Arctic Cat, Inc. (ACAT)

Arctic Cat engages in the design, engineering, manufacture, and marketing of snowmobiles and all-terrain vehicles (ATVs) under the Arctic Cat brand name. The company also offers Arctic Cat snowmobile and ATV parts, garments, and accessories. The company markets its products through a network of independent dealers located throughout the United States, Canada and Europe and through distributors representing dealers in Europe, the Middle East, Asia and other international markets.

Arctic Cat faces intense competition from players like Polaris, Yamaha, BRP and Kawasaki to name a few. Business is seasonal in nature and hence significantly relies on the snow conditions. Industry-wide snowmobile sales to retail customers in North America has declined from approximately 189,000 units in 2000 to 135,000 units in 2006 due to declining snow levels. This does not bode well for Arctic Cat, which currently generates about 40% of its revenues from snowmobile sales. Revenues growth from parts, garments and accessories have been flat and no surge is expected as its fortunes depend on the slowing snowmobile market.

The contribution from ATV segment has shown decent year-to-date fiscal performance driven by its Prowler UTV model. On a positive note, management continues to expand its ATV business by developing new products like the recently launched ATV that runs on diesel. However, the overall revenue growth of the company has declined over the years, margin pressures are likely to aggravate in 2007 as promotions related to sales incentives on snowmobiles are to rise. Further, management expects loss in the fourth quarter and a lower revenue growth for fiscal ‘07 considering the soft industrial environment. Considering these facts, stock is expected to enter a bearish a trend.