Harley-Davidson, Inc. Q1 FY2024 Earnings Call

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.

Thank you, Sean, and good morning, everyone. Thank you for joining us for our Q1 2024 results. Harley-Davidson delivered a good start to the year, in line with our expectations. Looking at retail for the quarter, we are pleased with our delivery of 6% growth in North America, our largest and most important region. In Q1, we continued to see the impacts of the higher interest rate environment on both consumer confidence and affordability. However, it is positive to see customer enthusiasm for motorcycles despite this challenging environment. Outside of North America, both the Europe and APAC regions were soft, mainly due to regional macroeconomic conditions. However, it is also worth noting that our '24 product only started to arrive in the international regions in March and is just now making its way into most international markets. And as the riding season is starting to get into gear, we are excited for our riders and fans, both inside and outside of North America to experience the next era of Harley-Davidson touring motorcycles. As usual, I will now briefly address select Hardwire strategic pillars and our delivery of them, starting with Pillar 1, profit focus. When we announced our hardware strategy back in 2021, we made a commitment to invest in our core categories. Building on that commitment this year, we ushered in a new era of motorcycle touring by reimagining two of the most iconic motorcycles in history, the Harley-Davidson Street and Road Glide with the most comprehensive product redevelopment in well over 10 years. Overall, we are very pleased with our new model year launch and in particular, our new touring lineup, which is being received very positively by customers, dealers, and media alike. One outlet summarized the launch particularly well. The motor company took the motorcycling world by surprise with the release of the revamped versions of the Road Glide and Street Glide completely different from their predecessors, a more modernized approach that made them superior to the previous generation in nearly every facet. The all new Street Glide and Road Glide models have set a new standard for the industry and the future of touring and adventure on two wheels with exceptional performance, cutting-edge innovation and bold new design, representing the largest investment made by the motor company into a single platform. We believe that by elevating every aspect of performance, technology, comfort, and style we have, without question, created the most enticing touring motorcycles ever offered by Harley-Davidson. We continue to see significant positivity for the product across the network and are excited for our riders to have full access to the lineup as the riding season gets underway. Included in our '24 launch and designed to celebrate 25 years of custom vehicle operations, our CVO lineup expanded with the introduction of the all-new CVO Road Glide ST, representing the pinnacle of Becker Performance and the CVO Pan America fully kitted out for extraordinary adventures. The CVO Road Glide ST is the lightest, fastest, and most sophisticated performance bagger ever produced by Harley-Davidson. Taking from our popular Low Rider ST offering, the CVO Road Glide ST combines West Coast custom style and the performance trend that we've been feeling with the King of the Bagger Racing series. To quote another outlet, the CVO ST is the best motorcycle Harley-Davidson has ever put out. For '24, we also repriced both the CVO Street and Road Glide models that we introduced during Homecoming last year in exciting new color options. The CVO Pan America is another new vehicle and the CVO program's first adventure touring motorcycle. All of the features that have made the Pan America 1250 especially a leading choice among discerning global adventure touring riders have been retained with the CVO Pan America being kitted out with an additional host of rugged accessories selected to enhance the journey. With the Hardwire, we also made a commitment to introduce a series of motorcycles that align with our strategy to increase desirability and drive the legacy of Harley-Davidson. With that in mind this February during Daytona Bike Week, we revealed the latest additions to our limited edition Harley-Davidson icons and the limited run enthusiast collection. For the '24 icons models, this year, we launched the Hydra-Glide Revival, celebrating the 75th year of this iconic motorcycle. The release was inspired by the look of the motorcycles ridden in the era of the upcoming film, The Bikeriders, which follows the rise of a Midwestern Motorcycle Club as seen through the eyes of its members. Coming to your screens this summer, the film is scheduled to be released in the United States on June 21. For the '24 enthusiast offering, we celebrated both music and motorcycles