Johnson Outdoors Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended April 2, 2021; comparisons are to the periods ended March 27, 2020. Amounts are in thousands, except per-share data. Johnson Outdoors makes branded products for fishing, camping, watercraft recreation and diving. Results are seasonal, and management cautions that interim results may not indicate full-year performance.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $206.2 million | $163.1 million | $371.8 million | $291.1 million |
| Gross profit | $93.3 million | $75.1 million | $168.3 million | $128.7 million |
| Gross margin | 45.2% | 46.1% | 45.3% | 44.2% |
| Operating profit | $36.0 million | $31.8 million | $59.6 million | $38.6 million |
| Net income | $27.8 million | $20.4 million | $47.7 million | $26.8 million |
| Diluted EPS | $2.74 | $2.02 | $4.70 | $2.66 |
Q2 revenue rose 26% and six-month revenue rose 28% year over year. Q2 gross margin declined 0.9 percentage point, while six-month margin improved 1.1 points. Management attributed the year-to-date margin gain to pricing and volume efficiencies, partly offset by tariffs. Q2 operating expenses rose to $57.2 million from $43.3 million; the company reported higher volume-related costs and deferred-compensation expense, offset by gains on related plan assets in other income. Six-month operating cash flow remained negative at $12.0 million, improving from negative $29.0 million. Capital expenditures were $9.8 million; cash dividends paid were $4.2 million.
Segments and material changes
- Fishing: Q2 sales increased 19% to $160.0 million; six-month sales increased 23% to $287.0 million. Higher outdoor participation and customer restocking drove growth.
- Camping: Q2 sales increased 61% to $14.2 million; six-month sales increased 62% to $26.4 million.
- Watercraft Recreation: Q2 sales increased 193% to $17.8 million; six-month sales increased 178% to $30.2 million. Comparisons were affected by COVID-related production shutdowns and weaker demand in the prior-year period.
- Diving: Q2 sales were approximately flat at $14.2 million; six-month sales decreased 8% to $28.3 million, reflecting travel and tourism disruption.
Liquidity, debt and outlook
Cash and cash equivalents were $186.9 million at April 2, 2021, versus $212.4 million at October 2, 2020 and $131.3 million a year earlier. Current assets were $450.8 million and current liabilities $123.5 million. The company had no debt outstanding. It maintained a $75 million unsecured revolver, with a lender-approved accordion feature of up to $50 million; the facility expires November 15, 2022 and is subject to financial covenants. Cash declined $25.5 million during the first half, as operating, investing and financing activities used cash.
Management said strong outdoor-recreation demand continued into the first half and expected demand to remain strong, while emphasizing that supply-chain execution and product availability would be important. The filing does not provide a consolidated revenue or earnings forecast. Management estimated a full-year FY2021 negative gross-profit impact of approximately $9 million from China-related Section 301 tariffs, net of mitigation, versus approximately $3.5 million in FY2020.
Risks, contingencies and unusual items
- COVID-19’s future effects are uncertain; elevated demand may strain supply, limit materials and components, delay deliveries, and increase purchasing and expedited-freight costs. Q2 included $1.4 million of additional tariff costs versus the prior-year quarter, as well as increased air freight costs.
- Management began actions to terminate both defined-benefit pension plans. Termination and related payouts, subject to conditions, are estimated to reduce net income by approximately $4–$5 million when recognized.
- Operating expenses included higher deferred-compensation expense, which management said was entirely offset by mark-to-market gains in other income. Six-month other income was $3.6 million, compared with expense of $2.7 million in the prior-year period.
- Foreign exchange, raw-material costs, customer payment ability, weather, discretionary spending, and market volatility are among disclosed risks. The company reported no material expected adverse effect from pending litigation.
- Operating lease liabilities totaled $44.4 million. A facility lease amendment is expected to add approximately $14 million of rental payments from fiscal 2022 through June 2039, not included in the reported lease commitment table.
Most important facts for investors to verify
- Whether unusually strong demand and customer restocking persist, and whether the company can fulfill orders amid supply constraints.
- Actual tariff, freight and input-cost impacts versus management’s approximately $9 million full-year tariff estimate, and the effect on margins.
- How much reported earnings growth depends on deferred-compensation mark-to-market gains and related expenses.
- Timing and final cost of pension-plan termination, including the estimated $4–$5 million net-income impact.
- Working-capital and cash-flow trends as receivables and inventory rise with seasonal sales; the filing reports negative operating cash flow for the first half.