Johnson Outdoors Inc. Q2 2023 Earnings Call

May 5, 2023

Hello, everyone and welcome to the Johnson outdoors second quarter 2023 earnings Conference call.

Today's call will be led by Helen Johnson Leipold Johnson outdoors chairman.

Chief Executive Officer.

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

Ranch officer.

Prior to the question and answer session. All participants will be placed in a listen only mode.

After the prepared remarks.

Question and answer session will begin.

If you would like to ask a question during that time. Please press star one one on your telephone.

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 Pat.

From Johnson outdoors. Please go ahead.

Thank you good morning, everyone. Thank you for joining us for our discussion of Johnson outdoors results for the 2023 fiscal second quarter. If 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.

Once they're 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 Leipold.

Thanks, Pat Good morning, everyone I'll begin with an overview on the quarter and the year and then I'll share perspective.

And the outlook for our businesses.

Dave will review financial highlights and then we'll take your questions.

Sales in our second fiscal quarter, ending March 31, 2023, rose, 7% to $202 $1 million to adhering to $189 $6 million in the prior year second quarter.

At the halfway Mark of the fiscal year total company year to date sales increased 11% over last year's first fiscal six months period.

Profit before income taxes for the quarter increased to $19 $9 million versus $13 $2 million over the prior year quarter for.

For the year to date period profit before income taxes was $28 $1 million versus $27 $8 million a prior year to date period.

Dave will give some more insight into the profit drivers.

Over the past few years.

Higher participation in outdoor activities and benefited from the pandemic fueled demand now coming out of the pandemic, we're facing more challenging markets and uncertainties affecting our customers and our consumers.

Belvieu and the markets further in my discussion of each business.

Fishing supply and component availability significantly improve allowing us to fulfill more customer orders near term customer demand continues to be solid and we're continuing to monitor monitor consumer takeaway.

During the quarter, we showcased our fishing brands have the annual best Master Classic tournament and consumer showing eight this is your best Master had a record two.

Florist passionate about fishing and I'm pleased to share that <unk> sponsored a work Jeff customers one the tournament.

And our guiding business momentum will continue as the market rebounds from depressed pandemic levels and increased global travel we continue to benefit from our scuba apply as the most trusted dive brand in the world.

In camping and watercraft recreation, both markets are impacted by a post pandemic slowdown retailers have built up inventory and now have a lot of progress on the shelf to work through Meanwhile, consumer spending has slowed consumer focused innovation is critical for both the new and existing participants.

And these activities.

And the higher in both of our innovative old town Sports Med line continues to do well.

And all of our businesses sustained innovation leadership is critically important to our growth and the success of our brands. We remain focused on investing understanding both new and existing consumers' evolving needs and translating that into new products and SaaS.

We continue to work on an exciting.

New products across all of our brands looking ahead, we continue to stay on top of marketplace conditions and monitoring consumer buying behavior and as always I'd say the long term view at Johnson outdoors positioning our brands and businesses for long term growth.

Now I will turn the call over 80.

Clearly view of the financial highlights.

Hello, and good morning, everyone.

I want to highlight a few items from the quarter and the year.

As Helen mentioned, the supply availability has markedly improved allowing us to fulfill more customer orders, especially in Cushing.

Raw material inventory is down 25% as we continue to convert those components to finished goods available to ship as we enter our primary selling season.

With the right market conditions, we plan to see a measurable reduction in total inventory by the end of fiscal year.

The quarter's gross margin of 37, 3% slightly improved from 36, 2% in last years second quarter.

Due primarily to price increases and efficiencies from increased sales volumes.

We expect margins to continue to be challenged in the coming months as we work through higher cost inventory inflation remains a concern and we continue to evaluate our expense structure.

Operator operating expenses in the second quarter increased $10 $8 million versus the prior year second quarter.

The primary drivers of the increase between the quarters were higher sales volume driven expenses as well as higher warranty costs.

Sensation costs.

Compensation expense and increased professional services.

This fiscal year, we made an investment in reviewing and assessing our operational model in order to maximize operating efficiencies.

Resulting operating profit for the quarter decreased 26% to $11 $4 million versus $15 4 million in the prior fiscal year second quarter.

A $10 $1 million improvement in other income for the quarter more than offset the operating profit decline. However.

That increase was due to a $6 6 million gain on the sale of the military and commercial type product lines that we announced in March.

Additionally, a $3 3 million $3 $3 million of higher earnings on the assets and deferred compensation plan in the current year.

Another contributor to the increase in.

And entirely offset the increased deferred compensation expense I noted earlier.

Net income for the second quarter was $14 9 million up 51% from the prior fiscal year second quarter.

The quarter's effective tax rate was 25, 5% and was 26, 2% plus six month period.

Looking ahead, we foresee the consumer markets to continue to be challenging.

