Legacy Ridge Capital Partners' Top Picks for 2025: Polaris Inc. (PII)

Legacy Ridge Capital Management's investment thesis for Polaris (PII) highlights the company's potential despite a decline in sales due to the powersports industry downturn and increased promotions. The firm sees Polaris as a strong investment, but notes that AI stocks offer greater upside potential with less downside risk. The company's sales declined 6% in Q2 2025, and its shares have lost 31.01% of their value over the last 52 weeks.

Polaris Industries Inc. (NYSE: PII), a leading manufacturer of off-road vehicles, motorcycles, and marine products, released its second quarter fiscal 2025 results on July 29, 2025. The company reported non-GAAP revenue of $1,847.9 million, topping analyst estimates of $1,710.2 million. Non-GAAP earnings per share (EPS) came in at $0.40, a major beat compared to the consensus of close to zero, but reflecting a 71% decline from the same period last year. Despite these headline beats, overall results showed weaker profitability, with shrinking margins due to higher promotional costs and a challenging product mix. Management characterized the quarter as one of operational discipline and market share gains, though underlying headwinds continued to weigh on near-term profitability and outlook [1].

Key Performance Metrics

- Revenue (Non-GAAP): $1,847.9 million, beating the analyst estimate of $1,710.2 million.
- EPS (Non-GAAP): $0.40, a significant improvement over the consensus estimate of $0.001 but a 71% decline from the prior year.
- Adjusted EBITDA Margin: 6.4%, down from 10.1% year-over-year.
- Off Road Revenue: $1,408.4 million, down 8% from the prior year.
- On Road Revenue: $289.0 million, down 1%.
- Marine Revenue: $155.3 million, up 16%.

Segment Analysis

The Off Road segment, which includes ATVs and side-by-sides, contributed 76% of revenue but saw an 8% decline from the prior year. The dip in the Off Road segment was due to reduced volumes and higher promotional activity. However, North America ORV unit retail sales were up 1% in the second quarter, outperforming a category-wide drop in industry sales. To hold share, Polaris increased promotional spending, weighed on gross profit margins. The On Road group, dominated by Indian Motorcycle motorcycles, saw sales fall 1%. Within this, retail sales for Indian Motorcycle jumped by low double-digit percentages, while the wider motorcycle industry contracted substantially over the same period. The segment, however, reported a $52.6 million goodwill impairment related to ongoing performance challenges, and adjusted gross margin slipped. The Marine unit, which includes pontoon and other recreational boats, was the only major segment posting revenue growth—rising 16% and bucking an industry downturn for pontoons. Still, the stronger sales performance came with lower profitability, as gross margin for the Marine business fell more than three percentage points year over year, reflecting a less favorable mix of boat types sold and increased operational costs [1].

Financial Health and Outlook

The quarter tells a story of pushing market share through both innovation and aggressive retail promotions. However, the cost of defending share showed up in operating metrics. Adjusted EBITDA margin dropped to 6.4% from 10.1% compared to Q2 2024. Gross profit margins contracted by over two percentage points. Higher general and administrative costs, as well as non-cash impairments, drove operating expenses up 20%. The company recorded a GAAP net loss of $79.3 million, compared to net income of $68.7 million for Q2 2024. One of the quarter’s clearest pressures was the ongoing challenge from tariffs and trade policies. The company expects tariff costs (after various mitigation moves) to be less than $225 million in 2025, with most of the burden deferred until late in the year or into 2026 [1].

Strategic Initiatives

Polaris Renewable Energy Inc. (PIF), a subsidiary of Polaris, announced the submission of the SO1 Agreement to the Puerto Rico Energy Bureau. This agreement is part of the Puerto Rico Accelerated Storage Addition Program, aimed at strengthening grid reliability through the deployment of utility-scale battery energy storage systems. The submission of the SO1 Agreement forms part of the Puerto Rico Accelerated Storage Addition Program (ASAP), a strategic initiative aimed at strengthening grid reliability across the island through the deployment of utility-scale battery energy storage systems (BESS) co-located with existing generation facilities. Under this framework, Polaris Power US, Inc. (PPUS), a wholly owned subsidiary of Polaris, will act as the "Resource Provider" responsible for the installation and operation of the BESS, while Punta Lima Wind Farm, LLC (PLWF), another subsidiary of Polaris, will continue to serve as the "Generation Facility Owner" for the Punta Lima site where the storage system will be located [2].

Conclusion

Polaris Industries Inc. (PII) delivered mixed results in Q2 2025, with revenue and EPS beating expectations but profitability contracting due to higher promotional costs and margin pressures. The company continues to face headwinds from tariffs and trade policies, which could impact its near-term outlook. Despite these challenges, Polaris remains committed to market share gains and strategic initiatives such as renewable energy projects. Investors should closely monitor the company's ability to navigate these challenges and maintain its competitive position in the powersports industry.

References

[1] https://www.aol.com/finance/polaris-beats-q2-revenue-estimates-103242557.html
[2] https://www.tradingview.com/news/reuters.com,2025-08-11:newsml_RSK7666Ua:0-rcs-polaris-renewable-polaris-announces-submission-of-so1-agreement/