Harley-Davidson, Inc. (NYSE:HOG) Q4 2024 Earnings Conference Call February 5, 2025 9:00 AM ET

Company Participants

Shawn Collins - Director of Investor Relations
Jochen Zeitz - Chairman, President and Chief Executive Officer
Jonathan Root - Chief Financial Officer
Karim Donnez - Chief Executive Officer, LiveWire

Conference Call Participants

Megan Clapp - Morgan Stanley
Joe Altobello - Raymond James
James Hardiman - Citi
Robin Farley - UBS
Fred Wightman - Wolfe Research
Alex Perry - Bank of America
Joe Nolan - Longbow Research
Noah Zatzkin - KeyBanc
Tristan Thomas-Martin - BMO Capital Markets
Brandon Rolle - D. A. Davidson
Jamie Katz - Morningstar

Operator

Thank you for standing by, and welcome to the Harley-Davidson 2024 Fourth 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, sir.

Shawn Collins

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, Jochen Zeitz; also Chief Financial Officer, Jonathan Root; and we have LiveWire's Chief Executive Officer, Karim Donnez.

With that, let me turn it over to our CEO, Jochen Zeitz. Thank you, Shawn Collins. Good morning, everyone, and thank you for joining today's call.

In the fourth year of our Hardwire strategy, we saw our performance being significantly impacted by continued cyclical headwinds for discretionary products, including the high interest rate environment affecting consumer confidence and creating affordability issues for our customers. While we were unable to achieve our original guidance of 2024 given the overall environment, we continue to make progress in the execution of the key elements of our strategic plan that we believe will set the business up best for future profitable growth when the market turns. That said, in the fourth quarter, the macro environment contributed to a decline of 15% in global retail sales, our seasonally lowest quarter of the year, with North America posting a 13% decline and our other international regions declining a combined 17%. For the full year, we ended 2024 with a global retail sales decline of 7%.

In the face of industry headwinds, the launch of our new model year 2024 Street Glide and Road Glide touring motorcycles contributed to nearly 5% growth in the US Touring segment and drove Harley-Davidson's share to almost 75%, an increase of 3.5% since 2023. It's worth noting that over the year, Harley-Davidson was the only manufacturer to gain meaningful touring segment market share in the US, with our share of the overall 601+ CC market being slightly up based on the segment that we compete in. Nearly twelve months after the launch of our model year 2024 touring motorcycles, we continue to receive very positive feedback from customers, media, and dealers.

In December, Cycle World voted the CVO Road Glide as the best cruiser of 2024. Also in December, Motorcycle. com voted the Street Glide as the best bagger of 2024.

The launch of these touring motorcycles was one of the primary product strategies within our profit-focused pillar of Hardwire. Our volume and financial results would have been dramatically impacted negatively without them. Through the fourth quarter, we continued to trim inventory by reducing the motorcycle production wholesale significantly, ending the year slightly below 2023 year-end levels.

We believe this has set us up well for further significant inventory reduction, especially in the first half of the year, which Jonathan Root will walk you through in a little bit. Providing more detail on our delivery against our Hardwire pillars for the year, aimed at profit focus, we've continued to emphasize our core products while investing in key product segments for the future. These actions are underpinned by our belief that focusing on our most profitable categories and geographies, emphasizing innovation, and evolving the customer experience with our dealers continue to yield benefits to the business and set the business up for long-term value creation.

2024 can be seen as a year of two halves. Retail sales of the Touring segment were up 18% in the first half of the year, led by the redesigned Touring platform in North America. Despite a decline of 4% for overall retail sales in North America for the full year, retail sales of the Touring segment finished the year up more than 8%.

As mentioned earlier, we've taken share within touring, with Harley-Davidson achieving 74.5% market share in the Touring segment in the US, the highest number since 2019. Touring is the heart of Harley-Davidson, our mission of the timeless pursuit of adventure. Remember, back in 2020, there was no plan for Touring nor for any other core product segment.

We quickly took the decision to change that, with Touring becoming part of the first pillar of our Hardwire strategic plan. In 2024, we continued to invest in our strongest and most profitable motorcycle segments. We are planning for more impactful and new products to hit the market every year from here on, that were originated as part of our strategy. It's important to recognize that the decisions we've taken as part of our Hardwire strategy have allowed us to reestablish our profitability while ensuring we have the right product guidance for years to come.

Without the Hardwire and its priorities, we would currently be faced with a portfolio of uncompetitive products, with a vast majority of our motorcycles achieving negative operating income margins, the motor company likely having little to no profitability. Selective expansion and redefinition underpins our desire to win in attractive markets and motorcycle segments where we are focused on building our leadership. We are investing and have ambitions for our entry-level motorcycle offering in select markets and the small cruisers segment starting next year.

Adventure touring was also a new segment for the company aligned to the strategic initiative. We believe this segment has future growth potential for us, and we are committed to continuing to innovate with the platform. A proof point being the recently launched Pan America ST that will be landing in dealerships shortly, ahead of its debut in the Marvel Studios Thunderbolts film premiering May 2nd.

Turning to growth beyond bikes, we are committed to creating products, services, and experiences that inspire our customers to discover adventure and live the Harley-Davidson lifestyle. 2024 also saw the build-out of capabilities for custom-built at Taro, ensuring that our dealers are able to access the best in customer care from Harley-Davidson. Looking ahead, we expect for these capabilities to reach our network this year.

Leveraging the power of the Harley-Davidson brand, in 2024, we are also proud to partner with Champion for the second time in the company's history. Looking forward, we will continue to look for brand collaborations that will connect with our customers and communities while at the same time expanding on our licensing opportunities globally as a brand. Creating integrated customer experiences ensures our customers have a seamless experience with our brand.

In 2024, we've continued our digital efforts, adding more combined with an all-new digital experience on hd. com focused on improving engagement, lead capture, and ultimately with the intention of driving more traffic to our dealers. These efforts led to a 177% increase in the number of engagements with motorcycle pages for the model year 2025 launch.