We remain focused on evaluating the expense structure and delivering product on time.

Our balance sheet continues to have no debt on our cash position enables us to invest in opportunities to strengthen our business.

We remain confident in our ability to navigate challenging market conditions and deliver long term value consistently pay out cash dividends to our shareholders now.

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

Thank you as a reminder, if you would like to ask a question. Please press star one one on your telephone one moment, while we get ready for the Q&A session.

As well please wait for your name to be announced before you proceed with your call.

Question.

First question is coming from Anthony <unk> Suisse.

Adobe and company your line is open.

Yes.

Thank you for taking the questions.

So fishing had a great quarter as you were able to fill fulfill more orders.

As supply surely improved so I guess.

First I have a two part question so.

Firstly.

Much remaining backlog is there left.

To fulfill.

Given the previous supply chain constraints.

Secondly, more recently are you seeing.

Incoming orders during the last few weeks just.

Curious to hear your thoughts on that.

We.

We continue to fill our fishing orders.

It is a little bit comp and tell what it is.

Backlog versus new.

But it's still a very solid flow of product.

Yes.

We want to make sure that for the season that we've got good inventory at store level and.

Just that transitional time, right now and hopefully.

<unk>.

Yes.

It's too early to really.

Look at the consumer demand, but.

Near term demand of our customers is really bad I don't know Dave do you have anything you wanted to add.

Yes.

Okay got you okay. Thanks.

Thanks, Rob.

And then.

Specifically to the fishing segment as far as inventory levels at the retail level.

How would you describe that now.

Yes.

From what we can tell they look to be in pretty good shape right now so.

It's still kind of pre season, but we feel like we've got the shelves in pretty good shape.

It's kind of up the consumer now adding to the season.

Got it yes, thanks, Dave.

And then as.

As far as just the revenue for the quarter.

Could you just comment broadly as far as.

Pricing versus unit volumes as far as that overall sales increase.

Yes, I mean.

In general we've got really healthy unit volume.

Really a third of the increase that we're seeing in our revenue was due to pricing and the rest would be due to.

Volume and mix.

Got it okay. Thanks, and then.

As far as the operating expenses those came in higher than what we had expected I know.

You called out.

Higher warranty compensation professional services and some other costs as well so.

Just wondering how meaningful of an increase was that and.

Do you expect.

Those components of cost to continue near term or how should we think about that.

I mean, it's kind of a.

There's a lot of different buckets, there I mean certainly.

We've got our eye on our warranty expense I mean, I think were artificially low over the last 18 months or so so I would expect that rates are kind of be where it is now so if youre looking at it versus last year, but there'll be some increases there.

The deferred comp expenses offset in other income as you know so that's that is what it is.

And then we do have higher.

Some head count some merits that are in there that will continue the pro serv stuff is more of a onetime thing so again thats not a huge number but it's just part of the part of the story.

Got it got it okay. Thanks and then.

In terms of the smaller segments watercraft recreation and camping.

When do you think.

That weakness bottoms out.

Well, that's very hard to tell.

<unk>.

We've seen.

This across a number of categories in the outdoor space given the.

The pandemic with such a great.

And significant.

Season for those.

Kind of businesses.

That when the season kicks then that will start seeing the movement and then.

We'll get some reorders, but at this point, it's hard to tell.

Got it.

Okay and then.

Dave as far as your comment about the gross margins I mean.

Just just wondering I mean, just looking at the.

How are you guys did in this quarter I mean this this was the first actually year over year increase of the gross margin sense.

The fiscal 'twenty, one so it looks like we're kind of off the bottom so.

Do you think you'll be kind of still in that.

Kind of a high 30% range sure near term as far as gross margins or is it do you think it's reasonable to at some point you can get back to 40% plus.

Well I think.

Yes.

I'll also being equal we'll start to get the high cost inventory off our books and so we'll start to see expansion of the gross margin I can't tell you when that's going to happen to get where we want to be but certainly we should expect to see more improvement.

Through the year again, all else being equal if theres no other issues that we see.

Got it okay. Thanks.

Last question for me.

What is your appetite for acquisitions.

Overall are you seeing any.

Sort of moderation in terms of valuation multiples.

As we've said we're always looking at what.

The markets and I.

I think we are seeing some moderation in the multiples.

<unk>.

But again I think.

It's about being.

On target and handling.

<unk>.

Strategic acquisitions.

And.

We're actively luxury.

<unk>.

Our hope is that we will get the right companies that come.

To the surface and when they do we'll go after them.

Okay sounds good thank you and best of luck.

Thanks, Andrew.

Thank you.

Again, if you would like to ask a question. Please press star one on your telephone.

At this time im not showing any more questions in the queue.

Over.

Okay.

Johnson Leipold for closing remarks.

