Johnson Outdoors Stung By Weakness In Outdoor and Diving

By Thomas J. Ryan

While Johnson Outdoors Inc.’s (Nasdaq:JOUT) fiscal fourth quarter, ended September 30, is typically a slow one for the summer-focused outdoor business, a double-digit decline in sales and net loss for the period was worse than expected due to steep profit declines in both its Marine Electrics and Outdoor Gear segments as well as a loss in its Diving segment.

For its full fiscal year, however, double-digit growth in net income was seen on slightly higher sales and Johnson Outdoors’ remained upbeat on prospects for the year ahead across most its business segments.

“Heading into fiscal 2017, positive momentum for new products is building rapidly and open orders are steadily growing,” Johnson Outdoors CEO Helen Johnson-Leipold told analysts on the company’s December 12 conference call. Nonetheless, shares of Johnson Outdoors tumbled more than 20 percent to $35 a share the same day, following the earnings release.

On the call, Johnson-Leipold noted that due to the seasonality of the warm-weather outdoor recreational equipment industry, the company’s fourth quarter results historically reflect an industry-wide slowing of sales and production. As a result, it represents both its smallest earnings and sales quarter for the year. The loss in the quarter came to $2.1 million, or 21 cents a share, against earnings of $1.2 million, or 12 cents, in the same period a year ago. Sales slumped 12.5 percent to $74.9 million.

Sales were impacted by a shift in orders due to a planned product-line technology restage in Marine Electronics and a $4-million-plus decline in non-core military tent sales in Outdoor Gear. The operating loss came to $4.9 million in the quarter versus operating profit of $1.1 million in the prior year fourth quarter, due primarily to the lower sales volume.

By segment, sales in the Marine Electronics segment were down 14.3 percent to $43.4 million. Operating profit in the segment fell to $144,000, against $1.9 million a year ago. In the Outdoor Gear segment, revenues dropped 33.9 percent to $8.9 million while operating income declined to $112,000, versus $1.3 million a year ago. In the Watercraft segment, sales eased 0.7 percent to $10 billion. Operating income was nearly halved to $159,000 from $312,00 a year ago. In the Diving segment, sales improved 1 percent to $18.9 million. The segment, however, showed a loss of $602,000 against earnings of $692,000 year ago.

Better Full-Year Results
In the full year, earnings improved 13.4 percent to $13.5 million, or $1.34 a share. Sales inched up 0.7 percent to $433.7 million.

Gross margins in the year improved slightly to 40.7 percent from 39.9 percent with improvement in every business. The net increase reflected a combination of innovation, lower cost in certain segments and a strong mix of products.

Besides the sales gain, the bottomline particularly benefited from a reduction in operating expenses to 34 percent of sales from 35.7 percent. The reduction was due to an improvement of approximately $9.9 million in net legal expense which was offset in part by $6.2 million of impairment charges on diving goodwill recognized in the third quarter of the current fiscal year.

By segment, the top performance for the year came from Marine Electronics, which increased operating profits by 65.1 percent to $43.1 million. Revenues increased to $274.9 million from $262.5 million, up 4.7 percent. The Watercraft segment also had a strong year. Operating earnings doubled to $3.3 million from $1.6 million. Revenues increased 2.9 percent to $50.4 million. The improvement on Marine Electronics and Watercraft helped offset challenges elsewhere. In its Outdoor Gear segment, operating income was down 46 percent to $2.1 million; sales were down 15.9 percent to $40 million. The Diving segment showed a loss of $9.4 million against income of $934,000. Sales slid 4.3 percent to $69.1 million.

Looking Ahead To 2017
The Watercraft segment, benefiting from a renewed focus on innovation, is now on a positive profitable growth trajectory. Said Johnson-Leipold, “Through in-depth consumer and market research we uncovered ‘aha’ insights that have enabled us to make bigger waves in the kayak fishing segment with the Old Town Predator series of fishing boats.”

In the Outdoor Gear segment, a bright spot is Jetboil, which delivered strong top-line and bottom-line growth last year. Jetboil has doubled in size over the past two years and gained share in the cookware category. Jetbil was acquired in 2012. “Jetboil has been a great addition to our camping portfolio,” Johnson-Leipold said. Jetboil’s new Genesis cooking system particularly drove strong consumer demand during the year. Said Johnson-Leipold, “Genesis signals the beginning of a new generation of outdoor cooking solutions to meet the changing wants and needs of a new generation of foodies who like to enjoy the great outdoors and great food at the same time.”

Jetboil’s momentum, however, was unable to offset challenges at its camping brand Eureka. “We are repositioning the Eureka brand against new emerging camp consumer targets and focusing innovation on products customized to meet their unique needs and wants,” Johnson-Leipold said. “Eureka is a heritage brand known by children and adults of all ages with a legacy in American camping that dates back more than 100 years. We feel good about our plans to build on that legacy to ensure an even stronger, better future for Eureka”

Meanwhile, the Diving segment continues to be impacted by external pressures that have only “intensified,” said Johnson-Leipold. Positive trends in North America and key Asian dive markets were offset by the continued slide in Middle East sales and unfavorable currency exchange primarily out of Europe for the year. Said Johnson-Leipold, “Diving has been one of our largest and most profitable units and we are taking action to turn the tide on performance going forward.” To turnaround the segment, all product offerings have been consolidated under ScubaPro, its largest and most respected dive brand. The segment is also focusing on delivering a “more effective go-to-market in distribution mounts” and doubling down on innovation.

The company’s debt to total capitalization stood at 3 percent at the end of the year, a 25-percent improvement compared with debt to total capitalization of 4 percent at the end of 2015. Cash, net of debt, reached an all-time high of $79.9 million at year-end versus cash, net of debt, of $61.7 million at the prior year-end.

In the Q&A session, officials noted that the company’s 10K will show that open orders were up about $7 million year-over-year at the close of the year. CFO David Johnson admitted it’s “hard to say what’s going to happen through the season” with the company still in the pre-season ordering timeframe but conversations with retailers have been upbeat.

“I think since the election there’s a bit of optimism out there,” Johnson said.

The company also indicated that its growing cash balance may support acquisitions. Said Johnson-Leipold, “We are always looking and we are certainly in the position to do some and as the right acquisitions come about you will see us go after them.”

Photo courtesy Johnson Outdoors