with the release of the Tobacco Fade Enthusiast motorcycle collection available across three models, the Low Rider ST, the Ultra Limited and the Tri Glide Ultra. Again, we've seen a very positive response from customers to these offerings just in time for the riding season to get well underway. Pillar 3, leading in electric. LiveWire continued to pioneer the EV segment with the launch of the S2 Mulholland, an all-new electric cruiser, the second bike on the S2 platform. The bike has been met with a very positive response in the industry as Karim will detail shortly. We're also very pleased that LiveWire has become the market leader for on-road EV motorcycles in the U.S. this past quarter. And with the company increasing its focus on vehicle and operational costs, it will also consolidate its operations in Milwaukee at Harley-Davidson's historic headquarters at Juno Avenue. Turning to Pillar 4, growth beyond bikes. In February, through HDFS, we launched Harley-Davidson Flex Financing. For the first time in our history, this innovative loan option provides an alternate way to purchase a Harley-Davidson motorcycle. By combining the benefits of attractive monthly payments, shorter terms and greater flexibility throughout the loan period, the product offers customers the ability to return the motorcycle at the end of the term, ready to replace or upgrade into the next Harley-Davidson purchase. We are committed to putting customers at the forefront of our products and experiences; HD Flex does just that while providing them with another innovative financing option to make Harley-Davidson motorcycle ownership fit the individual budget and lifestyle. Pillar 5 customer experience. We are just under 100 days to go, our second annual homecoming event will be taking place July 25 to 28. And last week, we announced the full roster of performances with headliners, including the Red Hot Chili Peppers, Jelly Roll and Hardy. Tickets are now on sale and we look forward to coming together with our community of fans, riders and their families to celebrate our brand of motoculture and music. And I hope to see many of you there. Lastly, on Pillar 6, inclusive stakeholder management. We are looking forward to formally unveiling the new community park at our Juno Avenue headquarters on June 24. The project, which has been pioneered by the Harley-Davidson Foundation, aims to further connect the company, our brand and our employees to the local community, reinforcing our commitment to our hometown of Milwaukee. We could not be more excited to show you our neighborhood on the near West Side. Before I hand over to Karim to cover LiveWire, I would like to cover our outlook for the rest of the year. As we said earlier in the year for HDMC, we expect retail units to be flat to up 9%. From an inventory point of view, we believe these are appropriately positioned with the riding season getting into swing, and we continue to expect that wholesale unit shipments will move together with dealer retail sales on a balanced basis by the end of '24. This range would equate to wholesale unit shipments being down between 1% and 10% versus the prior year. This would result in HDMC revenue coming in flat to down 9%. We expect HDMC operating income margin of 12.6% to 13.6%. This is flat to down 100 basis points from the '23 level. Let me mention the specific drivers of this again: negative operating leverage due to lower wholesale volumes, foreign currency, which we expect to be a headwind, mix, which we expect to be slightly favorable, pricing, which we expect to be slightly down as we eliminated the surcharge and fine-tuned our pricing strategy, and lastly, we expect some additional manufacturing costs as we realign factory processes in the initial year of production of the new Street Glide and Road Glide motorcycles. At HDFS, we expect operating income to be up 5%, reflecting retail and wholesale portfolios and customers settling into the existing macroeconomic backdrop. As you will hear from Karim now, for the full year, LiveWire is revising its operating loss guidance and now expects an improved operating loss of $105 million to $115 million from previous guidance of an operating loss of $115 million to $125 million. Lastly, I would like to reinforce our commitment to returning excess free cash flow to our shareholders. We plan to continue to optimize our returns through share repurchases and appropriate dividend payments. You can see our commitment to capital returns since 2022 on Page 15. Since the beginning of '22 and through Q1 '24, we've bought back $773 million in shares and paid out $214 million in dividends. This equates to almost $1 billion in capital returned to shareholders since '22 and a share buyback amounting to 14% of our outstanding shares. We are planning to remain on a similar trajectory to this annualized rate throughout '24. Thank you. And now I'll hand it over to Karim.

