JOHNSON OUTDOORS INC quarterly report, Q1 FY2024

Johnson Outdoors Inc. — Q1 Fiscal 2024 Form 10-Q

Reporting period: Three months ended December 29, 2023, compared with the three months ended December 30, 2022. Amounts are in thousands of dollars, except per-share data. The company manufactures and markets outdoor recreation products, including fishing, camping, watercraft recreation and diving products. Results for this seasonally quieter quarter are not necessarily indicative of full-year performance.

Financial performance

MetricQ1 FY2024Q1 FY2023Change
Net sales$138.6 million$178.3 millionDown 22%
Gross profit / margin$52.9 million / 38.1%$62.8 million / 35.2%Margin up 2.9 percentage points
Operating expenses$52.8 million$57.3 millionDown $4.5 million
Operating profit$46,000$5.5 millionDown $5.4 million
Net income$4.0 million$5.9 millionDown 33%
Diluted EPS$0.38$0.57Down $0.19
Operating cash flow-$33.7 million-$17.6 millionCash use increased

Gross margin improved mainly because of lower material and inbound freight costs. Lower sales volume more than offset those savings and reduced operating profit to near break-even. The effective tax rate rose to 33.0% from 28.0%, primarily due to the geographic mix of profits and losses.

Segments and material changes

  • Fishing: Sales fell 20% to $110.5 million; operating profit declined to $11.5 million from $15.6 million. Management cited softer demand and customers managing inventory more tightly after prior-year replenishment.
  • Camping: Sales declined 49% to $5.9 million; operating profit was $358,000 versus $753,000. The comparison also reflects the prior-year sale of the Military and Commercial Tent product lines.
  • Watercraft Recreation: Sales fell 50% to $4.8 million, and the segment recorded a $2.1 million operating loss versus a $415,000 loss.
  • Diving: Sales declined 8% to $17.5 million, with foreign exchange reducing reported sales by approximately 6%; the segment recorded a $578,000 loss versus $13,000 of profit.

Management attributed the broad sales decline to a more challenging market and softer consumer demand, with Diving demand generally modestly lower after excluding currency effects. The company also completed its planned exit from the Eureka! brand; remaining fiscal 2024 wind-down costs were not expected to be material.

Cash, liquidity and debt

  • Cash and cash equivalents were $80.5 million; short-term investments were $29.1 million. Together they totaled $109.6 million at quarter-end, versus $103.4 million a year earlier.
  • Operating cash use was $33.7 million, mainly reflecting seasonal working-capital needs, including a $39.5 million increase in accounts receivable and higher inventory purchases. Cash and cash equivalents fell $31.4 million during the quarter.
  • Inventory was $267.3 million, up $15.8 million year over year; management highlighted elevated inventory, primarily in Fishing. Accounts receivable was $83.0 million, down $37.5 million year over year.
  • 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, and expires July 15, 2026. The facility includes leverage and interest-coverage covenants.
  • Operating lease liabilities totaled $53.5 million. Capital expenditures were $5.0 million; management said additional fiscal 2024 capital expenditures are expected to be funded by working capital.

Unusual items, outlook and risks

Other income was $4.7 million, including an approximately $1.9 million gain from the sale of a Fishing-segment building and gains on assets associated with the non-qualified deferred compensation plan. These items supported reported pre-tax income despite minimal operating profit. No numeric full-year guidance was provided. Management cautioned that consumer demand, seasonality and end-customer purchasing remain uncertain, and that first-quarter results may not indicate full-year results.

Risks discussed include changes in consumer spending and economic conditions, foreign exchange, interest rates and commodity costs, supply-chain disruptions, customer payment ability, competition, weather and climate-related impacts, and execution of the company’s strategic plans. Management said there were no material changes to the risk factors in its latest Form 10-K. It did not believe pending legal matters would materially adversely affect the company. Disclosure controls were assessed as effective at a reasonable-assurance level.

Investor verification priorities

  1. Track whether sales and consumer demand stabilize, particularly in Fishing, and whether customer inventory management continues to suppress orders.
  2. Monitor elevated inventory and operating cash use, including the timing of seasonal receivable collections and inventory conversion.
  3. Assess the sustainability of gross-margin improvement and the effect of lower material and freight costs as sales volumes change.
  4. Separate recurring operating performance from the building-sale gain and deferred-compensation-related income when evaluating earnings.
  5. Review the company’s fiscal-year outlook in subsequent filings; this filing provides no quantified guidance and emphasizes seasonal uncertainty.