Johnson Outdoors Inc. (NASDAQ:JOUT) has reported a significant downturn in its fiscal year 2023 performance, with total sales tumbling 11% to $663.8 million and net income plunging 56% to $19.5 million compared to the previous year. The fourth quarter in particular saw sales drop to $96.3 million, indicating a marked slowdown in demand. Despite these headwinds, the company is driving innovation in its fishing business and has seen growth in its diving segment. The decision to discontinue the Eureka product line and concentrate on the Jetboil franchise reflects a strategic pivot. Johnson Outdoors is also focusing on managing elevated inventory levels and is implementing a cost savings program to bolster operating margins.
Key Takeaways
- Johnson Outdoors' total sales fell by 11%, with net income decreasing by 56% year-over-year.
- Fourth-quarter sales were notably impacted, dropping to $96.3 million.
- The fishing segment is innovating with new products, while the diving business grew.
- The company is exiting the Eureka product line to focus on the Jetboil brand.
- Inventory levels are high, with efforts to manage them intensively.
- A cost savings initiative is in place to improve operating margins, which were at 1.8%, down from 8.9% the previous year.
- Capital expenditures for fiscal 2024 are expected to be on par with 2023.
Company Outlook
- Johnson Outdoors remains committed to delivering long-term shareholder value and maintaining dividend payments.
- The company aims to strengthen operating margins through cost control and expense management.
Bearish Highlights
- There is ongoing uncertainty surrounding the need to move existing inventory.
- Operating profit margin has decreased significantly from the previous fiscal year.
Bullish Highlights
- New product lines from Minn Kota and Old Town have started receiving purchase orders.
- Positive growth in the diving segment indicates a strong performance in niche markets.
Misses
- The company faces a challenge with elevated inventory levels that need to be managed.
- The operating profit margin and net income have seen substantial declines.
Q&A Highlights
- The company has taken increased reserves for inventory, indicating a cautious approach to potential obsolescence.
- While warranty expenses are expected to stabilize, marketing expenses will remain high to ensure market presence.
Johnson Outdoors, in the face of a difficult fiscal year, is looking ahead with a strategy focused on innovation, market presence, and operational efficiency. The company is navigating through a period of decreased demand and high inventory but is taking steps to mitigate these challenges. With new products in the pipeline and a focus on key strategic drivers, Johnson Outdoors is positioning itself for future growth and profitability.
InvestingPro Insights
In light of Johnson Outdoors Inc.'s (JOUT) recent fiscal challenges, InvestingPro data and tips offer additional insights that may be of interest to investors. According to real-time data, the company has a market capitalization of $499.06 million and is trading at a price-to-earnings (P/E) ratio of 28.67, which adjusts to 20.41 when considering the last twelve months as of Q4 2023. This indicates a valuation that reflects the company's profitability despite recent downturns. Additionally, Johnson Outdoors holds a price/book ratio of 1.0, suggesting that the company's stock is trading at approximately its book value.
From the InvestingPro Tips, it's noteworthy that Johnson Outdoors holds more cash than debt on its balance sheet and has maintained dividend payments for 11 consecutive years, with a current dividend yield of 2.69%. This financial stability and commitment to returning value to shareholders could be a reassuring factor for investors considering the company's long-term prospects. Furthermore, the stock is trading near its 52-week low, which may present a buying opportunity for those who believe in the company's ability to rebound.
For those looking to delve deeper into Johnson Outdoors' financial health and future outlook, there are additional InvestingPro Tips available. For example, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. These insights, among others, can be found on the InvestingPro platform.
Investors interested in these and other expert analyses can take advantage of the special Cyber Monday sale, with discounts of up to 60% on InvestingPro subscriptions. Additionally, using the coupon code sfy23 will grant an extra 10% off a 2-year InvestingPro+ subscription. In total, there are 9 InvestingPro Tips listed for Johnson Outdoors, offering a comprehensive view of the company's financial position and market performance.
