Q3 2022 Johnson Outdoors Inc Earnings Call

August 5, 2022

Hello, everyone and welcome to the Johnson outdoors third quarter 2022 earnings Conference call today's call will be led by Helen Johnson Leipold Johnson outdoors.

Chairman and Chief Executive Officer 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 in a listen only mode.

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

Participation implies consent to our recording the call. If you do not agree to these terms simply drop off the line I would now like to turn the call over to Pat Penman from Johnson outdoors. Please go ahead Ms Penman.

Thank you good morning, everyone. Thank you for joining us for our discussion of Johnson outdoors results for the 2022 fiscal third quarter.

You need a copy of today's news release. It is available on our website at Johnson outdoors Dot com under Investor Relations.

I also need to remind you that this conference call may contain forward looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance.

Actual 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 release and filings with the Securities and Exchange Commission. If you have additional questions. Following the call. Please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson vehicles. Thanks.

Thanks, Pat Good morning, everyone and thank you for joining us I'll begin with an overview on the quarter and the year and then I'll share perspective form into the outlook for our businesses David will review financial highlights and then we'll take your questions.

Sales in our third fiscal quarter, ending July one 2022 declined 5% compared to the prior year's record high third quarter for the year to date period total company sales declined 7% over last year's fiscal nine month period.

Compared to the 2019 pre pandemic year to date period, our net sales are up significantly.

Total company operating profit of $23 $8 million for the third quarter was down versus $38 $1 million in the prior year's record setting quarter.

Year to date operating profit also declined compared to the prior fiscal nine month period. The decline is due to lower sales volumes and a decrease in gross margin is driven by significant cost increases, particularly in our fishing business.

We have implemented price increases across our product lines, and we're focused on fulfilling demand and reducing our expenses where possible.

We are seeing markets begin to moderate from the pandemic driven demand of the past two seasons.

However, solid demand from our trade partners continues while global supply chain disruptions persist we have strategically invested in building inventories. So we can complete products as parts come in and our team has been working hard to maximize product build and fulfill orders to customers.

In fishing, while we have some supply chain challenges, we are not wavering from our focus on innovation to give anglers the best fishing experience as possible and important part of that focus is looking for new ways that hummingbird I mean coated products can connect and work together to deliver new benefits to our consumers.

Our most recent innovation in hummingbird, the exciting new Mega live imaging target lock sonar technology used in conjunction with <unk> Kota all track trolling motor enables full trolling motor control, while independently hearing and locking Mega live on a specific target. This makes it easier for English standpoint.

Catch more fish megawatt imaging target locked captured best in category for electronics at this year's I cast the world's most prestigious fishing show, marking our 11th award in this category in the past 12 years.

In watercraft recreation, we continue to have momentum in March and a moderating market driven by the innovation of old town Sports Med line part of the sports. The line is the wildly versatile lightweight sportsmen discovery solo 119, a solo continues at paddles like a kayak and it's great for fishing waterfall.

Hunting and enjoying life and slower moving rivers.

The discovery solo 119 was recently awarded field <unk> stream best overall fishing to new for 2022.

Sportsman line offers a watercraft for everyone looking to enjoy a great day on the water.

In camping, while the market has cooled compared to the high demand of last year's unprecedented season participation remains high and we continue to see double digit growth demand for Eureka consumer tension stopes is strong as well and in Jeff Boyle consumers remained excited about the innovative super light fashion.

So that is in its second year on the market.

Finally in diving as more consumers resumed traveled during the quarter that markets are experiencing recovery.

Hard work, we put in promoting and supporting local diving enhancing our global digital presence.

And our sustained innovation has contributed to our growth.

Scuba pro launched the brand new powerful hearing supernova fans. The supernova is it goes too thin for avid recreational and professional divers seeking maximum speed power and kicked in control in all driving conditions.

During supernova was also the winner of the prestigious internationally recognized Red Dot award for product design.

Our continued innovation efforts will ensure <unk> position as the most trusted dive brand in the world in summary, while we faced supply chain disruptions and long lead times, we remain laser focused I'm working hard to fulfill orders from our loyal customers, who seek out our award winning products.

