Harley-Davidson's stock witnessed a notable surge, registering an impressive gain, even as the company navigated a challenging period marked by a downturn in its motorcycle sales during the second fiscal quarter. This market reaction, seemingly counter-intuitive, was largely fueled by strategic financial maneuvers rather than immediate operational performance. Investors found optimism in the firm's announcement of a significant transaction involving its financial services arm, HDFS, which is anticipated to inject substantial liquidity into the company's coffers, paving the way for debt reduction and enhanced shareholder returns.
In the second quarter of fiscal year 2025, Harley-Davidson reported a 23% year-over-year decline in its quarterly sales, amounting to $1.04 billion, falling short of the anticipated $1.11 billion. Furthermore, the company's earnings per share (EPS) of 88 cents missed the consensus estimate of 100 cents. Global motorcycle retail sales also experienced a 15% year-over-year decrease, a consequence of an unpredictable macroeconomic climate and prevailing consumer uncertainty. Revenue from the Motorcycles and Related Products segment (HDMC) also saw a 23% reduction, primarily due to a planned decrease in wholesale shipments, despite some offset from favorable global pricing and currency effects. Motorcycle shipments globally declined by 28%, reflecting both intentional inventory reduction and softened demand. Within segments, Motorcycle revenue fell by 27%, Parts & Accessories by 4%, and Apparel by 13%, while Licensing revenue saw an 8% increase. The gross profit margin for HDMC tightened by 350 basis points year-over-year, settling at 28.6%. The consolidated operating income decreased by 53%, predominantly due to a 69% fall in HDMC. However, the LiveWire segment showed improvement, with its operating loss shrinking by $10 million, a 34% reduction from the previous year's loss. Harley-Davidson generated approximately $367 million in cash from operating activities during the quarter, maintaining a cash and equivalents balance of $1.6 billion as of June 30.
Jochen Zeitz, Chairman and CEO of Harley-Davidson, acknowledged that the second-quarter results faced significant pressure from a demanding commercial environment for discretionary consumer items and ongoing uncertainties regarding tariffs. Nevertheless, he highlighted the company's enthusiasm for the strategic partnership established for HDFS with KKR and PIMCO. This collaboration is set to unlock considerable value, valuing HDFS at approximately 1.75 times its post-transaction book value, and is projected to release $1.25 billion in cash. Harley-Davidson intends to allocate these funds towards reducing its debt by $450 million and accelerating its $1 billion share buyback program by repurchasing $500 million in the latter half of 2025. The company also retains the flexibility to invest up to $300 million in future growth opportunities. The stock has seen a 24% decline year-to-date, as economic headwinds, including global tariffs, have adversely impacted demand for its motorcycles. Demand for leisure vehicles in the U.S. has notably decreased, as consumers curb non-essential spending amidst economic uncertainty.
This financial re-orientation underscores a forward-looking strategy, prioritizing fiscal strength and shareholder value in the face of fluctuating market conditions. The company's resilience, demonstrated by its soaring stock amidst revenue and EPS misses, highlights investor confidence in its long-term vision and capacity to adapt to evolving market dynamics.