Full transcript - Johnson Outdoors (JOUT) Q4 2023:
Operator: Hello, everyone, and welcome to the Johnson Outdoors Fourth 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.
Pat Penman: Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors results for the 2023 fiscal fourth 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 filing with the Securities and Exchange Commission. If you have additional questions following the call, please contact Dave Johnson or me. It is now my pleasure to turn the call over to Helen Johnson-Leipold.
Helen Johnson-Leipold: Thanks, Pat. Good morning, everyone, and thank you for joining us. I'll begin with an overview of the fiscal year and fourth quarter results and then I'll share perspective on the performance and outlook for our businesses. Dave will review financial highlights and then we'll take your questions. During fiscal year 2023, we saw the end of the elevated pandemic-driven demand of the past few years. That combined with higher inventory levels at retail led to challenging results for the year. Total company sales declined 11% to $663.8 million, compared to $743.4 million in the prior fiscal year. Net income for the year was $19.5 million, or $1.90 per diluted share, a 56% decline from the prior fiscal year. Operating profit decreased 82% to $11.7 million versus $66.3 million in the prior fiscal year, with a decrease in sales volumes and a 13% increase in operating expenses significantly impacting profitability. Our fourth quarter was particularly impacted by a significant slowdown in demand. Sales in the fourth quarter ending September 2023 were $96.3 million compared to $196.4 million in the prior year fourth quarter. The fourth quarter results also reflect a challenging comparison between quarters. The last quarter of fiscal 2022 was when supply chain restrictions eased and when we filled a significant number of backlogged customer orders. So, it was a tough quarter and a tough year as demand in the outdoor recreation marketplace moderated and we also began to see a return to the pre-pandemic traditional seasonality of order patterns. In the challenging marketplace, competitive dynamics continue to be aggressive, affecting pricing. Looking forward, we anticipate these dynamics will continue and we are committed to innovation to help our brands grow and succeed. In fishing, innovation is key to sustaining our leadership position. We are excited by the broad line of new products we announced during the third quarter of the fiscal year. Minn Kota announced the QUEST series, the all-new brushless trolling motor technology, giving anglers ultimate control in a tough fishing environment. Minn Kota also launched a restage of all its bow mount trolling motors with a brand new look and updated technology suite full of angler friendly enhancements and a more seamless integration with Hummingbird technology. We are fishing industry leaders, we have great brands, and we're committed to retaining that position in this marketplace. We are excited about the momentum for the breadth of the innovation we announced, and we will continue to work hard to give anglers the best fishing experience possible. In our diving business we saw positive growth as global dive markets, especially European markets, continued to recover. We will leverage our innovation and brand building efforts to ensure SCUBAPRO remains the world's most trusted dive brands. Our Camping and Watercraft Recreation business faced a significant decline from strong pandemic field demand of the past few years. Retailers still have high inventory on their shelves and consumer spending has slowed in camping. We recently announced that we made the tough decision to exit our Eureka product line to increase our focus on the Jetboil franchise. Jetboil has experienced tremendous growth over the past five years and we're working on leveraging the brand equity into expansive growth opportunity. In Watercraft Recreation, we're excited about Old Town award-winning revolutionary ePedal Plus drive. This cutting-edge technology is a power-assisted pedal drive that combines pedal and power to propel the fishing experience to the next level. This technology is new to the world, and we're looking forward to shipping Old Town ePedal Plus soon. While we're disappointed in our fiscal year results, we're laser focused on working hard to outperform the challenging marketplace and to improve our profitability, despite current economic headwinds and marketplace softness, we will continue to invest in our key strategic drivers, understanding our consumers, sustaining innovation leadership, identifying new sources and paths of growth in our markets and continually optimizing our digital consumer experience. Our ongoing hard work on these priorities ensures that our portfolio of market leading brands is well positioned for success and that we will continue to deliver long-term growth for Johnson Outdoors. Now, I'll turn the call over to Dave for more details on the financials.
