Johnson Outdoors Inc. — Q2 FY2023 Form 10-Q
Reporting period: Fiscal quarter and six months ended March 31, 2023; comparisons are to the quarter and six months ended April 1, 2022. Amounts below are in millions unless noted. The business is seasonal, and management cautions that interim results are not necessarily indicative of full-year results.
Financial results
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Net sales | $202.1 | $189.6 | $380.5 | $343.1 |
| Gross profit | $75.3 | $68.6 | $138.1 | $129.2 |
| Gross margin | 37.3% | 36.2% | 36.3% | 37.7% |
| Operating profit | $11.4 | $15.4 | $16.9 | $29.2 |
| Net income | $14.9 | $9.9 | $20.7 | $20.8 |
| Diluted EPS | $1.45 | $0.97 | $2.02 | $2.04 |
- Q2 sales rose 7%; six-month sales rose 11%. Q2 operating profit fell 26%, while six-month operating profit fell 42%.
- Operating margin was approximately 5.6% in Q2 versus 8.1% a year earlier, and 4.4% for the six months versus 8.5%.
- Q2 net income included a $6.6 million gain on the sale of Military and Commercial Tent product lines. Other income also reflected gains on deferred-compensation plan assets; related expense is recorded in operating expenses. These items helped lift quarterly net income despite lower operating profit.
- Cash used in operations was $18.1 million for the six months, versus $104.6 million used in the prior-year period. Investing activities provided $1.0 million, including $15.0 million in sale proceeds; capital expenditures were $14.0 million. Financing activities used $6.7 million, mainly dividends and treasury-stock purchases.
- Cash and cash equivalents were $107.6 million at March 31, 2023, down from $129.8 million at September 30, 2022. Current assets were $496.3 million and current liabilities $115.6 million. Inventory was $236.7 million and accounts receivable $144.6 million.
- No debt was outstanding. The company had an unsecured $75 million revolving credit facility, with a potential $50 million increase subject to lender approval; it expires July 15, 2026. The facility includes leverage and interest-coverage covenants.
Business changes and management commentary
- Fishing sales increased 20% in Q2 and 23% year to date, mainly on improved component availability and shipments, plus price increases. Management said price increases accounted for about 30% of the year-over-year sales increase.
- Camping sales declined 28% in Q2 and 24% year to date, and Watercraft Recreation sales declined 44% and 40%, respectively, as pandemic-era demand receded. Diving sales grew 12% in Q2 and 13% year to date as tourism recovered, partly offset by unfavorable currency translation.
- Q2 gross margin improved year over year on volume and pricing. Six-month gross margin declined because higher-cost inventory, particularly in the first fiscal quarter, outweighed pricing and volume benefits. The company reported some improvement in freight and material costs late in Q1 and better component availability during the first half.
- Operating expenses rose $10.8 million in Q2 and $21.2 million year to date, including higher volume-related costs, warranty, compensation and professional-services costs.
- On March 17, 2023, the company sold its Military and Commercial Tent product lines for $15.0 million, generating an approximately $6.6 million gain. The sale did not include the Eureka! brand or consumer/recreational Camping business. Proceeds and net proceeds remain subject to customary adjustments and indemnity obligations.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided in the filing. Management highlights seasonality, uncertain consumer demand, inflation, supply-chain and logistics disruptions, raw-material and component availability and costs, foreign-exchange movements, and changing interest rates as factors that may affect results.
- The company notes that pandemic-driven demand has substantially declined in certain segments. It also identifies risks involving discretionary spending, competition, suppliers and customers, working-capital management, strategic execution, litigation, and possible goodwill or long-lived-asset impairments.
- Management does not expect pending legal matters to have a material adverse effect. The filing reports no material changes to the risk factors in the 2022 Form 10-K and no significant changes to market-risk exposure. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Investor verification points
- Assess how much reported Q2 earnings depended on the tent-business sale gain and deferred-compensation investment gains, and distinguish those items from recurring operating performance.
- Track whether Fishing growth and improved supply availability continue, and whether Camping and Watercraft Recreation demand stabilizes as pandemic-era demand normalizes.
- Monitor gross margins, operating expenses, and the remaining impact of higher-cost inventory and inflation.
- Review operating cash flow and working-capital trends, particularly receivables and inventory, and confirm the final proceeds and any purchase-price adjustments or indemnity exposure from the asset sale.
- Review the 2022 Form 10-K and credit-agreement terms for fuller detail on risks, covenants, contractual commitments, and the company’s seasonal cash requirements.