Johnson Outdoors Inc. reported increased sales and earnings during the company’s 2019 second fiscal quarter ending March 29, 2019, and double-digit growth in net income during the first fiscal six-month period.
“Innovation is at the core of who we are, powering sustained marketplace success and growth of our brands. This year’s strong customer response to new products and the ongoing popularity of legacy innovations firmly position Minn Kota® and Humminbird® on an upward trajectory heading into the warm-weather season. Likewise, Diving is benefitting from new product performance, currently representing about a third of Scubapro® sales. Conversely, challenging market conditions in Watercraft Recreation and Camping emphasize the critical importance of continued investment in digital and marketing excellence and eCommerce sophistication,” said Helen Johnson-Leipold, chairman and chief executive officer.
Second Quarter Results
Sales in the second fiscal quarter reflect shipments to customers in anticipation of the primary retail-selling period for the outdoor recreation industry’s warm-weather products. Net sales rose 7 percent to $177.7 million in the current fiscal second quarter compared to $165.8 million in the prior year quarter, driven by positive momentum in the company’s Fishing and Diving groups. Key contributing factors in year-over-year quarterly comparisons in each group were:
- Favorable response to new products propelled a 10.1 percent increase in Fishing revenue.
- Strong performance in North America drove a 3.7 percent increase in Diving sales. On a currency neutral basis, sales were 7.4 percent higher than the prior year quarter.
- Watercraft Recreation sales declined due to continued kayak market weakness.
- Lower sales across tent categories primarily accounted for the unfavorable year-over-year comparison in Camping.
Total company operating profit in the fiscal second quarter was $27.8 million compared with operating profit of $26.0 million in the previous year quarter. Gross margin of 44.5 percent was slightly below the prior year quarter due in part to the unfavorable impact of $1.4 million in Section 301 tariffs on Chinese goods and components. Operating expense during the quarter increased 6.4 percent year-over-year due primarily to higher deferred compensation expense resulting from a $2.0 million upward adjustment in the valuation of the plan’s assets; however, an offsetting gain was reflected in other income/expenses. Net income of $21.9 million, or $2.18 per diluted share, in the fiscal second quarter improved slightly versus the previous fiscal year’s second quarter.
Year-To-Date Results
Fiscal 2019 year-to-date net sales of $282.1 million were on par with the record-high fiscal six-month period last year. Total company operating profit increased 2.4 percent to $33.8 million compared with the prior fiscal year-to-date period. Year-to-date gross margin improved to 43.8 percent versus 43.6 percent for the previous fiscal year first six months, despite the negative impact of $2.1 million in Section 301 tariffs. Operating expense declined during the first half of the fiscal year due primarily to lower warranty expense and a favorable impact from valuation adjustments in the company’s deferred compensation plan during the period. Net income of $25.4 million, or $2.53 per diluted share, in the first fiscal six-month period compared favorably to net income of $21.9 million, or $2.18 per diluted share, in the prior year-to-date period. The year-to-date effective tax rate of 25.9 percent compared favorably to the previous year fiscal first six months, which reflected charges associated with initial implementation of the new U.S. Tax Reform Act.
Other Financial Information
As of March 29, 2019, cash totaled $68.2 million compared with the company’s cash position of $51.1 million at March 30, 2018. Depreciation and amortization were $6.8 million in the current year-to-date period versus $6.4 million in the prior fiscal first six-months. Capital spending totaling $8.2 million during the first six-month period declined from $10.9 million in the previous year-to-date period.
On March 19, 2019, the company received an exclusion from Section 301 tariffs for a component for products assembled in the United States. As a result of this exclusion, the company now estimates a reduced impact of Section 301 tariffs on fiscal 2019 profits of $5-7 million. The exclusion applies for one year from the date it was granted, and the company will be reimbursed for tariffs previously assessed and paid on the excluded component. At this time, other product components remain subject to Section 301 tariffs.
“Looking ahead, we continue to expect moderate sales growth this fiscal year and will pursue a range of additional Section 301 tariff mitigation efforts with respect to other affected product components with the goal of further reducing their impact on profitability,” said David W. Johnson, vice president and chief financial officer. “Nonetheless, we continue to benefit from our ongoing focus on improved operational efficiency, enabling us to protect margins and effectively manage working capital. The balance sheet remains strong, and our growing cash position enables us to continue investment against strategic priorities and opportunities to expand our business and growth potential. We remain confident in our ability and plans to create long-term value and consistently pay dividends to shareholders.”