Johnson Outdoors Inc. announced improved results for its continuing businesses in the second fiscal quarter ended March 28, 2003. Comparisons of continuing businesses exclude the Company’s Jack Wolfskin subsidiary, which was sold in last year’s fourth quarter.
As reported, including the results of Jack Wolfskin, Johnson Outdoors sales decreased 15% to $83.3 million and operating profit declined 26% to $6.1 million compared with last year’s second quarter. Income from continuing operations increased 10% to $4.3 million compared with $3.9 million in the year-ago quarter. This year’s second quarter income from continuing operations included other income of $2.1 million primarily due to a currency gain on the settlement of a loan related to the sale of Jack Wolfskin. Earnings from continuing operations increased 9% to $0.50 per diluted share in this year’s second quarter compared with $0.46 per diluted share a year ago. Last year’s second quarter net earnings were $0.52 per diluted share, which included income of $0.06 per diluted share from a discontinued operation.
On a continuing business basis (see chart below), three of Johnson Outdoors four business segments — Motors, Outdoor Equipment and Diving — produced higher sales and strong double-digit growth in operating profit during the second fiscal quarter compared with last year. Overall, sales increased 2% to $83.3 million from $81.7 million a year ago. Driven by a 190 basis-point increase in gross profit to 43.5%, operating profit increased 8% to $6.1 million from $5.7 million, as operating margin rose 50 basis points to 7.4%. The favorable impact of currency translations added approximately $2.7 million to sales and $0.6 million to operating profit in this year’s second quarter. Benefiting from the $2.1 million in other income noted above, second quarter income from continuing operations increased to $4.3 million from $2.2 million in the year-ago quarter. Excluding the contribution of the Jack Wolfskin business in the prior year, earnings from continuing operations of the continuing businesses rose to $0.50 per diluted share from $0.26 per diluted share in last year’s second quarter.
Second Quarter Comparisons -- As Reported and on Continuing Business
Basis
(Amounts in millions, except per share data)
For the Quarter Ended March 28, 2003
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $83.3 $-- $83.3
Gross profit 36.2 -- 36.2
Operating profit 6.1 -- 6.1
Income (2) 4.3 -- 4.3
Earnings per share (2) 0.50 -- 0.50
For the Quarter Ended March 29, 2002
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $97.7 $16.0 $81.7
Gross profit 40.7 6.7 34.0
Operating profit 8.3 2.6 5.7
Income (2) 3.9 1.7 2.2
Earnings per share (2) 0.46 0.20 0.26
(1)Continuing Business for the second quarter of both years excludes
results from the Jack Wolfskin operation, which was sold in the
fourth quarter of fiscal 2002, but was not treated as a discontinued
operation according to GAAP.
(2)Income and earnings per share are from continuing operations.
“Considering the challenging economic and market conditions, we were pleased with the sales and profit growth of our continuing businesses in the second quarter,” said Helen Johnson-Leipold, Chairman and CEO of Johnson Outdoors. “The improvement was broad-based, with strong profit growth in Motors, Outdoor Equipment and Diving, which together comprise more than 75% of our total sales. Clearly, our operations are becoming more efficient and our new products are driving gains in market share. While Watercraft posted lower comparisons against last year’s results, we believe the encouraging progress of Ocean/Necky is further evidence that we are taking the right steps to improve Watercraft. We are now bringing those successful strategies to the few businesses remaining in the segment that are still underperforming.”
“During the third fiscal quarter, our key selling season, while business conditions may dampen growth, we are encouraged that our emphasis on innovation continues to drive gains in market share. In fact, new products produced over the past three years accounted for approximately 30% of the Company’s total sales in the second quarter. At the same time, were responding effectively to changes in the marketplace, creating customized products that appeal to larger retailers. Sales to our largest customers are growing faster than the Company’s average and are becoming a larger part of our overall business. All told, while market conditions are very difficult to predict, we are well-positioned as we enter our key selling season.”
Outdoor Equipment
Including the results of Jack Wolfskin, sales declined 43% to $18.8 million in the second quarter and operating profit was down 38% or $1.8 million to $3.0 million from the prior year quarter. However, for our continuing business in this segment (see charts below), continued growth in military tents drove a 12% increase in the segment’s second quarter sales to $18.8 million from $16.8 million in the year ago quarter. With a 150-basis point rise in gross margin, operating profit climbed 33% to $3.0 million from $2.3 million in the prior year quarter for our continuing business in this segment. Military sales in the current fiscal year contributed to these results; however, the Company does not necessarily expect the same level of growth in this channel in future years.
Outdoor Equipment Segment
Second Quarter Comparisons -- As Reported and on Continuing Business
Basis
(Amounts in millions)
For the Quarter Ended March 28, 2003
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $18.8 $-- $18.8
Operating profit 3.0 -- 3.0
For the Quarter Ended March 29, 2002
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $32.8 $16.0 $16.8
Operating profit 4.9 2.6 2.3
(1) Continuing Business for the second quarter of both years excludes
results from the Jack Wolfskin operation, which was sold in the
fourth quarter of fiscal 2002, but was not treated as a discontinued
operation according to GAAP.
