Johnson Outdoors Inc. reported lower sales and earnings for its fiscal third quarter, ended July 1, 2016. Double-digit profit growth for the company’s fishing and watercraft recreation businesses could not offset slumping tent sales at large retailers and a one-time non-cash goodwill impairment charge in its diving segment.
“We are very pleased by the performance of our fishing and watercraft recreation businesses where our brands are gaining share in highly competitive marketplace environments on the strength of new product success,” said Johnson Outdoors CEO Helen Johnson-Leipold. “We look to continue this positive momentum with the revolutionary Minn KotaUltrex trolling motor, Humminbird Helix 10 fishfinder and Old Town Predator PDL pedal fishing kayak, each of which grabbed the top award in its category at last month’s ICAST, the world’s largest and most prestigious trade and consumer fishing show.”
She continued: “Our strategic plan priorities focus on delivering long-term profitable growth for all our brands. In diving, historically one of our most profitable businesses, the goal is sustained innovation to drive share growth, and we acquired Seabear to accelerate the pace of new product development for Scubapro. In camping, Jetboil continues to exceed expectations and we are re-positioning the iconic Eureka brand for future success in new emerging camp consumer targets.”
Fiscal third-quarter results historically reflect in-season replenishment orders for the company’s warm-weather outdoor recreation products. Total company net sales were $139.3 million during the quarter, compared with net sales of $140.9 million in the previous year third quarter. Foreign currency translation had a 0.3 percent unfavorable impact on sales versus the prior-year quarter. Key factors behind the year-over-year comparison in each business unit were:
- Strong new product response powered growth in Minn Kota and Humminbird brands, driving a 2.2-percent increase in marine electronics revenue and a record-high $88.1 million in third-quarter sales.
- Watercraft revenue dipped slightly versus the prior-year quarter, despite a 4.2 percent growth in Old Town sales quarter over quarter.
- Significantly higher Jetboil revenue and growth from specialty camping retailers could not overcome tent sales declines from large outdoor retailers.
- Diving revenue slipped 4.8 percent, due largely to continued declines in sales to Middle East dive markets.
Total company operating profit during the quarter was $13.6 million, compared to $16.4 million in the prior fiscal year third quarter. Reduced cash flow projections in diving, prompted by ongoing geopolitical and economic turmoil in key dive markets in the Middle East and Europe, triggered a reevaluation of the unit’s intangible assets under ASC 350, resulting in non-cash goodwill impairment charges of $6.2 million in the unit during the third quarter. Lower year-over-year legal costs in the current quarter partially offset these charges. Third-quarter net income was $6.8 million, or $0.68 per diluted share, compared to net income of $10.0 million, or $1 per diluted share, in the previous third quarter. An unfavorable variance in the company’s effective tax rate quarter over quarter is due to no tax benefit on the non-cash goodwill impairment charges.
Strong marketplace momentum around new products across the company’s consumer fishing, outdoor cooking and watercraft recreation brands drove year-to-date sales for the nine-month period to $358.8 million, 4 percent ahead of sales in the same prior-year period. Unfavorable currency translation had a 1 percent, or $3 million, unfavorable impact on year-to-date revenue. Total company operating profit was $27.8 million, versus $16.7 million in the same nine-month period last year.
Higher volume and improved margins in marine electronics enhanced performance in the company’s watercraft segment, which more than offset profit shortfalls in diving and outdoor gear. Net income was $15.6 million, or $1.56 per diluted share, in the current nine-month period compared to $9.4 million, or $0.95 per diluted share, in the same period last year. The company’s effective tax rate during the nine-month period was 44.2 percent versus 40.9 percent for the previous year-to-date period, due to the same factors outlined for the quarter.
The company reported cash, net of debt, of $68.2 million as of July 1, 2016 versus cash, net of debt, of $46.4 million as of July 3, 2015. Depreciation and amortization was $8.9 million year to date, compared to $8.8 million during the first nine months of the prior year. Capital spending totaled $8.6 million during the first nine months of fiscal 2016, compared with $6.6 million in the same period in 2015.
“This quarter’s non-cash goodwill impairment charges do not affect our confidence in the strength of the Scubapro brand,” said David W. Johnson, vice president and CFO. “The balance sheet is strong and our healthy cash position enables us to continue to invest in future growth strategies and platforms while continuing to pay cash dividends to our investors.”