Hello, everyone, and welcome to the Johnson Outdoors Second Quarter 2025 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. [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 Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2025 fiscal second 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 any questions following the call, please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Good morning, everyone. Thank you for joining us. I'll begin by sharing perspective on our second quarter performance as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll take your questions. Our second quarter results reflect continued market challenges and a cautious retail and trade environment. Despite these results, there are pockets of good news with inroads we are making on our strategic priorities and the necessary changes we have been making for future growth. We saw positive results from new products in our fishing and camping businesses, highlighting the critical importance of our ongoing investment in innovation. In Fishing, our Humminbird brand launched new technology in the first quarter, MEGA Live 2 and Xplore. In our second quarter, we started shipping those products and demand has been exceeding expectations. We are excited about this momentum as we continue to work hard to give anglers the best fishing experience as possible. That includes tournament fishing experiences. We're thrilled that Easton Fothergill, Minn Kota and Humminbird sponsored [Pro Staff] Angler using our equipment with the champion of this year's prestigious Bassmaster Classic tournaments. In our Camping and Watercraft business, our Jetboil brand launched the next level of [Fast Boil] Systems with features building on the lightning fast boil times and fuel efficiencies that the brand is known for. There is enthusiasm among both retailers and consumers for these new products and orders are outpacing expectations. Our Old Town brand continues to be a strong leader in a very depressed market during the second quarter. Old Town launched five new watercraft additions. The significant launch, which extends our popular Sportsman line as well as gets us into new recreational categories with our ocean line. These new additions are equipped with pedal…

Thank you, Helen. Good morning, everyone. Gross margin in the second quarter was 35%, up slightly from last year's quarter. Our cost savings efforts have helped shore up our gross margin despite continued pricing discounting in the marketplace. Operating expenses decreased $7.7 million versus the prior year second quarter. And excluding the $3.4 million decrease from the deferred compensation plan valuation, expenses are down $4.3 million. Lower volume-related expenses and decreased promotion expenses contributed to that decline. Inventory levels continue to show good progress. Our inventory balance as of March was $180 million, down about $69 million from last year's second quarter and was down from our fiscal year-end. We'll remain diligent in managing our inventories given the uncertain macro environment. Our cost savings program remains critical in this environment, and we're committed to driving optimal product costs and enhancing operating efficiency across the company. Finally, I want to reiterate what Helen said, our balance sheet remains debt free, and we have a solid cash position, both of which provide a competitive advantage in uncertain times. We remain confident in our ability and plans to create long-term value for shareholders. Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions] And our first question comes from Anthony Lebiedzinski of Sidoti. Your line is open.

Thank you, and good morning everyone. And thanks for taking the questions. Certainly great to see the progress with the inventory reductions and great to hear also about the success of the new products. So I guess, first, how does the pipeline look like for new products without you guys sharing too much of the secret sauce. But the -- just wondering how do we think about the new product introductions in the upcoming quarters?

Well, we've -- we launched for this season, and we have launched the new products for both fishing and camping and so far, they're beating expectations. So we feel good about that. Watercraft has also launched a significant line of new products, which we are hoping to see those results be positive as well. So we keep pushing on innovation, and we're -- that's one of our strategic priorities. Right now, we're working on the longer-term innovation that will hopefully continue into next year's hope. We've always said innovation breaks through a tough market. So that's always a priority for us.

Understood. Thank you. So given what's happening here in the world as far as just dealing with the tariffs and consumer confidence kind of where it is. Just understanding that you guys have a seasonal business, but just wondering if you guys could talk about the trends during the quarter, whether there was big changes from January to March. And like maybe if you look at it on a year-over-year basis, I know for the quarter, your sales were down about, what, 4%. But just wondering if there was significant changes variability for -- on a year-over-year basis as you progress through the quarter given what confident there...

And Dave, you can pipe into. But I would say it's been pretty consistent of a tough environment, and it's both from consumer sentiment and from the retailer hesitation. Can you hear me, Anthony?

Yes. I can hear you. Hello?

Please remain on the line. Your conference will resume shortly. [technical difficulty] And I see that you've rejoined.

Yes, we're here. Sorry, I think we had a little technical problem. But your question was on trends this year versus what we've seen versus last year. All I can say, it's still from a market standpoint, it's tough. But we do have new products that we are launching that we didn't have last year. So again, we're hoping that those will deliver some positive results during the rest of the season.

Understood. Okay. Thaks Helen. And then just wondering, so since the new tariffs were announced on April 2. Obviously, there has been some back and forth some changes. Just wondering if you've seen any notable change since then in terms of your ordering patterns from retailers, what's been the response? Curious to get your at least high-level thoughts on that.

Yes. I mean it's still early for us in terms of retail reaction I would say. I mean, we came in with the quarter with a good plan in place. And I think the reaction will be the rest of the year. So we haven't seen initially a big pullback from retailers. But as Helen alluded to, I think the marketplace is going to be challenged for the balance of the season.

And then so just thinking about the impact of tariffs, just -- maybe first, if you could address how much you guys have exposure to China, which is getting hit the hardest in terms of the tariff rates? And then you just -- how do we think about the response from you whether -- I know you guys talked about potential pricing actions. So it sounds like those have not yet been implemented, but just maybe walk us through your China and other countries exposure, just rough estimates. And then how do you respond to that? And just would love to hear your thoughts on that.

Sure. I mean, as you know, we manufacture and assemble almost all of our products in the United States, which is great. I mean it's -- we're very proud of that. But we do import a fair amount of product from China, electronic components and other raw materials from China and Southeast Asia. So we do have exposure. I mean it's real, it's there. So we are now working -- we've been working on a few months on mitigation strategies, and we talked about that already. So everything is on the table for us. We're looking at supply chain, getting more efficiencies, pricing where it makes sense, everything is on the table for us to mitigate. And we're very, very focused on that.

Okay. Thanks Dave. And then just following up as far as the quarter that you reported. So part of the gross margin puts and takes were the, I guess, on the negative side of the discounting on the positive side of the cost savings program. So can you provide any more details as to how much you suffer from those things. Just wanted to understand the magnitude of that is especially the cost savings program and whether there's still more to be realized from the cost savings as we look towards the key summer months here?

Yes. I think I said before that we were looking at cost savings between 1 and 2 points of benefit for us as we came into this year, and that's consistent with the quarter. So -- and that helped offset some discounting that we did in the quarter kind of across the board there. So that's kind of the magnitude we're looking at. And then importantly, we're looking at expanding that cost savings. So that's -- it's a critical piece of what we're trying to do going forward.

Got you. Okay. So do you think it could be more than that 1 to 2 points of gross margin when you're going with this cost savings program?

Well, the savings program is going to -- it's a medium-term and longer-term programs. So I can't give you any guidance more than what I've already said. But yes, we hope to get more.

Understood. Okay. And then lastly for me, it looks like the tax rate in the quarter was unusually high. Can you comment on what happened there? And what is your outlook for the fiscal year?

Yes. I mean there's a couple of things happening. One is, we've got income and expense in different jurisdictions. And when you kind of get down to a smaller number, the rate kind of looks wonky. But we also had an accrual from some tax audits in Europe that we took in the quarter that affected that quarterly tax rate. So that's kind of a one-off thing. It's -- given what's happening with everything in the macro environment, I even hesitate to tell you what the full year is going to look like. But we'll be managing pretty carefully.

Understood. Okay. Well, thank you very much. And best of luck dealing with this crazy world here.

Thanks, Anthony.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Helen Johnson-Leipold for closing remarks.

Thank you for joining us today, and I hope everyone has a very good day. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.