Johnson Outdoors Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2017, ended March 31, 2017; comparisons are to the three and six months ended April 1, 2016. Amounts below are in millions of dollars unless stated otherwise. The company makes seasonal outdoor recreation products across Fishing, Camping, Watercraft Recreation and Diving.
Key financial results
| Metric | Q2 FY2017 | Q2 FY2016 | Six months FY2017 | Six months FY2016 |
|---|---|---|---|---|
| Net sales | $149.8 | $134.2 | $243.5 | $219.5 |
| Gross profit / margin | $64.9 / 43.3% | $55.0 / 41.0% | $101.5 / 41.7% | $88.3 / 40.2% |
| Operating profit / margin | $20.5 / 13.7% | $15.1 / 11.3% | $20.9 / 8.6% | $14.2 / 6.5% |
| Net income | $14.0 | $9.3 | $18.0 | $8.8 |
| Diluted EPS | $1.39 | $0.93 | $1.80 | $0.88 |
| Operating cash flow | Not presented quarterly | $(46.2) | $(35.5) |
- Q2 sales rose 12% and operating profit increased $5.3 million year over year. First-half sales rose 11% and operating profit increased $6.7 million.
- Gross margin improved in both periods, which management attributed primarily to product mix, pricing, lower inventory obsolescence write-offs and, for Q2, improved efficiencies. Operating expenses increased to $44.5 million in Q2 and $80.5 million year to date, reflecting higher volume-related costs, compensation and R&D spending.
- Cash and equivalents were $29.4 million at March 31, 2017; total debt was $5.0 million, all under the revolving facility. Cash less debt was $24.4 million. The company reported a 2% debt-to-total-capitalization ratio.
- Current assets were $230.6 million and current liabilities $86.8 million. Accounts receivable was $122.4 million and inventory $74.9 million. The filing attributes the receivables increase partly to seasonal sales and Fishing growth.
Segments and material changes
- Fishing: Q2 sales increased 16% to $105.4 million; operating profit rose to $22.8 million. Growth reflected Minn Kota trolling motor launches and Humminbird HELIX products. First-half sales increased 15% to $172.5 million.
- Camping: Q2 sales declined 2% to $11.4 million; first-half sales declined 5% to $17.1 million. Management cited consumer tent distribution challenges, retailer restructuring and elevated pre-season inventory; weather also weighed on the first half.
- Watercraft Recreation: Q2 sales increased 2% to $15.1 million, supported by the Old Town Predator PDL kayak. First-half sales were up 1%.
- Diving: Q2 sales increased 6% to $18.0 million and first-half sales increased 5% to $32.9 million, partly on HYDROS PRO buoyancy compensator sales. The segment reported a first-half operating loss of $0.8 million, improved from $2.6 million.
- The segment names changed in fiscal 2017, but segment composition did not. No customer accounted for more than 10% of first-half sales, compared with one customer representing approximately $22.5 million of prior-year first-half sales.
Liquidity, outlook and risks
- Operating cash use increased to $46.2 million from $35.5 million, principally because of working-capital movements, including an $81.2 million use of cash from accounts receivable. Investing cash use was $5.2 million, mainly capital expenditures. Financing used $4.8 million, including $7.1 million to repay term loans, dividends and share repurchases.
- The term loans were repaid in October 2016; early repayment incurred a 3% penalty and deferred financing cost write-off. The company had $5.0 million outstanding on a revolving credit facility with a $90 million maximum, subject to a $60 million seasonal limit from June 30 through October 31. The facility expires September 16, 2018 and includes financial covenants and restrictions on dividends and repurchases.
- Six-month effective tax rate was 17.3%, versus 37.9% a year earlier, primarily due to an approximately $4.2 million foreign tax credit benefit related to repatriation of approximately $22 million. Q2 tax rate was 36.1%. Other income was $1.5 million in Q2, including foreign-exchange gains and deferred-compensation investment gains; these items lifted reported pretax income.
- No numerical full-year guidance was provided. Management cautioned that seasonal interim results are not necessarily indicative of full-year results. The second quarter is within the primary selling season; results remain exposed to consumer demand, weather, currency, raw-material costs, supply-chain disruptions, customer collections, execution and covenant compliance.
- Contractual obligations totaled $104.5 million, including $74.1 million in open purchase orders and $25.1 million in operating leases. The company expected $0.4 million of pension contributions for the remainder of fiscal 2017. Management said pending litigation was not expected to have a material adverse effect; no material risk-factor changes were reported.
Important facts for investors to verify
- Whether the unusually large seasonal receivables balance converts to cash as expected, given negative operating cash flow and the company’s working-capital needs.
- How much of earnings growth reflects durable operating improvement versus the foreign-tax-credit benefit and market-related foreign-exchange and investment gains.
- Whether Fishing momentum persists and Camping’s distribution, retailer inventory and weather pressures improve.
- Revolver availability, covenant headroom and the effect of the September 2018 facility expiry, especially ahead of seasonal borrowing needs.
- Potential future impairment exposure: management noted goodwill and intangible valuations are sensitive to business performance and that missed short-term revenue or gross-margin goals could prompt an impairment test.