[Management View]
Polaris Inc. reported a 6% decline in sales for Q2 2025, with Off-Road sales down 8%, On-Road sales down 1%, and Marine sales up 16%. The company emphasized its focus on operational efficiencies, achieving $40 million in savings for the year, and highlighted the launch of the Polaris Ranger 500 as a strategic move to capture market share in the utility vehicle segment.

[Outlook]
Polaris withheld full-year guidance due to uncertainty around tariffs and consumer demand. For Q3 2025, the company expects sales between $1.6 billion and $1.8 billion, with adjusted EPS projected to be negative due to tariff impacts and incentive compensation headwinds. The company is targeting a 35% reduction in sourcing from China by year-end.

[Financial Performance]
Adjusted EPS for Q2 2025 was $0.40, down year-over-year but above consensus expectations. Free cash flow was approximately $290 million, supported by $320 million in operating cash flow. Gross margin declined 55 basis points in Off-Road and 83 basis points in On-Road due to unfavorable mix and promotional activity.

[Q&A Highlights]
Question 1: How is Polaris preparing for potential USMCA renegotiations and optimizing its supply chain?
Answer: Polaris is reducing its reliance on China, targeting a 35% reduction in sourcing by year-end. The company is leveraging its manufacturing footprint in the U.S. and Mexico to adapt to evolving trade conditions. They are also working with suppliers to mitigate pass-through costs and are prepared to react quickly to changes in trade policies.

Question 2: Can Polaris compete at lower price points given current trade policies?
Answer: Polaris is confident in its ability to compete at lower price points, as evidenced by the launch of the Ranger 500, which has a better margin profile than the model it replaces. The vehicle is manufactured in Mexico, avoiding tariffs, and is expected to capture significant market share in the utility segment.

Question 3: What is the expected annualized tariff impact for next year?
Answer: The annualized tariff impact is estimated at $230 million, down from over $300 million without mitigation efforts. Polaris continues to work on reducing this impact through various strategies, including sourcing changes and supplier negotiations.

Question 4: How did retail performance trend throughout Q2, and what is the outlook for Q3?
Answer: Retail was flat year-over-year in Q2, with strength in the utility segment. The company expects retail to remain stable but is cautious due to ongoing economic uncertainties and interest rate fluctuations.

Question 5: What factors contributed to the decline in EPS despite flat retail performance?
Answer: The decline in EPS was driven by unfavorable mix, increased promotions, incentive compensation, and tariff costs. Operational efficiencies and lower warranty costs provided some offsetting benefits.

Question 6: How is Polaris addressing the competitive promotional environment?
Answer: Polaris expects promotional activity to ease slightly in the second half of the year but remains cautious. The company is focused on innovation and maintaining a strong product lineup to drive market share gains.

Question 7: What is the outlook for the Marine segment?
Answer: Marine sales were up 16% in Q2, driven by new boat shipments. The company expects continued strength in this segment, supported by new product launches and healthy dealer inventory levels.

Question 8: How is Polaris managing consumer credit and financing?
Answer: Credit availability remains good, with stable approval rates and write-offs. The company is focused on managing interest rate buy-downs and expects improvements if interest rates decrease.

[Sentiment Analysis]
Analysts were cautiously optimistic, focusing on Polaris's tariff mitigation strategies and operational efficiencies. Management maintained a confident tone, emphasizing their proactive approach to navigating trade uncertainties and their commitment to innovation.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------|---------|---------|
| Sales | -6% | N/A |
| Off-Road Sales | -8% | N/A |
| On-Road Sales | -1% | N/A |
| Marine Sales | +16% | N/A |
| Adjusted EPS | $0.40 | N/A |
| Free Cash Flow | $290M | N/A |
| Gross Margin (Off-Road) | -55 bps | N/A |
| Gross Margin (On-Road) | -83 bps | N/A |

[Risks and Concerns]
Key risks include ongoing tariff impacts, consumer demand uncertainty, and potential renegotiations of trade agreements like USMCA. The company also faces competitive pressures and the need to manage promotional activities effectively.

[Final Takeaway]
Polaris Inc. is navigating a challenging environment with a focus on operational efficiencies and strategic product launches. While the company faces significant headwinds from tariffs and economic uncertainties, its proactive mitigation strategies and strong product lineup position it well for long-term growth. Investors should monitor the company's progress in reducing tariff exposure and its ability to maintain market share in a competitive landscape.