Thank you, Jochen. Good morning, everyone. We are happy to report on a successful launch of the S2 Mulholland in both the United States and Canada. This is the second model cycle built on the LiveWire developed S2 platform following the S2 Del Mar. This brings our lineup to feedback, expanding the choices available to LiveWire riders. The response from the market has been positive with riders, retailers, and media responding to the Mulholland timing and the option to choose the bike with a lower riding position. In the first quarter, LiveWire reported sales of 117 units, an 86% increase over the first quarter of 2023. Our retail sales outpaced wholesale as Del Mar made its way into the channel, making LiveWire the #1 onboard electric motorcycles in the U.S. In Europe, we began shipping S2 Del Mar to our four priority countries at the end of the quarter, with products now available across our network in the region. We have similar plans for LiveWire with the first bike being shipped to Europe as we speak. While we plan to expand our market leadership, our teams are working on design engineering and sourcing initiatives to reduce the cost of our products. We are also planning to reduce spending and closely manage cash across the operations to get the most out of our strategic investments. To that effect, we will centralize all of our operations in Juno Avenue in Milwaukee including the relocation of LiveWire lab operations from California to enable efficiency. We will take this opportunity to streamline and revisit the organizational structure to achieve simplicity in everything we do. While we maintain the outlook for the revenue units, we now expect a $10 million improvement in operating loss while continuing to focus the larger portion of expenses on product innovation and market development. LiveWire is fully committed to the electrification of the sport by building the best product and delivering an unmatched customer experience. Thank you. And now I'll hand it over to Jonathan.