Turning to the physical experience that is integral to the brand, we've continued to invest in our experiences and offerings by strengthening our events across the globe and better aligning our efforts with those of our dealers. In 2024, we held our second annual homecoming event in Milwaukee with over 60,000 riders, fans, and motor enthusiasts joining us to celebrate the Harley-Davidson brand. We're looking forward to homecoming 2025 this July with an incredible talent lineup.

The Harley-Davidson Riding Academy or HDIA is an important initiative for the company, operating in 225 dealerships across 43 states, making it the largest rider training network in the US and the only nationwide rider licensing program sponsored by a motorcycle manufacturer. In 2024, we were proud to hit one million riders trained, celebrating the 25th anniversary this year. Promoting rider education and training for both experienced and new riders is an important part of the overall riding ecosystem.

At Harley-Davidson, we are committed to building ridership and deepening our connection with customers, ultimately reinforcing our position as the most desirable motorcycle brand in the world. Turning to cost productivity, as we covered with Q3 earnings, we've taken further steps to tighten OpEx across the organization without negatively impacting demand-driving initiatives for our core segment. One example of this is the difficult choices we've made in headcount.

Comparing the end of Q4 2024 to the end of Q4 2023, total headcount is down by 7%. 2024 includes employee severance expense. This run rate favorability will display itself more fully in 2025.

In addition, Jonathan Root will cover our cost productivity performance for the year, and we continue to execute very well in that area. Since announcing that focus, we achieved $257 million in productivity savings. Cost productivity continues to be a positive contributor to cash.

We remain pleased with the cash flow generation of Harley-Davidson, delivering operating cash flow well over $1 billion in 2024, nearly a 40% increase from the prior year. In 2025, we plan to display further cost progress across the P&L. We believe OpEx productivity will allow us to run with flat to slightly down OpEx even after an increased focus on marketing and continued product investment.

Additionally, we expect our cost productivity target to deliver approximately $100 million of additional savings in 2025. I'd like to now comment on our new model year launch. With the 2025 model year campaign, we revealed all new and refreshed models of motorcycles for this year's lineup.

With products released sitting squarely within our product focus and selective expansion strategic focus. Harley-Davidson's cruiser motorcycle lineup includes six new models with significantly improved performance and technology. Additionally, for 2025, we updated the powerful Sportster S model.

For its 26th year, we introduced a collection of limited production CVO motorcycles that includes four models. Lastly, new for this year are the Street Glide Ultra, a fully equipped long-haul touring model complementing our new touring lineup, as well as the previously mentioned Pan America 1250 ST Adventure Sport motorcycle. Both incredible machines with Visor Down suggesting that the Harley-Davidson Street Glide Ultra might be the most capable American tourer on the market.

We also continue to be excited about the adventure sport category and its application to racing. In January, we celebrated John Cadreros' extraordinary performance in the Africa Eco Race. He secured first place in the 1000 CC+ category.

This win is a groundbreaking moment that showcases the Harley-Davidson Pan America's capability and versatility in a class of its own. Additionally, we were pleased to see Team Saddlemen Harley-Davidson rider Corey West take the 2024 Super Hooligan championship on his race-prepared Pan America 1250, showing the versatility of the platform. Performance and racing continue to be key differentiators across our product portfolio. We will continue to expand on our racing efforts in the US and beyond.

To support our model year launch, we've adapted our marketing approach specifically to drive dealership traffic and improve alignment on key messages within our dealer channel. Rather than spending significant funds on teasing and pushing the global launch as we did before, for this reason, we launched the Marketing Development Fund, a new initiative designed to drive leads, foot traffic, and customer transactions and conversions in our network. Driven by a desire to complement dealer marketing spend, adding additional financial support from the motor company, we believe the Marketing Development Fund will not only strengthen collaboration between the motor company and the dealer network but also force effective change management to drive growth.

This commitment by Harley-Davidson represents the single largest marketing investment on behalf of the company on a per-unit and absolute basis in our history. While it has only just been launched, we've seen strong uptake through the network. As we've said previously, the health of the dealer network remains critical.

We've taken many steps throughout 2024 to support the network through this challenging environment, and we're taking further actions into 2025 to continue our support for the network. Jonathan Root will provide more detail on guidance. We are realistic and cautious, not having reliable signals yet in either direction as we start the year.

Our guidance is for flat retail sales for the year, with positive performance skewed towards the second half. I know that the decisions we've made and the bold actions we have taken as part of our Hardwire strategy are continuing to strengthen our foundation for the future. The industry has faced many headwinds over the past couple of years, impacting at all levels from OEM to dealer to customer.

But we believe we are best positioned to take advantage of any uptick in consumption. Additionally, we will continue to explore any and all opportunities for transformational change. We are committed to achieving our Hardwire profit targets over time.

As soon as we are seeing tailwinds in the consumption of discretionary products in the two-wheel and overall powersports industry, assuming a slightly improved outlook in 2026, we expect to deliver solid improvement in margin performance. The actions that we've taken in 2024, coupled with expectations for 2025 and 2026, we expect to balance retail, production, and wholesale. We now expect that this will allow us to deliver double-digit margin in 2026, climbing to our 15% target in the years following, due to a combination of factors, including expected slight volume growth supported through exciting product portfolio launches every year.

Lastly, tariffs are on everybody's mind. Not having a clear view of what is to come, when, and for how long, we've not yet incorporated any new tariffs in our outlook. We believe we have and are continuing to take all possible actions to mitigate the impact of tariffs.

We'll continue to take precautionary measures where possible. That said, with neither production in Canada nor Mexico, 100% of our bikes in our core product segments are manufactured in the US. Those motorcycles manufactured in our US plants and in partnership with our skilled union workforce account for the vast majority of our profits in the US business, and most of our sourcing is also US-centric.

We'll provide more detail once we have a more complete tariff picture. Any discriminatory tariffs against Harley-Davidson, a great American icon, returning in Europe, we plan to fight aggressively with all means available and call for reciprocal treatment for all motorcycles imported into the US. Thank you, and I now hand it over to Karim Donnez for more detail on LiveWire.

Karim Donnez

Thanks, Jochen. Good morning, everyone. As we concluded 2024, LiveWire had an operating loss of $110 million and 612 revenue units, both within the range of our revised guidance.

