Johnson Outdoors Inc (JOUT) Q1 2023 Earnings Call Transcript

Johnson Outdoors Inc (NASDAQ: JOUT) Q1 2023 earnings call dated Feb. 03, 2023

Corporate Participants:

Patricia Penman — Vice President, Marketing Services and Global Communication

Helen Johnson-Leipold — Chairman of the Board

David W. Johnson — Chief Financial Officer

Analysts:

Anthony Lebiedzinski — Sidoti & Company — Analyst

Presentation:

Operator

Hello, everyone, and welcome to the Johnson Outdoors’ First Quarter 2023 Earnings Conference Call. Today’s call will be led by Helen Johnson-Leipold, Johnson Outdoors’ Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer. Prior to the question-and-answer session, all participants will be placed in a listen-only mode. After the prepared remarks, the question-and-answer session will begin. [Operator Instructions] This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line.

I would now like to turn the call over to Pat Penman from Johnson Outdoors. Please, go ahead, Ms. Penman. Ms. Penman, you might be on mute. Let me try that one more time. Ms. Penman, your line is off mute. Please, go ahead.

Patricia Penman — Vice President, Marketing Services & Global Communication

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors’ results for the 2023 fiscal first quarter. If you need a copy of today’s news release, it is available on our website at johnsonoutdoors.com under Investor Relations. I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors’ control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have additional questions following the call, please contact Dave Johnson or myself.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen Johnson-Leipold — Chairman of the Board

Thanks, Pat. Good morning, and thank you for joining us. I’ll begin with an overview on the quarter and then I’ll share perspectives on the performance and outlook for our businesses. Dave will review financial highlights. And then we’ll take your questions.

Sales in our first fiscal quarter ending December 2012 rose 16%, to $178.3 million, compared to a $153.5 million in prior year first quarter. Net income for the quarter was $5.9 million, or $0.57 per diluted share versus $10.9 million, or $1.07 per diluted share in the previous year’s first quarter. Operating profit decreased 60% to $5.5 million versus $13.8 million in the prior fiscal year first quarter, with increases in inventory costs significantly impacting profitability. We’ve been working hard to manage the challenging supply chain environment while evaluating all avenues to mitigate cost pressures including price strategies and cost reduction efforts.

In our fishing business, supply and component availability continued to ease allowing us to fulfil more customer orders. We still have a solid pipeline of orders that we’re working through and continuing to manage supply chain challenges remains our priority. In diving, we continued to see momentum as market rebounds from the depressed pandemic levels. We continue to benefit from our SCUBAPRO equity as the most trusted dive brands in the world. In our camping and watercraft recreation businesses, we’re seeing some softening in market demand and higher inventory levels at retail. The good news is that we continue to have strong brands issued, especially in Old Town and Jetboil. Innovation continues to be critically important to our growth and success of our brands. The last few years have brought new participants into outdoor recreation, which is a good thing for us. Our ongoing investment into understanding both new and existing consumers’ evolving needs and translating that into new product success remains our focus.

In all of our businesses, we’re working on exciting pipeline of new products. While it’s still too early to tell how the season will end up, we’re monitoring consumer buying behavior and focused on fulfilling customer orders and supporting our brands as we head into our primary selling season. As always, our team takes a long-term view positioning our brands and our business for long-term growth.

Now, I’ll turn the call over to Dave for a review of the financial highlights.

David W. Johnson — Chief Financial Officer

Thank you, Helen, and good morning, everyone. I want to highlight a few items from the quarter. As Helen mentioned, we’re seeing supply availability continues to improve, allowing us to fulfill more customer orders, especially, in fishing. The quarter’s gross margin of 39.5% is down 4.3 points from last year’s first quarter due primarily to the increased cost of sales and due to high material and freight costs that are in inventory. We’re starting to see our costs ease somewhat and we expect margins to continue to be challenged in the coming months as we work through our higher-cost inventory. Inflation remains a concern, and as Helen mentioned, we continue to evaluate all options to improve profitability.

Operating expenses in the first quarter increased $10.4 million versus the prior year first quarter. Higher sales volume-driven expenses drove some of the increase. We also experienced higher compensation expense and increase in healthcare costs and higher professional services costs between the quarters. Profit before income taxes was $8.2 million versus $14.6 million in the prior year quarter, driven by the lower gross margin and increased operating expenses. Net income for the first quarter was $5.9 million, down 46% from the prior fiscal first quarter. The effective tax rate was 28% compared to the prior year first-quarter rate of 25.6%. It’s still too early to tell how the season will shake out but we’re focused on monitoring demands and proactively managing our inventory levels. We continue to have no debt on the balance sheet and our cash position enables us to invest in opportunities to strengthen the business. We remain confident in our ability to deliver long-term value and consistently pay out cash dividends to our shareholders.

