Q2 2020 Earnings Call

Second quarter 2020 earnings conference call.

And Jonathan Leopold Johnson outdoors, Chairman and Chief Executive Officer will lead todays call.

Also on the call is David Johnson, Vice President and Chief Financial Officer.

Prior to the question and answer session, all participants will be placed and I'll listen only mode.

After the prepared remarks, the question and answer session will begin if you would like to ask a question during that time. Please press Star then the number one on your telephone keypad. This call is being recorded.

Participation implies consent to our recording this call.

If you do not agree to these terms simply drop off the line.

I would now like to turn the call over to Patricia Penman from Johnson outdoors. Please go ahead Mr. Benjamin.

Thank you good morning, and welcome to our discussion of Johnson outdoors fiscal 2022nd quarter results. If you need a copy of today's news release. It is available on our web site at Johnson outdoors Dotcom under Investor Relations I also need to remind you that this conference may contain forward looking statements. These days.

Mincer made on the basis of our current views and assumptions and are not guarantees of future performance actually events may differ materially from those statements due to a number of factors. Many beyond Johnson outdoors control. These risks and uncertainties include those listed in our press releases and filings with the Securities and exchange.

Commission if you have additional questions. Following the call. Please contact either Dave Johnson or me. It is now my pleasure to turn the call over to Helen Johnson Liam.

Good morning, everyone. Thank you for joining us.

I'll begin with a brief overview of financial results for the quarter in first six months review the initial impact of Cobiz 19 on our businesses and outline our priorities as we work to help mitigate its ongoing effect I'll turn things over to Dave to review the financials and then we'll take your questions.

Total company sales declined 8% to $163.1 million during the second quarter each business was impacted differently by the pandemic this quarter some more sand less some early years come later.

Improve margins in cost cutting efforts helped offset the impact of lower sales operating profit for the quarter improved to $31.8 million and Dave will discuss the factors behind this increase in his section.

Net income was $20.4 million or $2.02 per diluted share on a year to date basis sales profit before taxes and net income all compared favorably to prior year six month period due to this year's very strong first quarter performance.

Government orders stay at home mandates led to temporary suspensions that many of our operations.

Driving our most global business was effective onest due to the rolling spread of coping 19 around the world as a result guide markets across the globe has been negatively impacted by government ordered stay at home mandates.

Watercraft and camping production was temporarily suspended in mid to late March followed by fishing in early April.

Due to the timing of all this the heart of five primary selling season have dramatically.

Disrupted and we expect the third quarter to be significantly impacted as a result of koeppen 19.

During these unsettling times employee health and safety has been our primary focus with employees working from home and while production and shipments were on temporary hiatus every location was deep clean and sanitized strict operating processes and procedures put into place consistent with CDC guidelines for cobot 19.

And good personal hygiene directive advanced.

As a result of these measures we are able to ramp up operations at levels consistent with demand in each business and with the applicable government requirements, which vary by state and location.

Despite the physical distance between US My management team has worked closely together monitoring all aspects of this rapidly changing situation to bring clarity to near term priorities in longer term needs government mandates have restricted activities enjoyed by our outdoor consumers by far and while these are just beginning to ease.

This year's warm weather outdoor recreation season will be constricted, our focus now and for the remainder of the year is implementing strategies and plans designed to optimize sales.

Key to this will be leveraging our digital marketing capability and capacity to maximize ecommerce and end market opportunities.

When our consumers are once again able to get out there and into experienced a great outdoors Johnson outdoors will be there for them.

Well stay at home mandates in restrictions on traveler ease we hope to have a clear view on the Fuller impact of Cobas 19 on the outdoor recreation industry, and our markets and last greater clarity on the full year outlook importantly, our unwavering commitment to building a thriving enterprise long term remain stronger than ever.

Now as always consumer driven innovation will play a critical role in helping us overcome challenging times any merged stronger and better position for the future now I'll turn things over to date.

Thank you Hello, and good morning.