Honestly, we are monitoring the uncertain economic conditions and as always we take the long view at Johnson outdoors, working hard to position our brands and our businesses for growth well beyond the next quarter or next year.

Now I'll turn the call over to Dave for a review of the financial highlights.

Thank you Helen and good morning, everyone I wanted to highlight a few items from the quarter in the year.

As Helen mentioned sales declined for the quarter compared to last year's record high third quarter.

But sales are significantly higher than the pre pandemic G&A in the quarter.

We continue to have a strong order position, but our ability to meet demand is being impacted by ongoing supply chain issues, especially our fishing business.

Now to help mitigate supply chain disruptions, we have been building significantly higher inventory levels for several quarters total.

Total inventory is up $120 million compared to last year.

The increase was primarily due to increased raw material and other component purchases in many instances at higher costs in an effort to meet increased demand for products.

We continue to work closely with all of our vendors and planning for alternative sources of supply for critical components where feasible.

Moving forward, we will continue to manage our inventory position actively balancing sales demands with maintaining a solid balance sheet.

The quarter's gross margin of 36, 1% was down nine six points from last year's third quarter.

We continued to experience significant increases in cost of materials.

While we've implemented price increases across product lines that were not enough to offset the negative impact of component cost increases.

Yeah.

Operating expenses for the quarter decreased $9 $7 million versus the prior year third quarter, primarily due to lower sales volume driven expenses.

As well as lower variable and deferred compensation expense between quarters.

Unfavorable market conditions on the company's deferred compensation plan assets resulted in approximately $5 $3 million of lower deferred compensation expense in the current year quarter versus last year's quarter.

This impact is entirely offset by a loss in other income expense.

Okay.

The quarter's effective tax rate was 26, 8% and was 25, 9% and for the nine months period, we expect the full year tax rate to be in the mid twenties.

Net income for the quarter was $14 $1 million down from the prior year's quarter of $28 $8 million.

In closing we continue to have no debt on our balance sheet and our cash position enables us to invest in opportunities to strengthen the business. We remain confident in our ability to deliver long term value and consistently pay out cash dividends to our shareholders.

Now I'll turn the call over to the operator for the Q&A session operator.

Thank you to ask a question you will need to press star one on your telephone.

And our first question comes from the line of Anthony <unk> with Sidoti. Your line is open. Please go ahead.

Yes, good morning, and thank you for taking the questions.

So first of all I just wanted to get a more color about the strong orders.

Are you seeing that across the board.

And.

Whether it's.

In each of your segments and then also just wanted to get the.

More color as far as your backlog.

I'm sorry, what's your lead times are now compared to the last quarter.

We are seeing continued strong demand from our customers.

Across the board.

See we do see some of the markets moderating butter customer orders are still strong.

We have lead times changed from last quarter I think.

That's not a I.

I don't I don't think that's the timeframe they increase rather than the beginning of the pandemic absolutely.

And that <unk>.

Obviously causes challenges when it comes to forecasting but.

The inventory levels at stores still light our orders are are continue to be solid and.

No we feel we're in a good position.

Okay got you thanks for that and then so.

It sounds like Youre, not really seeing much in terms of order cancellations is that correct.

Yeah, we have not.

Seen order cancels and in fact, it's just a pretty.

Solid position as far as orders are concerned.

Uh-huh.

Got it Okay and then in terms of the price increases can you review what you did in the quarter end.

Whether you plan to take additional price increases.

Just overall, how should we think about gross margins.

Yes, so you know.

We took price increases at the beginning of our fiscal year in October .

Moderate price increases I would say in hindsight, we took another slog of increases in April and the beginning of April .

But as you see I mean, this was not enough to offset.

The unfavorable variance from our cost of goods sold so we'll continue to look at that I think is something that remains an arrow in our quiver going forward and we won't be afraid to continue to price appropriately, but we just have to balance the accessibility of the product switch.

The need to get the gross margin back to where it needs to be.

Got it so is it fair to assume that near term gross margins will remain under pressure.

Yes, I don't I wouldn't expect us to get back to historic gross margins soon.