Thank you, Karim, and good morning to all. I plan to start on Page 5 of the presentation, where I will briefly summarize the consolidated financial results for the first quarter of 2024, and subsequently, I will go into further detail on each business segment. Consolidated revenue in the first quarter was down 3%, driven by HDMC revenue decrease of 5%, which was partially offset by HDFS revenue growth of 12%. Consolidated operating income in the first quarter performed in line with our expectations and was down 29%, driven by a decline of 29% at HDMC, a decline of 8% at HDFS, and an operating loss of $29 million in the LiveWire segment. Consolidated operating income margin in the first quarter was 15.2%, representing a 545 basis point decline versus Q1 of 2024. The lower consolidated margin is largely due to a lower Q1 margin at HDMC driven by lower volumes, pricing, and associated throughput. I plan to go into further detail on each business segment's profit and loss drivers in the next section. First quarter earnings per share was $1.72. In Q1, global retail sales of new motorcycles were flat versus the prior year. In North America, Q1 retail sales were up 6% and driven primarily by the redesigned and all-new Street Glide and Road Glide touring motorcycles, which were introduced at the end of January. In EMEA, Q1 retail sales declined by 11% due to weakness in Germany and France. Overall, EMEA continues to be adversely impacted by macroeconomic conditions and geopolitical uncertainty, which has led to sluggish economic growth. In Asia Pacific, Q1 retail sales declined by 12%, driven by weakness primarily in China. This is the third quarter in a row where we have experienced declines in the region after six sequential quarters of solid year-over-year growth in Asia Pacific. In Latin America, Q1 retail sales experienced modest growth in both Mexico and Brazil. Dealer inventory at the end of Q1 was up approximately 26% as compared to the end of Q1 in 2023. We believe current dealer inventory and product availability are in healthy positions overall as we approach the spring 2024 riding season. This is important with the recent launch of new model year 2024 motorcycles, especially with the positive reception of our new Street Glide and Road Glide touring models. Looking at revenue, HDMC revenue decreased by 5% in Q1. Focusing on the key drivers for the quarter, seven points of decline came from decreased wholesale volume at HDMC largely due to the fact that dealers were rebuilding dealer inventory in Q1 2023 after the lows they experienced following the pandemic. Motorcycle shipments in the quarter, while below prior year, were slightly ahead of 2021 and 2022 levels. Three points of decline came from pricing, which includes the impacts of the pricing surcharge elimination, other pricing actions on 2024 model year and sales incentives. Mix contributed four points of growth as we continued to prioritize our most profitable models and markets. Finally, foreign exchange was flat to Q1 prior year. In Q1, HDMC gross margin was 31.2%, which compares to 35.8% in the prior year. The decrease of 450 basis points was driven by lower operating leverage and the revenue factors I just spoke about as well as continued modest cost inflation of 1% to 2%. The majority of the units shipped in the first quarter of 2024 and 2023 were produced in the preceding fourth quarters in advance of the new model year launch. Production volumes were down 24% in the fourth quarter of 2023 compared to the fourth quarter of 2022, which resulted in a higher fixed cost per unit on motorcycles shipped in Q1 of 2024 compared to Q1 of 2023. The unfavorable impact of lower operating leverage was offset by other productivity savings related primarily to logistics during the quarter. HDMC operating margin came in at 16.2%, which is above our full-year expectations and in line with expectations for the quarter. At Harley-Davidson Financial Services, Q1 revenue increased by $26 million or 12%, driven by higher retail and commercial finance receivables as well as higher average yields as the portfolio resets over time due to higher base rates driving higher interest income. HDFS operating income was $54 million, down $5 million or 8% compared to last year. The Q1 decline was driven by higher borrowing costs, a higher provision for credit losses, and higher operating expenses. These increased costs were partially offset by higher interest income. Total interest expense was up $15 million or 21% 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. In Q1, HDFS' annualized retail credit loss ratio was 3.7% which compares to an annualized retail credit loss ratio of 3.2% in Q1 of 2023. The increase in credit losses was driven by several factors relating to the current macroeconomic environment and the related customer and industry dynamics. In addition, the retail allowance for credit losses for the first quarter remained flat at 5.4% from Q4 of 2023. Total retail loan originations in Q1 were up 2% while commercial financing activities were up 22% to $1.5 billion. Total quarter-end net financing receivables including both retail loans and commercial financing was $7.9 billion, which was up 4% versus prior year. For the LiveWire segment, electric motorcycles revenue decreased in the first quarter of 2024 compared to the prior year period despite higher unit sales in the quarter. The lower revenue was due primarily to product mix and the one-time adjustment relating to a change in their retail partner strategy. Selling, engineering, and administrative expenses remained relatively flat compared to the prior year. As expected, the basic revenue was down compared to Q1 of 2023, primarily due to a reduction in third-party brand and distributor volumes. LiveWire's operating loss of $29 million was in line with our expectations as LiveWire continued to invest in new motorcycle models and actionable initiatives to reduce EV costs. In addition, SG&A was flat to prior year. Wrapping up with consolidated Harley-Davidson, Inc. full-year financial results, we delivered $104 million of operating cash flow in Q1, which was up from $47 million in the prior period. The increase in operating cash flow was due primarily to lower net cash outflows for wholesale financing and favorable changes in working capital compared to Q1 of 2023. Total cash and cash equivalents ended at $1.5 billion, which was $97 million lower than at the end of Q1 prior year. This consolidated cash number includes $141 million at LiveWire. Additionally, as part of our capital allocation strategy and in line with our commitment to return capital to our shareholders, we bought back 2.5 million shares of our stock at a value of $98 million in Q1 of 2024. As we look to the rest of 2024, we remain excited about our new 2024 motorcycle lineup, and as Jochen discussed, we are reaffirming our full-year guidance with the exception of the improvement noted in LiveWire operating loss. I would like to put some unit numbers to our 2024 outlook that Jochen cited earlier, and these are in line with what we said on our last earnings call, which took place in February. At HDMC, we expect that retail units sold and wholesale unit shipments will move together on a balanced basis in 2024. We expect 163,000 to 178,000 retail and wholesale units. This results in HDMC revenue coming in flat to down 9% versus prior year. Last, I will touch on a couple of additional items in terms of capital investments and capital allocation. We continue to expect total HDI capital investments in the range of $225 million to $250 million. As we look at capital allocation in 2024, our priorities remain to fund profitable growth of the Hardwire initiatives, which includes the capital expenditures mentioned previously, paying dividends, and continuing to execute discretionary share repurchases. And with that, we will open it up to Q&A.

