Johnson Outdoors fiscal third quarter sales inched up 1.1% led by sales growth in every division except for outdoor equipment, which was effected by lower military orders. Given the solid results in the other divisions, and tight control on expenses in Outdoor Equipment, management is getting closer to a feeling of “cautious optimism” but said they are not yet there.
The Watercraft division posted a 7.8% gain in revenue to $31.3 million, resulting in its highest sales quarter in two years. The division seems to be on the path towards a profitable year in the near future with operating margins increasing from a mere 2.2% last year to 5.6% this year. This is still a small profit margin and the division has yet to recover from losses incurred during the companys first fiscal half.
During a conference call with analysts and the media, JOUT management said that they expect to see some heavier price competition in the Watercraft division due to “recent consolidation.” In response, the company will be focusing on driving innovation in the market in an effort to stay a step ahead of the competition.
The sales gains in watercraft were primarily due to the Escape series of boats and other new products. The company also stated that rising commodity prices are impacting margins somewhat, but operational efficiencies put in place have more than offset this, and that margins increased “five to six” full percentage points.
The Outdoor Equipment division saw its military sales decline 32.5% versus the prior year, and accounted for the majority of the 23.8% revenue decline in Outdoor Equipment. As previously announced in May, the company was awarded a $15.9 million urgent need order for military tents, but Q3 revenues in Outdoor Equipment do not reflect any delivery against this order. JOUT management continues to expect military sales to decline up to 25% in 2005 versus fiscal 2004.
Moving forward, the Outdoor Equipment division will focus on its commercial and consumer product lines in an effort to offset the military declines. The company will still continue to compete for these government contracts as they become available. The company is seeing Outdoor Equipment operating margins declines somewhat, but given the drastic declines in military sales the divisions profitability remains remarkably intact. Operating margins fell 300 basis points to 14.5% of sales.
Diving sales increased 2.5%, mainly due to favorable currency exchange rates with operating profits dropping 560 basis points to 16.6% of sales. The Marine Electronics division saw sales increase 10.8% with operating margins falling 130 basis points to 18.2% of sales.
The net income decline for the quarter was due to the termination of the buy out attempted earlier this year and the declines in military orders.
|
Johnson Outdoors |
|||
| Second Quarter Results | |||
| (in $ millions) | 2005 | 2004 | Change |
| Net Sales | $122.4 | $121.2 | +1.1% |
| Outdoor | $20.7 | $27.2 | -23.8% |
| Watercraft | $31.3 | $29.0 | +7.8% |
| Diving | $22.8 | $22.2 | +2.5% |
| Marine Electronics | $47.8 | $43.1 | +10.8% |
| Gross Margins | 42.2% | 41.4% | +80 bps |
| Net Income | $6.8 | $7.5 | -9.3% |
| Diluted EPS | 77¢ | 85¢ | -9.4% |
| Inventory @ Qtr-end | $55.1 | $62.4 | -11.6% |