David Johnson: Thank you, Helen. Good morning, everyone. I want to highlight a few items from the quarter of the year. As Helen mentioned, fourth quarter results were significantly impacted by the slower demand, as well as high inventory at retail and customers managing inventory more tightly, with fishing's new bow mount motor transition. For fiscal 2023, operating profit margin was 1.8% compared to [8.9%] (ph) in the previous fiscal year. Gross margin for the year was 36.8%, slightly improved from last fiscal year. While we experienced improved materials and freight costs versus last year, those gains were nearly offset by increases in inventory reserves and unfavorable absorption due to reduced sales volumes. Operating expenses increased 13% or $27.3 million versus the prior year. The third compensation expense increased $9.3 million as a result of marking plan assets to market and was entirely offset in other income. We also recognized $2.4 million in expense related to the exit of the Eureka brand. Additionally, we experienced higher warranty expense of approximately $7 million. Research and development costs increased $3.7 million, and higher marketing and professional services costs further drove the operating expense increase versus fiscal 2022. Net income for the year was $19.5 million versus the prior fiscal year of $44.5 million. The effective tax rate was flat to prior year at 24.4%. Inventory remains elevated and is higher than last year by about $12.8 million. We're focused on carefully managing inventory levels as we navigate a challenging marketplace. And I expect we'll see inventory levels decline by the end of the fiscal year. Looking ahead, we remain focused on strengthening our operating margins with an active cost savings program and prudent expense management. Our balance sheet continues to have no debt 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 to the operator for the Q&A session.
Operator: Thank you. At this time, we'll conduct the question-and-answer session. [Operator Instructions] Our first question comes from Anthony with Sidoti. Anthony, your line is open.
Anthony Lebiedzinski: Thank you. Okay. I thought I was -- Okay, so again, yes, thank you for taking the questions. So first, I guess, just in terms of how the -- I guess, first just in terms of the inventory comment at retail. Are you seeing this across all your brands or is it more isolated to fishing? Just wanted to get a better understanding of what's going on in the marketplace?
Helen Johnson-Leipold: We do see -- it varies by business, but there is inventory at retail that is slowing down demand, making our buyers a little bit questionable about the orders they place. So I think it really is in the outdoor industry pretty much across the board.
Anthony Lebiedzinski: Okay, got it. Okay. And then can you comment on the monthly progression of sales throughout the quarter? And given that you're more than two months into your current first fiscal quarter, what can you share with us in regards to demand so far? Is it similar to the fourth quarter or better or worse? Just a ballpark estimate if you could share, that'd be great.
David Johnson: Yes, I mean, the quarter kind of progressed -- it declined kind of as the season wound down. So we've really seen it go back to traditional seasonal marketplace, if you will, but it is depressed versus where it probably should be. So as we look kind of look into the next quarter, we're still seeing a challenging marketplace. So, we're hopeful for a good season, but right now it looks pretty challenging.
Anthony Lebiedzinski: Got you. Okay.
Helen Johnson-Leipold: It truly is -- it's a swing, it's really a swing in the post pandemic. We had such a great performance and now it is -- it's getting back to more of a stable market, which I think, everybody thought was coming. It's always hard to predict the level of it, but we've got to work through that period, but hopefully the season does have the energy we need.
Anthony Lebiedzinski: So should we kind of go back and look at our models and like basically see the -- so now that we're past the pandemic, like you said, the demand has dropped off. I mean, are we getting back to the seasonality that you had, let's say, in fiscal 2018 or fiscal 2019 where you saw really March and June quarters with big revenue numbers and then the, I guess the shoulder season like the December and September quarters, is that what you're seeing now? Is that a fair assessment of how things will look like is fiscal 2024 and beyond?
David Johnson: Yes, I believe we'll get back to traditional seasonality of the business, yes. And as we pointed out, last year's fourth quarter was really high due to just refilling the shelves. So, we'll get back to more of a traditional portionment of the season.
