Johnson Outdoors Inc. — Q3 2021 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended July 2, 2021; comparisons are to the periods ended June 26, 2020. Amounts below are in millions unless stated otherwise.
Business context and results
Johnson Outdoors manufactures branded fishing, camping, watercraft recreation and diving products. The third quarter is traditionally a key selling period for warm-weather products. Results were boosted by stronger outdoor-recreation demand, while the prior-year comparison was depressed by COVID-19 shutdowns. The company cautions that seasonal and pandemic-related factors make interim results not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $213.6 | $138.4 | $585.4 | $429.5 |
| Gross profit / margin | $97.5 / 45.7% | $62.6 / 45.2% | $265.8 / 45.4% | $191.3 / 44.5% |
| Operating profit / margin | $38.1 / 17.8% | $12.9 / 9.3% | $97.7 / 16.7% | $51.5 / 12.0% |
| Net income | $28.8 | $12.9 | $76.5 | $39.7 |
| Diluted EPS | $2.83 | $1.27 | $7.53 | $3.93 |
- Q3 sales rose 54%; nine-month sales rose 36%. Each business segment reported higher sales in both periods. Fishing remained the largest segment, with Q3 sales of $155.3 million.
- Gross margin improved year over year, as volume-related efficiencies and favorable product mix more than offset higher tariffs and inbound freight costs. Q3 operating profit increased by $25.2 million.
- Nine-month operating cash flow was $57.6 million, versus $25.6 million. Capital expenditures were $15.5 million; dividends paid were $6.3 million.
- Cash and equivalents were $249.0 million at July 2, 2021, compared with $181.4 million a year earlier. Total current assets were $486.6 million and current liabilities were $132.7 million.
- The company reported no debt outstanding. It had a $75 million unsecured revolving credit facility, with a $50 million accordion option subject to conditions and lender approval. Operating lease liabilities totaled $44.7 million.
Material changes and management commentary
Management attributed sales growth principally to increased participation in outdoor recreation and strong customer orders to replenish inventory. Prior-year COVID-related shutdowns and depressed demand make the comparison unusually favorable. Supply-chain and logistics constraints persisted and could limit the company's ability to fulfill demand.
Costs increased with higher sales volumes, tariffs and expedited inbound freight. The company reported $2.6 million of additional tariff costs in Q3 and $4.6 million for the nine-month period versus the prior-year periods. It expects approximately $9 million of net Section 301 tariff costs for full fiscal 2021, compared with approximately $3.5 million in fiscal 2020. No full-year revenue or earnings guidance is provided in the filing.
Other income for the nine months was $4.6 million, versus other expense of $0.2 million a year earlier, mainly reflecting gains on deferred-compensation plan assets; related compensation expense is recorded in operating expenses. The company began actions to terminate its two defined-benefit pension plans; completion and payouts are subject to conditions and are estimated to reduce net income by approximately $4–5 million when they occur.
Outlook, risks and contingencies
- COVID-19-related demand has supported outdoor recreation sales, but the company cannot reasonably estimate the pandemic's future effects. Supply shortages, component availability, logistics disruption and higher sourcing or expediting costs could constrain production and deliveries.
- Other cited risks include raw-material and commodity prices, tariffs, foreign-exchange movements, customer credit risk, competition, adverse weather and the sustainability of elevated demand. About 12% of nine-month revenue was denominated in currencies other than the U.S. dollar; no foreign-currency forward contracts were held at July 2.
- The company said pending litigation was not expected to have a material adverse effect. It is subject to ordinary-course legal matters and income-tax examinations in several jurisdictions.
- Subsequent to quarter-end, on July 15, 2021, the company amended its revolving credit facility to extend its expiration from November 2022 to July 2026; other key provisions remained as described in the filing.
Important facts for investors to verify
- Whether strong demand and customer replenishment persist beyond the favorable, shutdown-affected prior-year comparison.
- Whether supply constraints, freight costs and tariff exposure affect fulfillment, margins or the stated fiscal 2021 tariff estimate.
- The timing and final earnings impact of pension-plan termination and related payouts.
- Liquidity, working-capital requirements and access to the amended revolving facility, particularly given seasonal operations and rising inventory.
- The effect of foreign-exchange, commodity-price and other disclosed risks on future results; the filing provides no formal sales or earnings forecast.