Source: Unsplash 

Quick Summary

Harley-Davidson sells motorcycles, parts and accessories, general merchandise, and financing for their bikes. 68% of sales are motorcycles, which are sold at wholesale to a network of over 1,500 dealerships worldwide. 12% of sales are motorcycle parts and accessories. 15% comes from the financing arm, providing financing for both dealers and retail customers, as well as motorcycle insurance programs. Finally, about 4% of sales are from Harley-Davidson branded merchandise sales (jackets, helmets, gloves, etc.). Harley sells worldwide, although the U.S. and Europe account for 75% of new motorcycle sales.

Does The Company Have Rising and Recurring Revenues?

NO. Obviously, motorcycles are not regular recurring purchases. Harley isn't growing, either, with trailing twelve-month sales below those of a decade ago, posting year-over-year declines in the low-to-mid single-digit percentage range. The U.S. motorcycle market peaked way back in 2006 at 1.19 million units - today it is well less than half of that and has been for the past decade. The average age of a Harley owner has increased from 43 in 1999 up to 48 today, and many feel that motorcycle ownership will continue to decline in the future with changes in generational tastes. None of this bodes well for future growth prospects.

Does The Company Have Durable Competitive Advantages?

YES. Throughout Harley-Davidson's 115 year history, it has built a powerful CONSUMER BRAND INTANGIBLE ASSET that - regardless of the addressable market - should reliably protect its market share. Despite industry decline, foreign competition, and the rebirth of the Indian brand by Polaris, Harley's large bike market share has remained steady at about 50% for the last decade. Harley's brand is strongly associated with rebelliousness and freedom, and its customers routinely go as far as tattooing the logo on their body to demonstrate loyalty. That's hard to beat! The brand strength drives customers back to make repeat purchases, buy high-margin general merchandise, and pay higher prices than competitors charge. It also allows Harley to benefit from a 1,500 independent dealer network that sells *only* H-D products, a distinct advantage over competitors that have to sell their bikes right next to bikes from other competitors at retail dealers.

GreenDot Rating: 

Harley-Davidson is an iconic brand operating in an industry that has probably seen its heyday come and go. There seems to be no erosion of brand strength, but an expensive, discretionary hard goods product, stagnating market, and increasing competition from electric bikes and Indian make the business outlook less-than-compelling. The brand alone earns the company a YELLOW (somewhat attractive) rating, but the investment case must be based on valuation, dividends, and share buybacks than business expansion potential.