Our first question comes from Craig Kennison from Baird.

I'm wondering if you can speak to the health of the dealer network. We've seen kind of across our powersports and marine coverage that dealers have been struggling with too much inventory and skinny margins and then rates are moving against them as well, which hurts on the floor plan side. Nothing really unique to Harley-Davidson, but there is a lot of macro stress. I'm just wondering how you feel about the health of the dealer network and whether you're hearing anything different from your new Chief Commercial Officer, Luke Mansfield.

Craig, it's Jonathan. Thank you for your question. I'll start. And so I think relative to dealers, if we look at dealers today, certainly, from a Harley-Davidson perspective, there's enthusiasm for what's out there. And I think a recognition that customers are showing up, taking a look at our new Street Glide and Road Glide motorcycles and then obviously the other 24 model years. So as you look at the start to the year, I think we're pretty pleased with what that looks like. And I think the dealer sentiment generally goes with that. The one concern that probably is worth being open and honest about is that in an environment where interest rates have moved up a little bit, that certainly has an impact on dealers and dealer health. So from our perspective, we do pay a lot of attention to the position that our dealers are in the health of the entire network. We think that's something to be very important to key in on. And so from their perspective, a little bit of concern around what they see from a floor plan perspective. For us, as you heard Jochen talk about on some of his introductory comments, we are paying attention to that balance between what we're putting into the channel in retail over the course of 2024. So we are supporting them by paying attention to that. As you know, we do also have some selective interest rate subvention for customers on customer-facing programs only for a 2023 model year product. At this point, that obviously helps drive dealer traffic, helps attract the more rate-sensitive customers and really helps them move through their inventory. And then obviously, as an organization, we make sure that we have some dealer-facing programs out there that really support and bolster their overall health. And so from that perspective, I think something that we do stay attuned to, something that we certainly make sure that we take a look at, and something that I think we need to make sure that, as an industry, we're sensitive to as we move through 2024.

Just as a quick follow-up, do you have any metrics to share on how fresh or current year inventory is compared to prior periods.

Sure. As we examine the unit mix globally, it varies significantly from region to region. In North America, for instance, approximately 35% of dealer inventory consists of the 2023 model year or older bikes. However, when looking at EMEA and Asia Pacific, the situation is different, with around 70% to 75% of inventory being from the 2023 model year or earlier by the end of Q1. This variance is influenced by factors like shipping times and regulatory approvals. Thus, while North American dealers might discuss that roughly one-third of their inventory is from 2023 or older, other regions experience a later roll-out of new models.

Yes, Craig, Jochen here. We expect the model year '23 to be mostly sold out by the end of the second quarter. The sales rate of the '23 models in the U.S. is on track as planned. With the new products coming in, the '23s are selling down effectively. By the end of the second quarter, we should have very few left at the dealers, although there will always be one or two remaining. A significant portion of the '23s will be sold based on current trends. In terms of wholesale and retail movement, during the first quarter, we shipped more motorcycles than we sold in preparation for the riding season. You can expect Q2 to show a better balance between retail and wholesale, and in the second half of the year, we anticipate retail sales to surpass wholesale. This gives you an idea of how we expect the year to progress.

Our next question comes from Joe Altobello from Raymond James.

Just wanted to follow up on Craig's question. Not so much inventory, but more retail. If I look at North America, the retail growth of 6% you had in the first quarter, could you give us a sense for how that might have broken down between the model year '23s versus the new model year '24s.

Sure. Thank you, Joe. Good question. Obviously, as you look throughout the first quarter and you think about the impact that model year had on sort of sales trajectory and sales path. As you started the quarter in January, we were heavily 2023 since we didn't get the 2024s out there until we got into partway into Q1. So from a January perspective, it was probably in the range of 75%, 80% that were '23 or prior. And then as we moved through the quarter, that percentage increased to the majority by March were obviously 2024 related. There's also a little bit of a difference as you look at some of those dynamics by family. So as we look within touring, for example, a somewhat higher percentage of customer interest in North America that was focused on the all-new Street Glide and Road Glide motorcycles. From the commentary that we just talked about, if you look outside of the U.S., it certainly was a significantly smaller percentage of '24s. And then as you would imagine, we see that increasing meaningfully as we get into Q2 and beyond.