But we'll continue to look at that.

And.

I will make sure that we've got.

Better supply chain situation as well as look at the pricing strategies that we have.

Got it Okay and then.

So given everything that's going on.

Yes.

When would it be reasonable to assume a decrease in your inventory, which it looks like it's a record high levels now.

Yes.

The supply chain has.

Get back to some semblance of normality or normalcy, if you will.

So.

We're actively managing that I think as we go into the next season, we're looking to try to get a little bit more.

Balanced in our inventory.

But we got to get the the industry supply chain to get back to more normal levels.

No.

We are focused on meeting the orders of our customers. So.

When components are available we have invested so that we are ready.

And we're waiting for.

One or two key parts, but hopefully.

Our focus on them.

Fulfilling orders.

Is the right priority at this time.

Understood. Okay, and then a couple of other questions. If I may here so.

You have increased your capex, how should we think about that.

I'll have one quarter left in your fiscal year, just overall ballpark estimate if you have that for the year and then.

Kind of going forward.

What would you say would be reasonable to assume for Capex for next year.

Yes.

We invested in capacity this year.

So that's reflected in the year to date Capex number.

We will still have a little bit more investment in the fourth quarter. So we'll see some.

The increase for the year versus last year in Capex, but I expect that to come back down.

2020, 'twenty to 'twenty one levels.

For next year, if that makes any sense. So I think this year was kind of an unusual year.

Yes that does make sense, yes, absolutely.

And then as far as your capital allocation what are your thoughts as far as.

Dividend increases, which you have done a good job of raising those over time.

It's been awhile since you've done any acquisitions, but.

Would love to hear any updated thoughts you may have on that.

Yes, I mean, the strategy remains the same which is to.

Utilize our capital for growth.

Best in the business.

Internally as well as looking at acquisitions, we remain still very active in that regard the dividends are important for us to I mean.

Paying a good solid regular dividend is important.

And our capital strategy and we'll look to.

See if we need to increase that going into next year.

And we continue to look at other alternatives to but those are kind of the two main aspects.

Got it alright, well, thank you very much and best of luck.

Thank you.

Thank you and I'm showing no further questions and I would like to turn the conference back over to Helen Johnson Leipold for any further remarks.

Just wanted to thank everybody for joining us and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

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Hello, everyone and welcome to Johnson outdoors third quarter 2022 earnings Conference call today's call will be led by Helen Johnson Leipold Johnson outdoors.

Chairman and Chief Executive Officer 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 in a listen only mode.

After the prepared remarks, the question and answer session will begin.

Like to ask a question. During this time. Please press Star then one on your telephone keypad. This call is being recorded your participation implies consent to our recording the call.

If you do not agree to these terms simply drop off the line I would now like to turn the call over to Pat Penman from Johnson outdoors. Please go ahead Ms Penman.

Thank you good morning, everyone. Thank you for joining us for our discussion of Johnson outdoors results for the 2022 fiscal third quarter.

You need a copy of today's news release. It is available on our website at Johnson outdoors Dot com under Investor Relations.

Actual 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 release and filings with the Securities and Exchange Commission. If you have additional questions. Following the call. Please contact Dave Johnson or myself. It is now my pleasure.

I'll turn the call over to Helen Johnson Leipold.

Thanks, Pat Good morning, everyone and thank you for joining us I'll begin with an overview on the quarter and the year and then I'll share perspective formats and outlook for our businesses David will review financial highlights and then we'll take your questions.

Compared to the 2019 pre pandemic year to date period, our net sales are up significantly.

Total company operating profit of $23 $8 million for the third quarter was down versus $38 $1 million in the prior year's record setting quarter.

Year to date operating profit also declined compared to the prior fiscal nine month period. The decline is due to lower sales volumes and a decrease in gross margin driven by significant cross cost increases, particularly in our fishing business we.

We have implemented price increases across our product lines, and we're focused on fulfilling demand and reducing our expenses where possible.

We are seeing markets begin to moderate from the pandemic driven demand of the past two seasons.

However, solid demand from our trade partners continues while global supply chain disruptions persist we have strategically.