In the electric motorcycle segment, LiveWire's global retail performance grew by 46% year over year, with LiveWire maintaining a leadership position with a 65% market share in the US 50+ horsepower on-road EV segment. Despite the decrease in total unit sales in 2024, driven largely by reduced sales to third-party distributors, the US market saw significant growth. LiveWire recorded a 21% increase in US dealer sales and a 20% increase in US online sales.

The cost-cutting initiatives implemented during the year enabled the company to achieve a cash burn below target for 2024. We expect these efforts to reduce 2025 total cash used by operating and investing activities by about 40%, which we expect to be $60 million or less. Looking ahead to 2025, LiveWire has entered the year with four models in the market, including three based on the S2 platform, and as announced at Tech Mahindra in Q4, plans for an electric maxi scooter in the first half of 2026, with a primary focus on the European market.

The company's commitment to innovation and market expansion will be evident by planned new products in both the electric motorcycles and scooter segments, designed to appeal to a broader global customer base. We believe these initiatives position the company to enter new market segments and enhance its competitive edge. Now I hand it over to Jonathan Root.

Jonathan Root

Thank you, Karim, and good morning to all. I plan to start on page four of the presentation. I will briefly summarize the financial results for the fourth quarter and full year 2024.

Subsequently, I will go into further detail on each business segment. Let me start with consolidated financial results for the fourth quarter of 2024. Consolidated revenue in Q4 was down 35%, driven mainly by HDMC revenue being down 47% and partially offset by HDFS revenue growth of 4%.

Consolidated operating loss in Q4 was $193 million, which compares to an operating loss of $21 million in Q4 2023. This was driven by an operating loss of $214 million at HDMC, while HDFS operating income of $46 million was unfavorable by $12 million relative to a year ago. The operating loss at LiveWire was $26 million, which was in line with our expectations and $9 million favorable relative to a year ago.

As a reminder, we expected the fourth quarter to be a reduced quarter from a profit standpoint at the Harley-Davidson Motor Company segment. This is a result of the intentional reduced wholesale shipments in Q4 as part of preparation for the new model year product launch in January of this year, and our commitment to not grow dealer inventory year over year. Again, I plan to go into further detail on each business segment's profit and loss drivers in the next section.

In Q4, earnings per share was a loss of $0.93%, which is down from a profit of $0.18% in Q4 2023. Turning to full year 2024 financial results, on page five. Consolidated revenue of $5.2% billion was 11% lower compared to last year, while consolidated operating income of $417 million was 47% lower than last year.

Full year 2024 consolidated revenue performance was as follows: At HDMC, revenue decreased by 15%. At HDFS, revenue increased by 9%. And at LiveWire, revenue declined by 31%.

Full year 2024 consolidated operating income of $417 million compares to $779 million of consolidated operating income in 2023. Business segment performance was as follows: At HDMC, operating income of $278 million was 58% lower than the prior year. At HDFS, operating income of $248 million was 6% higher than the prior year. And at LiveWire, operating loss of $110 million was 6% favorable.

For the full year 2024, earnings per share was $3.44%, and compares to $4.97% in 2023. Now turning to page six, on HDMC retail performance. As Jochen Zeitz already mentioned, in Q4, global retail sales of new motorcycles were down 15% versus the prior year.

This is a continuation of the trend that began at the start of Q3 and continued to play out through the second half of 2024, where we saw an increasingly difficult global market environment in our and other big-ticket discretionary sectors. Macroeconomic uncertainty, continued inflationary pressures, and the pressure of high interest rates affected both our industry and our customers, especially in our core markets. In North America, Q4 retail sales declined by 13%, while international retail sales excluding Canada, declined by 17% year over year. In EMEA, Q4 retail sales declined by 7%, driven by weakness in Germany and the surrounding region.

EMEA continued to be adversely impacted by overall macroeconomic conditions. For the full year 2024, EMEA retail sales were down 11%, where a majority of the retail weakness was in non-core motorcycles. The touring category was up 10% on the year.

In Asia Pacific, Q4 retail sales declined by 26%, as the region has remained weak since the second half of 2023. The Q4 retail sales decline was driven by weakness in Japan and China, with Australia and New Zealand turning in a positive Q4. For the full year 2024, Asia Pacific retail sales were down 18%, with market characteristics broadly consistent with that seen in Q4.

The softness was most acute in Japan and China, whereas both Australia and New Zealand, as well as India, showed some resilience. In Latin America, Q4 retail sales declined by 7%, where both Brazil, our largest Latin American market, and Mexico were down, while other Latin American countries were up year over year in Q4. For the full year 2024, Latin American retail sales were flat, where Brazil was down marginally and Mexico was up marginally. For the full year 2024, global retail sales of new motorcycles were down 7% versus the prior year, where North America retail sales declined by 4% and international retail sales declined by 13%.

Dealer inventory at the end of Q4 was down by 19% sequentially relative to the end of Q3, as we executed on our plan to reduce inventory levels in the second half of 2024, both domestically and internationally. Dealer inventories globally were at a level where we ended the prior year. Specifically, Harley-Davidson dealer inventory levels were down over 4% year over year.

We continue to prioritize support for our dealers as we start 2025 and the upcoming spring riding season. Appropriate levels. We are investing in our grassroots marketing activations, which we expect will reap benefits in improved dealer and motor company profitability, beginning in 2025 and lasting beyond.

Also, as Jochen Zeitz mentioned, we are pleased with the initial reaction to the redesigned Softail motorcycles. We will talk further about our expectations for both retail and wholesale motorcycles in just a few minutes. For the full year of 2025, now $120 million, which was driven largely by a 53% decrease in wholesale units shipped.

Looking closer at the key drivers for Q4, 43 points of decline was as a result of decreased wholesale volume at HDMC, where motorcycle shipments were down meaningfully when compared with retail sales of motorcycles. Specifically, we shipped less than half the motorcycles we did in Q4 of the prior year. We delivered 14,000 motorcycles in Q4.

We worked to reduce dealer inventory levels by year-end. Five points of growth came from pricing, which includes the net impact of pricing actions on 2024 model vehicles and overall sales incentives. Shipments in the first half of the year. And we rounded out the rest of the motorcycle portfolio shipments in the second half of the year.

