Johnson Outdoors continued its reliance on military and Marine Electronics through the third quarter, although some important new programs are being implemented to bring the rest of the company back to higher levels of performance.
The Outdoor Equipment division sales increase came primarily from an increase in military sales. COO Jerry Perkins told analysts in a conference call that consumer tent sales are flat to last year in a market where price is paramount for first-time tent buyers. The company expects the boost from military sales to dry up in 2005, so they are investing in innovation and brand equity to build on commercial and consumer sales going forward.
Helen Johnson-Leipold, Chairman and Chief Executive Officer, Johnson Outdoors, said, “Consumer and commercial tent categories, the core of the Eureka tent business, have not grown in tandem with military, and so we are left with an imbalance.”
The Watercraft division is where the major operational changes are taking place this quarter. Sales in Q3 were down 8.2% to $29.0 million compared to $31.6 million last year. Operating profit plunged 63.7% in the division to $639,000 from $1.8 million last year. Operating margin was 2.2%, down 340 basis points compared to 5.6% last year.
“Excess capacity and weak sales have driven prices down in a soft consumer market,” said Perkins. “That does not excuse the sizeable losses weve had this year due to our own operational inefficiency.”
As part of the transformation of the Watercraft division, Johnson Outdoors has decided to outsource manufacturing at its Michigan facility in Grand Rapids, and to shift production from Mansonville, Canada to its Old Town, Maine operation. The decision will result in the reduction of 69 positions across the two locations. The company is providing severance and outplacement assistance to those affected by these plans.
Helen Johnson-Leipold said, “Watercraft will be more competitive, more flexible and more focused on driving the business, not fixing the business, like in the past.”
Johnson Outdoors sourcing partner, KL Industries, is taking over the production at the Grand Rapids facility. KL will manufacture its Escape, Waterquest, and Rogue River branded products.
Perkins told analysts that this move will allow JOUT to “focus our resources on building the brands, not building the boats Overall the changes announced this week will reduce our capital base, improve our cost base and give greater focus to building the business.”
Management would not comment on the sales or profitability of the individual brands, but did say that Ocean/Necky was “doing better” and that the Watercraft division “will be profitable again, but not this year.”
The Diving division has been seeing some very tough post-9/11 market conditions. Management said that sales in this market depend heavily on travel to “exotic locations,” and the threat of terror continues to curtail this type of recreation.
Sales in the division fell 0.9% to $22.2 million, but operating profit skyrocketed 336% to $4.9 million, or 22.1% of sales, giving diving the highest margin in the company.
Going forward, JOUT will be investing in new talent and products for the division. Perkins said that product innovation and brand marketing “have been ignored too long in lieu of improving the bottom line.”
The Marine Electronics division was, without a doubt, the companys star performer for the quarter.
Sales and profits in the division were bolstered by the acquisition of the Hummingbird brand, which added $7.8 million in net sales, $0.5 million in operating profit, and four cents in earnings per diluted share this quarter.
Helen Johnson-Leipolds bid to buy back the company and make it a privately held entity was said to be on-going, and no further time-line was given. JOUT did announce that it had retained William Blair and Co. in March to conduct a valuation of Johnson Outdoors.
Expenses associated with evaluating the buy-back impacted JOUT EPS by seven cents per share for the quarter, but management would not provide any detail concerning the allocation of these expenses or the outcome of the valuation.