As Helen said Cobot 19 impacted much of our operations this quarter.

The widespread disruption to cost of the global dive markets drove declines and diving.

Travel to key dive destinations has come to a virtual halt and government mandates have temporarily suspended production and forced closures of specialty dive shops, which are the primary retail channel for core life support that equipment.

As of now it's unclear just how long it will take for dive markets to recover but we anticipate it will be gradual versus a media.

Fishing production and shipments were minimally affected by stay at home orders during the quarter.

The pacing of new product introductions last year led to unfavorable year over year quarterly comparison.

Camping sales declined 7% and watercraft sales fell 38% from the prior year quarter due largely to cope with 19 impacts on production and demand.

We moved quickly to protect the bottom line by cutting nonessential spending deferring capital expenditures and reducing incentive compensation.

Operating expense declined $7.9 million in the quarter due primarily to a 5.5 million dollar favorable impact from valuation adjustments to the company's deferred compensation plan assets.

Which are totally offset in other income.

And incentive compensation costs declined $3.4 million.

In addition executives in the board have voluntarily taken reductions and pay.

Going forward, we're scaling operations to demand in this quarter was a key focus on keeping working capital in check.

At the end of the quarter working capital was more than $20 million favorable to prior year.

Looking forward our debt free balance sheet remains strong in our healthy cash position will be beneficial as we work to challenges ahead.

While continuing to make smart investments in strictly in the business and drive value for our shareholders.

Im going to turn things over to the operator for acuity session operator.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your telephone keypad. If your question has been answer for you wish to remove yourself from the Q. Please press the pound key.

And your first audio question comes from the line of Anthony Lebiedzinski from the Daytona.

Yes, good morning.

Thank you the question for the for the opportunity to ask questions and hope you're both well unhealthy.

I joined the call a few minutes late the had some technical difficulties getting on the call. But so you may have addressed this already but can you give us a sense of how your business.

Performed.

It's too early March or then after the cobot 19 outbreaks.

Yes. This is Alan I think we you know we had quite a bit of momentum going in to our normal selling season. So we felt pretty good about our precision AG would say that we had as strong first quarter. So year to date numbers were really good and obviously when.

Kobe kits that was quite a different story so.

It's overlapped with our exactly with our support in selling season, which is key cells.

You know we felt good about coming into the season and then we got impacted so.

You know.

We've got a restricted season on the other end so we'll have to wait and see how that goes but I'm sure that.

We're all seeing a little bit of pent up demand, which is good but we don't have a good view to the future.

Over the remainder of near at this point in time, but.

We can ice the optimal.

Sure Okay, so as far as the gross margin improvement.

Second quarter here.

Can you just touch base, a little bit more about what drove that I know you talked about the product mix and pricing, but is there anything else.

I think about that and how should we think about gross margins going forward.

Yes, I would expect.

No gross margins are kind of haim a little bit going forward, it's mostly due to promotion activity pricing activity in like us a stronger mix across the businesses.

You know.

Costs have been pretty tame as well, but I don't necessarily expect a huge improvement going forward and gross margin versus last year.

Okay got it thanks for that so.

Just wondering so as soon as the economy now in the recession.

Can you.

Talk about the expected impact on each of your different segments.

Obviously, I'm, particularly interested in the fishing segments, which is a few years crown jewel.

So just wanted to get a sense as to the willingness of your.

Customers to be spending two or $3000 for an old fracs or altera could there, possibly be some people trading down to lower priced models. So just wanted to get a sense of that or how should we think about your business and that recession.

Well you know it.

We have a very.

As a core group of fishermen in there a little bit on the obsessive compulsive side of things and so.

They are.

Our very dedicated to the season I think we if we look back at the recession that we have prior which is really actually very different than today, but we have.

People, who.

May or may not.

You know by into both but they always be the.

If they don't buy a most stable ceight trade in their motor and get a better motorists. So we can be either an accessory item or we get involved in a new bulk purchase so we've got a lot of.

