Polaris Considers More Price Increases

Like other sports-vehicle makers, Polaris in recent months has been battling shortages of key parts and commodities, such as semiconductors, specialty plastics and steel. It has also faced higher costs for shipping and raw materials, which have gone up as the U.S. economy continues to recover from the shock caused by the coronavirus pandemic.

Polaris consumers currently have to wait six to 10 weeks for certain vehicles, Chief Executive Michael Speetzen said on an earnings call Tuesday. That is up from four to eight weeks during the previous quarter, Mr. Mack said.

The company’s cost of sales grew 32.8% to $1.57 billion for the quarter ended June 30 compared with the prior-year period. Polaris declined to provide an estimate of its extra costs due to inflation, but stated that the increases are significant.

“We’re spending a lot of time tracking all these costs to make sure that, as the environment normalizes, these costs don’t get baked into the long-term run rate,” Mr. Mack said.

The company is currently evaluating what prices to set for its products, including new ones it plans to launch in the second half of the year. It is also considering surcharges for transportation and commodity costs.

Polaris said it spent less money on sales promotions in recent months, but declined to provide specifics. It has redesigned some vehicle gauges so that they function with chip sets that are more readily available than the ones it had been using before, Mr. Mack said.

Polaris’s sales climbed to $7.03 billion in 2020, up 3.6%, as consumers spent big on outdoor vehicles. In recent months however, supply-chain constraints have made it harder for the company to fill the demand for its products, which has remained strong, Mr. Mack said. North American retail sales fell 28% in the past quarter largely due to low product availability. Sales in the U.S. and Canada make up about 85% of total revenue.

Mr. Mack, who joined the company in 2016, said he and Corporate Controller John Melsen hold weekly calls with the company’s operations teams to discuss logistics and commodities costs.

Polaris executives also review the output of its factories in areas such as the U.S., Mexico, France and China every week, he said. The company is producing more this year than in each of the previous two years, but it cannot make as much as it wants due to parts shortages, Mr. Mack said. Polaris expects inventories of its recreational sports vehicles to normalize in late 2022 or early 2023.

Polaris’s sales grew 40% to $2.12 billion for the period ended June 30, compared with the prior-year period. Net income totaled $158.4 million, compared with a net loss of $235.4 million, which was mostly due to an impairment charge that the company took during the pandemic.

The recent price increases are helping Polaris to offset higher costs but might not be sufficient for the rest of the year, said Jaime Katz, an equity analyst at Morningstar Research Services LLC, a research provider. On the other hand, more aggressive price hikes could alienate consumers and hurt sales, Ms. Katz said.

Polaris in recent weeks also added new suppliers to its network and placed one-time orders for specialty resins and chips, Mr. Mack said.

The company sources from all over the world, including the U.S., China, Southeast Asia, India, Latin America and Europe, Mr. Mack said. Polaris declined to say how many suppliers it has.

“We’re doing everything we can to make as many units as we can because we know customer demand is out there,” he said.

Write to Mark Maurer at [email protected]