in relation to your guided tariff amount. Was the combined $61 million included in the original guidance, or is that part of the benefit and the reason for some of that guidance increase? Thank you.

Sure. When we guided originally, I'll start with the guidance piece. When we guided from a previous -$40 million to +$10 million, we hadn't contemplated tariff recoveries. As we look at the business today, we've had some tariff recoveries, clearly, that have flowed in. We're now guiding to the +$10 million to +$50 million from a guidance perspective. We don't envision that there are any further tariff recoveries that are coming into the business for the balance of the year from a guide standpoint. We've left our gross unchanged. We obviously have some recovery benefits that flowed into Q1 and into Q2. That certainly gives us confidence in terms of where our operating income guide comes in at $10 million to $50 million for Motor Company.

Our next question comes from Brandon Rolle from Loop Capital Markets. Please go ahead. Your line is open.

Good morning. Thank you for taking my question. I just wanted to circle back on the Back to the Bricks strategic plan for 2027. Just talking about that $150 million in cost savings, how do you feel about that number now a quarter in to the strategic plan, and any other details on initiatives to achieve that cost savings for next year? Thank you.

Great. Thank you. I think we feel very good. The team's super focused on it. We did have some headcount reductions earlier this year. We have significant work just in getting focused on the key tenets of the Back to the Bricks strategy, so our portfolio P&A. I highlighted in my remarks that we've got a GM of our P&A business, which is extremely exciting in seeing that team come together. We do have some things on the cost of goods front that'll impact it, as well as broadly some things we're not going to do anymore. We're not going to provide additional detail at this time. I can tell you that our leadership team, it is a top priority area of focus. We've got a dedicated group working on this every day. We'll keep you updated when we get into firmer 2027 guidance.

At this point in time, like other parts of the business, it's either on track or slightly ahead, frankly. We feel quite good about the $150 million.

Our last question comes from John Healy from Northcoast Research. Please go ahead. Your line is open.

Thank you. Artie, I wanted to go back to one of the first things you said on the call, where you said dealer profitability has roughly doubled compared to last year, which I think is a pretty great thing for the company and the network. Curious your thoughts on what dealers, though, are telling you about just the long-term right inventory levels. I know you guys have talked about working those down, and I don't want to say we're at a point of completion, but we're in a strong spot. Would love to hear what dealers are saying that they think the right inventory turn levels are in the business, and curious if you could also maybe expound upon any sort of retail trends they might be observing on the used bike side of things. Thanks.

Yeah. Let me start with your second one. The used bike market residuals are extremely strong. It's a exciting thing to see how significantly that's evolved over the last year. When we look at residuals on used Harley-Davidson sold two, three, four years ago, the trends are extremely encouraging, and you balance that with MSRP realization on our new motorcycles. Those two things are contributing significantly to dealer profitability. No doubt about it. I'd rather not say specific inventory turns because there are seasonal elements to it and so on. I'd rather put it in this way. If I think about the conversations and the data that we're looking about in the fourth quarter, nearly every dealer was telling me and us that they had too much inventory. I would tell you today, the vast majority believe it's either just right or they're asking for more bikes.

That's about the right place, frankly. I think there was a saying at one point in time that we want to make one less bike than there might be demand for to have appropriate supply-demand tension. I think on an aggregate basis, we're in that general vicinity. I want to be clear that we have opportunities to improve in mix and model management by dealer, by region of the world, and certainly here in the United States. I think we can get better at improving turns and even with the existing overall inventory levels and sell more bikes.

There are no further questions at this time. This concludes today's conference call. Thank you all for joining. You may now disconnect.