Business context and reporting period
Johnson Outdoors Inc. (NASDAQ: JOUT) designs and sells seasonal outdoor recreation products, including fishing, camping, watercraft recreation and diving products. This unaudited Form 10-Q covers the fiscal second quarter and first six months ended March 29, 2019; comparisons are with the periods ended March 30, 2018. Amounts below are in millions of dollars unless noted. The company cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q2 FY2019 | Q2 FY2018 | Six months FY2019 | Six months FY2018 |
|---|---|---|---|---|
| Net sales | $177.7 | $165.8 | $282.1 | $282.4 |
| Gross profit | $79.1 | $74.2 | $123.4 | $123.0 |
| Gross margin | 44.5% | 44.8% | 43.8% | 43.6% |
| Operating profit | $27.8 | $26.0 | $33.8 | $33.0 |
| Net income | $21.9 | $21.6 | $25.4 | $21.9 |
| Diluted EPS | $2.18 | $2.15 | $2.53 | $2.18 |
| Operating cash flow | — | — | $(69.9) | $(47.4) |
Q2 sales rose 7% and operating profit rose $1.8 million year over year, principally on higher Fishing sales. First-half sales were essentially flat; operating profit increased modestly. First-half net income benefited from a lower effective tax rate: 25.9% versus 42.1%, primarily because the prior-year period included a $6.8 million provisional Tax Act expense. The Q2 effective tax rates were 27.0% and 26.6%, respectively.
At March 29, 2019, cash and cash equivalents were $68.2 million, total current assets $316.3 million and current liabilities $102.6 million. The company had no debt outstanding and reported a 0% debt-to-capitalization ratio. Its unsecured revolving facility permits borrowings up to $75 million, with a potential $50 million accordion subject to lender approval and agreement conditions. Cash declined $53.7 million during the first half. Operating cash use was driven largely by seasonal increases in receivables and inventory; inventory was $116.2 million, up from $94.6 million a year earlier. Capital expenditures were $8.2 million.
Material changes and segment performance
- Fishing: Q2 sales increased 10% to $138.2 million, driven by new technologies; first-half sales rose 1% to $217.0 million. Q2 operating profit was $34.6 million, up from $30.8 million.
- Camping: Q2 sales declined 5% to $9.5 million; first-half sales fell 4% to $15.3 million. First-half comparisons included the prior-year Silva brand divestiture.
- Watercraft Recreation: Q2 sales fell 9% to $9.9 million and first-half sales fell 7% to $14.2 million, reflecting a weaker kayak market and lost distribution tied to retail consolidations.
- Diving: Q2 sales increased 4% to $20.1 million, supported by volume and new products; first-half sales declined 3% to $35.6 million, largely due to foreign currency effects.
Q2 gross margin eased 0.3 percentage points, mainly from tariffs. First-half gross margin improved 0.2 points as Fishing mix and efficiencies offset tariff costs. Operating expenses rose in Q2, partly because market-related deferred-compensation plan asset gains were accompanied by higher compensation expense.
Outlook, commentary and risks
The company revised its estimate of the impact of Section 301 tariffs on fiscal 2019 net income to approximately $5–$7 million, from the prior estimate of $6–$9 million, after receiving a one-year tariff exclusion for a component used in U.S.-assembled products. It expects reimbursement of tariffs previously paid on that component; other components remain subject to tariffs, and mitigation efforts continue. No specific sales or earnings forecast for the full year is provided. Management notes that additional fiscal 2019 expenditures, if any, are expected to be funded by working capital.
Other period-specific items include prior-year income from a $2.4 million currency-translation gain related to liquidation of a Japanese subsidiary and an approximately $1.2 million gain on sale of Camping trademarks. These items, along with deferred-compensation investment gains and related compensation costs, affect year-over-year comparisons. Foreign currency, tariffs and raw-material costs, seasonal working-capital needs, customer credit, supply-chain disruptions, consumer demand and adverse weather are among the stated risks. Approximately 13% of first-half revenue was denominated in currencies other than the U.S. dollar; no foreign-exchange forward contracts were outstanding. Management says pending litigation is not expected to have a material adverse effect. The company reported effective disclosure controls and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether Fishing growth and new-product performance continue, and whether weakness in Watercraft Recreation and Camping persists.
- Actual fiscal 2019 tariff costs, reimbursement timing and the effect of remaining tariffs on margins and net income.
- Seasonal conversion of receivables and inventory into operating cash; first-half cash use was $69.9 million.
- Liquidity and compliance with the revolving facility’s leverage and interest-coverage covenants if seasonal borrowing is needed.
- Whether foreign-exchange movements, raw-material prices, customer or supplier conditions, and weather materially affect results.
- Full-year performance: management emphasizes seasonality, and the filing gives no explicit full-year revenue or earnings guidance.