Outdoor Equipment Segment
Six Month Comparisons - As Reported and on Continuing Business Basis
(Amounts in millions)
For the Six Months Ended March 28, 2003
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $30.7 $0.4 $30.3
Operating profit (loss) 4.4 (0.1) 4.5
For the Six Months Ended March 29, 2002
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $55.6 $28.3 $27.3
Operating profit (loss) 7.5 3.9 3.6
(1) Continuing Business for the six months of both years excludes results
from the Jack Wolfskin operation, which was sold in the fourth
quarter of fiscal 2002, but was not treated as a discontinued
operation according to GAAP.
Watercraft
Although Watercraft’s brands continue to experience strong customer acceptance and gains in volume, operational inefficiencies in certain businesses continue to hamper results. Second quarter sales decreased 10% to $19.9 million and the segment had an operating loss of $1.1 million compared with a $0.8 million operating profit in last year’s second quarter.
Johnson-Leipold commented, “We continue to invest in new systems and new people, and there are some signs of improvement, most notably Ocean/Necky. While these major changes disrupted operations to an extent during the second quarter, we believe they will have a positive impact on productivity over the long term. We have a good track record of improving businesses and, while were beginning to see some positive indications at Watercraft, we know this is a long process and more time will be needed to get all of the businesses back on track.”
Motors
The Motors segment continued to post solid results, even against comparisons to last year’s strong second quarter. This year’s second quarter sales increased 6% to $27.3 million, as new products continued to drive gains in market share. Gross margin rose by 300-basis points, helping to boost operating profit by 35% to $4.3 million.
Diving
Despite difficult market conditions in the Diving segment, further improvements in production efficiency drove a 750-basis point increase in gross margin and higher profits. Sales rose 1% to $17.7 million, while operating profit increased 26% to $3.2 million. Forecasting for this business remains difficult in light of the impact of the war in Iraq, the SARS epidemic, and uncertainty relating to the timing of the economic recovery.
Six-Month Results
As reported, for the six months ended March 28, 2003, net sales totaled $138.2 million compared with $157.5 million in the year-ago period. Operating profit decreased to $6.3 million from $9.2 million in last year’s first six months. The decrease in sales and operating profit was entirely due to the sale of Jack Wolfskin in the fourth quarter of last year. Income from continuing operations increased to $4.0 million from $3.5 million, due to lower interest expense and $2.5 million in other income, mainly related to the currency gain discussed previously. Earnings from continuing operations increased to $0.47 per diluted share compared with $0.42 in the year-ago period. Last year, Johnson Outdoors reported a net loss of $2.28 per diluted share for the six-month period, which included a non-cash after-tax charge of $2.76 per diluted share for goodwill impairment from a change in accounting due to the adoption of SFAS No. 142.
On a continuing business basis (see chart below), six-month sales rose 7% to $137.8 million, operating profit increased 20% to $6.4 million and income from continuing operations rose to $4.1 million from $1.1 million in the year-ago period. Earnings from continuing operations increased to $0.48 per diluted share from $0.13 per diluted share in last year’s six-month period.
Six Month Comparisons - As Reported and on Continuing Business Basis
(Amounts in millions, except per share data)
For the Six Months Ended March 28, 2003
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $138.2 $0.4 $137.8
Gross profit 59.9 -- 59.9
Operating profit (loss) 6.3 (0.1) 6.4
Income (loss)(2) 4.0 (0.1) 4.1
Earnings (loss)
per share (2) 0.47 (0.01) 0.48
For the Six Months Ended March 29, 2002
As Jack Continuing
Reported Wolfskin Business (1)
Net sales $157.5 $28.3 $129.2
Gross profit 66.0 11.4 54.6
Operating profit (loss) 9.2 3.9 5.3
Income (loss)(2) 3.5 2.4 1.1
Earnings (loss)
per share (2) 0.42 0.29 0.13
(1)Continuing Business for the six months of both years excludes results
from the Jack Wolfskin operation, which was sold in the fourth
quarter of fiscal 2002, but was not treated as a discontinued
operation according to GAAP.
(2)Income and earnings per share are from continuing operations before
cumulative effect of change in accounting principle.
Financial Condition
Johnson Outdoors continued to operate with a much stronger financial position compared with one year ago. At March 28, 2003, cash and short-term investments totaled $44.8 million. The Company’s debt to total capital was 36%, substantially below last year’s second quarter end 60% and 42% at the close of fiscal 2002.
Among key working capital items, receivables decreased $5.4 million and inventories decreased $5.7 million versus the prior year quarter end. The prior year included Jack Wolfskin receivables of $10.6 million and inventory of $13.2 million. The Company’s working capital normally builds during the second quarter in preparation for the key selling season in the third quarter.
Depreciation and amortization totaled $2.0 million for the second quarter, and $3.9 million for this year’s six month period compared with $2.1 and $4.5 million in last year’s second quarter and first six months, respectively. Capital expenditures were $3.5 million year to date compared with $2.5 million in the prior year’s first six months. The increases are primarily due to investments to upgrade information systems in the Watercraft business.
“A strong cash position and continued balance sheet focus are providing solid support for our Company’s growth in this difficult market environment,” said Paul Lehmann, Chief Financial Officer. “In addition, we are in a good position to continue to consider potential acquisitions.”
