Polaris to Divest Transamerican Auto Parts in Effort to Refocus on Core Business; Shares Attractive

After nearly six years of ownership, Polaris is set to prune the Transamerican Auto Parts, or TAP, line, divesting all brands, operations, distribution facilities, and 4 Wheel Parts locations. In 2021, the TAP business represented around $760 million in sales (9% of total), which was relatively flat with the $740 million in trailing 12-month sales at the time of its tie-up (2016). We don’t believe this departure will have any impact on the Polaris brand or its wide moat rating and could see profit margins tip up after the sale. For one, the aftermarket segment gross margin profile generally trailed the ORV/snowmobile segment (63% of 2021 sales), and with 2% average sales growth over the last five fiscal years, we surmise there was little, if any, operating expense leverage stemming from TAP. Over the past year, Polaris has been surgically removing lower-performing businesses, also releasing the GEM and Taylor Dunn brands in 2021, which should prove beneficial to ROIC metrics.