(Fortune)
Amid booming sales in the mid-1990s, Harley was pronounced a growth stock, on a par with, say, Hewlett-Packard. Then in the late '90s and early '00s, orders began outpacing production, and used prices shot up, leading analysts to the conclusion that Harley really ought to be considered a maker of luxury goods, like Tiffany. That bubble burst in the downturn of 2007-2009 when plummeting sales (down 50% in North America alone) downgraded Harley in the eyes of investors to the ranks of a mere cyclical stock like Ford Motor (F, Fortune 500).
Now Harley (HOG, Fortune 500) is rolling again after reporting solid increases in revenues and earnings for 2012. Its shares have risen 13.6% in the past six months, and in February, Harley raised its dividend 35.5%. Accordingly, market analysts have reclassified Harley as a dividend growth stock along the lines of companies such as Philip Morris International (PM, Fortune 500).
What hasn't changed over the years is Harley's consistent and durable devotion to its brand and its century-old history. It single-mindedly focuses on its heritage and traditions, caters to owners who already identify with the brand, and creates endless variations and updates of its existing model range to snare repeat customers. Along with companies like Mercedes-Benz and Rolex, Harley is a master at marketing the past.
Its advertising is studded with words like "legendary," "heritage," and "traditional." Harley products seldom deviate from what is considered the "classic" era of motorcycle styling with its attitude of rebellion. Marlon Brando rode a Triumph, not a Harley, in 1953's The Wild One, but the outlaw biker image he created has been embraced by Harley ever since. Want to be bold, make no compromises, and never apologize, as the company promises in its ads? Ride a Harley.
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This year has brought Harley's obsessive attention with itself to the forefront. It is celebrating its 110th anniversary by holding a series of rallies for its fans around the world and launching a dozen anniversary bikes -- limited editions of existing models decked out with special paint and badging -- that will carry price premiums as high as $2,500. Says Harley in its promotional material: "We're putting the rebel spirit on display for the world to see." Literally. Harley is staging rallies in, among other places, exotic locations like New Zealand, South Africa, Kuala Lumpur, and Brazil, in addition to its traditionally raucous events in Daytona Beach and Sturgis, S.D. The celebration concludes with a six-day event over Labor Day weekend in Milwaukee. Harley urges its fans to unite over their shared passion for "freedom, self-expression, and epic adventure."
Harley came by its scrappy attitude the hard way. It hasn't all been a smooth ride from its founding in a Milwaukee machine shop where 22-year-old William S. Harley and his friend Arthur Davidson attached a small gasoline engine to a regular bicycle frame in 1903. The company barely survived the Depression -- sales fell from 21,000 in 1929 to 3,703 in 1933 -- and nearly wilted again in the 1970s and '80s under assault from Japanese makers like Honda, Kawasaki, and Yamaha. Late-life diversions into the Buell and MV Agusta specialty brands flopped and were discontinued in 2009.
Today, Harley is on a more solid footing. It sells more than 30 different models in six product categories, ranging in price from $8,000 to nearly $40,000 -- all of them classified as heavyweight bikes whose engines displace more than 650 cc. Its buyers know what to expect: The air-cooled V-twin engine that is Harley's mainstay is almost as old as the company itself, having been devised in 1909. Quality remains an issue. According to Consumer Reports, Harley owners experience a serious problem twice as often as owners of some Japanese bikes. Still, its customers remain exceptionally loyal, with 75% saying they would buy their bike again.
Sales are ticking upward again after a deep slump. Harley-Davidson shipped 247,625 motorcycles in 2012, up 6.2% from 2011, and it forecasts a similar gain in 2013. That's a far cry from the motorcycle maker's peak in 2006 when Harley shipped near 350,000 bikes -- but a healthy improvement over 2009, when sales bottomed at 223,023. More than one third of Harley's sales are made overseas.
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Thanks to an ongoing restructuring begun in 2009, Harley has been expanding its profitability. The company's gross margins have improved from 32.3% in 2009 to 34.8% in 2012. Analysts figure that production efficiency at Harley plants has increased markedly, from 33 bikes per employee per year a decade ago to more than 41 now. For more cost-effective production, Harley has set up two assembly plants outside the U.S. -- one in Brazil and the other in India. These facilities help the company assemble parts locally and avoid import tariffs.
With its core audience of middle-aged males graying -- their average age is probably north of 50 -- Harley has been trying to expand its appeal to include young adults, women, and minorities. It refers to these demographic categories as "outreach customers." Though still small, their numbers grew faster than those of core customers in 2012.
It probably isn't surprising that Harley is making few concessions in order to broaden its owner base; any outreach customers will find their new bikes come wrapped in the rebel lifestyle. In 2009, Harley introduced a bare-bones retro-bike called the Iron 883 Sportster and priced it at $7,999 to attract new customers. But it didn't try to soften its bad-boy image with any "You meet the nicest people on a Honda"-style ad campaign. In its promotional material, Harley links the 883 to the original Sportster, introduced in 1957, with its retro style and "gritty, old-school garage features" and warned that "this blacked-out bruiser is a raw, aggressive throwback. No chrome no apologies -- just an authentic ride and old school style." It seems that Harley knows its customers -- and itself -- only too well to change its ways. 
First Published: April 22, 2013: 6:10 AM ET
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