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Apparel revenues were declining prior to 2020, but have since grown at 20%+ rates. Anecdotally, news reports from H-D's 120th anniversary bash in Milwaukee noted long lines for H-D merchandise and suggested replacing some of the bars with merch stores for next year's event. Licensing is in an even worse state, generating only $33M of revenue (100% margin) in 2023, most of it from a 3rd party t-shirt manufacturer.

Ferrari's licensing revenue is 10x larger than H-D. While at Puma, Jochan struck a lucrative licensing deal with Ferrari so this is again an easy opportunity to generate incremental profits. In 2023, H-D announcing a licensing deal with Hero Motorcycles in India. Hero designed and manufactured a $3k ASP motorcycle with the H-D logo, and this bike sold out with 25k pre-orders within weeks of launch.

We estimate just this one deal to have generated a recurring stream of $8M/year (assuming 40k/year units). We believe apparel and licensing business could double over the next 5 years and increase from $300 to $600M revenue. Assuming 50% incremental margins on apparel and 100% incremental margins on licensing, this would add ~$200M to operating income or ~$1.00 of EPS after tax.

Motorcycle unit sales H-D unit sales have declined from 262k to 187k 2016-2023. We believe most of this decline was intentional, as laid out in management presentations over the last several years. H-D exited 60+ global markets where it had very low market share.

H-D also discontinued 25% of it's model line-up, eliminating lower priced bikes where it lost money on every bike. It shrunk the number of platforms from 5 to 2. The result was a significant increase in average revenue per motorcycle (excluding parts/apparel/etc) from $16k in 2020 to $20k in 2023.

It also meant that the bike business (excludings parts/etc) went from losing money on average bike sold to making a 29% gross margin. Of course that meant giving up units as competitors took over in markets or model categories where H-D no longer offered a product. While the stock trades on units/market share in the near term, motorcycle revenues have been growing through Covid and guidance expects it to grow again in 2023.

We believe the leading indicator of H-D unit sales will be driven by demographics and appeal of the brand.