Johnson Outdoors Inc. — Q3 Fiscal 2022 Form 10-Q
Reporting period: Three and nine months ended July 1, 2022; comparisons are to the periods ended July 2, 2021. Amounts below are in millions of dollars unless stated otherwise. The company makes seasonal outdoor recreation products, including fishing, camping, watercraft recreation and diving products.
Financial results and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $203.8 | $213.6 | $547.0 | $585.4 |
| Gross profit | $73.5 | $97.5 | $202.7 | $265.8 |
| Gross margin | 36.1% | 45.7% | 37.1% | 45.4% |
| Operating profit | $23.8 | $38.1 | $53.0 | $97.7 |
| Net income | $14.1 | $28.8 | $34.8 | $76.5 |
| Diluted EPS | $1.38 | $2.83 | $3.42 | $7.53 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(86.4) | $57.6 |
- Q3 sales declined 5%; nine-month sales declined 7%. Gross margin fell 9.6 percentage points in Q3 and 8.3 points year to date. Management attributed the pressure mainly to higher material and freight costs and reduced overhead absorption; price increases did not fully offset the costs.
- Q3 operating profit fell $14.3 million, primarily from lower sales volume and gross margin. Lower operating expenses partly cushioned the decline, including lower deferred-compensation expense that was offset by investment losses recorded in other expense.
- At July 1, cash and cash equivalents were $117.6 million, down from $249.0 million a year earlier. Current assets were $481.2 million and current liabilities $117.0 million. The company had no debt outstanding; its unsecured revolving facility provides up to $75 million, with a conditional $50 million accordion, and expires July 15, 2026.
- Nine-month operating cash use was $86.4 million, compared with $57.6 million provided in the prior-year period. The principal driver was inventory investment; capital expenditures were $25.2 million, largely related to expansion of Fishing facilities. The company paid $9.0 million in dividends and spent $0.5 million on treasury stock.
- Inventory rose to $251.0 million from $130.7 million a year earlier, primarily due to purchases of raw materials and components to address shortages. Operating lease liabilities totaled $51.5 million; these are lease obligations, not reported debt.
Business changes and management commentary
- Fishing: Q3 sales declined 12% to $136.6 million and nine-month sales declined 15% to $374.2 million. Component shortages, particularly electronic components, constrained production and order fulfillment despite solid demand. Segment operating profit fell to $16.6 million in Q3 from $39.4 million.
- Camping: Q3 sales increased 32% to $23.5 million; nine-month sales increased 28% to $56.8 million, driven mainly by Jetboil and Eureka! products.
- Watercraft Recreation: Q3 sales rose 10% to $21.9 million and nine-month sales rose 19% to $59.5 million, reflecting demand for the Sportsman line and pedal products.
- Diving: Q3 sales rose 7% to $22.2 million and nine-month sales rose 16% to $56.9 million, supported by recovery in tourism and travel. Currency translation partly offset growth.
- Management said supply-chain and logistics disruption was expected to continue through the end of fiscal 2022 and could constrain order fulfillment and raise costs. The filing provides no specific sales, earnings or margin guidance.
Risks, contingencies and unusual items
- Management cited uncertainty around supply availability and pricing, inflation, consumer discretionary demand, customer inventory levels, foreign exchange, commodity costs, and the lingering effects of COVID-19. Inventory obsolescence or excess reserves could change if demand or market conditions weaken.
- Other expense was $4.7 million in Q3 versus other income of $0.9 million a year earlier, reflecting deferred-compensation plan investment losses and foreign-exchange losses. The investment losses were substantially offset by lower related compensation expense in operating expenses.
- Foreign-currency translation reduced nine-month other comprehensive income by $3.0 million. Approximately 13% of nine-month revenue was denominated in currencies other than the U.S. dollar; the company held no foreign-currency forward contracts at quarter-end.
- The company reported no material changes to previously disclosed risk factors. Management did not expect pending legal matters to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether supply-chain availability improves enough to convert the reported strong order demand into shipments, particularly in Fishing.
- Whether elevated inventory can be sold through without material discounting, write-downs or further working-capital pressure.
- Whether input, freight and component costs moderate, and whether pricing and production volumes restore gross margins.
- Cash conversion, capital spending and available liquidity as the seasonal business moves through the remainder of fiscal 2022.
- The sensitivity of reported results to foreign exchange and deferred-compensation asset valuations, and compliance with revolving-credit covenants if borrowings become necessary.