Johnson Outdoors Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 27, 2019, comprising 52 weeks. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Business context
Johnson Outdoors designs, manufactures and markets outdoor recreation products through four segments: Fishing (Minn Kota, Humminbird and Cannon), Camping (Eureka! and Jetboil), Watercraft Recreation (Old Town and Ocean Kayak), and Diving (SCUBAPRO). Sales and profit are seasonal, typically strongest in the second and third fiscal quarters.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $562.4 million | $544.3 million |
| Gross profit / margin | $249.8 million / 44.4% | $241.9 million / 44.4% |
| Operating profit / margin | $63.8 million / 11.3% | $63.0 million / 11.6% |
| Income before taxes | $66.5 million | $68.1 million |
| Income tax expense / effective rate | $15.1 million / 22.7% | $27.4 million / 40.3% |
| Net income / diluted EPS | $51.4 million / $5.11 | $40.7 million / $4.05 |
| Cash from operating activities | $45.8 million | $63.4 million |
| Cash and cash equivalents at year-end | $172.4 million | $121.9 million |
| Current assets / current liabilities | $322.5 million / $87.9 million | $285.7 million / $92.8 million |
| Working capital / current ratio | $234.7 million / 3.7:1 | $192.9 million / 3.1:1 |
| Total debt at year-end | None | None |
Capital expenditures were $16.8 million, and dividends paid were $5.6 million. The company had a $75 million unsecured revolving credit facility, expiring November 2022, with no borrowings outstanding at year-end.
Material changes versus prior period
- Sales rose 3.3%, primarily on Fishing growth. Fishing sales increased 5% to $412.1 million; Camping rose 7% to $40.4 million.
- Watercraft Recreation sales fell 8% to $33.5 million, reflecting a weaker paddling market and lost distribution following retail consolidation. The segment recorded a $2.8 million operating loss, versus a $1.6 million loss in FY2018.
- Diving sales declined 3% to $76.3 million, as U.S. growth was more than offset by weakness in Asia and foreign currency effects.
- Operating profit was nearly flat despite higher sales. Gross margin remained 44.4%; additional tariffs and higher operating expenses were offset in part by favorable product mix and pricing.
- Net income increased 26%, although pretax income declined. FY2018 included $8.5 million of provisional tax expense related to the U.S. Tax Cuts and Jobs Act, contributing to the lower FY2019 effective tax rate.
- Operating cash flow declined $17.5 million, mainly due to working-capital movements. The filing reports higher receivables, inventory and other current assets as cash uses.
Fourth-quarter results
FY2019 fourth-quarter sales were $104.0 million, versus $91.1 million in FY2018. Operating profit was $1.9 million, compared with an operating loss of $2.0 million; net income was $3.9 million, compared with a net loss of $5.0 million.
Outlook, risks and unusual items
- Tariffs: U.S. tariffs on Chinese goods and components reduced FY2019 operating profit by approximately $3 million. Management estimated a $5 million to $6 million adverse operating-profit impact in FY2020, after mitigation efforts and exclusions then in effect.
- Liquidity outlook: Management believed cash, cash equivalents and short-term investments would be sufficient for working capital, capital expenditures and other liquidity needs over the next 12 months.
- Lease accounting: The company expected adoption of the new lease standard in FY2020 to increase reported assets and liabilities by approximately $40 million to $45 million, without a significant effect on operating results or cash flows.
- Key risks: Discretionary consumer demand, competition and retail consolidation, seasonality and weather, tariffs and foreign exchange, raw-material and supply-chain constraints, bad debts, product safety and recalls, cybersecurity, and dependence on credit facilities. Two competitors announced plans to enter electric trolling motors during 2019.
- Concentration and commitments: One combined customer represented approximately $93.1 million of FY2019 consolidated revenue. Contractual obligations totaled $127.7 million, including $47.8 million of operating lease obligations and $79.5 million of open purchase orders.
- Other items: The company reported no material litigation outcome expected to adversely affect its financial condition, results, liquidity or cash flows, and no goodwill impairment in FY2019. A fourth-quarter Watercraft long-lived-asset review resulted in no impairment charge.
Most important facts for investors to verify
- Whether FY2020 tariff costs fell within management’s estimated $5 million to $6 million impact and how much mitigation was achieved.
- Whether operating cash flow recovered after its FY2019 decline, and whether receivables, inventory and bad-debt expense remained controlled.
- Whether Watercraft Recreation improved from its $2.8 million operating loss amid weaker market conditions and distribution changes.
- How revenue concentration with the large customer and broader retail consolidation affect sales, collections and pricing.
- The actual balance-sheet effect of lease-standard adoption and any changes to liquidity, capital commitments or dividend capacity.