Johnson Outdoors reported significantly improved earnings in its first quarter ended December 29 as continued momentum in its Fishing and Diving segments offset ongoing struggles in Camping and Watercraft Recreation.
On a conference call with analysts, Helen Johnson-Leipold, chairman and CEO, noted that that during the first fiscal quarter, the company is ramping up for the primary selling period of its warm-weather outdoor recreation products across the second and third fiscal quarters. She added that the company will get a better take on prospects for the year when spring sell-throughs arrive.
Regardless, the CEO said, “Overall it was a good start to the fiscal year. We are pleased by the performance in our Fishing and Diving brands.”
Sales in the quarter improved 24.4 percent to $116.6 million.
The gains were led by its largest segment, Fishing, which saw sales run up 32.6 percent to $88.9 million. Operating profits in the segment doubled to $14.1 million from $7.2 million. The segment includes Minn Kota fishing motors, batteries and anchors; Cannon downriggers and Humminbird marine electronics and charts.
“One of our key priorities and then ongoing focus is to ensure we have a robust innovation process with the ultimate goal of delivering bigger, better new product successes, bringing forward new products that provide distinct, meaningful added value for our target outdoor recreational consumer,” said Johnson-Leipold on the call. “Products with value that continue building launch momentum beyond the 12-month period, like last year’s outstanding mew products in Minn Kota and Humminbird brands. In this quarter, we benefited from their continued momentum with preseason orders trending up across all channels for both brands.”
Minn Kota is seeing a strong response to its 2017 line-up of new motors and its major technology re-stage of its entire electric steer line. As a result, new products represented over 60 percent of Minn Kota’s brand offerings, “which was usually higher than the norm and not repeatable every year,” Johnson-Leipold said.
Johnson-Leipold claimed the combination of value plus innovation has expanded margins for Minn Kota and “given a nice lift” to the entire Minn Kota brand portfolio, including i-Pilot and i-Pilot Link, its legacy remote wireless steering and navigation technology. The Minn Kota Talon Shallow Water Anchor Series has helped the shallow water anchor category more than doubled in size.
Humminbird Helix of fishfinders continues to grow in popularity and benefit from a strong response to the brand’s MEGA Side Imaging and MEGA Down Imaging technologies. The new SOLIX product, with an even bigger screen display, is also popular among anglers.
Said Johnson-Leipold, “While we expect the pace of growth to slow somewhat, fishing will continue to be our primary engine of profitable growth.”
In the Diving segment, sales in the quarter grew 17.1 percent to $17.4 million from $14.9 million. The operating loss was trimmed to $385,000 from $1.06 million.
Johnson-Leipold said the emphasis is on driving share gains in Scubapro with enhanced innovation, primarily in the core life support segment.
“This quarter new products were a key factor in guiding strong results,” said Johnson-Leipold. ”The revolutionary Hydros Pro buoyancy compensator is the most comfortable, lightest weight and fastest driving BC ever and the new G2 dive computer started out the year with solid gains.
She also said Scubapro began to see an uptick in key international dive markets, reflecting the steady improvement in global economy. Johnson-Leipold added, “We’re pleased by the positive momentum in diving, but there is more to do to get where we want to be to ensure sustained growth for Scubapro.
Meanwhile, Johnson-Leipold said market conditions in both Camping and Watercraft Recreation “continue to be very challenging.”
In the Camping segment, sales increased slightly to $5.85 million from $5.74 million. The operating loss was $724,000, versus $772,000 a year ago. Johnson-Leipold said the impact of retail bankruptcies and subsequent restructuring across the sporting goods channel hit camping categories early last year, driving tightened retail inventory controls that weighed down tent and gear year sales all season.
In camping, Jetboil introduced MilliJoule to its lineup of compact and portable personal cooking systems. She added, “Jetboil is holding steady against the market headwinds and remains the number-one personal cooking system brand in the world.”
Johnson-Leipold said Eureka! is “focused on the future.” He claimed that camping remains one of the largest outdoor recreation markets and also an important gateway to its other outdoor recreational activities. He added, “Camp consumer demographics and dynamics are evolving and so are their expectations for overall great camping experience. We’re positioning Eureka! to deliver against those future expectations. Over time, we’ll begin to realize the benefits of these efforts.”
In the Watercraft Recreation segment, sales in the quarter slid 29.9 percent to $4.4 million from $6.2 million. The segment’s loss was $1.1 million against a loss of $798,000 a year ago. The segment includes Old Town canoes and kayaks, Ocean Kayak and Carlisle paddles.
Johnson-Leipold said tightened retail inventory controls began to affect the paddling markets late last year.
“Pre-season orders suggest retailers are anticipating continued market softness this year,” said Johnson-Leipold of the Water Recreation segment. “We got great brands, great innovation, unmatched expertise and are in a great position once the watercraft market rebounds. Right now, we’re moving quickly to strengthen operational efficiency to protect margins and reduce impact on profit.”
Total company operating profit for the first fiscal quarter was $7.0 million against $472,000 a year ago. Significantly higher sales volume, and margin expansion due to a favorable mix of new products sold, drove the favorable quarter-to-quarter comparison. Gross profit gains more than offset the increase in operating expense, driven in part by implementation of the company’s digital transformation strategy.
David Johnson, CFO, said on the call that the “impact on distribution channels from tough market conditions and watercraft recreation and camping further emphasizes the critical importance and urgency of” its digital transformation investments. The costs for implementation will continue over the course of the year.
New U.S. tax reform legislation prompted a change in the valuation of deferred tax assets and a one-time transition tax on previously tax-deferred foreign earnings, resulting in a charge of $6.4 million and an unfavorable year-over-year comparison in net income. As a result, net income was $235,000n, or two cents per share, versus $4.1 million, or 40 cents, in the previous year’s quarter.
For the current year, Johnson said that while it’s early, a slower rate of topline growth is expected throughout the year versus the prior year. He added, “Pre-season sales suggests customers are positive about continued consumer demand, but we believe actual consumer takeaway is the truest measure of marketplace success and we won’t see that until the spring.”
Asked in the Q&A session if Johnson Outdoors would consider divesting the Water Recreation segment if it doesn’t turn around in a certain timeframe, Johnson-Leipold said the company continues to evaluate options for every business unit but remains optimistic about the long-term growth opportunity in the space.
He continued, “The recreation in the water is not going away. We are one of the global leaders in the space. I think what we’re seeing now is there is a disruption in the marketplace; not only [do] I think it’s soft market, but you’ve also got the trade and the channel evolution that is impacting. And we have to let that play out and hopefully we will be in the right position when things work themselves out and with the innovation we’ve got planned we feel very optimistic about the business.”
Asked if Johnson Outdoors was looking at acquisitions, Johnson-Leipold said, “We are actively looking and as we said, we’ve had a strategic planning process that really helps us hone in on the growth opportunities across our businesses. We are looking and I think one of the things that has kept us successful historically is that we are very strategic about the acquisitions and we don’t do acquisitions just for growth. We do it because it is a long-term value to the company and that’s something we can add value to. And so, we’re looking and when something that is right for us comes along, we’re right there.”
Photo courtesy Old Town