<unk> invested in building inventories. So we think with fleet products as parts come in and our team has been working hard to maximize product build and fulfill orders to customers.

In fishing, while we have some supply chain challenges, we are not wavering from our focus on innovation give anglers the best fishing experience as possible and important part of that focus is looking for new ways of hummingbird <unk> coated products can connect and work together to deliver new benefits to our consumers.

Our most recent innovation in hummingbird, the exciting new Mega live imaging target locked sonar technology used in conjunction with <unk> Kota all track trolling motor enables full trolling motor control, while independently gearing and locking Mega live on a specific target. This makes it easier for English standpoint.

Catch more fish megawatts imaging target locked captured best in category for electronics at this year's I cast the world's most prestigious fishing show, marking our 11th award in this category in the past 12 years.

In watercraft recreation, we continue to have momentum in March and a moderating market driven by the innovation of old town Sports Med line part of the sportsman line is the wildly versatile lightweight sportsman discovery solo 119, our solo can you the paddles like a kayak and is great for fishing waterfall.

Hunting and enjoying rates and slower moving rivers.

The discovery solo 119 was recently awarded field <unk> stream best overall fishing can you for 2022.

Sportsman line offers a watercraft for everyone looking to enjoy a great day on the water.

In camping, while the market has cooled compared to the high demand of last year's unprecedented even participation remains high and we continue to see double digit growth demand for Eureka consumer attention stopes is strong as well and in Jeff Boyle consumers remained excited about the innovative super light fashion.

So that is in its second year on the market.

Finally in diving as more consumers resumed traveled during the quarter that markets are experiencing recovery.

Hard work, we put in promoting and supporting local diving enhancing our global digital digital presses.

And our sustained innovation has contributed to our growth.

<unk> launched the brand new powerful hearings supernova van the supernova is it goes too thin for avid recreational and professional divers seeking maximum speed power and keeping control in all diving conditions.

Supernova was also the winner of the prestigious internationally recognized Red Dot award for product design.

Our continued innovation efforts will ensure <unk> position as the most trusted dive brand in the world in summary, while we faced supply chain disruptions and long lead times, we remain laser focused and working hard to fulfill orders from our loyal customers, who seek out our award winning products.

Obviously, we are monitoring the uncertain economic conditions and as always we take the long view at Johnson outdoors, working hard to position our brands and our businesses for growth well beyond the next quarter or next year.

Now I'll turn the call over to Dave for a review of the financial highlights.

Thank you Helen good morning, everyone I wanted to highlight a few items from the quarter ended year.

As Helen mentioned sales declined for the quarter compared to last year's record high third quarter.

But sales are significantly higher than the pre pandemic G&A in the quarter.

We continue to have a strong order position, but our ability to meet demand is being impacted by ongoing supply chain issues, especially in our fishing business.

Now to help mitigate supply chain disruptions, we've been building significantly higher inventory levels for several quarters total.

Total inventory is up $120 million compared to last year.

The increase was primarily due to increased raw material and other component purchases and maybe instances of higher cost in an effort to meet increased demand for products.

We continue to work closely with all of our vendors and planning for alternate sources of supply for critical components where feasible.

Moving forward, we will continue to manage our inventory position actively balancing sales demands with maintaining a solid balance sheet.

The quarter's gross margin of 36, 1% was down nine six points from last year's third quarter.

We continued to experience significant increases in cost of materials.

While we've implemented price increases across product lines, they were not enough to offset the negative impact of component cost increases.

Operating expenses for the quarter decreased $9 $7 million versus the prior year third quarter, primarily due to lower sales volume driven expenses.

As well as lower variable and deferred compensation expense between quarters.

Unfavorable market conditions on the company's deferred compensation plan assets resulted in approximately $5 $3 million of lower deferred compensation expense in the current year quarter.

Versus last year's quarter.

This impact is entirely offset by a loss in other income expense.

Okay.

The quarter's effective tax rate was 26, 8% and was 25, 9% and for the nine months period, we expect the full year tax rate to be in the mid twenties.

Net income for the quarter was $14 $1 million down from the prior year's quarter of $28 8 million.