Now I’ll turn the call over to the operator for the Q&A session. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] One moment for your first question. Our first question comes from the line of Anthony Lebiedzinski from Sidoti. Your line is open.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Good morning, and thank you for taking the questions. So, first, could you guys expand about the pipeline of unfulfilled orders? Maybe directionally, can you just talk about where it is now versus your fiscal year end or versus a year ago? It sounds like it’s mostly — the backlog is mostly for fishing, but maybe if you could just give us additional color, that would be very helpful.

Helen Johnson-Leipold — Chairman of the Board

Yeah. We’ve got a continuing pipeline in fishing. As you know, we’ve — we are working on our supply availability. And as that supply comes in, we’re able to continue to meet those orders. It’s good momentum. But as far as the season goes going forward, we’re still in the preseason mode. But there are good solid orders in there that we feel are going to continue to be there as we move forward. So, good shape on that end of it.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Okay. And as far as — are you seeing any order cancellations or maybe some retailers may be postponing their orders? What are you seeing thus far? I know it’s early still in the season. Obviously, you are tied to warm weather outdoor recreation, so I guess, on the consumer side, it’s probably too early to tell. But as — just wondering as far as what you’re hearing from your retailers?

Helen Johnson-Leipold — Chairman of the Board

Well, I think all retailers are being cautious right now, and trying to predict the season is a tough one. So, there’s cautious — it’s on their side. I think in watercraft and camping, the demand has slowed and we’ve got a pretty solid inventory at retail. So, that’s waiting for the season to come and then we get a read. But I think there’s caution out there.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Okay. Understood. So, yeah, so, it sounds like fishing and diving are in better shape of — versus the two smaller segments. Okay. And then I think you talked about price increases as well. Can you just talk about how much pricing contributed to reported revenue in the quarter and whether not you have any plans for additional price increases?

David W. Johnson — Chief Financial Officer

Yeah. I mean, the price increases — we’ve taken a few tranches of price increases over the last 18 months or so. So, I don’t have the number for the total price increase effect on this quarter versus last quarter. But we did see unit volume up, obviously, significantly for the quarter, just to point that out. And as we said, I mean, we’ll look at everything going forward to get our margins back to where we’d like them to be. And that would include pricing strategies as well as cost reductions.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Got it. Okay. And then in terms of your inventory, do you think we’re now at the peak inventory position? And at what point, would you be able to say when you’re able to work through the high-cost inventory?

David W. Johnson — Chief Financial Officer

Yeah. We expect inventory to start to go down starting with our key selling seasons that may start in April with our inventory numbers. We’re working to get those down to back to more balanced normal levels. We’ll start to see unless we see costs start to increase even further and they have moderated. We’ll start to see our gross margins start to incrementally improve in the coming quarters. So, that’ll be — that’ll probably take the whole fiscal year to get through. But we’ll start to see improvement going into the next quarter.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Okay. That’s good to hear. And then on your operating expense side, you talked about higher health insurance and professional services fees and so on. Just wondering, how much did that contribute to the overall increase in expenses in the quarter? And going forward, if you back out the sales driven volume expenses, how should we think about your expense growth for the rest of the fiscal year?

David W. Johnson — Chief Financial Officer

Yeah. I mean, we’ll see some moderate increases in the balance of the year in our expenses. I wouldn’t expect anything significant yet in this quarter. A good portion, almost half of that increase in operating expenses was volume-related. So, we’re not talking big numbers here for the quarter. But it’s — and the compensation expenses, they will probably be incrementally higher this year versus last year just due to the headcount and merit and that kind of thing.

Anthony Lebiedzinski — Sidoti & Company — Analyst

Got it. Okay. All right. Well, that’s all I had. Thank you very much and best of luck.

Helen Johnson-Leipold — Chairman of the Board

Thank you.

David W. Johnson — Chief Financial Officer

Thank you, Anthony.

Operator

And I’m not showing any further questions in the queue. I’d like to turn the call back over to Helen Johnson-Leipold for any closing remarks.

Helen Johnson-Leipold — Chairman of the Board

Okay. Well, thank you, all, for joining us today and I hope you have a great day.

Operator

[Operator Closing Remarks]