And finally, foreign exchange was largely flat in Q4. For the full year of 2024, HDMC revenue decreased by 15%, coming in at $4.1% billion. Looking more closely at the key drivers for the full year 2024, 15 points of decline were driven by an overall decrease, which came from decreased wholesale volume at HDMC, in wholesale motorcycle unit shipments as we prioritized appropriate inventory levels and driving improved financial outcomes for our dealer partners.

One point of decline came from pricing, net of incentives, reflecting difficult year-over-year comparisons in the first half, and actions to help support retail in the 2024 calendar year for the remaining 2023 model year. Dealer inventory mix contributed a little more than one point of growth as we continued to prioritize our most profitable models and markets. And finally, especially in the first half of 2024, foreign exchange resulted in an $18 million headwind, or less than 50 basis points of decline as the dollar strengthened for the full year.

Now, turning to page eight, on HDMC margin performance. In Q4, HDMC gross profit came in at a loss of $3 million compared to a gross profit of $181 million or 22.9% gross margin in Q4 of 2023. Again, Q4 is typically our lowest gross margin quarter of the year.

The year-over-year decrease was driven by the negative impacts from significantly lower volumes, unfavorable mix, unfavorable foreign exchange including hedging, and negative operating leverage. There were some positives in the quarter, including favorable net pricing and lower raw material and supply chain management costs. In Q4, operating expenses totaled $210 million, which was $15 million lower compared to the prior year, or 7% lower as we continued to maintain overall cost discipline and increase our efforts to manage OpEx productivity at HDMC. In Q4, HDMC had an operating loss of $214 million, which compares to an operating loss of $44 million in the prior year period.

Turning our attention to full year 2024 margins. For the full year 2024, HDMC gross margin was 28%, which compares to 32.3% in the prior year. The decrease of 430 basis points was driven by the negative impacts from lower volumes, unfavorable net pricing, unfavorable mix, which was largely driven by increased costs related to all-new touring motorcycles, and an unfavorable mix more than offsetting favorable family mix.

Additionally, we experienced a benefit in the first half of the year from shipping higher-margin CVO products in 2024, which reversed in the second half as we lapped the introduction of our 2023 CVOs. Our Hardwire to profit focus has produced meaningful mix margin expansion since 2020, but was muted in 2024 as we invested behind our core product segments and lapped higher comparison periods. Unfavorable foreign exchange including hedging, and negative operating leverage.

These impacts were partially offset by the positive impacts from lower raw material costs and lower logistics expenses as we executed well against our cost productivity targets, which helped to offset the 2% rate of inflation seen during the full year of 2024. Lastly, for the full year of 2024, operating expenses came in at $877 million, which were lower by $28 million as we maintained overall cost discipline due to actions that we began to take in late Q2 of 2024. Full year 2024 HDMC operating income was $278 million, which was $383 million lower than the prior year due to the factors mentioned previously. For the full year 2024, HDMC operating margin was 6.7%, which compares to 13.6% for the full year 2023.

Before we turn to the next slide, as I did in October, let me give a brief update on our productivity cost program. One of the initiatives identified as part of the Hardwire strategy where we were expecting to drive $400 million of improvements in productivity by 2025. As a reminder, we are now excluding the impact of leverage while holding our previously communicated multiyear target of $400 million, excluding the impact of leverage.

We delivered approximately $24 million in 2022 and $123 million in 2023. In 2024, we delivered a further $110 million for the full year. This is a total of $257 million to date.

We expect to achieve another $100 million in 2025 and again in 2026, exceeding our Hardwire dollar target by over 10%, but doing so one year later than anticipated. Now turning to slides nine and ten, in the financial services segment. At Harley-Davidson Financial Services, Q4 revenue came in at $257 million, an increase of $11 million or 4% compared to last year.

The Q4 increase was driven by lower retail finance receivables at higher average yields as the portfolio continued to reset over time, with higher interest rates driving higher interest income. HDFS's operating income was $46 million, down 20% compared to the prior year. The Q4 decline was driven by a higher provision for credit losses and higher borrowing costs, which were partially offset by higher interest income.

Operating expenses were largely flat. The provision for credit loss expense was $16 million higher, primarily as a result of an unfavorable reserve change and slightly higher realized credit losses. The reserve change was $13 million unfavorable as compared to Q4 of 2023, primarily on an increase in the retail reserve rate to ensure we are well-positioned for subsequent periods.

Total interest expense was up $6 million or up 7% versus the prior year. The increase was driven by a higher cost of funds as lower interest rate debt matured and was replaced with current market rate debt. For the full year of 2024, HDFS revenue was $1 billion, up 9% from the prior year, while HDFS operating income was $248 million, up 6% from the prior year. The full year 2024 operating income margin was 24%.

Now turning to slide eleven. At the end of 2024, HDFS's annualized retail credit loss ratio was 3.3%, which compares to an annualized retail credit loss ratio of 3% at the end of 2023. The increase in retail credit losses was driven by several factors connected to the macroeconomic environment and related to customer and industry dynamics.

Across the portfolio, we have seen that more loans have become delinquent as customers have been impacted by higher bike payments and general inflationary pressures. The average loss increased due to higher loan balances and continuing normalization of used bike values following a rapid value escalation in the period immediately following COVID. The retail allowance for credit losses for Q4 2024 ticked up to 5.7%.

This is up from 5.5% in Q3 2024 and up from 5.4% at year-end 2023. This reflects our best estimate of the current and future retail lending environment. Total retail loan originations in Q4 were down 16% to $1 billion, while commercial financing activities were down 5%.

Total quarter-end net financing receivables, including both retail loans and commercial financing, was $7.3% billion, a 3% decline versus the prior year. The operating loss at LiveWire was $26 million, which was in line with our expectations. Now turning to slide fourteen.

Wrapping up with consolidated Harley-Davidson Inc. financial results, we delivered $1.1% billion of operating cash flow in 2024, which was an increase of $309 million and up from $755 million in 2023. The increase in operating cash flow was influenced by a favorable change in wholesale finance receivables and by positive changes in working capital. As we continue to focus on cost productivity and tight inventory management, including over a 20% reduction in finished goods inventory, total cash and cash equivalents ended at $1.6% billion, which was $56 million higher than a year ago.

