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Thank you for standing by, and welcome to the Harley-Davidson First Quarter 2024 Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the call over to Shawn Collins. Mr. Collins. Please go ahead.

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

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 get 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. And building on that commitment this year, we ushered in a new area of motorcycle touring by reimagining in 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 like. 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 2-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 ride AST 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 specially 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 to 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 written in the area of the upcoming film, The Bikeriders, which follows the rise of a Midwestern Motorcycle Club as seen through the lights 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 3 models, the Low Rider ST, the Ultra limit and the Tri Glide Ultra. Again, we've seen a very positive response from customers to these offerings just in time for the rising season to get well underway. Pillar 3, leading in electric. LiveWire continued to pioneer the EV segment with the launch of the S2 Mulholland, 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 headquarter 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 performance 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. And 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, we look to further connect the company our brand and our employees to the local community, reinforcing our commitment to our home town 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 Lightwire, 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 prior year. This was 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 led to 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, as Jochen mentioned, LiveWire, the #1 onboard electric motorcycles in the U.S. In Europe, we began shipping S2 Del Mar to our 4 priority countries at the end of the quarter, with products now available across our network in the region. We have similar plans for [indiscernible] 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 spend 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 energy and efficiency. We will take this opportunity to streamline and revisit the organization 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 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% and 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 6 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 to 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, 7 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. 3 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 4 points of growth as we continue to prioritize our most profitable models and markets. And 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, which are 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 onetime 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, basic revenue was down compared to Q1 of 2023, primarily due to a reduction in third-party brand and distributor volumes. LiveWire operating loss of $29 million was in line with our expectations as LiveWire continued to invest in new motorcycle models and action 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.

[Operator Instructions] 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, 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 kind of 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 through 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 that helps attract the more rate-sensitive customers and really help them move through their inventory. And then obviously, as an organization, we make sure that we have some dealer-facing programs that are 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 as compared to prior periods.

Sure. So as we take a look at the mix that we have from a unit perspective, it does look a little bit different as you look across the globe. So some different answers, I think, that vary when you look at North America versus EMEA versus Asia Pacific and Latin America. So obviously, as we roll out the new model year, it hits our North American dealers before it sort of touches the international dealers. So if we look at where we were in North America, for example, about 35% of dealer inventory was comprised of 2023 model year or noncurrent model year bikes. As you sort of move around the globe, it looks a little bit different. So from an EMEA perspective, we get the 2024s into market because of shipping times homologation, et cetera, a little bit later. So from an EMEA standpoint, it would look more like 70% -- same thing with Asia Pacific and Latin America. So they're probably more like 70%, 75% at the end of Q1 that are 2023 or prior. So obviously, there's sort of a cadence that flows around the globe. But probably, if you are talking with North American dealers, is there probably is a little more conversation there, you would see that it's somewhere around 1/3 that are '23 and older.

Yes, Craig, Jochen here. Just a little bit more color here. We expect model year '23 to be more or less gone by the end of the second quarter. The rate with which the '23s are selling down in the U.S. is as planned. And as Jonathan said, with the new product coming in, the '23s are reducing nicely. So by the end of the second quarter, we should be pretty much -- I don't want to say out of there's always going to be 1 or 2 left the dealer, but a significant portion of the '23s will be going based on what we are seeing now. And as you look at how we expect wholesale and retail to move, obviously, in the first quarter, getting ready for riding season, we shipped more motorcycles than we retailed in advance of the riding season. You should expect Q2 to be more in equilibrium retail wholesale. And then in the second half, we would expect retail to overtake wholesale. So just sort of a little bit of color of how we expect the year to unfold.

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 increase 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. Yes, based on the fact that, as Jonathan and I mentioned earlier, we only get our international '24 model year into markets starting in March, some regions, some margins -- some markets only even got the '24s at the end of March. So if you now look at the U.S. market or North America, January, the first 3 weeks were very -- was very little or actually no new product in market. And overall, it was a poor start to the quarter. as we had already highlighted in our February call and with the new product flowing into the market, we saw a significant uptick, which continued throughout March. And we are expecting that we see positive impact of the new model year now flowing into the international market, while recognizing that the touring segment has -- while it's important, is not having the same impact on overall sales as it does in the United States where it's the dominant category. Looking into April, early days, but I would say all things considered overall, I would call it so far so good. And certainly a lot better than what we've seen at the beginning of the first quarter. So we are overall positive for the quarter, and that's 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 is 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 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.

[indiscernible] impact you should expect in the first quarter and the units are now going down. So that is reduced and the majority has been budgeted for 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.

Yes. I'll let Jonathan take or explain the details. But overall, first quarter played out the way we've expected it and we held our margin guidance firm. So we feel that the next quarters will go also as expected with improvements in gross profit margin along the line. So overall, we -- there's nothing that surprised us in the first quarter the way that gross margin played out, and we think we can achieve our targets that we've set in terms of guidance. Jonathan?