Different ways that consumers can purchase our product so I think given our loyal consumer base.

I think the bigger issues, we've got a risk weve got a very constricted season, and so we missed a big chunk of our selling season in the question is now.

Well they come back in did we lose those purchases are or will they may come up that's the big question in NAFTA unknown, but I can it we've got a pretty loyal base that they want to get out there I think being pumped up also.

<unk> is a reason why people want to get out fishing, but you've got the recession and the other side as well. So obviously a lot of variables a lot of things impacting but.

Yeah.

I would say of all of our core consumers they are pretty Avenue.

But again.

A lot of things have impacted so there is.

Looking forward is pretty hard to predict as you can tell my answer.

Sure, yes, thanks for that.

So just briefly maybe touch on the other segments as well I know there for far smaller compared to fishing, but as far as you know how would you expect those to perform well I think at every one of our businesses was impacted because the timing of cold in the.

It was right.

In our core season than we have a pretty seasonal set of companies. So that was probably the biggest impact.

There is all.

We were shut down in some of the businesses during March so theres, some pent up demand but.

Across the board this impact is very different by business and as Dave said diving has a lot of variables in there. They got hit early across the globe. So.

They also have travel involved so so they'd probably.

I would say they've gotten hit a little harder and then you've got.

Camping and watercraft, which are.

Hi, good businesses, but.

You can't go out we've been kind of restricted to our housing. These days. So hopefully there's some pent up demand, let's speak impact is different my business depending on.

The industry.

But we've got some pretty loyal consumers so.

I think all we can say as it will be ready for them when.

They can get outdoors and recreate.

Got it Okay, and then a couple more questions if I may so.

As far as competition in the fishing segment have you seen anything notable to call out at this point.

If you're referring to.

The motors business, we havent seen a lot of new activity obviously.

The new motors are out there.

And.

I've gotten placement, so, but we I think cobrand as really put at UBS.

A big variable in the mix of everything and it's hard to two really determine how things are going I'm sure as as.

Everybody gets back to the stores are opened in the consumers can you get out demos and we'll see.

More what's going on out there.

Got it and lastly, as far as can you touch base on your capital allocation priorities at this point.

Sure, Yes, I think they remain pretty pretty much the same as they work before I mean were more into.

No.

Save money save cost, where we can but you know.

We continue to look at ways to allocate that capital appropriately.

Paying the dividend is still an important tool in our tool box.

M&A continues to be top of mind in terms of what we want to do with that money. So.

Will be interested to see how this all plays out in the marketplace, but we'll be ready and as you know we've got we've got $132 million a cash on our balance sheet. So we're really good shape.

Right.

Absolutely. So this was the M&A activity have you seen.

Multiples.

Down or those they still high.

I think it's a little too soon to see the impact of coal, but on that but.

Certainly during this time of.

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A lot of issues happening out there you are hoping that that things do.

There are opportunities that come about we've got our eyes out and we're looking but I.

I think it's really early right now to look at multiples.

Got it.

One last question if I, if I may so.

Obviously cope with 19 as impacted all the.

Four segments of the business no question about it but that being said the.

The watercraft.

Recreation segment has been the most challenged last couple of years from a profitability standpoint.

Yes.

At some point, perhaps consider.

Divesting that segment or you still willing to be patients and trying to turn that around.

Well I'll leave it no at this point when we're certainly like looking at selling I think are.

I will focus on innovation.

Is the key.

And.

We've got.

Plans that we are doing to reenergize, our business and.

A little bit.

Like interacted with the Colvin, but we still feel good about the plans and look forward to the future with that business.

Got it all right well, thank you and best of luck.

Thanks Anthony.

And once again, if anyone would like to ask a question. Please press star one on your telephone keypad that install one to ask a question.

Once again, if anyone would like to ask a question. Please press star one.

Okay. Operator, thank you I'd like to thank everybody for joining us and stay safe and stay healthy. Thank you.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now all disconnect.

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