This consolidated cash number includes $64 million at LiveWire. Additionally, capital to our shareholders as part of our capital allocation strategy and in line with our commitment to return capital. In Q4, we bought back 3 million shares of our stock at a cost of $100 million. This brings our total amount of shares bought back in the full year of 2024 to 12.5% million shares of Harley-Davidson common stock at a total value of $450 million, which is 9% of shares outstanding at the beginning of 2024.

Since the company announced a $1 billion share repurchase plan on July 25, 2024, we have repurchased 7.1% million shares at a cost of $250 million. Now turning to slide sixteen. As we look to our financial outlook for 2025, we remain pleased with our leading market share position in the US.

The new model year 2025 launch, including an important new entry in the Pan America family, all coupled with our still new and redesigned touring lineup. Yet as Jochen Zeitz already mentioned, we are mindful of overall macroeconomic uncertainty and greater softness in high-ticket consumer discretionary spend, particularly after the second half of 2024's slowdown. At HDMC, we expect retail units to be flat in 2025, with positive performance skewed towards the second half, as Jochen Zeitz mentioned. We expect wholesale units to be flat to down 5% in 2025 as we continue to be mindful of dealer inventory management. We expect global inventory levels to come down by more than 10% by the end of 2025.

The impact of this will be most evident in the first half, where we expect a reduction of more than 30%. As a result, we expect HDMC revenue to be flat to down 5%. We expect revenue to align with the timing of wholesale shipments, and year-over-year revenue comparisons will exhibit a different seasonal cadence versus the prior year, as we are not building dealer inventory for all touring, as was done in 2024.

We expect operating income margin to come in between 7% and 8%. The drivers of our margin performance expectations include slightly negative operating leverage due to lower volumes, FX headwind from unfavorable shifts in foreign currencies, mix which we expect to be slightly unfavorable due to higher overall portfolio makeup of the new Softails, pricing we continue to fine-tune our pricing strategy, and operating expense down due to the full year benefit of lower headcount and anticipated warranty savings. In addition, at the earnings per share level, we expect EPS to be flat to down 5% relative to $3.44% reported in 2024.

The drivers of this include tax rate, which was unusually low in 2024 due to one-time impacts from tax credits and reduced withholding taxes on the current as we expected to be repatriated. Interest income, down year over year as we lap higher short-term interest rates. Other income, lower pension income, and lapping gains on changes in LIBOR and warrant value.

In 2024, EPS will benefit from lower weighted average shares outstanding as well. At HDFS, we expect operating income to be down 10% to 15% in 2025. This forecast is based on higher borrowing costs year over year, as we refinance a portion of the portfolio in a higher interest rate environment, a stable loss rate as consumers settle into the existing macroeconomic backdrop where lower-tier credit continues to experience some stress, but offset with recent levels of higher prime mix originations, driving lower commercial balances and lower assets as we reduced dealer inventory wholesale levels.

At LiveWire, LiveWire is expected to achieve unit sales of between 1,000 to 1,500 units, and an operating loss in the range of $70 million to $80 million. Actions were taken in 2024 to reduce 2025 total cash used by operating and investing activities. For 2025, we expect this will be a reduction of approximately 40% and a spend of $60 million or less. And lastly, for total HDI, we expect capital investments in the range of $225 million to $250 million.

This is the same forecast as in 2024 and 2023, where we plan to continue to invest in product development and capability investments. Our investment focus remains driven by core product innovation, costs as part of our productivity journey, investments in manufacturing to automate and reduce costs, as well as planned investment for LiveWire. As a reminder, our capital allocation priorities remain to fund profitable growth of the Hardwire initiatives, which includes the capital expenditures, paying dividends, and continuing to execute discretionary share repurchases.

As covered previously, in the three-year period from 2022 through 2024, we returned $1.4% billion in capital to our shareholders, including $1.1% billion of shares repurchased. As we begin 2025, we are planning to buy back $350 million of our common shares, demonstrating our ongoing commitment to delivering $1 billion in share repurchases as announced in July. And with that, we will open it up to Q&A.

Thank you.

Operator

Thank you. Our first question will come from Megan Alexander of Morgan Stanley. Please go ahead.

Your line is open.

Megan Alexander

Hi. Thanks very much. Good morning.

Thanks for taking our question. Jonathan, a lot of helpful detail there. So thank you.

Appreciate it. I think you mentioned you're expecting an inventory reduction of more than 30% in the first quarter for touring as you did in 2024. So maybe a hard comparison on touring plus still taking some shipments out of the channel.

So can you just maybe put a finer point on what that means for your expectations.

Jonathan Root

Sure. So we'll probably talk more, I think, in sort of front half and back half of the year rather than get into quarters specifically. But, Megan, your question is sure that you do have an understanding on, but is I think a really good one that we feel is important to make as we look at where dealer inventory globally kind of lands across 2025.

We expect to end the year down 10% or a little bit over from a total dealer inventory perspective. As we think about what that looks like across the quarters, again, front half would be down a little over 30%. And so, obviously, as we flow through that and think about some of the dealer impacts related to that, we have dealers who run the year down probably about 35%, you know, call it a 35-ish percent average across the entire year.

But, obviously, it kind of trails off because of the actions that we took in 2024 to bring down inventory in Q4. So with that, you see a more pronounced decrease in inventory in the front half than the back half. So 30% plus and then 10% plus kind of year-end.

As we think about the wholesale related impacts to that, it does mean that front half of the year wholesale will be down in 2024, versus where we were. So front half probably down in the year, move toward the back half up quite a bit in the back half in order to make sure that we end the year appropriately positioned from an inventory standpoint.

Megan Alexander

Thanks.

Operator

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

Joseph Altobello

Guys. Good morning. I guess, I try to squeeze in a couple of questions if I get.

Where was the big margin surprise. Because revenue was in line. Shipments were maybe slightly below expectations.

So first question is where the big margin surprise was in Q4, and then maybe to follow-up on that, the retail outlook for flat in 2025. Maybe you're.