Now I will turn the call over to the operator for the Q&A session operator.

Thank you to ask a question you will need to press star one on your telephone.

And our first question comes from the line of Anthony <unk> with Sidoti. Your line is open. Please go ahead.

Yes, good morning, and thank you for taking the questions.

So first of all I just wanted to get a more color about the strong orders.

Are you seeing that across the board.

And.

Whether it's in.

In each of your segments and then also just wanted to get the.

More color as far as your backlog.

Im sorry, Whats your lead times are now compared to the last quarter.

We are seeing continued strong demand from our customers.

Across the board.

We do see some of the markets moderating butter customer orders are still strong.

We have lead times changed from last quarter I think.

That's not.

I don't I don't think thats the timeframe they increase.

Increase rather than the beginning of the pandemic absolutely.

And that.

Asleep causes challenges when it comes to forecasting but.

The inventory levels at stores still light our orders are continue to be solid and.

No we feel we're in a good position.

Yes.

Okay got you thanks for that and then assess so.

It sounds like Youre, not really seeing much in terms of order cancellations is that correct.

Yes, we have not.

Seen order cancels in fact, it's just a pretty solid position as far as orders are concerned.

Got it Okay and then.

So the price increases can you review what you did in the quarter end.

Whether you plan to take additional price increases and just overall, how should we think about gross margins.

Yes so.

We took price increases at the beginning of our fiscal year in October .

Moderate price increases I would say in hindsight, we took another slug of increases in April from the beginning of April but.

But as you see I mean, this is not enough to offset.

The need to get the gross margin back to where it needs to be.

Got it so is it fair to assume that near term gross margins will remain under pressure.

Yes, I don't I wouldn't expect us to get back to historic gross margins soon.

But we'll continue to look at that and.

I'll make sure that we've got.

At our supply chain situation as well as look at the pricing strategies that we have.

Got it Okay and then.

So given everything that's going on.

Yes.

When would it be reasonable to assume a decrease in your inventory, which it looks like it's a record high levels now.

Yes.

The supply chain has to get back to some semblance of normality or normalcy, if you will.

No.

We're actively managing that I think as we go into the next season, we're looking to try to get a little bit more.

Balanced in our inventory.

But we got to get the the industry supply chain has to get back to more normal levels.

We are focused on meeting the orders of our customers. So.

When components are available we have invested so that we are ready.

And we're waiting for.

One or two key parts, but hopefully.

Our focus on.

Yeah.

Fulfilling orders.

Is the right priority at this time.

Understood Okay.

Then a couple of other questions if I may here so.

You have increased your capex, how should we think about that.

We only have one quarter left in your fiscal year, just overall ballpark estimate if you have that for the year and then.

Kind of going forward.

What would you say would be reasonable to assume for Capex for next year.

Yes.

We invested in capacity this year.

So thats reflected in the year to date Capex number.

Yeah.

We will still have a little bit more investment in the fourth quarter. So we'll see some.

Some increase for the year versus last year in Capex, but I expect that to come back down.

To 2020, 'twenty to 'twenty one levels.

For next year, if that makes any sense. So I think this year was kind of an unusual year.

Yes that does makes sense, yes, absolutely.

And then as far as your capital allocation what are your thoughts as far as.

Dividend increases, which you have done a good job of raising those over time.

Yes.

It's been awhile since you've done any acquisitions, but.

I would love to hear any updated thoughts you may have on that.

Yes, I mean, the strategy remains the same which is to.

Utilize our capital for growth.

Best in the business.

Internally as well as looking at acquisitions, we remain still very active in that regard the dividends are important for us too.

Paying a good solid regular dividend is important.

And our capital strategy and we'll look to.

See if we need to increase that going into next year.

And we continue to look at all the alternatives.

Those are kind of the two main aspects.

Got it alright, well, thank you very much and best of luck.

Thank you.

Thank you and I'm showing no further questions and I would like to turn the conference back over to Helen Johnson Leipold for any further remarks.

Just wanted to thank everybody for joining us and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 Johnson Outdoors Inc Earnings Call

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