Johnson Outdoors Inc. — Q2 FY2022 Form 10-Q
Business and period: Johnson Outdoors manufactures branded outdoor recreation products for fishing, camping, watercraft recreation and diving. This filing covers the quarter and six months ended April 1, 2022; comparisons are with periods ended April 2, 2021. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $189.6 | $206.2 | $343.1 | $371.8 |
| Gross profit margin | 36.2% | 45.2% | 37.7% | 45.3% |
| Operating profit | $15.4 | $36.0 | $29.2 | $59.6 |
| Net income | $9.9 | $27.8 | $20.8 | $47.7 |
| Diluted EPS, Class A and B | $0.97 | $2.74 | $2.04 | $4.70 |
Q2 operating margin was approximately 8.1%, versus 17.5% a year earlier; net margin was approximately 5.2%, versus 13.5%. For the six-month period, operating margin was approximately 8.5%, versus 16.0%, and net margin was approximately 6.0%, versus 12.8%.
- Segments, Q2: Fishing sales fell 19% to $129.3 million and operating profit fell to $11.3 million from $40.4 million. Camping sales rose 35% to $19.2 million; Watercraft Recreation rose 29% to $23.0 million; Diving rose 28% to $18.2 million and returned to operating profit of $1.2 million from a $1.3 million loss.
- Cash flow: Six-month operating cash use was $104.6 million, compared with $12.0 million used a year earlier. Investing cash use was $15.7 million, including $15.7 million of capital expenditures; financing cash use was $6.5 million, principally dividends and treasury-stock purchases. Cash declined $127.3 million to $113.2 million.
- Liquidity and debt: Current assets were $479.2 million and current liabilities $119.1 million at quarter-end. The company had no debt outstanding. Its unsecured revolving facility provides up to $75 million, with a conditional $50 million accordion, and expires July 15, 2026.
- Working capital and other balance-sheet items: Inventory was $235.2 million, up from $124.5 million a year earlier; accounts receivable was $119.5 million, down from $130.1 million. Total operating lease liabilities were $48.3 million. Cash included approximately $52.9 million held in foreign taxing jurisdictions.
Changes, drivers and unusual items
Consolidated sales declined 8% in both the quarter and six-month period. Management attributed the largest reduction to Fishing, where component shortages and supply-chain and logistics disruption constrained shipments despite strong consumer demand. Higher materials and inbound freight costs, together with lower overhead absorption, reduced gross margins; product price increases did not offset these pressures. Inventory purchases, including some at higher prices, were intended to protect production and customer fulfillment, but sharply increased working-capital needs and cash use. Capital spending increased primarily to expand Fishing production capacity.
Other expense was $2.3 million in Q2 versus other income of $1.2 million in the prior-year quarter. The change primarily reflected investment losses on non-qualified deferred-compensation plan assets; corresponding lower compensation expense substantially offset the effect on operating expenses. For the six months, other expense was $1.5 million versus other income of $3.6 million, including lower plan-asset results and foreign-exchange losses. The effective tax rate was 25.1% for Q2 and 25.3% year to date.
Outlook, risks and contingencies
The filing gives no quantified revenue or earnings guidance. Management expected supply-chain and logistics disruptions to continue through fiscal 2022, potentially raising product costs and limiting the ability to meet demand. It described demand as strong but noted uncertainty from COVID-19 developments, inflation, discretionary spending, raw-material and component availability and pricing, freight, foreign exchange, and seasonal shifts. The company was evaluating additional ways to meet demand and monitoring alternative sources for critical components. Results for the interim periods may not indicate full-year results because of seasonality and ongoing disruption.
Management reported no material change to the risk factors in the fiscal 2021 Form 10-K. The company said pending litigation was not expected to have a material adverse effect and reported no material changes in contractual obligations outside the ordinary course of business. It also reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether component supply, freight constraints and elevated input costs ease, and whether the Fishing segment can recover sales and margins.
- Whether the elevated inventory converts into shipments and cash, and whether working-capital cash use moderates.
- Progress and expected returns from the Fishing facility expansion and related capital expenditures.
- Availability and covenant terms of the $75 million revolver, and the company’s liquidity through seasonal cash-flow swings.
- Effects of deferred-compensation plan asset volatility, foreign-exchange movements and any further changes in consumer demand or supply conditions.