Johnson Outdoors Inc. — Q1 Fiscal 2023 Form 10-Q
Business context and period: Global outdoor-recreation products company spanning Fishing, Camping, Watercraft Recreation and Diving. The quarter covered the three months ended December 30, 2022; comparative period ended December 31, 2021. Amounts below are in millions of dollars unless noted. The company cautions that its seasonal first-quarter results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $178.3 | $153.5 |
| Gross profit / margin | $62.8 / 35.2% | $60.6 / 39.5% |
| Operating profit / margin | $5.5 / 3.1% | $13.8 / 9.0% |
| Net income | $5.9 | $10.9 |
| Diluted EPS | $0.57 | $1.07 |
| Operating cash flow | $(17.6) | $(62.8) |
| Capital expenditures | $6.6 | $6.2 |
Sales rose 16%, but operating profit fell 60% and net income fell 46%. Gross margin contracted 4.3 percentage points as higher-cost inventory and supply-chain-related costs outweighed higher volume and pricing; operating expenses also increased to $57.3 million from $46.9 million. Interest income rose to $0.8 million from $0.1 million, while other income was $1.9 million versus $0.8 million. The effective tax rate increased to 28.0% from 25.6%.
Segment sales and operating profit: Fishing sales increased 27% to $138.0 million, while profit eased to $15.6 million from $16.3 million. Camping sales fell 18% to $11.6 million and profit declined to $0.8 million from $2.8 million. Watercraft Recreation sales fell 34% to $9.7 million and shifted to a $0.4 million loss from $1.5 million profit. Diving sales increased 16% to $19.1 million, but profit declined to $0.01 million from $0.45 million.
Liquidity and capital: Cash and equivalents were $103.4 million at quarter-end, down from $167.5 million a year earlier and $129.8 million at September 30, 2022. Operating cash use was $17.6 million; the prior-year quarter used $62.8 million, mainly reflecting heavier inventory purchases then. Inventory was $251.5 million, up $34.1 million year over year, and receivables were $120.6 million, up $33.9 million. The company had no debt outstanding. Its unsecured revolving facility allows up to $75 million, with a potential $50 million accordion subject to lender approval and facility conditions, and expires July 15, 2026. Operating lease liabilities totaled $57.0 million. Dividends paid were $3.1 million.
Changes, outlook and risks
- Fishing benefited from improved component availability, greater ability to fill orders and price increases. Camping and Watercraft Recreation experienced lower demand following pandemic-era elevated demand; Diving benefited from rebounding destination travel.
- Management reported some improvement in component availability, particularly in Fishing, and some relief in freight and material costs. It expects supply-chain and inflationary pricing conditions to continue during FY2023 and is evaluating options, including customer price increases, to support margins. No specific earnings or sales guidance was provided.
- Risks highlighted include uncertain consumer demand and discretionary spending, supply-chain and component availability, inflation and raw-material costs, foreign exchange, weather, and customer payment and supplier risks. About 12% of quarterly revenue was denominated in foreign currencies; no foreign-exchange forward contracts were held.
- Two customers together accounted for approximately $50.1 million of sales in the quarter, compared with one customer accounting for $27.3 million in the prior-year quarter. Legal proceedings are described as ordinary-course matters; management does not expect pending litigation to materially harm the company’s financial condition or results.
- Management stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting or to the risk factors disclosed in the latest Form 10-K.
Important facts for investors to verify
- Whether elevated inventory can be converted to sales without further margin pressure, write-downs or increased discounting.
- Whether Fishing’s improved supply and order fulfillment can offset continued weakness in Camping and Watercraft Recreation.
- How quickly pricing actions and easing input costs may affect gross margin, given the quarter’s decline to 35.2%.
- Customer concentration, collection of the higher receivables balance, and the cash impact of working-capital needs.
- Revolver availability and covenant compliance if cash needs rise; the filing reports no debt outstanding but does not quantify unused capacity after any other facility conditions.