Very helpful. Just a follow-up on that. Maybe sort of give us a sense for how trends progressed throughout the quarter, maybe here in April. I know January was a tough month from a weather perspective and the model year 24s haven't launched yet. But what are you seeing so far as the weather is getting warmer? And I guess just to kind of clarify, was flat Global Retail in Q1 in line with what you guys were expecting going in?

Jochen here. As Jonathan and I mentioned earlier, we are only introducing our international '24 model year into markets starting in March, with some regions not receiving the '24s until the end of March. Looking specifically at the U.S. market, the first three weeks of January saw very little new product. Overall, it was a weak start to the quarter, as we noted in our February call. However, as new products entered the market, we saw a significant increase in sales that continued throughout March. We anticipate a positive effect from the new model year entering the international market, although we acknowledge that the touring segment, while significant, does not have the same influence on overall sales as it does in the United States, where it is the leading category. As we look into April, it is still early, but all things considered, I would say it is going well so far, definitely much better than the beginning of the first quarter. We remain optimistic for the quarter, which is also reflected in our unchanged guidance.

Our next question comes from Fred Wightman from Wolfe Research.

I just wanted to ask another one about the difference as far as '23 versus '24. I know in the past, you guys have targeted sort of plus or minus 2% in terms of MSRP realization. Is what you're seeing for '24 sort of in line with that so far?

That is correct. Yes.

Okay. And I know that you guys had made a reserve for dealer support at the end of last year. I think it was $40 million. Is that still something that you think is sufficient to clear through the rest of those '23s?

Yes. So Fred, this is Jonathan. Good question. So as we take a look at financials relative to support to move through those units at retail, obviously, the majority of the dollars were reserved for in Q4. There were some select segments where we made the offer a little bit more attractive from a rate standpoint. And with that, we took a dollar amount that hit our Q1 financials of about $18 million in Q1, and that's reflected as you take a look at our price walks that we put out there. But overall, we feel like the majority of the dollars obviously have been reserved. And then from what we talked about in the prior question, as that inventory sells through and moves down, obviously, from our perspective, the exposure decreases as the units decrease.

You can expect a decrease in impact for the first quarter, as the units are now declining. This has been accounted for in our budget in anticipation.

Our next question comes from Alex Perry from Bank of America.

I think maybe a follow-up on that last question, but could you just talk about how HDMC gross margins played out versus your expectations when you sort of put all the pieces together? And I guess as we move through the year, would you expect to start to see year-over-year expansion in HDMC gross margins? Or how much should we be expecting from pressure from pricing and incentives?

Certainly. I'll have Jonathan provide the specifics. Overall, the first quarter went as anticipated, and we maintained our margin guidance. We believe the upcoming quarters will also align with our expectations, with improvements in gross profit margins. There were no surprises for us in the first quarter regarding gross margins, and we are confident we can meet our guidance targets.

Thank you, Jochen. Alex, to elaborate on your question, in the first quarter, gross margin was 31.2%, down from 35.8% the previous year, reflecting a decrease of about 450 basis points. This was mainly due to lower operating leverage and the revenue factors discussed on Page 7 of the deck. We have additional materials on this topic. Looking ahead at gross margin, we anticipate modest cost inflation around 2%, which is similar to last year, though slightly higher, and significantly lower than in 2022. Additionally, most units shipped in the first quarters of 2024 and 2023 were produced in the previous fourth quarters before the new model year launch. As we sort of try to put this into perspective, production volumes in the fourth quarter of '23 were down about 24% compared to the fourth quarter of 2022, which results in a higher fixed cost per unit on motorcycles that end up getting shipped in, in the respective quarters. That unfavorable impact of the lower operating leverage is offset through productivity savings in the latest quarter were primarily related to logistics. There was also a little bit of mix noise in this quarter between motorcycle, P&A and A&L. So the kind of complexion or makeup between motorcycle P&A and A&L causes some uniqueness as we analyze the dollars, so favorable dollars and unfavorable percent that really express the additional dollars from the motorcycle mix with a decreasing mix from A&L and P&A which have typically favorable margins. So good question. I think, a unique situation in terms of where we are. And then as Jochen touched on, when we sort of flow that gross margin guidance, all the way through to sort of OI margin and what we envision on that front. We came in at 16.2%, which is above our full-year expectations, and as Jochen touched on, in line with expectations for the quarter. So hopefully, a little more color probably than you asked for, but hopefully, that helps explain where we are.