Okay, well. Thank you everybody for joining us today and I Hope you have a great day.

Thank you.

Thank you all for joining today's conference call. This concludes today's event you all.

They disconnect and everyone have a great day.

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Hello, everyone and welcome to the Johnson outdoors second quarter 2023 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.

A question and answer session will begin if you would like to ask a question during that time. Please press star one on your telephone.

This call is being recorded.

Your participation implies consent to our.

Our recording this call.

Due to these terms simply drop off the line.

I would now like to turn the call over to Pat.

From Johnson outdoors. Please go ahead.

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.

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 Leipold.

Thanks, Pat Good morning, everyone I'll begin with an overview on the quarter and the year and then I'll share our perspective on the performance and outlook for our businesses.

Dave will review financial highlights and then we'll take your questions.

Sales in our second fiscal quarter, ending March 31 to 23 rose, 7% to $202 $1 million to adhering to $189 $6 million in the prior year second quarter.

At the halfway Mark of the fiscal year total company year to date sales increased 11% over last year's first fiscal six months period.

Profit before income taxes for the quarter increased to $19 $9 million versus $13 million in the prior year quarter for.

For the year to date period profit before income taxes was $28 $1 million versus $27 $8 million in prior year to date period.

Dave will give some more insight into the profit drivers.

Over the past few years.

Your participation in outdoor activities and benefited from the pandemic fueled demand now coming out of the pandemic, we're facing more challenging markets and uncertainties affecting our customers and our consumers.

In the markets further in my discussion of each business.

In fiscal supply and component availability significantly improve allowing us to build more customer orders near term customer demand continues to be solid and we continue to monitor manage and consumer takeaway.

During the quarter include showcased our fishing brands at the annual <unk> Master Classic tournament and consumer selling Tennessee. This your best Master had a record attendance consumers passionate.

Passionate about fishing and I'm pleased to share that one covenant that Lindbergh sponsors.

Jeff.

One the tournament.

Our dining business momentum will continue as the market rebounds from depressed pandemic levels and increased global travel, which continued to benefit from our scuba and police.

Trust is dive brand in the world.

In camping and watercraft recreation, both markets are impacted by post pandemic slowdown retailers have built up inventory and now have a lot of private shelf to work through Meanwhile, consumer spending has slowed consumer focused innovation is critical for both the new and existing participants.

And these activities.

The higher in both of our innovative old town sports Med line continues to do well.

And all of our businesses sustained innovation leadership is critically important to our growth.

And the success of our brands, we remain focused on investing understanding both new and existing.

Tumors evolving needs and translating that into new products and SaaS.

We continue to work on it.

While new products across all of our brands.

Looking ahead, we continue to stay on top of marketplace condition monitoring consumer buying behavior and as always.

The long term view at Johnson outdoors.

Our brands and businesses for long term growth.

Now I'll turn the call over to Amy.

View.

Highlights.

Thank you Hal and good morning, everyone.

I'll highlight a few items from the quarter and the year.

As Alan mentioned, the supply availability has markedly improved allowing us to fulfill more customer orders, especially in Pershing.

Raw material inventory is down 25% as we continue to convert those components to finished goods available to ship as we enter our primary selling season.

With the right market conditions, we plan to see a measurable reduction in total inventory by the end of the fiscal year.

The quarter's gross margin of 37, 3% slightly improved from 36, 2% in last year's second quarter.

Due primarily to price increases and efficiencies from increased sales volumes.

We expect margins to continue to be challenged in the coming months as we work through higher cost inventory in place there remains a concern and we continue to evaluate our expense structure.

Operator operating expenses in the second quarter increased $10 $8 million versus the prior year second quarter.

The primary drivers of the increase between the quarters were higher sales volume driven expenses as well as higher warranty costs.

Sensation costs.

Compensation expense and increased professional services.

This fiscal year, we made an investment in reviewing and assessing our operation model in order to maximize operating efficiencies.

Resulting operating profit for the quarter decreased 26% to $11 $4 million versus $15 4 million in the prior fiscal year second quarter.

A $10 $1 million improvement in other income for the quarter more than offset the operating profit decline. However.

That increase was due to a $6 $6 million gain on the sale of the military and commercial product lines that we announced in March.

Additionally, a $3 $3 million.

$3 3 million of higher earnings on the assets and deferred compensation plan in the current year further contributed to the increase.

And entirely offset the increased deferred compensation expense I noted earlier.

Net income for the second quarter was $14 9 million up 51% from the prior fiscal year second quarter.

The quarter's effective tax rate was 25, 5% and was 26, 2% for six months period.

Looking ahead, we foresee the consumer markets to continue to be challenging.

We remain focused on evaluating the expense structure and delivering product on time.

Our balance sheet continues to have no debt and our cash position enables us to invest in opportunities to strengthen our business.

