Johnson Outdoors Inc. (JOUT) Q1 2020 Earnings Report, Transcript and Summary

Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2020 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 of 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 Patricia Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors' results for the 2020 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 me.It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Good morning. Thank you for joining us. I'll begin with comments on performance this quarter and outline key priorities for the year ahead. Dave will review key financials, then we'll take your questions.During our fiscal first quarter, the warm weather outdoor recreational industry is in ramp up mode preparing for the primary selling period during the second and third quarters. Sales in this quarter reflect preseason selling for customers. We will begin to see initial consumer takeaway in the spring.This year, first quarter sales rose 23% to $128.1 million versus a $104.4 million in the prior year period. We posted operating profit of $6.8 million versus $6 million in the prior year first quarter. Net income was $6.4 million or $0.64 per diluted share, which compares very favorably to the previous year's first quarter net income of $3.5 million or $0.35 per diluted share. Dave will provide more details on what factored into the quarter's results in his remarks.Overall, a positive start to the fiscal year. We're benefiting from our intense ongoing focus and richer consumer insights, targeted innovation in accelerated digital sophistication, continued investments in these priorities are essential to position our brands for success throughout the rest of the fiscal year.An ongoing understanding of what anglers want, coupled with our technical knowhow have been key to sustaining our Fishing business, as the primary profitable growth engine for Johnson Outdoors. Fishing sales are up 26% versus prior year period, with the delay in new product availability in prior year quarter accounting for much of the favorable year-over-year comparison.Humminbird's latest innovation, the award winning MEGA 360 Imaging, began shipping in the first quarter and customers response has been favorable so far. MEGA 360 Imaging is the only sonar option that provides a high-resolution 360-degree view with unmatched detail and coverage. Before MEGA 360, anglers have to move their boat over a spot to know what was under the water.Now with MEGA 360, they can make accurate casts in any direction, side, front and back even if the boat is anchored. MEGA 360 Imaging together with Minn Kota Spot-Lock technology provides anglers with an effortless command of their boat. We're always looking for more ways for our Fishing products to seamlessly integrate and communicate so anglers can focus on catching more fish.Our One-Boat Network currently connects the power and precision of Minn Kota's trolling motors and anchors with the intelligence of our Humminbird fish finders. We're adding downriggers to the network of spring with optimum downriggers from our Cannon brand. This will make managing the boat, an effective base presentation easier than been ever.Our One-Boat Network's instant access, wireless ease and complete connectivity, gives anglers unprecedented boat control and unstoppable fishing power. Going forward, our top priority is continued long-term strategic investment to sustain our technology and market leadership in Fishing.In Watercraft Recreation and Camping, translating deeper richer consumer insights into successful innovation has also been key to creating positive momentum in both businesses. In Watercraft, we are gaining share in the growing fishing kayak segment with consumer insight driven innovation like our brand new Topwater 120 PDL.It provides anglers hands-free control with the ability to pedal forward and reverse instantly. Consumer insights guided every thoughtful feature of this ultra stable boat such as on-board tackle and rod management. So the anglers can focus on capturing more fish.Insights enable us to identify consumer targets with a greatest potential for growth and then create products that fits their wants and needs. And these insights help ensure our products and where our consumers shop and buy. That's why investments in digital sophistication and e-commerce have been critical to our Watercraft business, and we're off to a solid start with e-commerce sales so far this fiscal year. We will continue to invest in consumer insight driven innovation and enhanced digital marketing and e-commerce to strengthen our Watercraft Recreation business and to create a sustainable profitable business for the future.We're also beginning to see the benefits of our work to reposition Eureka brands in the future and to leverage the strength and reach of Jetboil to maximize the growth potential from both of our core Camping brands.Camping is strong and growing among our next generation of outdoor enthusiasts, setting the stage for new innovations tailored to their needs and expectations. And especially in camp cooking, our hard work in understanding our target consumers is paying off. Many campers want to eat healthy, interesting and good food while they're loving it. The powerful Eureka Ignite stove with its fast-start and precise flame adjustment easily helps campers create great meals for themselves or the Group.Demand for Eureka's Ignite Camp Stove remains solid in its second year on the market continuing to beat expectations. Additionally, our Jetboil brand, the technology leader in portable outdoor cooking systems continues to grow, giving us a strong position with tech-savvy outdoor enthusiasts. Our goal is to continue to work hard to profitably grow our Camping Business.Moving on to Diving, our most global business. This quarter, higher sales in Europe drove most of the growth in the segment. Positive trends in retail and e-commerce sales in North America have been driven by our emphasis on digital marketing.Now we're taking those digital marketing learnings to our European market, with new websites on track to launch this year. New core life-support products are also doing well, further strengthening brand equity in competitiveness for SCUBAPRO. Dive regulators, our core business, and we work hard to deliver the best as this is a critical life support, literally the lifeline between the diver and the airspores.Our new second stage D420 Regulator delivers abundant air flow for the best breathing performance possible, with the natural smoothness comparable to what you might experience breathing above the water. As always, SCUBAPRO aims to make it easy for divers to focus on the experience, not the gear, and our new D420 Regulator is generating excitement into the market.Going forward, sustained innovation and our emphasis on digital marketing, along with continued simplification of our business model will ensure SCUBAPRO remains the world's most trusted dive brands.In fact, that we're off to a strong start across all of our business is certainly positive, but we have three more quarters to go. Looking ahead, we will continue to focus on our five key strategic drivers: consumer understanding, sustained innovation leadership, new sources and paths of growth in our markets, accelerated digital sophistication and e-commerce.Our ongoing hard work on these priorities ensures that our portfolio of market-leading brands is well positioned for success in 2020 and that we continue to deliver sustained profitable long-term growth for Johnson Outdoors.Now I'll turn the call over to Dave for a review of the financial highlights.