Our next question comes from James Hardiman from Citi.

I wanted to explore the retail segment a bit further and discuss how the first quarter impacts the entire year. It's clear that global retail was flat in the first quarter, and your full-year guidance ranges from 0 to 9. I thought that since there were several new products in the first quarter, with easier comparisons and increased promotional spending, it would be the strongest quarter of the year. Could you share your perspective on the quarterly trends for retail and what it needs to achieve in order to meet your guidance? Also, will you require any assistance from macroeconomic factors to reach your targets?

Thanks, James. It is always hard to predict retail, but I think one factor in the first quarter to consider is that the '24 models are not coming into the international market until very late in the quarter or not at all in some markets, as I mentioned earlier. That should help pull some of at least the EMEA region out of the negative that we've seen in the first quarter to something that's more balanced going forward. So that's helpful. I think if you look at the Asia market with the weakness in China, although we expect some improvement, I would say that's unlikely to turn significantly positive. We'll have to see how that pans out. But I'm more skeptical about the Asian market, but we've budgeted accordingly. Latin America has been positive. And the U.S., if you look at the second quarter, the comp versus the prior year is a little tougher than the back half of the year. You should possibly expect that the North American market may be positive, although we are uncertain about the extent of that positivity. We are confident about the market overall. Comparing the second half of the year to the second quarter, the back half has much simpler and easier comparisons. In the first quarter, we did not receive much support except for some positive numbers from Latin America in the international market. We hope that improves in EMEA, and we feel optimistic for the remainder of the year. It is important to note that we are just beginning the riding season, and a lot depends on the second quarter. This is why we have not altered our guidance, aside from confirming our estimate of flat to 9%. We feel comfortable with that outlook and hope to provide more information at the end of the second quarter.

Our next question comes from Tristan Thomas-Martin from BMO Capital Markets.

I have two questions. First, I'm curious about the weather's impact based on some dealer checks, as it seems to vary by region. Can you share any insights regarding overall conditions for retail? Second, I'm interested in Flex financing. Have you noticed any adoption, and do you have any targets for it?

Yes, good weather retail, I'll put that into my vocabulary. That's a good one. Unfortunately, there's never all good weather retail, I'm afraid. And we've certainly seen some of the bad weather throughout the quarter in all markets. Take California as an example. It's been terrible weather with floods and rains pretty much throughout the quarter. So that hasn't helped to kick California into gear. And then sporadically, winter storms and everything have impacted the sales. I don't want to make predictions about the weather. Overall, it hasn't been very supportive. That's why this season is particularly important. We are happy that in areas with good weather, we experienced strong momentum, and we hope that trend continues. However, overall, the weather has not been beneficial. When the weather was poor, the numbers were disappointing, and when it was good, the numbers were strong. This has indeed been the case across North America in the first quarter.

Yes. And Tristan, I'll take your question on HDFS Flex financing. So from a flex financing perspective, we recognize that as we roll out anything that's significant from a product perspective, it requires an entire retraining of the dealer body and the sales process. As we think through that, our expectations are fairly muted in terms of the impact that would have on 2024. We really think it will take us 12, 18, even up to 24 months to kind of get the full dealer network behind it, fully embracing and then salespeople across the entire United States really understanding how to insert that into the sales process, how to have the right conversation with the customer. So we want to be sensitive to the fact that we don't want to prolong the sales experience for our consumers, but we do want them to understand optionality. I think the good news is that it is a triple-digit number of dealers who have already executed one of those products and sold that through to the consumer. So uptake will take some time. But we're pretty pleased with what we're starting to see and the response that we're getting so far from the dealer body.

Our next question comes from Noah Zatzkin from KeyBanc.

