Johnson Outdoors Inc. — Q1 FY2020 Form 10-Q
Reporting period: Three months ended December 27, 2019; unaudited. Dollar amounts below are in millions except per-share data. Johnson Outdoors makes branded outdoor recreation products for fishing, camping, watercraft recreation and diving. Results are seasonal, and the first quarter is before the primary warm-weather selling season; this quarter is not necessarily indicative of full-year results.
Financial performance
- Revenue: $128.054, up 23% from $104.440. Management attributed growth to higher sales volumes across all businesses, particularly new products in Fishing.
- Segment revenue: Fishing $99.278 (+26%); Camping $7.514 (+29%); Watercraft Recreation $4.809 (+11%); Diving $16.459 (+6%).
- Profit and margins: Gross profit was $53.612, with a 41.9% gross margin versus 42.4%. Operating profit rose to $6.801 from $5.978; operating margin was approximately 5.3% versus 5.7%. Net income increased to $6.430 from $3.521. Diluted EPS was $0.64 versus $0.35.
- Other income and taxes: Other income was $1.168, compared with other expense of $2.150 a year earlier. The change primarily reflected deferred-compensation plan investment gains versus prior-year losses, offset by related compensation expense. The effective tax rate rose to 25.1% from 18.7%, in part because excess tax benefits from share-based compensation were lower.
- Cash flow: Operating activities used $29.088, compared with $39.195 used in the prior-year quarter, mainly reflecting higher earnings and working-capital changes. Investing activities used $3.307, including capital expenditures of $3.307. Financing activities used $2.149, principally dividends and treasury-stock purchases.
- Liquidity and debt: Cash and cash equivalents were $138.257 at quarter-end, down from $172.382 at September 27, 2019. The company had no debt outstanding and reported a 0% debt-to-capitalization ratio. Its unsecured revolving credit facility provides up to $75 million, with a potential $50 million accordion subject to conditions and lender approval; it expires November 15, 2022.
- Balance sheet: Current assets were $330.126 and current liabilities $95.261. Accounts receivable was $78.249 and inventory $103.885. The company adopted lease accounting in fiscal Q1 and recorded $40.968 of operating lease liabilities, including $5.835 current and $35.133 non-current.
Material changes and management commentary
- Sales increased in every business segment. Fishing was the largest contributor; management cited new-product availability as a major driver. Diving growth reflected Europe, partly offset by unfavorable currency translation.
- Gross margin declined 0.5 percentage points, primarily due to tariffs on certain China-sourced components and supplies. Those tariffs increased current-quarter cost of sales by approximately $0.8 million.
- Operating expenses increased to $46.811 from $38.341. Higher sales-volume-related costs and approximately $3.4 million of additional deferred-compensation expense were factors; the latter was offset by investment gains in other income.
- Operating cash use remained substantial, consistent with seasonal working-capital needs. Receivables increased with sales volumes; management said year-over-year inventory was lower partly because certain purchases had been accelerated in anticipation of further tariffs.
Outlook, risks and contingencies
- Tariffs: Management estimated a negative fiscal 2020 operating-profit impact of approximately $4–$5 million from Section 301 tariffs on China-sourced goods. The filing provides no other specific full-year earnings or revenue guidance.
- Risks: The filing highlights discretionary consumer spending and economic conditions; trade policy and tariffs; product innovation and competition; customer payment risk; working-capital and cost-management execution; foreign exchange, interest rates and commodity costs; supply-chain disruptions; acquisitions; weather; and potential goodwill or long-lived-asset impairments.
- Currency exposure: Approximately 12% of quarterly revenue was denominated in currencies other than the U.S. dollar. The company held no foreign-currency forward contracts at quarter-end.
- Commitments: Open purchase orders totaled $91.164, shown as due within one year. Undiscounted operating lease commitments totaled $46.411. The company anticipated $0.128 of pension contributions during the remainder of fiscal 2020.
- Legal and tax matters: Management did not expect pending litigation to have a material adverse effect. Tax examinations remain open for several jurisdictions and years; the filing says fiscal 2020 tax expense was anticipated to be unchanged for uncertain tax positions.
- Unusual accounting change: Adoption of lease accounting added approximately $41 million of lease assets and liabilities to the balance sheet; management said it did not significantly affect operating results or cash flows and did not affect debt-covenant compliance.
Key facts investors should verify
- Whether sales growth, especially Fishing’s new-product-led gains, continues through the primary selling season.
- Whether the estimated $4–$5 million fiscal 2020 tariff impact is realized and how it affects margins or pricing.
- How seasonal working-capital requirements affect operating cash flow and cash balances in subsequent quarters.
- Whether deferred-compensation investment gains and related expenses continue to materially affect reported operating and non-operating results.
- How lease obligations, open purchase orders and the seasonal credit facility affect liquidity; the filing reports no current borrowings.
- Whether foreign-exchange, commodity, supply-chain, customer-credit or weather risks materially change results; management cautions that Q1 is not representative of the full fiscal year.