Jonathan Root

Alright. Thanks, Joe. I can start with I'll start with the sort of margin piece from a Q4 perspective.

And then between Jochen Zeitz and I, we'll cover the retail piece. So on the Q4 margin, we have a margin walk that I think was page eight of the deck. And if you take a look at that from a full year perspective, you can see the impacts associated with volume as well as sort of manufacturing and other related expense.

So we're pretty pleased in terms of some of the positives that we delivered on. I think you heard Jochen Zeitz's commentary and my commentary around productivity. And the productivity that we drove in 2024.

I think that overall was a good news. But as we think about some of the things from a 2024 perspective, obviously, we were a little bit off from an overall retail perspective, we made the commitment that we would manage retail and wholesale in alignment with each other throughout the year. So as we got to the back part of 2024, there were a number of down days that we used to manage inventory and make sure that we were managing production in the right way.

We also had a little bit of cost associated with retooling for new Softail and kind of getting everything aligned from an overall line rate, the design perspective within there. And then, obviously, the volume that I just talked about, that hit from an absorb or deleverage perspective. So as we add up those elements, that kind of creates the challenge in terms of the overall miss from an operating income margin standpoint.

And then, Jochen Zeitz, do you want to take Joe's question from a retail outlook standpoint.

Jochen Zeitz

Sure. I think if you look at the first and the second half of last year, we had a stronger performance in the first half versus the second half. Not just because or only because of the touring launch, but in general, we've seen a drop-off in the second half, which is pretty much in line with what other industries or related industries have seen.

So therefore, we expect a better performance in the second half versus the first half. We also think from a macroeconomic point of view, it's probably going to be more choppy in the first half than the second half. You mentioned the touring launch.

I think what's important to notice is that we have beyond touring a lot of innovation in our product lineup, which is reflected in our guidance. And then that the touring product that we've launched is still very new to many of our customers. We have 1.6% million touring riders just across the United States.

With last year's sales of new touring bikes, we still have a customer base of the 95% that haven't looked or purchased our product. This means that's 1.5% million that can potentially upgrade to the new product platform. And if you look at previous launches that were not as comprehensive in terms of remodel as our touring launch now is, that benefit came over several years, not just the first year.

And data shows that 30% of our customers are very aware of our new touring product features, but that makes 70% that are not fully aware yet. So there's definitely a lot of potential for the coming years to convince customers, and some are just holding off and don't want to buy the first generation and want to familiarize themselves more. So we still think Touring has opportunity for growth in the future for sure, and this platform should run for many years, given that it's all new compared to our Rushmore products in the past.

But in terms of comps, certainly, we believe the first half is going to be slower than the second half.

Operator

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

James Hardiman

Hey, good morning. Thanks for taking my question. So maybe help.

Jonathan Root

The sort of margin bridge. You're guiding revenues to be flat to down modestly. But operating margin to be up.

And it looks like on the OPEX front, sales. So I assume it sounds like that's going to basically track revenues, so maybe pretty flat as a percentage of we're to model gross margins to be up pretty materially in 2025. Now you gave us a lot of the negatives.

Right. I think FX is going to be a negative. It sounds like mix is going to be a negative.

I guess, how do we get to that motor company margin growth that you're guiding to. Thanks.

Jonathan Root

Alright, James. So I can start. So I think as we go through and we take a look from an overall volume perspective, obviously, as you talked about, we're pretty flat. So as we think about walking off of 6.7% for 2024, we end up with, you know, a relatively flat guide from a volume perspective.

From a pricing standpoint, we expect a little bit of favorability that's in there as we look at the actions that we've taken across the portfolio. There's a little bit of a negative impact in 2025 from FX, so probably a little bit greater than the negative impact that you saw in the 2023 to 2024 walk. A little bit of a challenge from a mix standpoint because we have the new Softail that are hitting.

Obviously, the touring are higher margin motorcycles. So there's a little bit of a mixed dynamic in there. We don't think that we're going to see sort of the same level of unfavorability from manufacturing and other.

And then we think we have a little bit of favorability that falls in there from an OpEx perspective. Those are for the reasons that Jochen Zeitz talked about in his remarks. And so with that, you kind of add up to the 7% to 8% guide we provided.

Operator

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

Robin Farley

Great. Thanks. I wanted to just clarify, this is your guidance for motorcycle revenue flat to down 5%.

I think you said price would be positive for the year. So does that imply percent of unit down a bit more than that flat to 5%. And then just on retail, I know you gave some color sort of first half versus second half.

But assuming that you're trying to clear inventory, you're shipping below your retail expectations. What should we kind of think about as the rough range of your retail expectation for the year just so we can kind of, as we move through the year, kind of see how it's tracking versus your guidance and, you know, maybe kind of adjust our expectations accordingly. Thanks.

Jonathan Root

Okay. Thank you, Robin. So I'll start with I think from a wholesale perspective, we probably think, you know, flat to down a little bit.

So as we look at that, that's a little bit of the volume. You know, there will be a little bit of volume challenge in there. That is offset by the pricing piece that I talked about. And then I think relative to your question on retail, overall, for right now, from the commentary that we talked about, we think that retail is being flat in 2025.

So certainly, a little bit difficult to predict as we think about the macroeconomic situation and where we are. But overall, we are thinking about an environment globally that gets us to flat retail, wholesale maybe off a little bit, and then pricing a little bit favorable. And, hopefully, that answers your question around how we manage through that.

Operator

Our next question comes from Fred Wightman from Wolfe Research. Please go ahead. Your line is open.

Fred Wightman

Hey, guys. Good morning. I was hoping you could just give us a sense for where the mix of current versus noncurrent product that dealers have on lots today stands.

If we look back last year, you'd called out some incremental dealer support to clear through noncurrents. I think there was a $40 million number initially, and then you upsized that down the road. So about that.

Are you assuming incremental dealer support year over year. Does that wind up being favorable. How do you sort of.

Jonathan Root

Alright. Thank you, Fred. So I'll start.

And I think in terms of the mix, we obviously have started shipping in 2025 model year motorcycles. So literally just hitting within the last week or so. So as we look at dealer inventory in terms of what's out there, we've covered the fact that we're, you know, we're down a little bit from where we ended 2024.