We remain confident in our ability to navigate challenging market conditions and deliver long term value and separately 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 as a reminder, if you would like to ask a question. Please press star one one on your telephone.

One moment, while we get ready for the Q&A session.

As well please wait for your name to be announced before you proceed with your call.

Question.

First question is coming from Anthony <unk>.

Jody and company your line is open.

Yes.

Good morning, and thank you for taking the questions.

So fishing had a great quarter as you were able to fill fulfill more orders.

As supply surely improved so I guess.

First I have a two part question so.

<unk>.

Remaining backlog is there left.

To fulfill.

Given the previous supply chain constraints.

And secondly, more recently are you seeing.

Incoming orders during the last few weeks just.

Curious to hear your thoughts on that.

Yes.

We continue to fill our fishing for orders.

It is a little better comp and tell what it is.

Backlog versus new.

But still a very solid flow of product.

Yes.

We want to make sure that for the season that we've got good inventory at store level and.

Just that transition all time, right now and hopefully.

Sure.

Yes.

Early separately.

Look at the consumer demand is but.

Near term demand of our customers is really that I don't know Dave do you have any.

Yes.

Okay. Okay got you thanks, Brian .

And then.

Specifically to the fishing segment.

As far as inventory levels at the retail level.

How would you describe that now.

Yes.

From what we can tell they look pretty.

Pretty good shape right now so.

It's still kind of pre season, but we feel like we've got the shelves in pretty good shape.

The consumer now adding to the season.

Got it yes, thanks, Dave.

Yes.

As far as just the revenue for the quarter.

Can you just comment broadly as far as.

Pricing versus unit volumes as far as that overall sales increase.

Yeah.

Yes, I mean.

In general we've got really healthy unit volume.

Probably a third of the increase that we're seeing in our revenue was due to pricing and the rest would be due to unit volume and mix.

Got it okay. Thanks, and then.

As far as the operating expenses those came in higher than what we had expected I know you called out the higher warranty compensation professional services and some other costs as well so.

Just wondering how meaningful of an increase was that and do.

Do you expect.

Those components of costs to continue near term or how should we think about that.

I mean, it's kind of a.

There's a lot of different buckets, there I mean certainly.

We've got our island warranty expense I mean, I think were artificially low over the last 18 months or so so I would expect that rates are kind of be where it is now. So if you are looking at it versus last year that there'll be some increases there.

The deferred comp expenses offset in other income as you know so that's that is what it is.

And then we do have higher.

Some head count and <unk> that are in there that will continue the pro serv stuff is more of a onetime thing so again thats not a huge number but it's just part of the story.

Got it got it okay. Thanks and then.

In terms of the smaller segments watercraft recreation and camping.

When do you think.

That weakness bottoms out.

Okay.

Well.

Very hard to tell.

Sure.

We've seen.

Miss across number of categories in the outdoor space Kevin.

The pandemic with such a great.

And significant.

The season for those.

Businesses, we hope that.

When the season, which again that we'll start seeing the movement and then.

We will get some reorders, but.

At this point, it's hard to tell.

Got it understand okay, and then Dave as far as your comment about the gross margins I mean.

Just wondering I mean, just looking at the.

How you guys did in this quarter I mean this this was the first actually year over year increase of the gross margin since.

Late fiscal 'twenty, one so it looks like were kind of off the bottom so.

Do you think you'll be kind of.

Still in that.

Kind of a high 30% range here in near term as far as gross margins or is it do you think it's reasonable to at some point you can get back to 40% plus.

Well I think if.

Yes.

All else being equal we will start to get the high cost inventory off our books and so we'll start to see expansion on the gross margin I can't tell you when thats going to happen to get where we want to be but certainly we should expect to see more improvement.

Through the year again, all else being equal if there's no other issues that we see.

Got it okay. Thanks, and then last question for me.

Has your appetite for acquisitions and.

Overall are you seeing any.

Sort of moderation in terms of valuation multiples.

No.

As we've said we are always looking at whats in the markets and.

I think we are seeing some moderation.

Multiples.

But again I think.

It's about being.

On target.

Strategic acquisitions.

And.

We are actively looking.

<unk>.

Our hope is that we will get the right companies that come.

To the surface and when they do we'll go after them.

Okay. So it sounds good thank you and best of luck.

Thank you.

Again, if you would like to ask a question. Please press star one on your telephone.

At this time I'm not showing any more questions in the queue.

It tends to fall over.

Okay.

Johnson Leipold for closing remarks.

Okay, well. Thank you everybody for joining us today and I Hope you have a great day.

Thank you.

Thank you all for joining today's conference call. This concludes today's event you all may disconnect and everyone have a great day.

Johnson Outdoors Inc. Q2 2023 Earnings Call

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