Johnson Outdoors Reports Flat Q2 Sales

Johnson Outdoors Inc. reported second quarter sales of $128.7 million, essentially flat with record results a year earlier as shipments by its marine electronics and diving segments offset declines at its Watercraft and Outdoor segments. While operating profit benefited from a $3.5 million settlement with the company's insurance carriers, net income decreased due to a substantially higher effective tax rate.

“Second quarter results reflect the importance and value of Johnson Outdoors' diverse business portfolio,” said Chairman and Chief Executive Officer Helen Johnson-Leipold. “Exceptional new products in our largest businesses, Marine Electronics and Diving, have created strong pre-season momentum across key channels in North America and Asia where the economic outlook is favorable. At the same time, military declines weighed on Outdoor Gear results, while efforts to address the challenges in Watercraft continued. We are looking forward to the third quarter when the full extent of consumer sell-thru for the year can be determined.”

• Marine Electronics revenue edged up 1.7 percent ahead of last year due to continued strong new product performance in Minn Kota(R) and Humminbird(R) to set a new record for second quarter sales.
  
• Diving revenue grew 1.6 percent due to solid growth in U.S., Asia and Northern Europe which was partly offset by weakness in Southern Europe. Currency translation had a negative 2.0 percent impact on Diving revenue in the quarter.
  
• Watercraft sales slipped 5.8 percent due to lower volume across all channels.
  
• Outdoor Equipment sales declined 8.2 percent as a result of a 23.5 percent reduction in Military sales versus the prior year period.
   
  

Total company operating profit increased 22.4 percent to $14.0 million compared to operating profit of $11.4 million in the prior year quarter. Key contributing factors during the quarter were:

• A favorable $3.5 million dollar settlement with the company's insurance carriers previously announced on March 1, 2012.
  
• A decrease in gross profit margin to 39.3 percent from 41.1 percent in the prior year, driven by product mix in Watercraft and Marine Electronics along with inventory reserves related to a facility closure in Southern Europe. 
  
• Lower legal and warranty costs of $1.0 million.

The company reported net earnings of $7.3 million, or $0.74 per diluted share, during the second fiscal quarter, compared to net earnings of $8.5 million, or $0.87 per diluted share, in the same quarter last year. The unfavorable comparison was due to applicable domestic and international accounting for taxes. As previously reported, the company's recent history of income generation and future profit expectations led to a reversal of its U.S. tax valuation allowance in the 2011 fiscal fourth quarter. In the current quarter, valuation allowances in the countries where losses were incurred preclude the company from realizing any tax benefit on the loss. The combination of these two factors has resulted in a significant increase in the company's effective tax rate which reduced net income by $6.0 million in the current quarter.
Year-to-date results
 
Net sales in the first six months of fiscal 2012 increased 0.6 percent to $208.9 million versus $207.6 million in the same six-month period last year. Total company operating profit increased 1.7 percent to $10.3 million during the first six months of fiscal 2012 compared to an operating profit of $10.1 million during the prior year-to-date period. Net income for the first six months of the year was $4.3 million, or $0.44 per diluted share, compared to net earnings of $7.2 million, or $0.75 per diluted share, in the first six months of the prior year. Interest expense declined 24.2 percent compared with the same period last year.

Primary drivers behind the year-to-date sales, profit and earnings comparisons were consistent with those during the second quarter.
 
Other financial information
At March 30, 2012, debt, net of cash, was $21.8 million compared to $43.9 million at the end of the prior year quarter. Depreciation and amortization was $5.7 million year-to-date, compared to $4.9 million during the prior year-to-date period. Capital spending totaled $5.0 million during the first six-month period of 2012 compared with $3.8 million in the same fiscal period last year.

“Prior year restructuring and pricing strategies have helped lessen the impact of weak economies across Southern Europe where we continue to carefully monitor conditions. In addition, we expect the current effective tax rate to moderate to a more normalized level by the end of the year,” said David W. Johnson, Vice President and Chief Financial Officer.