It's kind of the same period a year ago. As we look at how we're managing through inventory in 2025, we've covered sort of the conservatism that we expect in the first half of the year, how we're shipping pretty carefully from that standpoint. So we think that dealers are pretty well positioned from an overall inventory perspective.

The other thing that is a tremendous difference in 2025 calendar year versus 2024 calendar year is the way that I would define it, this kind of quality of inventory. Right. So as we think about the mix of touring bikes that dealers have on their floor, they have redesigned the redesigned touring bikes that are out there.

Jochen Zeitz talked about market reset and market reaction to those, which were positive in 2024. So overall, with that, we think the health of the dealer inventory is better. We think the quality of the dealer inventory is better.

The piece that I think we are doing that's a little bit different in 2025 versus 2024 is being more surgical in where we look for dealer support. So rather than sort of applying support across the family like we did a year ago, we actually now kind of look at specific models within that family and provide the support a little bit more carefully from that standpoint. Again, something that we think we're able to do because of the mix of dealer inventory that's out there in the network.

Jochen Zeitz

Just to add one point, also please look at pricing. We've strategically priced our products going into 2025 versus 2024. So I think that is an important factor and has been perceived and received very positively.

Operator

Our next question comes from Alex Perry from Bank of America. Please go ahead. Your line is open.

Alex Perry

Hi. Thanks for taking my questions here. I actually wanted to ask about LiveWire.

So thinking about LiveWire, you know, more longer term, how do you think about managing that business and sort of managing the operating losses there. I guess, you know, if demand and adoption of electric does not materialize meaningfully over the next few years, how are you thinking about LiveWire longer term would be great. Thanks.

Jochen Zeitz

Right. Yeah. Alex, good question.

I think, you know, we are continuously evaluating, you know, from a Harley-Davidson perspective, how to achieve the best performance for Harley-Davidson and for LiveWire. And we are obviously considering mid- and long-term perspectives in this evaluation. Beyond what we've said today, there's little to nothing that I want to comment on.

But the first significant step Karim Donnez has already mentioned. We are reducing our operating losses from $110 million last year to, you know, $70 to $80 million. And cash burn by at least 40% or more to $60 million.

So the team has taken, under Karim Donnez's leadership, a lot of significant actions to downsize the organization, refocus the product portfolio, and ensure that the cash burn and the operating losses are being reduced. So that is an indication of how we are streamlining the business in light of the new realities. Beyond that, I can't really comment, but rest assured that we are continuously evaluating the development of LiveWire from a Harley-Davidson perspective as well.

The benefits it brings and all of the costs versus the costs that we incur by being invested in that business.

Operator

Our next question comes from David MacGregor from Longbow Research. Please go ahead. Your line is open.

David MacGregor

Hi. Good morning. This is Joe Nolan on for David.

Just briefly, I wanted to touch on your outlook for some of your international end markets, if you could provide any detail there.

Jonathan Root

Okay. Joe. So I think as we sort of take a look at where we are from an international perspective, probably looking back is a little bit of an important perspective in terms of trying to look forward.

So as we think about 2024, there were some markets in international that were positive. The markets that were a little bit down. So as we think China and Japan proved a little bit of a challenge as we look back.

Australia and New Zealand exhibited some nice strength in the Asia Pacific region. As we think about Europe, Germany, and the surrounding markets there were a little bit challenged. There were, you know, a couple of specific markets that we've had some strength for a while, Spain, Portugal, Italy in particular.

Over time have been solid and performing really nicely. As we move forward and really take a look at where we think 2025 is going, overall, globally, we kind of view it as pretty flat. So as we think about international markets in 2025, pretty flat.

So in the prior periods, Joe, we've kind of walked through and covered what we've seen from Asia and the way that that market has performed over time. We feel like that, for example, is overall slight growth in 2025. But for the most part, again, we're guiding to a flat global environment from a retail standpoint.

Operator

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

Noah Zatzkin

Hi. Thanks for taking my question. Maybe just a couple on HDFS.

Guess, first, how are you feeling about the health of the book. And then in light of SOFR declining, I know you guys have variable rate debt, but what are kind of the big moving pieces on the expense or the income side that's driving the decline in the guide. And then, you know, is there some expected credit loss baked in there conservatism.

I'm just trying to better understand that. Thank you.

Jonathan Root

Okay. Great. Thank you, Noah.

So as we look at HDFS, I think overall health of the book, a couple of things. So as we think through some of the sort of historical originations, a little bit of pressure as we think about some of the variability in motorcycle values over time. So as we look towards the final quarter of 2024 and forward, we feel like, you know, if you remember, there was a tremendous rise up in used values in the period following COVID.

There's a little bit of normalization. As we go through and we look at statistics and kind of performance over the last few months, we feel like there's probably stability in where used values are, so that's positive. From a consumer perspective, again, with recent originations, we've been originating at very, very high credit quality.

So the overall kind of mix of the portfolio is looking pretty strong and pretty healthy. But I think that's a positive. When we kind of look at things in absolute dollar perspective, we feel good from a percentage standpoint and things pop out a little bit.

So as we work with our dealer network to really bring down wholesale inventory levels, you see that reflected negatively in HDFS results. So that's a big part of what you're seeing on a year-over-year basis relative to what we guide wholesale asset levels from a year-over-year standpoint that come down. We also recognize that as we've had a little bit of a challenged sales environment, in comparison to where we were in kind of the year or years immediately following COVID, that puts a little bit of pressure on asset levels with those customers continuing to pay down their loans.

So overall, I would say that we're pretty pleased with the health of the book. We feel like it's being managed in a way that's pretty positive. Percentages can throw things off a little bit just because of the numerator-denominator effect.

And then when we think about Fed rate, as we look at the parts of our portfolio that are actually tied to a variable rate, that's the wholesale business. So our dealers will continue to see savings in wholesale rate between units that aren't being delivered at the same level and where Fed rates are going, but that does put a little bit of pressure on HDFS. So for the most part, it's a story of kind of assets, a story of some benefit that accrues to the dealers rather than the HDFS business.

