Southern Europe’s Woes Contribute to Larger Q1 Loss at Johnson Outdoors

 
“Current economic conditions in key regions present a mixed picture of expectations for outdoor markets the remainder of the year,” said Chairman and CEO Helen Johnson-Leipold, chairman and chief executive officer.  “In North America and Asia, initial indicators are favorable for ongoing recovery, while uncertainty continues throughout Europe, particularly in southern European markets.”

JOUT’s sales typically reach a nadir during its first fiscal quarter as the company ramps up for second- and third- quarter deliveries of it Eureka tents, Old Town canoes, Necky kayaks, Minn Kota trolling motors and Humminbird fish finders for the camping and boating season. In the most recent quarter, sales of Marine Electronics and Watercraft grew in the double-digits, more than offsetting a huge drop in military tent sales.

 
Marine Electronics revenue increased 11 percent to $47.8 million driven in large part by a 25 percent plus increase in sales of Humminbird patented side-imaging, as well as down imaging, sonar technology products. Watercraft sales grew 22 percent to $7.5 million, primarily due to low-margin year-end close-outs in the sporting goods channel, while its core specialty channel revenue held steady.

Diving sales dipped 3 percent as strength in U.S. and key dive markets across Asia could not overcome weakness across southern European. Outdoor Gear revenue fell 40 percent driven by a 66 percent decline in military tent sales year-over-year.

Total company operating loss was $3.7 million compared to an operating loss of $1.3 million in the prior year period. The loss included non-recurring costs and charges totaling $1.1 million. That included a $700,000 charge related to streamline JOUT’s Diving, Watercraft and Marine Electronics businesses in Southern Europe. The company also took a $300,000 charge for writing off assets associated with the transfer of its historic Old Town Canoe facility to the city of Old Town, ME.

Johnson-Leipold said that while markets appeared stable in Northern Europe, uncertainty looms to the south.

“We have restructured in the south to strengthen operations long-term and improve the profitability profile of every unit in the region,” she said of restructuring that JOUT expects will cut $1 million in annual costs. Changes included transitioning the company’s Marine Electronics business from a stand-alone company to a lower cost distributor model in Italy.

Vice President and CFO David W. Johnson said legal and bad debt charges in Europe, which generates about 20 percent of the company’s revenue, added $600,000 in expenses during the quarter. “I'm not concerned about either one currently, but we're keeping a very careful eye on Europe receivables,” he said.

JOUT reported a net loss of $2.9 million, or 30 cents per diluted share, for the quarter, compared to a net loss of $1.2 million, or 13 cents per diluted share, in the same quarter last year.

As of Dec. 30, 2011, debt, net of cash, was $4.9 million compared to $14.1 million at the end of the prior year quarter. Depreciation and amortization was $2.7 million year-to-date, compared to $2.4 million during the prior year-to-date period. Capital spending totaled $2.0 million during the first fiscal quarter compared with $1.6 million in the 2011 first fiscal quarter. JOUT ended the quarter with inventory of $79.0 million, down 6.2 percent from a year earlier, while accounts receivable rose 7.9 percent to $65.6 million.

“Inventory levels are on track with projections and we feel confident in our ability to meet our Fiscal 2012 target of maintaining days of working capital at Fiscal 2011 levels,” said Johnson. “We continue to pay down debt and benefit from lower borrowing costs.”

While it’s too early to tell whether JOUT’s paddlesports specialty dealers will delay spring deliveries because of the late winter, the company is better positioned to track and forecast demand. That’s because in addition to being able to view inventory at its largest retail partners, JOUT last year launched an online ordering and tracking system for its paddlesports dealers that will enable it to better gauge real demand.
“Our specialty retailer programs were redesigned to give these small business owners the flexibility needed to adjust accordingly to changing marketplace conditions,” Johnson-Leipold said. “Our challenge will be to improve operational efficiency amidst the fluctuations particularly in Watercraft.”