Johnson Outdoors Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended January 1, 2021. Comparisons are with the three months ended December 27, 2019. Dollar amounts are in thousands unless otherwise stated. The company makes seasonal outdoor recreation products, including fishing, camping, watercraft recreation and diving products.
Financial performance
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $165,667 | $128,054 | +29% |
| Gross profit / margin | $75,030 / 45.3% | $53,612 / 41.9% | Margin +3.4 points |
| Operating profit / margin | $23,557 / 14.2% | $6,801 / 5.3% | Profit +$16,756 |
| Net income | $19,847 | $6,430 | +209% |
| Diluted EPS | $1.96 | $0.64 | +$1.32 |
| Cash used in operating activities | $11,238 | $29,088 | Use decreased $17,850 |
Sales growth and improved profitability reflected higher demand and volume in Fishing, Camping and Watercraft Recreation, as well as improved product mix and efficiencies. Gross margin improvement more than offset $700 of higher tariff costs. Diving sales declined, primarily due to pandemic-related travel and tourism weakness.
- Segment sales: Fishing $126,999 (+28%); Camping $12,194 (+62%); Watercraft Recreation $12,443 (+159%); Diving $14,093 (-14%).
- Other income: $2,404 versus $1,168, including gains on deferred-compensation plan assets. The related deferred-compensation expense was included in operating expenses and substantially offset the asset gains.
- Taxes: Effective tax rate was 23.7%, down from 25.1%, primarily due to a current-period tax benefit from an intra-entity transfer of a non-inventory asset.
Liquidity, cash flow and debt
Cash and cash equivalents were $195,923 at quarter-end, down $16,514 from October 2, 2020 but up from $138,257 a year earlier. Operating activities used $11,238 of cash, reflecting seasonal working-capital needs: receivables increased $29,693 and inventories increased $16,627 during the quarter. Capital expenditures were $4,390; dividends paid were $2,094 and treasury-stock purchases were $495.
The company reported no debt outstanding. Its unsecured revolving credit facility provides up to $75 million, with a conditional $50 million accordion feature, and expires November 15, 2022. Quarter-end current assets were $417,256 and current liabilities were $113,288. Lease liabilities totaled $39,671; these are operating lease obligations, not reported debt.
Material changes, outlook and risks
- Management attributed increased demand in warm-weather recreation categories to pandemic-related shifts toward outdoor activities, as well as customer replenishment of depleted inventory ahead of the 2021 season. Management cautioned that first-quarter results are not necessarily indicative of full-year results because of seasonality and uncertainty around COVID-19.
- Supply availability is a key execution risk: elevated orders may strain access to components and raw materials, cause fulfillment delays or raise purchasing and expediting costs. Management was evaluating alternative sources for critical components.
- The company estimated that China-related Section 301 tariffs, net of mitigation, would reduce FY2021 gross profit by approximately $7 million, versus approximately $3.5 million in FY2020.
- Management began actions to terminate both U.S. defined-benefit pension plans. When termination and payouts occur, they are estimated to reduce net income by approximately $4 million to $5 million; timing is not specified. The company anticipated $128 of pension contributions for the remainder of FY2021.
- Open purchase orders totaled $134,066, all due within one year; these are contractual commitments, not recognized debt. Operating lease commitments totaled $46,248 undiscounted.
- Other disclosed risks include pandemic and economic uncertainty, customer credit and concentration, tariffs and commodity costs, foreign-exchange exposure, supply-chain disruption, seasonality and volatile share price. Management stated pending litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether elevated outdoor-recreation demand and customer restocking persist into subsequent quarters, rather than representing timing shifts or unusually strong comparisons.
- Whether the company can source components and fulfill orders while managing inventory, receivables and seasonal cash use.
- Actual tariff expense versus the $7 million FY2021 estimate, and the extent of mitigation or pricing actions.
- Timing and final financial impact of pension-plan termination and participant payouts.
- How much of reported earnings growth reflects operating performance versus deferred-compensation investment gains and the one-time tax benefit.