Johnson Outdoors has suspended dividend payments and will double its cost cutting efforts to prepare for a tough 2009 in the wake of a $51.7 million fourth quarter operating loss.
The companys goals are to cut $30 million in costs, about twice the goal stated at the beginning of the year, to offset rising commodity and other costs. JOUT Chairman and CEO Helen Leipold-Johnson said the company was whipsawed this year by the sudden gyrations of the economy, which economists confirmed last week has been in recession since December 2007.
“Obviously, it was a challenging year; however, it didn't start out that way,” she said. “In fact, 2008 first-quarter projections indicated a year of strong growth ahead. Apart from a weak marine market, orders during the first six months were solid, and we built inventory capacity to meet the demand. Then, just as our season began, the economy took a nose dive.”
The new goal targets $6 million from a 7% headcount reduction, $9 million from consolidating dive computer manufacturing and other product sourcing operations and $5 million from more efficient distribution and lower spending on consultants and other discretionary items. Another $10 million in savings will come from reducing capital expenditures by 26% and working capital by 12%. The company made good progress toward the latter in 2008 by ending the year with 12% less inventory than when it started.
While one-time non-cash charges accounted for 80%, or $43.5 million, of the operating loss, the company was squeezed by higher costs of goods on one side and declining sales on the other. Excluding non-cash items, the company said it would have reported an operating loss of $7.2 million and reported a net loss of $7.1 million. JOUT normally reports a fiscal fourth quarter loss due to the slowing of sales and production in the quarter.
Fiscal fourth quarter sales declined 6.4% to $81.8 million, while costs of sales rose 5.2% to $54.0 million, trimming gross profits to $27.7 million, down 23% from the year-ago quarter. That, in turn, shaved 740 basis points off gross margins, which sank to 33.9% of sales.
JOUTs outdoor equipment revenues rose 6.4% to $10.0 million in the quarter, but ended the year at $186.7 million, down 5.7% from a year earlier. Operating income fell to a loss of $802,000 for the period from a surplus of $2.8 million a year earlier. Watercraft sales declined 11.5% in the quarter to $16.3 million, but were essentially flat for the year at $88 million.
That, Leipold-Johnson said, means JOUT is picking up market share since market research indicates the overall paddlesports market is off 8% this year. Still, the business generated an operating loss of $9.5 million, up nearly eight-fold from the year-ago period. The companys watersports brands include Old Town, Ocean Kayak, Necky, Lendal, Carlisle and Extrasport. Fiscal fourth quarter revenues at the companys marine electronics and diving businesses declined 10.6% and 3%, respectively.
Earnings took their biggest hit from a one-time, non-cash charge of $41.0 million meant to reflect the diminished value of the goodwill and other intangible assets on JOUTs balance sheet. The assets are valued through projections of future cash flow, which happened to hit a nadir in the fourth quarter when the company makes such adjustments. The charges included $27 million for the diving business, $7 million for marine electronics, $6 million for watercraft and less than $1 million for outdoor equipment. In addition, the company took an inventory impairment charge of $3.5 million.
These impairment charges triggered a second non-cash charge related to a deferred tax asset valuation allowance of $29.5 million. That left JOUT with a net loss of $74.6 million, or $8.17 per share for the quarter.
While JOUT is current on all debt payments, the non-cash charges did put the company in breach of a net worth covenant in its debt agreements. If the company cant persuade its bank to amend its agreement or waive certain covenants through 2009, $60 million in debt (as of Oct. 3) would be reclassified as short-term. The company ended the quarter with a debt-to-total capitalization ratio of 32.9%, nearly double its level on Sept. 28, 2007.
For the full year, the company reported net sales of $420.8 million, down 2.2% from last years record $430.6 million. The net loss for the year was $71.0 million, or $7.81 per diluted share, compared to the prior year's net income of $9.2 million, or $1.00 per diluted share. Excluding the one-time items, the company said it would have reported a net loss of $3.6 million on operating income of $6.5 million. VP and CFO David Johnson said the companys cost cutting initiatives give it a shot at earning a profit in fiscal 2009.
