Johnson Outdoors Inc

NASDAQ:JOUT

Earnings Call Analysis

Johnson Outdoors Q1 2024 Performance Dips

Johnson Outdoors saw Q1 sales fall 22% to $138.6 million in a challenging market with high retail inventory and slow consumer demand. Net income dropped to $4 million, $0.38 per diluted share, compared to $5.9 million the previous year. The company is focusing on marketing to invigorate brand strength and demand, alongside a cost-saving program. Fishing is bearing market headwinds despite excitement over the Minn Kota QUEST series. Diving sales have slightly decreased as markets normalize post-pandemic. Camping and Watercraft Recreation revenues declined but innovations like the ePDL+ drive and Jetboil brand equity are key strategies in the subdued environment. With uncertain consumer behavior ahead, the company maintains its dedication to innovative products, prudent expense management, and delivering shareholder value.

Johnson Outdoors Faces Declining Sales Amid Market Headwinds

Management began the earnings call with an overview of the fiscal first quarter of 2024, demonstrating a challenging environment for Johnson Outdoors. The company saw a 22% decline in sales, which dropped to $138.6 million from the previous year's $178.3 million. Net income also decreased to $4 million, or $0.38 per diluted share, compared to $5.9 million, or $0.57 per diluted share, in the prior year's equivalent quarter. These results were largely attributed to high inventory levels at retail and reduced consumer demand, signaling a notable shift from the heightened outdoor activity seen during the pandemic years.

Innovative Products Await Market Response

The executives remained optimistic about their new product launches despite the current market slowdown. A prime example is the Minn Kota's QUEST series, a brushless trolling motor technology, which has elicited a strong trade response, though its success will heavily depend on consumer behavior during the season. Their Diving segment had a slight decline, reflecting a return to normalized market conditions post-pandemic. The company's confidence could be buoyed by Old Town Sportsman line's relative outperformance in the Watercraft Recreation space, potentially offering a bright spot amidst a general market downturn.

Cost Savings Counterbalance Lower Sales

To navigate through the lower sales volume, Johnson Outdoors has implemented a cost savings program and is managing expenses diligently. These efforts have led to an improvement in gross margin to 38.1%, up from the previous year, primarily due to reduced material and freight costs. Operating expenses have also decreased by 8%, or $4.5 million, compared to the prior year's first quarter. The company acknowledges that while operating profit declined by $5.5 million year over year, gains from asset sales and other income have mitigated pretax income loss.

Inventory Management and Long-term Confidence

The CFO pointed out a significant inventory increase to $267.3 million, up about $16 million from the previous year, which the company plans to reduce through active management. Nonetheless, with a strong balance sheet featuring no debt and a solid cash position, management expressed confidence in their ability to deliver long-term value to shareholders and maintain consistent dividend payouts.

Closing Remarks Focus on Long-Term Strength

In closing, the call leadership reiterated their commitment to innovative products and marketing strategies to maintain the strength of their brands. With intentions to address the challenges of a marketplace facing uncertain demand and tight inventory management by retailers, Johnson Outdoors looks to future seasons for potential rebound and continued shareholder value.

Earnings Call Transcript 2024-Q1

[Operator]

Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2024 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. [Operator Instructions] This call is being recorded. Your 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 Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

[Patricia Penman, executive]

Thank you. Good morning, and thank you for joining us for a discussion of Johnson Outdoors results for the 2024 fiscal first quarter. If you need a copy of today's news release, it is available on our website at johnsonoutdoors.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-Leipold.

[Helen Johnson-Leipold, executive]

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

Sales in our first fiscal quarter ending December 2023 declined 22% to $138.6 million compared to $178.3 million in the prior year first quarter. Net income for the quarter was $4 million or $0.38 per diluted share versus $5.9 million or $0.57 per diluted share in the previous year's first quarter. Our first quarter results were significantly impacted by high inventory levels at retail and slower consumer demand. In this challenging marketplace, we are investing in consumer marketing programs to reinforce the strength of our brands, support new product launches and to stimulate increased demand.

In addition, we are executing on the cost savings program and diligently managing expenses. Importantly, we continue to invest in innovation to bring consumers the best outdoor experience as possible.

In Fishing, while we are seeing headwinds in the marketplace, we're excited to see solid trade support behind Minn Kota's QUEST series, the all-new brushless trolling motor technology that we announced last fiscal year. Nonetheless, consumer behavior in season will be the critical factor.

In our Diving business, sales declined slightly compared to the prior year quarter, which reflected a strong recovery from the pandemic. In the current period, we have seen markets begin to normalize.

Our Camping and Watercraft Recreation sales are down due to a continued decline in their markets from the elevated pandemic fuel demand over the past few years. In Watercraft Recreation, however, our Old Town Sportsman line is outperforming competitors in a very depressed marketplace. The award-winning ePDL+ drive announced last year is the newest addition to the line. And in Camping, we continue to work on leveraging Jetboil's brand equity into expansive growth opportunities.

As we head into the season, we expect the outdoor recreation marketplace will remain challenged with uncertainty and demand and retailers continuing to tightly manage their inventory levels. We will continue to execute on our cost savings program to manage expenses and focus on creating consumer-focused innovation, investing in marketing to keep our brands strong so we can provide consumers with the best outdoor experience possible.

Now I'll turn the call over to Dave for more details on the financials.

[David Johnson, executive]

Thank you, Helen. Good morning, everyone. I wanted to highlight a few items from the quarter. As Helen mentioned, first quarter sales results were significantly impacted by inventory dynamics at retail and lower consumer demand. The quarter's results also reflect a challenging comparison between quarters.

During the first quarter of fiscal '23, we were still filling a significant amount of backlog customer orders in our Fishing business. We've been taking steps to strengthen our operating margins with an active cost savings program and prudent expense management. The quarter's gross margin of 38.1% is up 2.9 points from the prior year quarter due primarily to reductions in material and freight costs.

Operating expenses decreased 8% or $4.5 million versus the prior year quarter, due primarily to lower sales volumes. Additionally, $1.8 million of lower professional services expense was offset in part by $1.3 million of additional deferred compensation expense resulting from changes in market value of plan assets year-over-year. While operating profit fell $5.5 million from the prior year, pretax income was down $2.3 million in the current year quarter after gains on deferred compensation plan assets recognized in other income, offset the impact of plan expense in operating expenses.

Additionally, a $1.9 million gain on the sale of a building in the Fishing segment further bolstered other income. Our inventory balance as of December was $267.3 million, up about $16 million from last year's December quarter. We have active plans in place to reduce our inventory levels throughout the balance of the year.

Our balance sheet continues to have no debt 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?

[Operator]

[Operator Instructions] I'm showing no questions at this time. I would like to turn the call back to Helen Johnson-Leipold for closing remarks.

[Helen Johnson-Leipold, executive]

Thank you all for joining us today. I hope you have a good one. Thanks.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.