A three-part television series about Harley-Davidson's (HOG) beginnings recently aired on Discovery Channel. The series focused on the company’s humble beginnings in 1903 as well as the challenges that followed, prior to Harley-Davidson becoming the largest motorcycle company in the United States. The takeaway is that Harley-Davidson is capable of navigating through adversity and can eventually find its way back to the top. That's been the case in the past, but Harley-Davidson is currently facing a difficult consumer environment.

The bad news is that baby boomers are retiring at a pace of 10,000 per day. As baby boomers age, the traditional target market for Harley-Davidson is going to fade. Revenue declined in fiscal-year 2015 to $6.0 billion from $6.2 billion in FY2014. Net income also slid to $752 million in FY2105 from $845 million in FY2014. In addition to the company’s traditional target market aging, competition has increased from Asia, Europe, and the Indian Motorcycle Manufacturing Company.

The potentially good news is that more women and young adults are hopping on motorcycles, and Harley-Davidson seeks to take advantage of that trend. Harley-Davidson is targeting the younger and more urban market with bikes such as its new Roadster for just north of $11,000. It’s also focusing on Instagram, hiring younger workers for marketing, and donating bikes and parts to high schools in an attempt to capture future customers.

The problem is that today’s young consumer doesn’t have nearly as much discretionary income as baby boomers when they were younger. Wage growth is nearly non-existent and debt levels are much higher. When you put all of this together, it leads to news that Harley-Davidson plans on cutting approximately 200 jobs to adjust its production schedule due to a lower forecast for motorcycle shipments in 2016.

Harley-Davidson has overcome challenges before, and it probably will again, but it’s going to be a windy and potentially treacherous road.

HOG has depreciated 5.99% over the past 12 months and currently offers a dividend yield of 2.64%. 

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