And then the other piece that we always consistently work to manage is that as we bring on any new debt, that's at a higher debt level than where we were three, you know, three, four years ago, we just have a little bit of sort of short-term normalization around that. But, overall, continue to be very pleased with that business.

Operator

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

Tristan Thomas Martin

Hey. Good morning. Two kind of housekeeping questions.

I believe you mentioned growing to an HDMC operating income margin target in the future. Is that still 15%. And just quickly following up on those questions.

Was there any CECL accounting change embedded in the HDFS guidance. Thanks.

Jochen Zeitz

Yes, Tristan. As I've mentioned, we continue to believe the 15% target is achievable. And if we assume, you know, 2026 balanced retail production and wholesale business or shipments, and then think about achieving a double-digit margin in 2026, if we can achieve that with this year's outlook, the 15% target is still achievable, but, obviously, that requires us to get a slight volume growth that is supported, and that we believe is actually going to be supported through exciting new product that we are launching.

I've mentioned in my opening remarks that we are also entering having an entry-level motorcycle in select markets starting next year and the small cruiser segments in following years. So supported with product launches, we believe the 15% is possible. But it's hard to give you a timeline on that other than the double-digit operating profit that we believe is achievable, assuming that we achieve this year's levels.

So, yes, we feel comfortable. I think we are positioned well, but, obviously, we need some tailwinds and a slightly improved retail environment in the powersports industry, which we haven't seen now for two years in a row. So I think that has to happen.

We need some tailwinds overall, not significant, but certainly not a depressed market as we've seen in all of power sports, RVs, marine, pretty much anything that is discretionary. So that will have to happen for us to achieve those 15% operating margins.

Jonathan Root

Really quickly, just to address Tristan's side, CECL change question. So from an HDFS perspective, we did adjust reserves up a little bit as we think about, again, to your point, lifetime loss evaluation, we did add a small amount to make sure that we are covered from that standpoint.

Operator

Our next question comes from Brandon Rollé from D. A. Davidson.

Please go ahead. Your line is open.

Brandon Rollé

Thank you for squeezing me in here. Just a quick one on LiveWire. How far away are we from seeing a profit on the LiveWire business.

It's been a headwind to earnings for years now, and I guess I'm wondering clients are wondering is there anything that would change your mind about continuing down this path with LiveWire and how committed are you to this business. Thank you.

Jochen Zeitz

Well, I think the reason is to start with the outlook, and then I'm going to comment from a Harley perspective.

Karim Donnez

Yeah. Thank you, Jochen Zeitz. Thanks, Brandon.

Look. From the LiveWire perspective, as you saw, we are reducing our expenses quite significantly year over year. We are working on accelerating our path to profitability.

We have an internal program, very aggressive on reducing our bomb cost. We do see actually an opportunity to have contribution margin positive by the end of the year between all of the work we've done on bomb cost, on conversion cost, etcetera, that will be the first step before we actually break even the business. Obviously, it was mentioned before, I think, by Alex Perry that it's a demand adoption challenge right now.

But our segments and markets where EV is having some traction, especially if you look at Europe, the maxi scooters, the other type of mobility segment, which we announced back at EICMA, and we really believe that we're working towards where the market is going when EV brings additional value and we'll keep working on this. We do have a plan to accelerate our path to profitability. You start seeing some very significant improvement this year. And you should expect to continue seeing some improvement.

For the second part of your question, Jochen Zeitz, do you have any comments.

Jochen Zeitz

Yes, Brandon. As I said, you know, we are evaluating the business performance of LiveWire very carefully. There are a lot of benefits that LiveWire brings on the electrification to Harley as well, but obviously, we are not achieving the targets that we've set out for many different reasons, EV adoption being a slower pace of EV adoption obviously being a contributing factor.

So we will watch this very carefully. LiveWire needs to perform, and we've invested a significant amount of money, and that performance needs to happen. Otherwise, we'll obviously have to look at some optionality here.

But we are committed to the business at this point, but we need to see improvements in the business performance. Based on what Karim Donnez has mentioned, I think reducing the losses continuously and really focusing hard on reducing the cash burn is critical, and then adoption and sales obviously need to show up, and this year, we'll need to prove that.

Operator

Our last question comes from Jaime Katz from Morningstar. Please go ahead. Your line is open.

Jaime Katz

Hi. Good morning. I just want to stay on that electric topic.

I guess I'm thinking about this new product that you guys are launching. And given the strain or lack of support from a retail perspective or demand, I guess, what was the strategic purpose of rolling out a new product where there's low demand in the segment. And I guess where does the incremental investment lie with that. And what does the profit margin opportunity look like for that new unit.

Just trying to think about that profit progression. Thanks.

Karim Donnez

Thank you. Just to clarify, are you talking about the Alpinestars Lounge that we just had on the S2 platform. The maxi scooter that I assume is going into the P&L of LiveWire.

Jaime Katz

Yes. It is correct.

Karim Donnez

Okay. Thank you for clarifying. So that scooter is expected to hit the market in 2026.

We are right now working diligently on the development of that. This is a strategic rationale for it, which is pretty strong for us. It does leverage two key things.

The first one is the S2 platform, which is fully developed in the market right now. And the know-how and expertise of our second-largest shareholder, Kymco, who are already in this market segment. So when you take the combination of the two, we feel like we have everything it takes to come and have a value proposition for this specific segment that would be extremely compelling, not only in terms of performance but in terms of market positioning as well.

There is a push, and there is actually growth in this maxi scooter segment EV right now in Europe in particular. So we are clearly targeting this segment next year.

Jochen Zeitz

If I just may add from a Harley-Davidson perspective, LiveWire has not invested into a new platform but is using the existing S2 platform to launch new extensions, and that is one of the major reasons why we are also operating with a smaller engineering team at this point, not investing, which is the reason why LiveWire is able to reduce the operating loss significantly to between $70 million and $80 million and the cash burn as well. And therefore, the focus right now is really getting bomb costs down, reducing the cost of sales, and reducing the loss per bike. But as I said, we will have to watch this very carefully.

With the mid- to long-term perspective in mind and look at the risk and rewards going forward to decide how the business is going to be positioned in the future.

Operator

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

You may now disconnect.