Okay. Thanks Jochen. Alex, just to add a little bit more color on your question. I think in Q1, gross margin came in at 31.2%, which compares to 35.8% in the prior year. So obviously, as you look at that, a decrease of about 450 basis points, that was driven by lower operating leverage and the revenue factors that we walk through on Page 7 in the deck. So we have some more materials on that. We obviously -- as we look at the gross margin, as we move forward, we do envision modest cost inflation of something that's around 2%. So about where we were last year, maybe up a tiny bit from an inflation standpoint, certainly down pretty meaningfully from 2022. And hang with me here, as I explain some of this, but the majority of the units that we ship in the first quarters. So think about 2024 and 2023, those were produced in the preceding fourth quarters in advance of 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. And 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 expresses 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 dig just a little bit more on the retail front and sort of how the first quarter plays into the full year. Obviously, worldwide retail flat for the first quarter. Your full year guidance is based on 0 to 9. I think a lot of us -- or at least the way I thought about it was that you had bunch of new products in the first quarter, easy comps there and then a lot of promotional dollars. So I sort of assume that the first quarter will be the strongest of the year. Maybe walk us through how you guys think about the quarterly cadence of what retail is ultimately going to look like? What it sort of needs to look like to get to your guide? And do you need any macro help to sort of get to where you think you need to be?

Thanks, James. It is always hard to predict retail, but I think one factor in the first quarter do consider is the '24 is not coming into the international market until very late in the quarter or not at all in some markets, as I mentioned earlier. And 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 prior year is a little tougher than the back half of the year. So you should possibly expect that the North American market -- we don't know if it's going to be positive or how positive is we feel really confident about the market. But if you just look at comps, the back half is much simpler, easier comps than the second quarter. I hope that helps a little bit to contextualize. But in the first quarter, we certainly didn't have any help with the exception of Latin America that was positive albeit in small numbers from the international market. We hope that, that changes at least in EMEA, and we are confident for the rest of the year, which is -- but we also have to recognize that we're really just entering the writing season as we speak now, and a lot depends on the second quarter, which is why we have not changed our guidance at this point in time. other than confirming our 0 or flat to 9%. But we feel comfortable about that. And hopefully, we'll have more to say at the end of the second quarter.

That's great color. Maybe just a point of clarification. So is it safe to assume that given the touring focus of the new products that the U.S. market is going to outperform the rest of the world pretty meaningfully. Any way to think through that for the year.

Well, I don't want to predict what the international markets are going to say or are able to deliver. But I would say there's likely some outperformance in North America for the entire year. I think that's realistic to assume.

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

Just going to -- two questions. One, just kind of curious. I know weather, it seems like in some dealer checks has had some impact in dealers in some regions and some regions have had better weather. So anything you can maybe call out there in terms of just kind of overall normalized good weather retail. I'm also just curious about Flex financing. Have you seen any adoption? And do you have any targets for that?

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 GEA. And then sporadically, winter storms and everything [indiscernible] either. But I don't want to sort of play the weatherman here. I would say, overall, it's certainly not been supportive. And that's why now really counts in terms of writing season. We are pleased that overall, where there was good weather, we saw strong momentum, and we hope that, that momentum continues. But overall, I don't think it's been supportive and when the weather was bad, the numbers were not that great when the weather was good, the numbers were great. So -- and it certainly played out that way throughout 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 does sort of require an entire retraining of the dealer body and the sales process. And so as we think through that, our expectations are fairly muted in terms of the impact that, that would have on 2024. And 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 number -- triple-digit number of dealers who have who have already executed one of those products and kind of 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

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 kind of track with kind of normal seasonality from here? And then just anything to [indiscernible].

Okay. As we take a look at the HDFS business, we certainly recognize the uniqueness of that, the seasonality within our financial services business is certainly a little bit unique as you look across financial services. Overall, we actually feel like it's following the curve that we expected that it would from a loss perspective. As we think a little bit about the -- trying to answer your specific question on what are we thinking by quarter. We do think it's going to look pretty normal from a seasonality perspective. So as you would expect, Q1 being the highest quarter and then you start to see it come down in Q2, Q3 and then pop back up in Q4. So that sort of normal curve is something that we would expect that we'll end up seeing 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 more -- 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 thing that ends up in that below-the-line item. Higher interest rates and higher for longer could end up being a little bit more favorable than what we originally budgeted. And so we'll see how that plays out based upon the course of action that the Fed takes. But those are probably the biggest -- kind of the 2 biggest drivers within that space.

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

Maybe just to put a finer point on that, I guess, so maybe net-net, the impact to 1Q was neutral and when -- tax rate is going to move in one direction going forward. But the pension stuff might be a little bit more favorable than what you thought?

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 1Q 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 head count 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?

Well, the contract is more or less in line with what we've planned and hoped for. And overall, we are really pleased that this passed on the first round, which shows really broad alignment with our union leadership and workforce. It's a 5-year contract. So nothing out of the extraordinary that we didn't anticipate. So we are pleased with the outcome. And with the ratification of our new contract in New York last year and this year now with Wisconsin with Tomahawk and PDC, we are all set for 5 years. So we're very pleased with that outcome. And again, that this vote -- Union vote passed on the first pass, we're very pleased with that. But nothing unexpected, I think -- and that really shows broadly alignment with our union leadership and our workforce, which is great.