Anthony Lebiedzinski: Okay. Thanks, Dave. So, you mentioned the new product lines from Minn Kota and from Old Town. Have you guys already seen purchase orders come in for those or how should we think about that?
Helen Johnson-Leipold: Yes, I mean, we traditionally get the orders pre-season, but as we said, we do have the -- our customers have inventory on shelf and that's a key -- we've got to move through that. So I would say, that the uncertainty is due to the inventory they've got and we're hoping that it moves through and we will see those orders come in. But we are seeing them. They're coming in now.
Anthony Lebiedzinski: Okay, that's good to hear. And then in terms of the fourth quarter, so the inventory reserve impact on gross margin. Can you comment on that?
David Johnson: Yes, part of it was due to the exit of the Eureka business. But also, just across the board, we were looking at our inventories and decided to take some reserves to the level. So I mean, I feel good about the inventory level that we have now and that it's saleable, but we just we took some increased reserves kind of across the board.
Anthony Lebiedzinski: Got you. Okay. So overall you don't think there's much in terms of inventory obsolescence risk?
David Johnson: As long as the marketplace and the consumer behaves as we expect, I think we're in okay shape. We obviously have to get those inventory levels down, but if we have a season that we expect, we'll be able to do that.
Anthony Lebiedzinski: Got you. Okay. Thanks for that, Dave. And then -- so I look back, it looks when you announced the Eureka exit, you talked about a $4 million charge, and it looks like it was $2.4 million instead. Is that correct?
David Johnson: No, it was -- $2.4 million to hit the operating expense line. Yes, that was just the operating expense effect. And part of that was actually a contribution of inventory, a donation of inventory. So the rest is in the gross margin.
Anthony Lebiedzinski: Okay. All right. So overall -- the gross margin, okay, there was some impact from Eureka. Okay. Got it. Okay. And then you also called out higher warranty, R&D, marketing, and other costs. Anyway you guys can quantify that? And do you think these higher costs are something that we should also expect in fiscal 2024?
David Johnson: I think the warranty expense is getting back to a normalized level, so I would expect that to level off and move with sales going forward. I don't -- I think that's -- that was a little bit -- that increase was a little bit of a one-time increase. So I think the marketing expense, the ad promo expense, I think that's something that we'll continue to -- we'll keep investing there to make sure we maintain our market viability and our share there. So I think that'll be something that will remain elevated and we'll continue to invest there.
Helen Johnson-Leipold: We do -- this has been a very competitive marketplace and we've got to -- we're investing in the promotions to make sure that we compete from a pricing standpoint and from consumer promotion standpoint.
Anthony Lebiedzinski: Got you. Okay. Thanks, Helen. And just a couple of quick other questions, if I may. So as far as the defined cost savings program that you talked about, how should we think about -- I guess, first if you could just [indiscernible] that a little bit more, give us maybe some details as to what you're trying to do on the cost savings side and then how should we think about the impact on your profitability as a result of that?
David Johnson: Sure. I mean, we've got an intentional and broad cost savings program that we feel good about going into this fiscal year. Most of it is focused on product cost in the supply chain. And like I said, it's intentional. And I think it's going to bear some fruit for us this year and into the future. So that will help gross margin. And hopefully it'll help in a meaningful way, but we got to see it play out. We'll also continue to look at expenses beyond just the product cost and make sure we're prudent there and look throughout the enterprise for efficiencies with our expenses too.
Anthony Lebiedzinski: Got you. Okay. And lastly, do you have an estimate for CapEx for F’24?
David Johnson: I think it will be comparable to 2023.
Anthony Lebiedzinski: Okay. Understood. Okay. All right, well thanks very much and best of luck.
David Johnson: Thanks, Anthony.
Helen Johnson-Leipold: Thank you.
Operator: Thank you. [Operator Instructions] I'm showing no further questions at this time. I would like to turn the call back to Helen Johnson-Leipold for closing remarks.
Helen Johnson-Leipold: Just want to thank you all for joining, and I hope everybody has a happy holiday. Thank you. Have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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