Ending with a solid fourth quarter, Johnson Outdoors logged record results in its fiscal year ending September 30, thanks to its fishing business. But the company warned that tariffs could negatively impact profits in the range of $6 million to $9 million in fiscal 2019.
On a conference call with analysts, David Johnson, VP and CFO, said the estimate for the tariff impact reflects the implementation of foreseeable mitigation actions. It also assumes that the 25 percent tariff on the latest found of Chinese imports goes into effect on April 1, 2019.
But Johnson noted that if the tariff on the last $200 billion worth of Chinese imports is kept at 10 percent it’s “not going to materially change our range.” He noted that there’s been “three layers of China tariffs, and they’re all impacting us.”
The first was a 25 percent tariff on $34 billion of Chinese imports that became effective on July 6 and the second was a 25 percent tariff on $16 million on imports that became effective August 23. The third was a 10 percent tariff on $200 million worth of goods that became effective on September 24 and was expected to rise to a 25 percent at the close of the year but was extended another 90 days last week to support further trade negotiations.
The tariffs had a minor impact on the company’s costs in fiscal 2018 in what was otherwise a stellar year.
For its fiscal year:
- Revenues rose 9.4 percent to 490.6 million;
- Operating profit soared to a record-high $63.0 million, a 38.2 percent year-over-year gain due higher sales volume and margin improvement year-over-year. Operating margin was 11.6 percent, a 2.3-point improvement versus last year;
- Gross margin improved 140 basis points to 44.4 percent due to greater volume, higher average selling prices and relatively the same cost increases;
- Operating expenses increased 8.2 percent to $178.8 million but was reduced as a percent of sales to 32.9 percent from 33.7 percent. Volume-related expense drove more than half of the dollar increase with investment in digital infrastructure and compensation cost accounting for the rest;
- Net income rose 15.6 percent to $40.7 million, or $4.05 per share. The lower net earnings gain versus operating profit gain reflects a hike in tax expense to $27.4 million from $13.1 million due to $8.4 million in charges resulting from changes in accounting for taxes prompted by U.S. tax reform legislation enacted during the fiscal year.
“Continued new product successes in our flagship Minn Kota, Humminbird, and SCUBAPRO brands drove outstanding results behind strong growth in every segment and channel,” said Helen Johnson-Leipold, chairman and CEO, on the call. “This was largely due to an extraordinarily high level of new products in our Fishing portfolio.”
In the Fishing segment, sales soared 19.2 percent in the year to $391.1 million and represented 72 percent of overall sales. Operating earnings jumped 42.6 percent to $83.7 million.
Johnson-Leipold attributed the growth in the Fishing segment to successful innovation. With the Ultrex electric cable steer, Minn Kota became the first brand to give foot-paddle control to anglers. Ultrex exceeded expectations in both year one and year two in the market. Last year’s re-stage of Minn Kota’s electric steer motors, with upgraded wireless and GPS capabilities, powered growth across the entire lineup. Legacy technology innovations, i-Pilot and i-Pilot Link, also added to Minn Kota’s success with another year of double-digit growth.
Humminbird had an “equally good year,” driven primarily by strong marketplace demand for large screen fish finders and double-digit growth year over year of its patented Side Imaging sonar technology. MEGA imaging in second-generation Helix models also “continued to generate excitement in this fish finder series,” said Johnson-Leipold.
Johnson-Leipold added, “Net-net, another incredible year for our fishing brands. Looking ahead, we see growth in fishing to continue at a more moderated pace. Together, Minn Kota and Humminbird are key profitable growth engines for Johnson Outdoors, and we will continue to invest in sustaining the technology and market leadership of these brands.”
In the Dive segment, sales rose 2.9 percent to $78.9 million. Operating income climbed 49.8 percent to $2.8 million.
