Johnson Outdoors Inc. — Q3 FY2020 Form 10-Q
Reporting period: Three and nine months ended June 26, 2020; comparative periods ended June 28, 2019. Amounts below are in millions of dollars unless stated otherwise. Johnson Outdoors makes branded fishing, camping, watercraft recreation and diving products.
Financial performance
| Metric | Q3 FY2020 | Q3 FY2019 | Nine months FY2020 | Nine months FY2019 |
|---|---|---|---|---|
| Net sales | $138.4 | $176.3 | $429.5 | $458.4 |
| Gross profit / margin | $62.6 / 45.2% | $79.7 / 45.2% | $191.3 / 44.5% | $203.2 / 44.3% |
| Operating profit / margin | $12.9 / 9.3% | $28.0 / 15.9% | $51.5 / 12.0% | $61.9 / 13.5% |
| Net income | $12.9 | $22.1 | $39.7 | $47.5 |
| Diluted EPS | $1.27 | $2.19 | $3.93 | $4.72 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $25.6 | $15.6 |
Q3 sales fell 21% and operating profit declined $15.1 million year over year, principally reflecting COVID-19 disruption and lower volumes. Nine-month sales declined 6% and operating profit declined 17%. Gross margin held flat in Q3 and edged up year to date, as better mix and pricing offset lower operating efficiencies.
- Segment trends, Q3: Fishing sales fell 20% to $102.7 million; Camping fell 34% to $9.7 million; Diving fell 47% to $10.7 million. Watercraft Recreation sales rose 17% to $15.3 million. Diving reported a $2.6 million operating loss, versus $1.4 million profit a year earlier.
- Cash and liquidity: Cash and equivalents were $181.4 million at quarter-end, up from $149.0 million a year earlier. Current assets were $365.9 million and current liabilities $98.8 million. The company had no debt and reported a 0% debt-to-capitalization ratio. Its unsecured revolver provides up to $75 million, expiring November 2022, subject to covenants.
- Cash flows: Nine-month investing activities used $11.3 million, including $11.4 million of capital expenditures; financing activities used $5.4 million, mainly dividends and treasury stock purchases. Cash increased $9.1 million during the period. Operating cash flow improved year over year, primarily from working-capital changes despite lower net income.
- Other balance-sheet items: Operating lease liabilities totaled $38.4 million following adoption of lease accounting; the filing says adoption added approximately $41 million of lease liabilities and corresponding right-of-use assets. No debt was outstanding.
Outlook, risks and notable items
- COVID-19 temporarily closed manufacturing and warehouse locations at the start of the primary selling season. Operations had largely resumed by June 26, and the company saw stronger late-quarter demand in Fishing, Camping and Watercraft Recreation. Management cautioned that the pandemic’s future effects, including possible supply-chain and logistics disruptions, remained uncertain and could not be reasonably estimated.
- The company provided no specific sales or earnings guidance in the filing. It said the warm-weather recreation season appeared to have shifted and that late-quarter demand gains might not continue.
- Management estimated a $3–$4 million negative fiscal 2020 gross-profit impact from China-related Section 301 tariffs, net of mitigation, versus approximately $3 million in fiscal 2019.
- Q3 other income included approximately $2.8 million of investment gains and earnings on non-qualified deferred-compensation plan assets. The related higher deferred-compensation expense was recorded in operating expenses, substantially offsetting the gain’s earnings effect.
- The effective tax rate declined to 17.3% in Q3 and 24.4% year to date, primarily due to lower reserves for unrecognized tax benefits following statute-of-limitations expirations.
- Contractual obligations included $42.9 million of undiscounted operating lease payments and $70.3 million of open purchase orders. Management did not expect pending litigation to materially adversely affect the company.
Important facts for investors to verify
- Whether the late-quarter demand rebound persisted, and how COVID-19 affected subsequent selling seasons, operations and supply chains.
- Whether segment profitability recovered, particularly in Diving and Camping, and whether lower sales volumes continue to pressure operating margins.
- Whether management’s estimated $3–$4 million fiscal 2020 tariff impact and planned cost mitigations proved accurate.
- The quality and sustainability of operating cash flow, including seasonal receivables and working-capital movements, and the company’s capacity to meet its purchase-order and lease commitments.
- Exposure to a significant customer: one customer represented approximately $20.4 million of Q3 sales and $70.3 million of nine-month sales across Fishing, Camping and Watercraft Recreation.