Thank you, Helen. Good morning everyone.As Helen mentioned, total company sales for the first quarter improved 23% over the prior year. While sales were up across all business units, the total company revenue increase was driven primarily by a delay in the prior year first quarter in the availability of new products in Fishing.Gross margin dipped slightly due primarily to an increase in tariff expense versus the prior year period. As a result of recent developments in trade negotiations between the United States and China, as well as our own mitigation efforts, we now expect the impact of tariffs on Chinese goods and components to be approximately $45 million on fiscal 2020 profits.Operating expenses rose due to higher sales volume related expenses, and the impact of favorable market conditions on the company's deferred compensation plan assets. This resulted in approximately $3.4 million of higher deferred compensation expense in the current year quarter, which was completely offset by a gain in the other income related markets to asset - marketing the assets to market.Operating profit was up versus the prior year quarter due to the increase in sales volume, partially offset by the additional deferred compensation costs. Pre-tax income was up $4.3 million. The tax rate for the first fiscal quarter was 25.1%, and we expect the tax rate for the first fiscal year to be in the mid-20.While we're pleased with the strong start to the year, we continue to expect moderate sales growth for the full fiscal year. Our strong balance sheet and healthy cash position enables us to invest strategically in growing our business, while continuing to pay a cash dividend to shareholders.Now I'll turn the call back over to the operator for the Q&A session. Operator?

[Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is open.

So obviously a strong start to fiscal '20. Now just looking at your core Fishing segment, just curious, in light of some new upcoming competition, what are you seeing in terms of shelf space allocation from your - from the major retail partners that you work with?

Well, you know, we're obviously keeping an eye on it, but it is just the selling period, and you know they are present and they're there. I would say they are going to be on the shelf. We haven't experienced the exact impact, but certainly when competition comes in, they automatically, you know they're sharing space with you. But right now, things are going well.

Now turning to the Diving segment, kind of, where are you with your simplification business process there. I know you've closed some offices throughout the world, but kind of, what inning are you in terms of how should we think about the potential improvements there on the bottom line.

Well, they have done some very good work and we continue to work on simplification. Some of it has to do with the SKUs in our business as well. So it's not just related to organization, there is a lot of other opportunities. So we continue to have opportunities. It is impacting positively on the bottom line. We have more opportunities going forward.

And also as far as your operating expenses, so those were up, sort of, the above 22% in the quarter. Kind of, how should we think about the expense growth through the rest of the fiscal year?

Yes, I mean, a lot of the expense growth was volume related. So our expenses tend to obviously correlate with our volume increase or decrease as the case may be. We had that weird thing with the deferred comp. So I would expect, kind of, a normalized operating expense rate going forward.

Okay, great. And last, as far as any updated thoughts on your - on usage of cash?

Again, it's a constant activity for us looking externally. But right now, we also have some great opportunities internally that we're focused on. So we're always -we're always out there and keeping an eye on things. I think it's still that, you know multiples are high there. It's not a great buyer's market, but again, we don't turn down opportunities. We take a look at them. So we're active.

Thank you. And I'm not showing any further questions at this time.

Okay, operator. I guess, we thank everybody for joining us, and I hope everyone has a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.