Johnson Outdoors Inc. — Form 10-Q Summary
Business context and reporting period. The company manufactures and markets outdoor recreation products across Fishing, Camping, Watercraft Recreation and Diving. This unaudited report covers the third quarter and first nine months of fiscal 2019, ended June 28, 2019; comparisons are with periods ended June 29, 2018. Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Net sales | $176.3 | $170.8 | $458.4 | $453.1 |
| Gross profit | $79.7 | $79.3 | $203.2 | $202.3 |
| Gross margin | 45.2% | 46.5% | 44.3% | 44.7% |
| Operating profit | $28.0 | $32.0 | $61.9 | $65.0 |
| Net income | $22.1 | $23.8 | $47.5 | $45.6 |
| Diluted EPS | $2.19 | $2.37 | $4.72 | $4.54 |
Third-quarter operating profit margin was approximately 15.9%, versus 18.7% a year earlier. Nine-month cash from operating activities was $15.6 million, down from $37.0 million, principally reflecting increases in receivables and inventory. Capital expenditures were $12.0 million, compared with $14.7 million.
At June 28, cash and cash equivalents were $149.0 million, current assets $333.2 million and current liabilities $97.0 million. The company had no debt outstanding. Its unsecured revolving credit facility provides up to $75 million, with a lender-approved accordion feature of up to an additional $50 million; it expires in November 2022.
Material changes and operating trends
- Third-quarter sales rose 3%, led by Fishing (+5%) and Camping (+6%). Watercraft Recreation fell 8% and Diving fell 3%.
- Nine-month sales increased 1%. Fishing rose 3% and Camping 1%; Watercraft Recreation declined 7%, largely due to a weaker kayak market and lost distribution associated with retail consolidation. Diving declined 3%, primarily from unfavorable currency translation.
- Quarterly operating profit fell $3.9 million. Management cited China-related tariffs, higher marketing spending and bad-debt expense. Tariffs added about $1.9 million to cost of sales in the quarter and about $4.0 million year to date.
- Nine-month net income increased despite lower operating profit, helped in part by a lower effective tax rate: 24.9% versus 34.4%. The prior-year period included a $6.8 million provisional tax expense related to the 2017 Tax Act.
- Inventory was $95.8 million, up $18.5 million year over year; management cited purchases brought forward ahead of tariffs and long lead times for certain electronic components. Receivables were $82.9 million, up $2.0 million year over year.
Outlook, risks and notable items
- Management estimated Section 301 tariffs on China-sourced goods would reduce fiscal 2019 net income by approximately $5 million to $7 million. The filing provides no broader quantified sales or earnings guidance.
- The business is seasonal, with the third quarter within its primary warm-weather selling season; year-to-date results are not necessarily indicative of full-year results.
- Risks identified include consumer demand and economic conditions, trade policy and tariffs, weather, foreign exchange, commodity and raw-material costs, supply-chain disruption, customer credit, competition, execution of strategic initiatives and potential impairment of goodwill or long-lived assets. About 13% of nine-month revenue was denominated in currencies other than the U.S. dollar; no foreign-exchange forward contracts were held at quarter-end.
- Other income in the prior-year nine-month period included a $2.3 million gain from liquidating a Japanese subsidiary and approximately $1.2 million from selling Camping trademarks. These items make year-over-year comparisons less recurring.
- Open purchase orders totaled $64.4 million, all due within one year; operating lease obligations totaled $46.4 million. Management said pending litigation was not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether tariff costs reach the projected $5 million to $7 million fiscal-year net-income impact, and whether pricing or sourcing actions offset them.
- Whether operating cash flow recovers as seasonal receivables are collected and elevated inventory is sold.
- Whether Watercraft Recreation weakness and retail consolidation persist, and whether Fishing growth continues.
- Trends in bad-debt expense, customer collections and the company’s concentration in a major customer (about $24.3 million of Q3 sales and $78.0 million year to date).
- Seasonal full-year performance; this filing does not give a comprehensive full-year earnings forecast.