Johnson-Leipold said SCUBAPRO saw continued demand for both the new Hydros Pro Buoyancy compensator and Galileo G2 dive computer
“This year’s new product successes gave a boost to top-line sales and our infrastructure reduction helped improve bottom-line performance,” said Johnson-Leipold.
Going forward, SCUBAPRO will put greater investments into the digital marketplace, focused on driving more dive consumers into its elite dealer network while also simplifying processes to maximize efficiency and profitability.
Johnson-Leipold said both the Watercraft Recreation and Camping segments have been facing strong headwinds due to market disruptions from retailer bankruptcies and restructurings over the past couple of years, resulting in overall softness in both markets.
In the Camping segment, sales were nearly flat at $37.8 million against $37.9 million the prior year. Growth in Eureka and Jetboil nearly offset the loss of sales resulting from the divestiture of the non-core Silva brand. Operating earnings were down 4.1 percent to $1.87 million.
Johnson-Leipold said new and improved Jetboil personal cooking system beat expectations, driving an uptick for the year in specialty chain and international sales. The company’s efforts to reposition Eureka! with new emerging camp consumer targets is continuing. A key focus in the Camping segment continues to be digital since more and more consumers head online first for their outdoor needs.
Johnson-Leipold said, “For perspective, more people camp and hike than any other outdoor recreation segment, particularly among millennials by a wide margin. So there’s a real opportunity for growth, but more time and more investment will be needed to maximize value and performance in our Camping business.”
In the Watercraft division, sales in the year slumped 24.8 percent to $36.3 million. The operating loss came to $1.6 million against a profit of $2.9 million.
“In Watercraft, our emphasis is on ensuring we are well-positioned to compete and win when the overall kayak market stabilizes,” said Johnson-Leipold. “We have great brands and great innovation, particularly, in fishing and paddle segments, both of which are still growing.”
For instance, she noted that the new Old Town top water anglers series provides large fishing and kayak performance in a more compact, nimble, and lightweight design that’s easier to transport and navigate. The new Ocean Kayak Pedal Drive series, which she said “sets the bar higher for fun and fitness on the water,” continues to grow in popularity.
Said Johnson-Leipold, “We believe we have the right plans to drive long-term success of our Watercraft recreation brands.”
Fourth quarter results reflect the industry-wide slowing of sales and production in light due to the seasonality of the warm-weather outdoor recreation equipment industry. net sales in the quarter dipped slightly year-over-year to $91.1 million, a decline of less than 1 percent. Operating loss was $2.0 million in the current year fourth quarter versus ($0.1 million) in the prior fourth quarter, primarily due to continued digital investments. Net loss of ($5.0 million), or ($0.49) per diluted share in the current year quarter compared unfavorably to net income of $0.6 million, or $0.06 per diluted share, in the prior year quarter.
Looking ahead overall, Johnson-Leipold said the company will continue to focus on innovation driven by consumer insights and will push to get closer to the consumers. She said, “Going forward, our ability to connect with more consumers in new more meaningful ways will enable us to fully leverage and maximize investments in digital transformation, marketing sophistication, and e-commerce to improve performance in all segments and channels.”
At the end of the year, cash and short-term investments grew $40.2 million from a year ago to $150.6 million. The cash positions will support organic and new growth strategies for existing brands as well as targeted strategic acquisitions that strengthen the company’s capabilities and enhance its connection to outdoor consumers.
Said Johnson, “Importantly, the balance sheet is strong and our healthy cash position enables us to continue to invest in growth opportunities while continuing to pay cash dividends to our investors.”
In the Q&A session, Johnson-Leipold said stock buybacks are “not right for our profile of the business” while noting that the company is “definitely” seeking out acquisitions to support growth.
Johnson-Leipold said, “It’s not exactly a buyer’s market, it’s a seller’s market. But also historically we’ve been very strategic and very focused on where we win and where we play. And so we have to keep very diligent on that because we’d hate to do anything that was not the optimal decision. But I will say that we are looking at all options for the best use of that cash.”
Image courtesy Jetboil