Johnson Outdoors finished off the fiscal 2005 year firmly in the black with several major improvements to its four operating divisions, including strong fourth quarter double-digit sales gains in the watercraft division, an improved outlook for military sales in its Outdoor Equipment division, continued growth in Marine Electronics, and some successful restructuring initiatives in Diving. The company was also able to limit its fourth quarter losses and improve the bottom line.

The operating loss for the seasonally slow fiscal fourth quarter was flat at $4.6 million in spite of some strong top-line trends. This was due to several factors, primarily the drop in military sales resulting in a $2.9 million decline in Outdoor Equipment profits. Increased commodity costs also had an impact on the bottom line, particularly metal and resin costs affecting the company's Marine Electronics and Watercraft divisions, along with higher freight charges. Sarbanes-Oxley Section 404 compliance costs accounted for $900,000 in additional expenses as well.

The time, effort, and money invested in Johnson Outdoor’s watercraft division are clearly helping the various brands return to a profitable operating model. While the division is still operating in the red, its operating loss for the year and for the quarter was more than cut in half when compared to last year. Likewise, the investment in innovation is helping the top-line with a 25% sales increase during the fourth quarter. Old Town’s new Derigo recreational kayak accounted for roughly 20% of the brand’s sales and the company is seeing considerable growth in female specific kayaks. Company-wide, new product sales represented about 20% of total revenues.

The Watercraft division has also been able to capitalize on the popularity of the fishing boom in the industry. For the past four years, Johnson Outdoors has seen fishing kayak sales double each year. The company has noticed an increase in participation in outdoor activities and purchases among females and aging, affluent baby boomers. This trend caused Johnson to invest in R&D for lighter boat materials, which resulted in its new Hydrolite technology. While JOUT refused to speculate on the Watercraft division’s return to profitability, it certainly seems to be heading in that direction for the 2006 fiscal year.

The division is continuing its restructuring efforts; JOUT management consolidated all Watercraft operations from 16 different sites to only five sites today. The division has also been looking closely at the rising prices of commodities and consolidated all of its purchasing in an effort to offset the higher raw material costs that could impact margins.

Johnson’s Outdoor Equipment division is still working to “right size” its operations to adjust to the ever-changing military contract boom and bust cycle. In spite of the serious shortfall in military sales during the quarter, the company is seeing some growth in consumer and commercial tent sales. Overall, military sales dropped 46% during the fourth quarter, while Outdoor recreation equipment sales only saw a 35% decline in revenue. In spite of the double- digit declines in their military business, Johnson Outdoors is beginning to see some more activity in this category. Previously, JOUT management was forecasting roughly $10-15 million in military sales for fiscal 2006, but now they feel that number could more than double to $30-40 million.

Johnson Outdoors is seeing increases in its core consumer and commercial outdoor business, but not enough to offset the losses in military sales. The company is seeing a shift in the camping consumer and the market is becoming much more price driven. Apparently, the new camping consumer is showing little response to innovation in the category and the company feels it needs to look for a new way to communicate with a customer who camps in the backyard more often than in the backcountry.

Marine Electronics is continuing its focus on integrating recent acquisitions, but is also looking at capturing more international market share while implementing cost reduction efforts. The division is also looking at cost increases to keep up with the increases it is seeing in raw material costs and freight charges. The Diving division is consolidating operations and now has only one distribution center in Europe compared to four previously. The division has also implemented a new enterprise resource planning system to make all operations more efficient.

Johnson Outdoors management provided no guidance for fiscal 2006 other than the positive expectations in military tent orders. JOUT currently has orders to-date against its new contract totaling $12.5 million.

Johnson Outdoors 
Fiscal Fourth Quarter & Full-Year Results
  Fourth Quarter Full-Year
(in $ millions)  2005 2004 Change  2005 2004 Change 
Net Sales $77.1 $75.6 2.0% $380.7 $355.3 7.2%
Outdoor $14.9 $23.0 -35.2% $75.3 $90.2 -16.5%
Watercraft $18.5 $14.8 24.9% $80.8 $76.0 6.4%
Diving $21.1 $20.9 0.9% $79.4 $80.1 -0.8%
Marine Elec. $22.5 $16.8 34.0% $145.2 $109.8 32.3%
Gross Margin 37.1% 37.3% -20 bps 41.1% 41.6% -50 bps
Net Income  ($3.4) ($3.8) -9.6% $7.1  $8.7  -18.3%
Diluted EPS  (39¢) (44¢) -11.4% 81¢

About The Author

Teresa Hartford

Teresa Hartford Editorial & Creative Director | SGB Media | 704.651.5741



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