In a presentation at Sidoti & Co.’s Micro-Cap Conference, David Johnson, CFO and VP at Johnson Outdoors Inc., said the company is still working down elevated inventories but remains hopeful its outdoor enthusiast customer will continue spending despite a potential downturn in 2023.
“Our consumer will go with the economy in many ways,” said Johnson. “We’re in discretionary categories, and as they are confident or not confident with the economy and their lot in life, they will probably pull back or spin more depending on that.
“I will say our core consumers, though, are enthusiasts about the category,” he added, “That’s a strong dynamic in an economy that may be pulling back a little. They still want to get out on the water and will spend money to do that. But, overall, it’s going to follow the economic dynamics.”
Johnson said Johnson Outdoors focuses on four categories—fishing, water recreation, Camping, and Diving—and on connecting with outdoor enthusiasts.
“Our strategy is being very strong marketers and brand managers in these niche categories that we play in,” said Johnson. “We tried to have leading brands and strong market positions in these four businesses that we play in. We’re very focused on these consumers that we service. We connect very well with the enthusiast in these categories. And these categories have that attraction because they are consumers that are highly engaged in the category, and we leverage that with our products.”
The largest category for the company is fishing, which makes up about 75 percent of revenue and includes Minn Kota trolling motors, Humminbird fish-finders and Cannon downriggers.
Johnson said the company has a dominant market share position in trolling motors, with Minn Kota controlling about 70 percent of the marketplace. Hummingbird has about 35 percent share of the fish finder category.
The fishing segment has seen increased competition from new entries from Garmin and Lawrence in recent years but has benefited from pairing Hummingbird with Minn Kota’s technologies. Said Johnson, “Up until recently, we were the only company that had both products on the boat, and they talk to each other with technology.”
He said Hummingbird’s sonar device communicates with the Minn Kota trolling motor to reveal structure and fish underneath the boat. Said Johnson, “You can mark waypoints and tell the trolling motor to fish 20 feet offshore around the lake. We have that technology and have driven that advantage over the last few years.”
The Watercraft Recreation segment produces canoes and kayaks primarily under the Old Town name and has recently found success in fishing kayaks. Johnson stated, “The fishing kayaks category has grown significantly in the industry, and we’ve led the way with technology. And we’ve leveraged that by applying our fishing technology to the fishing kayak. Now you can buy a fishing kayak with the trolling motor on it and a fish finder on it and apply some of the technology we have in fishing on the fishing kayak, which has been strong for us.”
The Camping segment features the Eureka! and Jetboil brands. Johnson said Jetboil, a maker of lighter-weight stoves for hikers and backpackers, is “a very strong brand” for Johnson with a market share of about 50 percent for smaller portable cooking systems.
Eureka!, which makes tents and camping stoves for the recreational camper, has faced growing challenges in tents due to a broader lack of innovation in the tent category but has found “success” with its cooking stoves.
The Diving segment includes the ScubaPro brand, which sells a wide range of diving regulators, masks, snorkels, and wet suits. Johnson said the company estimates ScubaPro controls 17-to-18 percent of the market share in the diving category globally.
“The marketplace is fragmented,” said Johnson. “But we believe we have the number one brand with ScubaPro, and it’s a premium position.”
Johnson said the pandemic had been “very transformative” for Johnson Outdoors, delivering significantly outsized growth in its fiscal years ended in 2020 and 2021, led by robust double-digit growth in the Fishing, Water Recreation and Camping segments. Travel restrictions impacted Diving.
For its fiscal year ended September 30, 2022, revenue fell 1 percent to $743.4 million and was impacted by shortages of electronic component availability in its Fishing business. Said Johnson, “We had strong demand, but we weren’t able to fulfill all the product demand.”
Johnson also said Garmin and Lowrance likely grabbed some share by having better in-stock levels, but Johnson said the company expected to regain its position as supply chain constraints ease.
By segment, sales in fiscal 2022 fell 5 percent in the Fishing segment while increasing 12 percent in Camping, 2 percent in Water Recreation and 14 percent in Diving.
Johnson also said earnings in its last fiscal year were down due to higher input costs related to electronic components and inbound freight tied to supply chain disruption. Johnson said, “As we get into fiscal 23, we’ll turn that around and get inventories back in balance and drive cash flow back to where it should be.”
Inventories closed the fiscal year at $248.6 million, up 49 percent from $166.6 million a year ago.
Johnson said inventories remained “too high,” although most of the increase reflects raw material converted into finished goods. Johnson said, “The dynamic over the past 12 months or so have been we’ve got 80, 90 percent of components in, and we’re still waiting for the last pieces to finish the products and then get them sold. A high priority for us is to convert those into finished goods and sales as we get into the season.”
Asked in the Q&A portion of the presentation about outdoor participation coming out of the pandemic, Johnson said, “We saw an increase in participation during the pandemic; that will come down, I’m sure, as things get back to normal as folks go to movies and go out to dinner and go to concerts, etc. But there’s some stickiness to these folks that came into the categories. Getting outdoors has been something that’s been a very viable activity for the Millennials. They loved getting outdoors even before the pandemic, so that demographic, as it grows and ages, is good for us. And the folks who got into the categories during the pandemic, there’ll be some stickiness there, too. I’m bullish on participation in these categories. Versus 2021, I’m sure it will come down.”
Several questions were asked about Johnson Outdoor’s appetite for acquisitions.
“We’re very interested in making acquisitions,” said Johnson. “We want to focus on the four businesses we know strategically. We’re discerning in what we want. We’re looking for capability and technology innovation that we can bring into these four businesses.”
Elaborating on the acquisition strategy, Johnson said Johnson Outdoors does not want to become a “distributor of brands” or roll up a category. He added, “We drive value with innovation and strong brand marketing, and that’s what we want to do.”
He noted that Jetboil, acquired in 2012, worked as an acquisition because it was both a strong brand complementing the company’s existing line-up and brought a new boiling water technology to the company.
Said Johnson, “That was a great example of what we could do with a smaller brand. And there are smaller companies on our radar, too, with technology innovation that we would like to drive. That’s more of our sweet spot than rolling up a category or just buying small brands and distributing them out.”
Asked about the M&A market, Johnson said fewer companies are on the selling block. He said, “There were a lot of companies coming to market during the peak of the pandemic. Just because the performance was strong, it was a great time to sell. Multiples have come down a little bit.”
Johnson added, “From my perspective, they’re still a little rich. We’ve got a good portfolio on our radar. I feel good about where we are with that. But with how discerning we are, it tends to be lumpy in terms of being able to actually make these things happen.”
Photo courtesy Johnson Outdoors