Johnson Outdoors Inc. — Fiscal 2022 First Quarter 10-Q
Reporting period: Three months ended December 31, 2021; comparison is the three months ended January 1, 2021. The company manufactures branded fishing, camping, watercraft recreation and diving products. Amounts below are in millions except per-share data, percentages and ratios.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $153.5 | $165.7 | Down 7% |
| Gross profit / margin | $60.6 / 39.5% | $75.0 / 45.3% | Margin down 5.8 percentage points |
| Operating profit / margin | $13.8 / 9.0% | $23.6 / 14.2% | Down $9.8 |
| Net income | $10.9 | $19.8 | Down 45% |
| Diluted EPS | $1.07 | $1.96 | Down 45% |
| Operating cash flow | $(62.8) | $(11.2) | Greater cash use |
| Capital expenditures | $6.2 | $4.4 | — |
Gross margin contracted as higher material and inbound freight costs outweighed price increases. Operating expenses fell $4.6 million, largely with lower sales-volume-driven costs, but did not offset the gross profit decline. Effective tax rate rose to 25.6% from 23.7%, primarily because the prior-year period benefited from an intra-entity asset transfer. Other income declined to $0.8 million from $2.4 million, reflecting lower gains and earnings on deferred-compensation plan assets and higher foreign-exchange losses.
Segments and material changes
- Fishing: Sales fell 15% to $108.4 million; operating profit declined to $16.3 million from $27.8 million. Supply-chain and component shortages limited the company’s ability to fill orders.
- Camping: Sales rose 16% to $14.1 million; operating profit was $2.8 million, approximately flat. Growth included military tents and consumer camping products.
- Watercraft Recreation: Sales increased 17% to $14.6 million and operating profit rose to $1.5 million from $1.1 million.
- Diving: Sales increased 17% to $16.5 million as markets recovered from prior-year COVID-related travel and tourism disruption; operating profit was $0.5 million versus a $0.3 million loss.
Liquidity, debt and cash flow
Cash and cash equivalents were $167.5 million at quarter-end, down $73.0 million from October 1, 2021 and $28.5 million year over year. Current assets were $486.4 million and current liabilities $128.0 million. The company had no debt outstanding; its $75 million unsecured revolver, with a potential $50 million accordion subject to lender approval, was extended to July 15, 2026. The company reported a 0% debt-to-total-capitalization ratio.
Operating cash use increased mainly because the company built inventory to address anticipated supply constraints. Inventory reached $217.4 million, up $102.6 million year over year, including a substantial rise in raw materials. Management reported that some purchases were made at significantly higher prices. The quarter’s cash decrease also included $6.2 million of capital expenditures and $3.0 million of dividends paid. The company expected remaining FY2022 pension contributions of $71,000; no broader cash-flow or earnings guidance was provided.
Outlook, risks and other notable items
- Management said consumer demand remained strong and expected supply-chain and logistics disruptions to continue throughout fiscal 2022. These constraints could raise costs, delay order fulfillment or prevent the company from meeting all demand; inventory-building actions were already pressuring margins.
- Results are seasonal, and the first fiscal quarter is traditionally before the main warm-weather selling season. Management cautioned that quarterly results are not necessarily indicative of full-year results. No quantified full-year guidance appears in the filing text.
- Key risks include COVID-19 developments, sourcing and availability of materials and components, freight and commodity costs, foreign currency movements, consumer spending, customer credit, competition and adverse weather. About 13% of quarterly 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 debt and no material changes to the risk factors in its latest Form 10-K. Management did not believe pending litigation would have a material adverse effect. No significant changes to critical accounting estimates or controls were reported.
- Operating lease liabilities totaled $48.5 million. An amended facility lease is expected to require approximately $14 million of rental payments beginning in fiscal 2022 through June 2039; those payments were not included in the lease commitments table.
Important facts for investors to verify
- Whether supply-chain constraints ease and Fishing can recover lost shipments without further cost or margin deterioration.
- Inventory composition, aging and purchase commitments, and whether the elevated inventory converts to sales and cash as expected.
- Whether gross margins recover through pricing, sourcing efficiencies or lower materials and freight costs.
- Cash generation and working-capital needs through the company’s seasonal selling cycle, including the location and availability of $55.4 million held in foreign bank accounts.
- The full financial and cash-flow implications of the additional $14 million amended lease commitment.