Most of my questions have been asked and answered. Maybe just one on HDFS. How are you feeling about the health of the book? And then in terms of the annualized retail credit losses during the quarter, any reason to believe retail credit losses wouldn't track with kind of normal seasonality from here? And then just anything to follow up on that.

As we analyze the HDFS business, we acknowledge its distinctiveness. The seasonality within our financial services sector is quite unique when you examine it closely. Overall, we feel that the loss perspective is aligning with our expectations. Addressing your specific question about quarterly expectations, we believe the seasonality will appear fairly typical. As anticipated, Q1 will be the peak quarter, followed by a decline in Q2 and Q3, with a resurgence in Q4. This normal trend is what we expect to observe throughout the year. As you move that across to what does that mean from an overall loss provision perspective, certainly something for us to watch pretty carefully in terms of a number of dynamics. So as we look at that portfolio, we factor in a whole bunch of characteristics, right? As we think about customer delinquency, the percentage of those customers who end up moving through to loss and some other statistics that surround that. But overall, we feel like that is tracking in the way that we would expect it to. So first quarter looks a little bit higher as you move into Q2, Q3. You see sort of normalization that follows that period. And then as you flow out of the year, we expect that we're well reserved from an overall loss provision perspective. So we feel confident with that. And that sort of helps us inform and hold the guidance that we've provided previously for HDFS.

Next question comes from Megan Alexander from Morgan Stanley.

Similarly, most of my questions have been answered. So maybe just a bit of a housekeeping one. I know you don't guide EPS. You did have some nice favorability below the line versus at least what I think Street was expecting. So can you help us at all with just kind of how to think about some of those lines, tax rate, interest income going forward? Is 1Q the right run rate for a lot of those? Or was there some timing benefit with any of those? Any help you can give us would be great.

Okay. I can start. And Megan, welcome. So I think we're pleased to have you beginning to cover us. So welcome to team Harley-Davidson. As we take a look and we think about the below-the-line items, we certainly had some tax favorability from a Q1 perspective. So as we think a little bit about what that complexion looked like, a little bit of favorability in Q1. We probably won't run quite that favorable from a tax rate perspective all year. So a little bit of caution around that. I think you saw that, that was 2 to 3 points below where we were prior year. And then as you look at other items within there, certainly, as we think about the assets that we have to support retirement and some of that other sort of item that ends up in that below-the-line item. Higher interest rates and a prolonged period of those rates might turn out to be slightly more beneficial than what we initially planned for. We'll monitor how this evolves based on the actions of the Fed. These factors are likely among the most significant influences in that area.

And Megan, welcome from my side too. And on behalf of Jonathan, I promise that as of next year, we are giving EPS guidance.

To clarify, the overall impact for the first quarter was neutral, and the tax rate will likely trend in one direction moving forward. However, the pension aspects could turn out to be more favorable than initially anticipated.

Yes. So we think there could be a little bit of an impact from that standpoint, yes.

Last question will come from Jaime Katz from Morningstar.

I'm hoping you guys can give us a little bit of an update on the change in the operating loss expectation from LiveWire if Q1 was as expected, what is expected to be better over the rest of the year?

So with the relocation of the lab from California to Milwaukee, we're going to centralize all of the LiveWire operations in Wisconsin. And this is going to deliver a fair bit of synergies and efficiencies across the business. So we're anticipating being able to remove about 10% of the headcount and 15% of the costs related to employees. So all of this will essentially support the revised operating loss, which would be improved by $10 million in terms of guidance for the rest of the year.

Okay. And then I know the one of the union contracts was just ratified. Is there any information on what we should expect for increased labor costs or anything like that going through the SG&A line over 2024 and ahead?

The contract aligns closely with our expectations and we are pleased that it was approved on the first vote, indicating strong support from both our union leadership and workforce. This is a 5-year contract, and there were no surprises that we didn't foresee. We are satisfied with the outcome. Following the ratification of our new contract in New York last year, we are now also set for 5 years with Wisconsin, including Tomahawk and PDC. The union vote passing on the first attempt is encouraging and reflects solid alignment with our union leadership and workforce, which is positive.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.